3 insurance stocks with questionable fundamentals

Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. These institutions have benefited from improved pricing power and robust premium growth, so it’s no surprise the industry has posted a 10.3% gain over the past six months, beating the S&P 500 by 2.8 percentage points.

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. Keeping that in mind, here are three insurance stocks best left ignored.

Unum Group (UNM)

Market cap: $14.5 billion

Tracing its roots back to 1848 when financial security for workers was virtually non-existent, Unum Group (NYSE:UNM) provides workplace financial protection benefits including disability, life, accident, critical illness, dental and vision insurance primarily through employers.

Why Is UNM Risky?

1. Large revenue base constrains its growth potential, as seen in its unexciting 3.2% annualized increases in net premiums earned over the last five years fell below our expectations for the insurance sector

2. Inability to adjust its cost structure while its revenue declined over the last two years led to a 5.9 percentage point drop in the company’s pre-tax profit margin

3. Earnings per share lagged its peers over the last two years as they only grew by 1.9% annually

Unum Group’s stock price of $91.59 implies a valuation ratio of 1.3x forward P/B. Read our free research report to see why you should think twice about including UNM in your portfolio, it’s free.

Travelers (TRV)

Market cap: $81.62 billion

Tracing its roots back to 1853 when it insured travelers against accidents on steamboats and railroads, Travelers (NYSE:TRV) provides a wide range of commercial and personal property and casualty insurance products to businesses, government units, associations, and individuals.

Why Do We Think Twice About TRV?

1. Large revenue base constrains its growth potential, as seen in its unexciting 3.1% annualized increases in net premiums earned over the last two years fell below our expectations for the insurance sector

2. Estimated sales growth of 1.8% for the next 12 months implies demand will slow from its two-year trend

3. Sizable asset base leads to capital growth challenges as its 4.1% annual book value per share increases over the last five years fell short of other insurance companies

At $404.84 per share, Travelers trades at 2.7x forward P/B. To fully understand why you should be careful with TRV, check out our full research report (it’s free).