I've recently found myself looking at a large number of insurers. Some I think could be opportunities, and others not so much. Here's my take on the sector, including some you may not be familiar with:
QBE Insurance Group Ltd (ASX: QBE) – I think that QBE could be undervalued given a couple of near term catalysts. It's already purchased its reinsurance program for next year, and insurance prices are likely to rise given recent catastrophes. Recent poor profitability could be behind the valuation and the company appears cheap relative to peers. It has been a chronic underperformer however, so may be a risky investment. By contrast, competitor Insurance Australia Group Ltd (ASX: IAG) looks fully priced and it lacks the international diversification of QBE.
CBL CORP FPO NZX (ASX: CBL) – CBL is my favourite insurer and I think at today's prices the company is particularly good value given its wide underwriting margins, strong premium growth, and potential to expand overseas. However, it remains exposed to the building cycle and lower building activity.
Genworth Mortgage Insurance Australia (ASX: GMA) – Genworth is a situation I find interesting, trading well below its net tangible assets per share. However, as I wrote this morning, I think the company is a risky prospect and could continue to struggle for the near
Medibank Private Ltd (ASX: MPL) – Despite several new measures recently unveiled by the government to breathe new life into the private health insurance sector, Medibank is experiencing stiff competitive pressure. Despite the company's turnaround efforts I struggle to see it being a huge winner. Other players in the sector like NIB Holdings Limited (ASX: NHF) look fully priced.
Freedom Insurance Group (ASX: FIG) – after getting smashed this morning on a negative news update, Freedom Insurance looks very cheap at around 5-6x EBITDA. I think life insurance is a terrible business to be in, but with a low price and locked-in trailing commissions, Freedom could be worth a closer look.
Before buying any insurer it is important to remember that insurers are paid to take the risks that other people do not want to run – like the risk of their home being destroyed. Thus it is crucial that the company is charging the right price for the risk, which can be hard to tell from the outside – until things blow up. Always consider the business model and your position size before making a purchase.
