Is there money to be made among the destruction of the insurance industry? - Dylan Jovine

Writing About the Stock Market & Life Since 2003


Is there money to be made among the destruction of the insurance industry?

INSURANCE BROKERS HAVE BEEN THE worst-performing group in the
Standard and Poors 500 Index over the past 13 weeks, down 30%
versus a 9% gain for the index.

That’s even worse than the performance of the pharmaceutical
industry after the Vioxx news – It’s only off 3%!

So for all of us would be Tycoon’s who’ve made small fortunes
investing when nobody else wanted to, we’ve decided to
study the insurance industry to see what we could find.

But first – before we could great bargains, we needed to look at
the overall industry to see if the wreckage was complete.

Here’s What We Found Among Insurance Brokers:

1. The companies’ average forward price/earnings ratio of 16.2
is lower than the S&P 500’s median of 18.5.

2. The group’s average PEG ratio — its P/E ratio divided by its projected
long-term earnings-growth rate — is 1.0, lower than the S&P’s PEG of 1.6.

3. There are some very attractive dividend yields.

Not too bad, but nothing to write home about.

So we had to dig deeper.

We decided to look past the insurance brokers to the insurance

Why underwriters instead of brokers?

First of all, Insurance Underwriters haven’t fared too well during the
past 13 weeks either – their shares are down 8%.

But check this out:

Brokers will no longer be able to get fees for referring clients
to certain underwriters. This will hurt their bottom lines big time.

But underwriters? If you’re a strong underwriter with a great brand name
brokers are still going to send business to you because your clients
are looking for SAFETY!

Therefore, Underwriter’s with a strong capital base and
brand name Might Actually Save Money
Because They Don’t Have to Pay Extra Commissions for the Biz!!!

That leaves us looking at what we should be buying among the
insurance underwriters.

Hint: Large brand name + large capital base + cheap price = Good Bargain.

Want to know our number 1 stock of the group?

We break it down in our November Issue.

for more details.

Open minds mean larger wallets,

— Dylan

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