Under-the-Radar Insurance Stocks for Today

"Under-the-Radar Stocks" is a daily feature that uncovers little-known companies worthy of investors' consideration. Check in at 5 every morning to find out about stocks that tend to beat their bigger brethren.

The U.S. insurance industry has lost tens of billions of dollars since the beginning of 2008 because of reduced underwriting, investment losses and higher claims. Titans such as The Hartford(HIG Quote), MetLife(MET Quote) and Genworth(GNW Quote) have been battered. And I'm not even going to mention American International Group(AIG Quote).

But a few regional companies are growing, in part, because they have a superior understanding of their markets. The following two micro-cap insurers demonstrate sound fundamentals, yet offer strong growth potential, and are trading at discounts. Few investors have heard of them, as most analysts focus on bigger companies.

Fort Lauderdale-based Universal Insurance Holdings(UVE Quote) is a Florida-focused homeowners' insurance company. Even though earnings per share fell 11% in the first quarter, its operating margin widened to 42% from 36% for all of 2008, and revenue rose 6%. Florida's insurance market is tightly regulated and, after a denial by the state to increase rates to compensate for weather risks, large players such as Allstate (ALL Quote) and State Farm have scaled back their operations, which will benefit Universal Insurance.

The insurer's stock price has more than doubled since the beginning of 2009. But the stock remains affordable. With a price-to-earnings ratio of just 5.37, Universal Insurance is 86% cheaper than its average peer in the property and casualty industry. The shares pay a mammoth 9.36% dividend, significantly higher than the 3.43% average of companies in the S&P 500 Index. As more investors hear about this micro-cap gem, the share price probably will extend gains, so consider looking at this company before the herd piles in.