Insurance providers use their expertise in risk assessment to help protect assets while offering consumers peace of mind through comprehensive coverage options. Furthermore, favorable market conditions have supported premium growth and investment income, a trend that has enabled the industry to return 13.2% over the past six months. At the same time, the S&P 500 was up 4.5%.

Although insurers have produced good results, only a handful will thrive over the long term as insurtech disruptors are rapidly taking market share from the incumbents. On that note, here are two insurance stocks we think can generate sustainable market-beating returns and one we would avoid.

One insurance stock to sell:

Old Republic International (ORI)

Market cap: $9.49 billion

Founded during the Roaring Twenties in 1923 and weathering nearly a century of economic cycles, Old Republic International (NYSE: ORI) is a diversified insurance holding company that provides property, liability, title, and mortgage guaranty insurance through its various subsidiaries.

Why Do We Think ORI Will Underperform?

1. Growth in insurance policies was lackluster over the last five years as its 2.3% annual growth underperformed the typical financial institution
2. Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
3. Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 1.9% annually over the last two years

Old Republic International is trading at $40.39 per share, or 1.6x forward P/B. To fully understand why you should be careful with ORI, check out our full research report (it’s free).

Two insurance stocks to watch:

Primerica (PRI)

Market cap: $8.89 billion

With a sales force of over 140,000 licensed representatives operating on an independent contractor model, Primerica (NYSE: PRI) provides term life insurance, investment products, and other financial services to middle-income households in the United States and Canada.

Why Is PRI on Our Radar?

1. Pre-tax profit margin improvement of 7 percentage points over the last five years demonstrates its ability to scale efficiently
2. Share repurchases have increased shareholder returns as its annual earnings per share growth of 17.8% exceeded its revenue gains over the last five years
3. Industry-leading 28.9% return on equity demonstrates management’s skill in finding high-return investments

At $288.80 per share, Primerica trades at 3.3x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.

Allstate (ALL)

Market cap: $66 billion

Born from a Sears, Roebuck & Co. initiative during the Great Depression with its famous "You're in good hands" slogan, Allstate (NYSE: ALL) is one of America's largest personal property and casualty insurers, offering protection for autos, homes, and personal property.

Why Do We Like ALL?

1. Pre-tax profits and efficiency rose over the last two years as it benefited from some fixed cost leverage
2. Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Annual book value per share growth of 30.7% over the past two years was outstanding, reflecting strong capital accumulation this cycle

Allstate’s stock price of $270 implies a valuation ratio of 2x forward P/B. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

Stocks we like even more

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