As the world changes, insurance companies become the prime movers in hedging their clients risks against the unforeseen. Humana Inc (NYSE:HUM), Allstate Corp (NYSE:ALL) and AIA Group Ltd. (OTCMKTS:AAGIY) all are doing very well by their clients — and investors.
One thing to bear in mind about insurance companies is that aside from paying out premiums, they collect huge amounts of cash and invest it in stocks and bonds. The goal is to generate more cash in the investment portfolio than you pay out in any given year.
That means markets where you can buy blue-chip stocks and grab big returns is a nice thing indeed. Also, a stable corporate bond market does insurance portfolios good as well.
Don’t forget that Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) is, for all intents and purposes, an insurance company.
The only things that can get in the way of the money machine is if:
- the insurer has to pay out more than it recover in the markets, which will increase the portfolio risk, likely lowering return on equity;
- or the insurer gets greedy and takes on far more investment risk than it should trying to maximize its portfolio gains
The trio of the best insurance stocks we feature here don’t have either issue to contend with at this point. These insurance stocks in dynamic sectors and are well-positioned to dominate in their respective sectors.
Let’s take a look at the best insurance stocks:
Humana Inc (NYSE:HUM)
It’s an understatement to say that America’s healthcare is undergoing transition. And that’s made for increased opportunities and risks for health insurers.
But one thing ‘Obamacare’ (and health insurers’ lobbyists) has made sure of, is that insurers won’t be thrown under the bus as the federal government sets up its new system of mandates.
And given that downside protection, Humana Inc (NYSE:HUM) remains an A-rated insurance stock to buy. Over 80% of its premiums come from Medicare Advantage (MA) plans.
Medicare Advantage basically consists of private plans that combine both the hospital and medical Medicare plans into one plan. MA plans also provide prescription plans as well.
This means healthcare reform is very much in HUM’s interest, since its base is inextricably linked to Medicare. As long as Obamacare stays on track, HUM should see it business (with the graying of the baby boomers) and assets grow.
Allstate Corp (NYSE:ALL)
Allstate Corp (NYSE:ALL) is a property and casualty (P&C) insurer. Allstate basically insures property and life (life, auto, home in essence) from loss due to theft, weather or life’s other realities.
Current market conditions are ideal for a good, solid P&C insurer. Rising rates mean its bond holdings will grow in value. A solid stock market means it doesn’t have to reach too far out on the risk branch to get the kind of growth and yields that will keep the coffers expanding.
Also, since it doesn’t have to pay until a loss actually occurs, as long as there are no massively destructive hurricanes or tornadoes or earthquakes, Allstate is well positioned to see its return on equity grow.
ALL stock is a bargain right now, and Allstate even kicks off a small 1.7% dividend. You’re in good hands with Allstate.
AIA Group Ltd. (OTCMKTS:AAGIY)
A recent addition to my portfolio, AIA Group Ltd. (OTCMKTS:AAGIY) is a P&C and health insurer with a financial arm that is growing by leaps and bounds in the most dynamic insurance markets on the planet right now, Asia.
AIA Group is based in Hong Kong and operates in 17 markets, including Hong Kong, Thailand, Malaysia, China, Australia, Taiwan and Vietnam. AIA Group offers life insurance, accident and health insurance, as well as investment, savings and retirement plans.
Currently, AIA Group is benefiting from falling bond yields (that is, rising prices) around the globe. In 2014, AAGIY’s new business grew 24% to $1.845 billion, while its operating profit increased 16% to $2.9 billion. Net income jumped 22%.
Those are pretty impressive numbers for an insurer. Given its diversified business model there are equal amounts of risk and reward here, but the fact that the middle class is growing in Asia faster than anywhere else in the world, all its business promise one-stop shopping for increasingly affluent consumers.
Please note, AAGIY is a thinly traded stock and should only be bought via a limit order within 25 cents of the previous day’s close.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
