According to a report in The Australian Financial Review the former chairman of the ACCC Mr Allan Fels has suggested that "insurance companies in Australia are more profitable than banks."
Insurance companies can certainly be great generators of profits and can produce high returns on equity for investors, however they are not without their risks and many investors in ASX-listed general insurers certainly wouldn't feel like they have owned business that have been more profitable than the banks over the past decade!
That being said the outlook for insurance stocks from this point is arguably starting to look more appealing….
For example, the recently floated travel insurer Cover-More Group Ltd (ASX: CVO) has been given an 'outperform' rating by brokers at Macquarie Group. With the business expected to enjoy solid volume growth and with the stock trading on a forecast FY 2015 price-to-earnings ratio (PE) and dividend yield of 17.4x and 5.1% respectively (according to data from Morningstar) Cover-More could certainly be worth a closer look.
Meanwhile Australia's premier domestic insurer, Insurance Australia Group Limited (ASX: IAG) has just finalised the acquisition of Wesfarmers Ltd's (ASX: WES) insurance underwriting business which will add significantly to its annual gross written premiums. The stock is trading on a PE of 11.1 and with a yield of 6.1%, which certainly looks appealing.
A third potential opportunity for investors lies with global insurer, QBE Insurance Group Ltd (ASX: QBE). QBE is currently available on a forecast PE of just 8.3x and with a yield of 6%; this would appear to be the cheapest of the three stocks, but arguably the most risky as well.
