Insurance providers use their expertise in risk assessment to help protect assets while offering consumers peace of mind through comprehensive coverage options. But concerns about claims severity and tightening regulations have tempered enthusiasm, and over the past six months, the industry has pulled back by 2.3%. This drop was disappointing since the S&P 500 climbed 4.8%.

Investors should tread carefully as many of these insurers are also cyclical, and any misstep can have you catching a falling knife. On that note, here are three insurance stocks that may face trouble.

Kemper (KMPR)

Market Cap: $1.87 billion

Originally known as Unitrin until rebranding in 2011, Kemper (NYSE: KMPR) is an insurance holding company that provides automobile, homeowners, life, and other insurance products to individuals and businesses across the United States.

Why Do We Avoid KMPR?

1. Insurance policy sales contracted this cycle as net premiums earned decreased by 1.2% annually over the last five years
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 11.7% annually, worse than its revenue
3. Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 8.1% annually over the last five years

Kemper’s stock price of $31.78 implies a valuation ratio of 0.7x forward P/B. If you’re considering KMPR for your portfolio, see our FREE research report to learn more.

Radian Group (RDN)

Market Cap: $4.62 billion

Founded during the housing boom of 1977 and weathering multiple real estate cycles since, Radian Group (NYSE: RDN) provides mortgage insurance and real estate services, helping lenders manage risk and homebuyers achieve affordable homeownership.

Why Are We Wary of RDN?

1. Annual sales declines of 1.8% for the past five years show its products and services struggled to connect with the market during this cycle
2. 3.2% annual declines in net premiums earned for the past five years indicates policy sales struggled this cycle
3. Earnings per share lagged its peers over the last two years as they only grew by 3.9% annually

Radian Group is trading at $33.90 per share, or 0.9x forward P/B. Read our free research report to see why you should think twice about including RDN in your portfolio.

Enact Holdings (ACT)

Market Cap: $5.86 billion

Playing a critical role in helping first-time homebuyers access the housing market, Enact Holdings (NASDAQ: ACT) provides private mortgage insurance that enables lenders to offer home loans with lower down payments while protecting against borrower defaults.

Why Does ACT Give Us Pause?

1. Net premiums earned remained stagnant over the last five years, indicating expansion challenges this cycle
2. Estimated sales growth of 1.5% for the next 12 months implies demand will slow from its two-year trend
3. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.9% annually

At $41.47 per share, Enact Holdings trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than ACT.

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