Buying Insurance Stocks On Near Term Weakness

Earlier this year I wrote a post titled, “Insuring Your Portfolio With Insurance Stocks,” as I discussed the relatively boring nature of the industry, specifically the property and casualty insurance space. I mentioned how this boring sector is tempered by its stability and predictability in terms of measured growth and it being a potential reliable source of growing dividends for decades on end. Why am I bringing this post up today? Well, it seems with all the hurricane activity we are witnessing in the Gulf of Mexico and Caribbean many stocks in the insurance space have been extra volatile falling quite dramatically in recent days. I just want to know if any of you are taking advantage of some much better buying opportunities in the space. With headlines like “Hurricane Irma already slams Cincinnati Financial,” “Deadly Irma Nears Florida As Insurers Face `Nightmare’ Scenario” and “Insurers brace for a 1-in-100 year storm as Irma bears down on Florida,” you know some high quality stocks will be dragged down in the near term.

 

Names like The Travelers Companies, Inc. (TRV) with a 2.40% yield, AXIS Capital Holdings Limited (AXS) with a 2.76% yield, The Progressive Corporation (PGR) with a 1.50% yield, Everest Re Group, Ltd. (RE) with a 2.25% yield, Cincinnati Financial Corporation (CINF) with a 2.64% yield and Old Republic International Corporation (ORI) with a large 4.00% yield have all dropped in recent weeks, though rebounding nicely on September 8th, as insurance claims are expected to climb into the billions as a result of Hurricane Harvey which rolled through last week and Irma which is expected to make landfall this weekend. Many of these insurance stocks are sporting attractive PEs and higher yields as a result of the sell off occurring in the sector.

 

What do you think about the P&C industry? Do you own any insurance stocks in your own portfolio? Have you noticed better buying opportunities in this space? Please let me know below.

 

Disclosure: Long NONE

32 thoughts on “Buying Insurance Stocks On Near Term Weakness

    • Hi thebrokedividendinvestor,

      It seems that ORI has been on my watch list forever as I yet have to pull the trigger on that name. While its dividend growth rate is slow, ORI does provide a very reliable and generous yield. I think we might need a very serious event to take that yield to 5%. Thank you for sharing your thoughts.

    • Hi Jay,

      I think it can be a great opportunity to buy in this sector especially since many stocks are already perceived to be overvalued. These insurance names give us a choice from the likes of GE, HRL, SJM, etc. that we have been focusing on as of late. As always, I appreciate your comment.

    • Hi DD,

      AFL is one of my top performers. I remember how it fell big time after the tsunami in Japan a few years back as AFL claims skyrocketed. In time everything passes and I am sure that many of these insurers will survive this unfortunate occurrence. Thank you for stopping by and commenting.

    • Hi DP,

      Insurance stocks belong in most long term dividend growth portfolios. You can make the argument that Warren Buffett became who he is today largely because of owning stakes in insurance companies. For now, I just hold AFL and CB but am open to adding TRV and ORI especially on this near term weakness. As always, I appreciate your comment.

    • Hi CD,

      ORI and TRV are the two names that have caught my eye as well. Both have been trading at relatively high prices for a while and these hurricane events have certainly brought them back down to Earth a bit. Thanks for sharing your intentions with these stocks.

  1. I own a couple P&C stocks you did not mention, XL Group (XL) and American International Group (AIG), that have moved similarly over the past several days to the names you discussed.

    I am thinking about investing in Chubb Ltd. (CB) next week, but after moving higher on Friday the dividend yield on CB is now just barely 2%. That said, Chubb is a very high quality name, and if the market sells off again next week when we learn more about the magnitude of the damage from Irma, I will probably purchase it. As a general rule, if I’m comfortable with the fundamentals of a company, I like to buy at a discount when others are selling. Unfortunately I was too busy this week to add exposure to any of the names you mentioned!
    Retiring On My Terms recently posted…The Financial Advantages of Blogging About Personal FinanceMy Profile

    • Hi ROMT,

      It seems the whole sector has been taken to the woodshed over the last couple of weeks with a surprise rebound on Friday. Overall, the sector is still facing some near term headwinds and many stocks mentioned are still trading at much better levels not seen in a long time. CB is a solid player. I have held that stock for almost a decade and after the ACE buyout still held on. I’m still watching two names in the space for a potential add to my portfolio, TRV and ORI. We’ll see how things play out this week in the market. Thank you for commenting.

    • Hi Blogsandmarkets,

      CINF definitely has history on its side as a long term dividend payer and raiser. Not sure why we don’t see it in more long term DGI portfolios. Thank you for stopping by and commenting.

    • Hi ag,

      Thanks for mentioning UVE. That stock definitely got hit hard and appears to be very much undervalued these days. Looks to be a pretty small cap stock though but does sport an attractive yield that still appears to be safe. I’ll be watching this name too in the coming days. Appreciate your comment.

  2. I have owned ORI for many years and have YOC of nearly 5%. It’s my only insurance stock and like it despite slow dividend growth. CINF, TRV, and AFL are other three insurance stocks that I would like to buy sometime but I need them to get cheaper.

    I think with the hurricane season just getting started, we will have more opportunities to buy them cheap. Though, I do worry that natural disasters seem to be getting worse every year. Some people don’t believe in climate change, but I think there is hard evidence out there and it is starting to show.

    So, I’m a bit worried about how these insurance companies are going to deal with ever increasing frequency and intensity of these natural disasters and how much it’s going to impact their bottom-line in the coming years.

    Maybe we should start buying stocks in companies that build underground shelters or manufacture emergency equipment and supplies or even better buy a stock in a company that will settle humans on Mars 🙂 I don’t know if SpaceX has a stock or not but would be a good one to invest in.
    Mr. ATM recently posted…How I am Protecting My Credit ReportMy Profile

    • Hi MATM,

      There are quite a few solid insurance players to choose from for a long term DGI portfolio. ORI has been on my watch list for the longest time and this pullback might be my opportunity to initiate a position. I’m always happy to hear about an ORI holder of many years. It just reinforces my belief that it’s a quality company meant to be held for a long time. I wouldn’t worry too much about insurance companies being able to handle a potential for increased claims as they have plenty of mathematicians and stats employees that know how to adjust premium rates and deductibles. It’s a very scientific industry in that respect. Thank you for stopping by and commenting.

    • Hi FV,

      No doubt the P&C space is a very lucrative business and can generate very meaningful returns over the long haul. With your activity in options trading I am sure you are seeing some interesting opportunities in the space with all the recent volatility. As always, I appreciate your comment.

  3. I actually sold my TRV on the 28th @ $123.14 and bought STRL @ $10.65 instead.

    Now TRV is at $119.69 and STRL is at $13.75 (a 29% gain in two weeks!). STRL is not a dividend stock though, but gains are important.

    I would stay away from Insurance companies in the affected areas until the full extent of the cost is known. They haven’t dipped far enough from before the storms to be exciting.

    My two cents.
    MrDoublingDollars recently posted…Dividend Income Extravaganza – August 2017My Profile

    • Hi MDD,

      Looks like you got the timing down perfect on those trades. Never heard of STRL before. I don’t really invest in small cap stocks since I went the DGI route. With some of the hurricane news behind us it seems that losses won’t be as bad as originally thought and all the insurance stocks bounced back in earnest. Still, hurricane season is not over and I’m sure we’ll be reading about more of these natural events. Thank you for stopping by and commenting.

  4. Only one I own now is UVE. When I wrote my dividend income post, I mentioned that it would probably get hit hard (it did) but then I could see it rebounding if the storm is not as bad as feared. Well, now that the storm has passed, it was definitely not as bad as feared. I think more damage pictures will be revealed in the coming days but there are two things one must remember. 1. The news stations want to make everything appear much worse than it is for viewership. and 2. when a hurricane hits the Caribbean it looks much worse than it will when it hits the US. The structures down there are not built to the same standards we have. Easier to spread the fear that everything will be destroyed. Like many are posting now, this could be a short term dip but long term winner if more people re-up on their insurance policies.

    ADD
    American Dividend Dream recently posted…Dividend Income August 2017My Profile

    • Hi ADD,

      UVE looks like a very interesting play and has bounced back really strong from its recent lows. The stock may get hit again as we’re still in the middle of hurricane season and should any storm threaten the U.S. in the future I’m sure we’ll see many buying opportunities in the insurance sector again. No doubt the media did its fair share of spreading fear and ‘what if’ scenarios instead of just reporting what actually happened. Leave it up the to media to create hysteria and, of course, better buying opportunities for certain stocks. Thank you for sharing your thoughts.

    • Hi FerdiS,

      All solid insurance plays that belong in any long term DGI portfolio. I still have my eye on TRV but will wait to initiate a position in that stock. Looks like they are all performing well for you. Thank you for commenting.

    • Hi CD,

      Like you, I’ll wait to initiate a position in TRV. I remember when it was around $105 not that long ago but I failed to pull the trigger back then. Oh well. Can’t buy everything, right? I guess the only two insurance companies I have on my watch list going forward are TRV and ORI. One day, I’d like to add both names to my portfolio. As always, I appreciate your comment.

  5. I own TRV and a few others. TRV has a sizable commercial exposure to Harvey – and I suspect Irma – which can explain their announcement yesterday of suspension of their repurchase program. I suspect when earnings are announced an opportunity may present itself.

    • Hi Charlie,

      I found the whole Harvey and Irma situation very interesting regarding their extremely correlated impacts between destruction and so many varied insurance stocks. Those two hurricanes really seemed to impact the entire insurance sector and not just those focused on property and casualty coverage. TRV is still on my long term watch list. Thank you for sharing your thoughts.

  6. I remember that last post. Those are good names on the list. The only one I currently own is CINF. For a while the price was down but I never got around to lowering my cost basis on it. The price has raised a decent amount in the past few months. Not really looking at that sector right now, but wouldn’t mind having more allocated to it.
    Dividend Daze recently posted…Dividend Update – August 2017My Profile

    • Hi DD,

      There’s little argument that the insurance sector can be a great long term investment. In fact, one could make the case that Warren Buffett became who he is today largely because of his exposure and ownership in the insurance sector. It seems that the best time to buy these names was at the height of the hurricane threats a few weeks ago as all the insurance names dropped quite a bit. Today, they seem less attractive as they all bounced back quite strongly. Still, I plan to keep an eye on ORI, TRV and maybe CINF and would buy them, just not at current levels. Thank you for commenting.

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