Insurance stocks are issued by insurance companies. The insurance industry uses a risk reduction strategy that involves paying a periodic premium in return for a guarantee of financial help in the event of loss.
Top Insurance Companies in the World
We’re all familiar with health insurance, and property and casualty insurance, such as car insurance and homeowner's insurance. The companies that issue these policies are also traded on Wall Street, allowing you to invest in the securities that meet your investment objectives. Insurance companies tend to be some of the most overlooked stocks to buy on the greater stock market, since investors with a higher risk tolerance often tend to focus on the more exciting industries.
Insurance is a great business. To understand just how great it is, let’s compare it to some other business models in the realm of finance. For instance, banks take cash deposits, which they then loan with interest to businesses and homeowners. However, the principal will have to be returned to their customers if they choose to make a withdrawal. Sometimes, mass withdrawals can cause banks to financially suffer, and some have even collapsed.
There are also mutual funds, which charge a management fee, and hedge funds which charge a percentage of the profits. And then there’s insurance. Customers of an insurance company don’t want their money back. If customers are getting money, it means something bad has happened. Fortunately for them (and fortunately for the insurance companies), the odds of that happening are very low. Even so, many people and businesses will choose to get insurance, just to prevent a personal financial crisis in the event of a loss. The price of paying for insurance is proportionally much lower than the price they’ll pay in the event of loss.
This loss could be as simple as a car that needs repairs, or as catastrophic as a massive hurricane. Since the losses statistically don’t occur often, insurance companies are left with pure profit. Of course, they do have to pay their employees and operating costs—but overall, these companies have excellent, stable cash flow—which they can then invest themselves.
Life insurers are hoping they can beat the odds and avoid having to pay out life insurance proceeds. However, insurance companies can lose money when they do have to pay out, such as companies that sell life insurance. In the event of a premature death, a life insurance company will likely have to pay out.
An insurance company may attempt to hedge its own losses (that is, having to return the premium) by selling annuities—a type of forward-thinking investment product that creates a fixed income stream for retirees. However, this requires up-front payments in a lump sum or over time, which cannot be touched.
Annuities are split into two types: fixed annuities and variable annuities, the variability of which depends on how well the market is doing. Of course, a life insurance company is hoping that the policyholder dies before the annuities have to be paid out, in part or completely. This delicate balance of numbers is why the insurance business is driven by actuarial science—analyzing the probability of loss and negative events. As you probably guessed, insurance companies want to avoid risk as well, so they get reinsurance: insurance for insurance companies.
Top Insurance Companies in the World
From protecting your health and wellness to protecting a tangible asset, these are the companies that issue excellent insurance stocks to buy.
MetLife NYSE: MET
MetLife NYSE: MET is the parent company of Metropolitan Life Insurance Company. It is headquartered in one of the most iconic skyscrapers in Manhattan, the former Pan Am Building. MetLife is the world’s largest provider of insurance, annuities, and employee benefits like health plans. In fact, MetLife is a benefits provider for 90 of the Fortune 500 world’s largest companies. In 2016, MetLife spun off its retail product department (individual life insurance) as a separate company called Brighthouse Financial. If you work for a large corporation, there is a decent chance that your health insurance is provided by MetLife.
Allstate NYSE: ALL
Allstate NYSE: ALL was once part of Sears, Roebuck, and Company, but was spun off as a separate entity in 1993. Allstate has approximately 16 million households in its proverbial “good hands” (its logo and motto), and is 79th on the Fortune 500 list for US companies in terms of revenue—earning almost $40 billion in 2018. Allstate is actually the largest publicly traded property and casualty insurance (P&C) company in the country, offering car, homeowners, renters, recreational vehicle (think boats, cycles, and RVs), small business, and personal liability insurance. Allstate also offers estate planning and life insurance.
State Farm MUTF: STFGX
State Farm MUTF: STFGX is a mutual fund that issues insurance policies to its shareholders. To that end, State Farm is actually not a publicly-traded company—if you want to buy a share, you’ll have to get insured. However, State Farm is the largest property and casualty insurance company in the United States (Allstate, the second-largest, is also the largest publicly traded property and casualty company). Like a good neighbor, State Farm has been there since 1922, when it started as an auto insurance company owned by its policyholders (you can thank Barry Manilow for their jingle), and today it is also the largest auto insurance company in the United States. State Farm’s business model is exclusive: Only State Farm agents can sell their policies and products.
Aflac NYSE: AFL
Aflac NYSE: AFL is a supplemental insurance company that helps policyholders pay for illnesses and accidents not fully covered by their primary health insurance or insurance policy. This can include hospitalization, accidents, dental expenses, intensive care, cancer treatments, and even life insurance. Aflac also provides Flexible Spending Accounts (FSAs), which are a type of non-taxable account that can be used for medical expenses and ancillary costs, such as dependent care and transportation.
The Aflac Duck is one of the most recognized characters in advertising, appearing with celebrities like Yogi Berra, Wayne Newton, and Melania Trump. When Aflac acquired Continental American Insurance Company in 2012 for $100 million, the company was able to sell supplemental insurance products to both individuals and businesses.
Progressive NYSE: PGR
Progressive NYSE: PGR is one of the largest auto insurers in the United States. The company also offers motor vehicle insurance in Australia and select overseas locations. Progressive also insures recreational vehicles, and offer homeowners insurance through third parties.
Progressive was founded in 1937, carving out a niche for itself by selling insurance to riskier drivers that couldn’t get a policy. Progressive (as suggested by its name) has tried to be an innovative industry leader, creating the first insurance website and the first mobile app. The company was also the first to establish 24/7 claims reporting. Progressive currently has 13 million policyholders, with an expansion strategy focused on making itself a one-stop shop for consumers, and thereby a more convenient alternative than its competitors.
AXA EURONEXT: CS
AXA EURONEXT: CS is a French insurance firm that is actually based in New York. It is technically a conglomerate of many independent insurance businesses operating under different rules and regulations in Western Europe, North America, Asia, the Middle East, and parts of Africa.
Founded in 1816, AXA steadily expanded through a series of international acquisitions—one of which was the 2006 acquisition of the Winterthur Group from Swiss Bank Credit Suisse for 9 billion Euros. According to some pundits, AXA is the second most important international company in the world in terms of facilitating global financial stability and market control (Barclays is number one, and State Street Corporation is number three). AXA has also been noted for discontinuing its investments in tobacco products and its philanthropy toward research projects that it feels can better humanity and the environment.
Berkshire Hathaway NYSE: BRK
Berkshire Hathaway NYSE: BRK is an international conglomerate that wholly owns diverse businesses, such as GEICO (insurance), Duracell (batteries), Dairy Queen (fast food), BNSF Railroad, and Fruit of the Loom (apparel). Additionally, the company owns sizeable shares of Kraft-Heinz, Wells Fargo, American Express, Bank of America, Coca-Cola, and Apple.
Berkshire Hathaway is headed by Warren Buffet, one of the greatest investors of all time. The insurance business is actually what Warren Buffet used to build up Berkshire Hathaway, which was once a failing textile company before he became the majority owner.
Today, Berkshire Hathaway sells insurance through 70 different insurance companies around the world, all of which have the highest ratings from Standard & Poor’s Corporation. The company maintains high capital strength in comparison to its competitors—at least $48 billion as of 2004. This sizeable capital strength, coupled with its management and diverse holdings, make Berkshire Hathaway an attractive investment choice.
Insurance stocks are not going to be the most active stocks. Like financial services and utilities, they tend to be stable and highly regulated. However, it can still be hard to gauge which ones will perform better than others, and which ones will pay the best dividends. Retail investors might consider putting their investable assets into an insurance mutual fund or insurance ETF managed by competent financial advisors. This way, they can avoid having to analyze risk and market cap and the overall market, leaving it all to a competent money manager.
The SPDR S&P Insurance ETF (KIE) is an evenly balanced portfolio of 49 companies, none of which goes beyond 3% of the weight, so it represents a good value investing choice with a low price to earnings ratio of 12. The iShares U.S. Insurance ETF (IAK) is more weighted, proportioned according to market capitalization—although there are 62 different companies listed, the top ten holdings are equivalent to at least half of the portfolio. If you’re looking to capitalize on the healthcare industry (a $3.4 trillion industry, according to some counts), but not sure where to start, look no further than the iShares U.S. Healthcare Providers ETF.
Should I Invest in Insurance Stocks?
Insurance is good business, and the insurance market tends to have some great dividend yield. Earnings are invested and often passed on to shareholders, which is great for investors with a dividend investing strategy. In some ways, insurance companies are like recreational gaming or casino corporations. They’re a much better investment because the house always wins, without getting rocked by the ups and downs of cyclical tourism and all the other instability that goes along with running a casino enterprise. Insurance companies won’t always be the biggest stock gainers, but they won’t be the biggest stock losers either.
Insurance companies—especially Allstate and State Farm—have been criticized for denying the claims of its policyholders. They’ve also faced legislative scrutiny after reducing their risk exposure in select areas like hurricane-battered Florida, by not renewing policies. Even so, insurance is a business we just can’t do without...and companies reap the rewards accordingly.
If you really want to know the best player in the insurance industry, the combined ratio of an insurance company is a good indicator of its health. The combined ratio is found by taking claims payouts and business expenses, then dividing that number by the earnings from premiums. The resultant number will help you look past any catastrophic, newsworthy losses and let you know how the insurer is really doing.
These insurance companies have competent management at the helm. Many of them are integrated into the climate of economic stability, of which governments are willing participants. They offer a product that has a captive audience: everyone who needs insurance. Those looking for the best growth stocks in the short term may not appreciate what insurance stocks have to offer, but investors with a long-term vision will surely want to add the insurance business to their portfolio.
Before you make your next trade, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.
Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.
They believe these five stocks are the five best companies for investors to buy now...
See The Five Stocks Here
Just getting into the stock market? These 10 simple stocks can help beginning investors build long-term wealth without knowing options, technicals, or other advanced strategies.Get This Free Report