Big Banks Still a Force in Insurance Industry

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NEW YORK (TheStreet) - Among a published ranking of companies with the strongest operating insurance subsidiaries, several bank holding companies stand out.

SNL Financial's statutory insurance performance rankings for public companies includes Bank of America and Wells Fargo among the top 10, along with Triton Insurance, which is a subsidiary of Citigroup.

The list is based on the consolidated first-quarter 2010 statutory filings from which SNL ranked financial performance of insurance units using weighted performance metrics, with the greatest emphasis on earnings and underwriting profitability.

SNL stressed that only companies making statutory filings with the National Association of Insurance Commissioners (NAIC) were included. In order to keep the numbers from being distorted by the credit crisis, financial guaranty insurance companies were excluded. Since New Jersey companies aren't required by state regulators to file quarterly statutory statements, these companies were also excluded.

Companies with insurance subsidiaries providing force-placed property insurance were at the top of the list. These included Assurant Inc. and Bank of America. Forced-placed insurance policies are those that lenders or loan servicers arrange when they are unable to obtain proof of insurance for collateral properties.

Although most residential first-mortgage loans are escrowed for insurance, with the lender or servicer collecting money each month to put toward annual insurance premiums, this practice is less common for commercial real estate loans. Loan servicers also track insurance coverage for second mortgages and home equity lines, and will often place insurance coverage -- charging borrowers for the privilege -- if annual proof of adequate insurance coverage for the entire property value isn't received.

The commercial property insurance businesses of American Financial Group and Wells Fargo placed these companies among the top 10.

The following are SNL Financial's top ten public entities, based on the combined first-quarter performance of their insurance subsidiaries. The subsidiary data SNL used came from the individual insurance companies' statutory financial statements filed with the NAIC:

10. HCC Insurance Holdings

Company Profile

Shares of HCC Insurance Holdings of Houston, Texas closed at $26.45 Wednesday, down 4% year-to-date.

Income Statement

The company reported second-quarter net income of $83.4 million or 72 cents a share, up from $71.4 million or 62 cents a share in the first quarter, but down from $91.6 million or 81 cents a share in the second quarter of 2009, reflecting declines in fee and commission income.

SNL said the HCC's return on average equity (ROE) based on subsidiaries' combined statutory filings for the first quarter was 16.86%, and the return on average assets (ROA) was 6.55%. Both of these figures are based on returns before policyholder dividends and income taxes.

Balance Sheet

Although SNL placed the most emphasis on earnings and underwriting profitability, 15% of the ranking weight was for capital and surplus growth. HCC's cash and invested assets -- based on its subsidiaries' combined statutory filings -- grew at an annualized rate of 13.5% during the first quarter, and the combined capital and surplus, essentially net worth, increased at a rate of 16%.

Stock Ratios

HCC's shares were trading for 1.3 times tangible book value and the price-to-earnings ratio based on second-quarter numbers was 9.2, according to SNL Financial. While it isn't unusual for even strong insurers to see their stocks trading at close to book value, HCC was trading at 1.7 times tangible book at the end of 2008 and roughly two times tangible book at the end of 2007.

Analyst Ratings

Out of 10 analysts covering the company, eight rate HCC Insurance Holdings a buy, while two recommend holding the shares. The mean 12-month price target among analysts polled by Thomson Reuters is $32.57, which represent 23% appreciation from Wednesday's close.

9. RLI Corp.

Company Profile

RLI Corp. of Peoria. Ill. has seen its shares rise roughly 6% in the past year, closing at $55.81 Wednesday.

Income Statement

RLI reported second-quarter net income of $35 million or $1.65 a share, increasing from $24.2 million or $1.13 a share the previous quarter and $34.1 million or $1.57 a share in the second quarter of 2009.

Based on combined statutory filings for RLI's insurance subsidiaries, the first-quarter ROE before policyholder dividends and income taxes was 18.23% and the ROA was 7.33%.

Balance Sheet

According to SNL Financial, RLI's combined subsidiaries saw cash and invested assets increase at an annualized 5.3% during the first quarter, while capital and surplus grew at a rate of 7.3%.

Stock Ratios

RLI's shares were trading for 1.4 times tangible book value at Wednesday's close, and its P/E ratio was 8.5. The price-to-book ratio was 1.9 at the end of 2008 and 1.7 at the end of 2007.

Analyst Ratings

All 10 analysts covering RLI Corp. have hold ratings on the shares. The mean 12-month price target among analysts polled by Thomson Reuters is $59.33.

8. Alleghany Corp.

Company Profile

Shares of Alleghany Corp. of New York closed at $303.25 on Wedesday, up 12% year-to-date.

Income Statement

The company reported second-quarter earnings of $66.3 million or $7.39 a share, increasing from $58.2 million or $6.38 a share the previous quarter and $46 million or $4.90 per share in the same period a year earlier.

According to SNL, the first-quarter ROE before policyholder dividends and income taxes for Alleghany's combined insurance subsidiaries was 19.53% and the ROA was 7.59%, based on statutory filings..

Balance Sheet

Alleghany's capital and surplus grew at an annualized 9.9% during the first quarter, according to SNL.

Stock Ratios

The shares were trading just above tangible book value according to SNL. While the shares haven't traded significantly above book value for most of the past two years, they finished 2007 at 1.4 times tangible book.

Analyst Ratings

The only analyst covering Alleghany Corp. has a hold rating on the shares.

7. Berkshire Hathaway

Company Profile

The class B shares of Warren Buffett's Berkshire Hathaway closed at $83.48, up 27% year-to-date. The stock underwent a 1-to-50 split n January.

Income Statement

Second-quarter net income was $2.1 billion or 80 cents per class-B share, down from $3.8 billion or $1.51 per class-B share during the first quarter and $3.4 billion or $1.42 per class-B share a year earlier.

The latest results included losses on derivatives totaling $1.1 billion. For the first quarter, the company reported gains totaling $979 million related to its completed acquisition of railway operator Burlington Northern Santa Fe Corp.

The first-quarter ROE before policyholder dividends and income taxes for Berkshire's combined insurance subsidiaries was 17.49% and the ROA was 8.95%, according to SNL, based on statutory filings..

Balance Sheet

According to SNL, cash and invested assets for Berkshire's combined insurance subsidiaries increased at an annualized rate of 77% increase during the first quarter, while capital and surplus grew at a rate of 141%, reflecting gains on acquisitions.

Stock Ratios

The shares were trading for 2.2 times tangible book value as of Wednesday's market close, and 26.2 times earnings. For 2009, the P/E ratio was 12.6. That price-to-book ratio is the highest on the list, but reflects the company's sterling reputation and diversified business.

Analyst Ratings

Of the two analysts with ratings on the Class-B shares, one is at buy, and the other is at hold For the Class-A stock, three analysts have hold ratings while one recommends selling.

6. Wells Fargo

Company Profile

Shares of Wells Fargo & Co. closed at $26.34 Wednesday, down 2% year-to-date.

Wells Fargo was the fourth-largest U.S. bank holding company by total assets as of June 30. It is high on SNL's insurance ranking list because of the strong performance of its property and casualty business, which is mainly focused on commercial property coverage.

Income Statement

Please see TheStreet's earnings coverage for details on the holding company's second-quarter performance.

For Wells Fargo's insurance subsidiaries, the first-quarter ROE before policyholder dividends and income taxes was 14.50% and the ROA was 3.94%, according to combined statutory filings.

Balance Sheet

Based on SNL data, Wells Fargo's insurance subsidiaries saw an annualized 57% increase in cash and invested assets during the first quarter and a 9% annualized increase in capital and surplus.

Stock Ratios

Wells Fargo was among TheStreet's 10 Cheapest Bank Stocks for 2011, even though the company's price-to-tangible-book ratio of 1.8 may appear a bit high in the current environment. Based on the consensus estimate of analysts polled by Thomson Reuters, the forward price-to-earnings ratio for 2011 is rather low 9.1.

Analyst Ratings

Out of 25 analysts covering Wells Fargo, 18 recommend buying the shares, 4 recommend holding and 3 say investors should sell. The mean 12-month price target is $36.04, which would be a 37% increase from Wednesday's close.

5. Progressive Corp.

Company Profile

Shares of Progressive Corp. of Mayfield Village, Ohio closed at $20.75 Wednesday, up 16% year-to-date.

Income Statement

The company reported second-quarter net income of $211.9 million or 32 cents a share, down from $295.6 million or 44 cents the previous quarter and $250.1 million or 37 cents a share a year earlier.

During the second quarter, Progressive reported $32.4 million in losses on securities, including impairment mark-downs.

SNL said that, according to combined statutory filings for the company's insurance subsidiaries, the first-quarter ROE before policyholder dividends and income taxes was 31.54% and the ROA was 8.62%.

Balance Sheet

According to SNL, cash and invested assets for Progressive's combined insurance subsidiaries increased at an annualized rate of 21% during the first quarter.

Stock Ratios

Progressive's shares were trading for 2.2 times tangible book value and 13.2 times the consensus earnings estimate for 2011, according to SNL.

Analyst Ratings

Among 23 analysts covering Progressive, 9 recommend buying the shares, while 14 recommend holding. The mean 12-month price target among analysts polled by Thomson Reuters is $21.94, which would be a 6% increase from Wednesday's close.

4. Triton Insurance Co.

Company Profile

Triton Insurance Co. is a subsidiary of Citigroup. The holding company's shares have risen 18% year-to-date, closing Wednesday at $3.92.

Income Statement

Please see TheStreet's earnings coverage for details on Citigroup's second-quarter results.

SNL said that, according to Triton's combined statutory filings, the ROE before policyholder dividends and income taxes was 24.19% and the ROA was 11.73%.

Balance Sheet

Triton Insurance's subsidiaries saw an annualized 25.90% increase in capital and surplus during the first quarter, according to SNL.

Stock Ratios

Citi was one of TheStreet's 10 Cheapest Bank Stocks for 2011. The stock is trading for just 0.9 times tangible book value.

Analyst Ratings

Out of 19 analysts covering Citigroup, 9 recommend buying the shares, 8 have hold recommendations and 2 say that investors should sell. Among analysts polled by Thomson Reuters, the mean 12-month price target among is $5.32, which would be a 36% increase from Wednesday's close.

3. American Financial Group

Company Profile

Shares of American Financial Group of Cincinnati, Ohio closed at $30.31 Wednesday, up 23% year-to-date.

Income Statement

The company reported second-quarter net income of $100 million or 97 cents a share, increasing from $88 million or 93 cents the previous quarter but down from $132.1 million or $1.09 a share during the second quarter of 2009. The company's weather-related insurance losses increased year-over-year, while investment income declined.

According to SNL and based on combined statutory filings for American Financial Group's subsidiaries, the first-quarter ROE before policyholder dividends and income taxes was 41.29% and the ROA was 11.57%.

Balance Sheet

Based on the first-quarter statutory filings, American Financial Group's combined insurance subsidiaries saw an annualized 17.93% increase in cash and invested assets during the first quarter, and combined capital and surplus increased at a rate of 12.68%.

Stock Ratios

Shares were trading for 0.8 times tangible book value according to SNL and just 8.1 times the consensus earnings estimate for 2011.

Analyst Ratings

Only three analysts cover the shares, and two recommend buying, while the other has a sell rating.

2. Assurant, Inc.

Company Profile

Shares of Assurant, Inc. of New York have risen 38% year-to-date, closing at $40.19 Wednesday.

Income Statement

The company reported second-quarter net income of $164.7 million or $1.46 a share, up from $157.2 million or $1.34 the previous quarter but down from $193.3 million or $1.63 a year earlier, when the company received $85 million after-tax from a legal settlement with Wilson Group.

Based on combined statutory filings for the company's insurance subsidiaries, Assurant's first-quarter ROE before policyholder dividends and income taxes was 59.08% and the ROA was 22.12%, according to SNL.

Balance Sheet

For Assurant's combined subsidiaries, the annualized increase in cash and invested assets during the first quarter was 25.44%, and capital and surplus grew at a rate of 56.44%, according to statutory filings, according to SNL.

Stock Ratios

Assurant's shares were trading just above tangible book value and for 7.9 times the consensus earnings estimate for 2011.

Analyst Ratings

Out of 12 analysts covering Assurant, four recommend buying the shares, while seven have hold ratings and 1 analyst says to sell. Among analysts polled by Thomson Reuters, the mean 12-month price target is $43.33.

1. Bank of America

Company Profile

Bank of America leads SNL Financial's statutory insurance performance rankings among public companies, because its property and casualty insurance operations have benefitted from increased premium revenue from force-placed insurance policies amid the real estate upheaval.

The shares of the largest U.S. bank holding company closed at $13.71 Wednesday, declining 9% year-to-date.

According to the transcript of the company's second-quarter conference call provided by SeekingAlpha, CEO Brian Moynihan said the company was selling its Balboa Insurance subsidiary, as part of Bank of America's efforts to "narrow the focus" of its business.

Income Statement

Please see TheStreet's earnings coverage for details on Bank of America's second-quarter results.

For Bank of America's combined insurance subsidiaries, the ROE before policyholder dividends and income taxes for the first quarter was 38.68% and the ROA was 20.20%, based on statutory filings, according to SNL.

Balance Sheet

Again based on the statutory filings, SNL said that for Bank of America's combined insurance subsidiaries, cash and invested assets grew at an annual rate of 22.65% during the first quarter, while capital and surplus increased at a rate of 33.98%.

Stock Ratios

Bank of America's shares were trading for 1.1 times tangible book value and just 8.9 times the consensus earnings estimate for 2011 among analysts polled by Thomson Reuters.

Analyst Ratings

Out of 24 analysts covering Bank of America, 20 recommend buying the shares, while 4 have hold ratings. The consensus 12-month price target for the shares is $20.02 -- 46% above Wednesday's close.

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