(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Fidelity.)
Insurance companies may soon look back and laugh at the relative insignificance of $5.5 billion in damages from Hurricane Irene. That’s because insurance companies are largely believers in global warming and have been anticipating some very tough and very expensive times ahead.
The industry is still licking its wounds from the $70 billion in reported losses from the Japan and ChristChurch Earthquakes and after FEMA blew through fundings from the summer’s string of natural disasters.
Irene’s narrow miss of Manhattan may have left the insurers with a huge sigh of relief but it also left a sense of dread that this may only be the beginning. After all, studies find the number and intensity of storms has been rapidly increasing.
Fast Company reports, “like the Japanese quake–which raised the specter of the “Big One” under Tokyo–Irene came close to being the Big One of hurricanes with a direct hit on Lower Manhattan. The prospect of billions upon billions of dollars in physical and economic damages from a single storm is enough to make one wonder whether we should stop building on the coasts altogether.”
Indeed, the high populations in costal areas coupled with growth in infrastructure and wealth makes the prospect of a storm costing insurers up to the trillions more statistically likely. As John Seo wrote in the most recent issue of Foreign Policy: “Imagine a world in which economic damage equivalent to that caused by a major war or the detonation of a midsized nuclear weapon in a major city could materialise with a warning of only a few days.”
When viewed from the perspective of insurance and reinsurance companies, there’s little option but to raise rates on insurers in an attempt to prepare for the losses. Of course, one such tactic has been to place higher costs on higher-risk areas to dissuade taking out a policy in the first place. “If that’s the case, just how long until large chunks of America’s coastline become virtually uninsurable, starting with Lower Manhattan?” says Greg Lindsay of Fast Company.
Insurers are increasingly aware of the likelihood that a single storm can bankrupt the industry. So, how can you spot insurance companies that might be in trouble?
One way is to look at insurance companies that are already profitable and identify which ones are expected to see a reversal of fortune.
For this list, we started with a universe of about 110 major insurance companies. We collected profitability data, and identified the 18 most profitable insurance companies (by comparing profit margins to competitors).
To further refine the quality of the list, we collected data on institutional sales, and identified a list of profitable insurance companies that have been dumped by big money managers over the last quarter.
Sophisticated investors seem to think these insurance profits are unsustainable–do you agree?
Use this list as a starting point for your own analysis.
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1. Torchmark Corp. (TMK): Provides individual life and supplemental health insurance products, and annuities to middle income households. Net institutional sales in the current quarter at -9.7M shares, which represents about 9.38% of the company’s float of 103.43M shares. TTM gross margin at 25.99% vs. industry average at 16.8%. TTM operating margin at 25.99% vs. industry average at 13.52%. TTM pretax margin at 23.53% vs. industry average at 12.09%.
2. FPIC Insurance Group Inc. (FPIC): Operates as an insurance carrier in the medical professional liability insurance sector of the property and casualty insurance industry in Florida. Net institutional sales in the current quarter at -659.1K shares, which represents about 8.52% of the company’s float of 7.74M shares. TTM gross margin at 25.21% vs. industry average at 16.8%. TTM operating margin at 25.21% vs. industry average at 13.52%. TTM pretax margin at 22.06% vs. industry average at 12.09%.
3. Global Indemnity plc (GBLI): Provides admitted and non admitted specialty property and casualty insurance products worldwide. Net institutional sales in the current quarter at -589.9K shares, which represents about 5.09% of the company’s float of 11.58M shares. TTM gross margin at 20.86% vs. industry average at 16.8%. TTM operating margin at 19.76% vs. industry average at 13.52%. TTM pretax margin at 18.% vs. industry average at 12.09%.
4. HCC Insurance Holdings Inc. (HCC): Provides property and casualty, surety, group life, accident, and health insurance coverage, as well as related agency and reinsurance brokerage services to commercial customers and individuals worldwide. Net institutional sales in the current quarter at -4.3M shares, which represents about 3.9% of the company’s float of 110.21M shares. TTM gross margin at 20.27% vs. industry average at 16.8%. TTM operating margin at 19.49% vs. industry average at 13.52%. TTM pretax margin at 18.55% vs. industry average at 12.09%.
Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.