Expectations run high for insurance stocks

Australia’s biggest insurers are being pushed higher by investors’ expectations for great results in what has been a relatively benign year for natural weather events that has allowed profits to grow.

Suncorp (ASX: SUN), Insurance Australia Group (ASX: IAG) and QBE Insurance (ASX: QBE) have each made substantial gains in the past year and they are now setting themselves for long-term growth. In the first half to 31 December 2012, IAG was the best performer. Recording NPAT of $461 million, up from $144 million in the previous corresponding period. Suncorp reported a 47% gain, whilst QBE reported a solid US $761 million or 8% increase.

Since the start of the new financial year, all three companies have increased by 6% or more with relatively no news. This says that they either were undervalued or investors are expecting something brighter in the future. No doubt QBE’s shareholders and investors will be cheering on the lower Australian dollar as over 77% of the company’s revenue is drawn outside the country.

All three companies have had a year of relatively benign weather conditions which has allowed them to strengthen their balance sheets and focus on returning to shareholders. QBE is restructuring its workforce and is focused on delivering long-term growth through a sound solvency position and low-risk profile.

Suncorp shareholders are hoping the company’s first half 47% increase in profit can be echoed throughout the coming years whilst IAG expects growth rates of 9.5% to 11.5% over coming years, reflecting the insurer’s growth in Australia, New Zealand and Asia.

Foolish takeaway

There are plenty of insurance plays an investor can take advantage of. All three companies offer something different and have the potential for long term growth. However, on current prices IAG could be seen as great value but QBE’s measurement in US dollars will no doubt leverage well for shareholders in the near term.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

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