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Insurance Stocks With the Biggest Volatility

Insurance stocks have barely budged in the past month. These companies, however, are still volatile, providing investment opportunities.

NEW YORK (TheStreet) -- The best-performing stocks of 2009 prominently featured insurance companies. The average insurer more than tripled from the stock-market low in early March through December.

And this year? An average gain of 0.7%. Investors need to look to where the action is. Here are the five insurance stocks with the highest stock-price volatility as measured by beta values.


Radian Group

(RDN) - Get Radian Group Inc. Report

: Philadelphia-based mortgage guarantor.



Financial Fundamentals:

With an operating return on average equity of a negative 11.6%, it outperforms the peer average of negative 60.6%. Policy reserves of 2.1 times equity are below the average of 4.3. Net losses of 30.1% of total revenue outperform the average 74.5% loss.

Market Indicators:

The 28% price-to-book value compares to the average of 91%. The stock is trading at 124% of normal levels in the past month, well above the average of 82%. The stock price is 11% below analysts' consensus price target.


SNL Financial reports that there was a 10.1% improvement in cures for previously defaulted mortgages in December, nearly twice the 5.4% rate of new defaults. New policy origination is up month-on-month but 29% below 2008 levels. Applications fell, indicating a slow start to 2010. Earnings will be released Feb. 23.


Genworth Financial

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(GNW) - Get Genworth Financial Inc Report

: Virginia-based life and health insurer with a significant annuity base and mortgage insurance interest.



Financial Fundamentals:

An operating return on average equity of 1.9% is well below the peer average of 9.8%. Policy reserves are 5.2 times equity, below the average of 7. Debt as a percentage of total capital is 37.5%, above the average of 29.6%.

Market Indicators:

The stock, which was up 10% last week, has almost no short interest and a low price-to-book value of 59% versus the 91% insurer average. The shares are undervalued.


With SNL reporting that Genworth has seen growth in modified loans, and a 10% increase in default cures, things are looking positive for Genworth. A modest 0.35% growth in fourth-quarter book-value-per-share is a sea anchor, holding the stock back.


Hartford Financial Services Group

(HIG) - Get Hartford Financial Services Group Inc. (The) Report

: Connecticut-based multiline insurer.



Financial Fundamentals:

Much maligned during public troubles and a TARP recipient, the company had a third-quarter operating return on average equity of negative 0.89% versus the peer average of negative 5.61%. Policy reserves of 7.2 times equity comfortably exceeds the average of 3.6. Net losses of 12% of revenue compares favorably with the average of 19.2%

Market Indicators:

Investors are holding back from trading the stock, with volume down 64% from normal levels for the week. The price-to-book value is an attractive 65% versus the insurer average of 91%. The stock is trading 14% below analysts' consensus price target.


SNL is anticipating that Hartford will record a small drop in book value per share when it reports earnings today. A surprise profit could see the stock take off.


Lincoln National

(LNC) - Get Lincoln National Corporation Report

: Pennsylvania-based life and health insurer with significant annuity business. A TARP recipient.



Financial Fundamentals:

A 5.9% operating return on average equity compared with the peer average of 9.4%. This is the key to the 13.2% net loss as a percentage of revenue compared to the average 1% gain. Debt levels of 31.2% of total capital are only slightly higher than the average of 30.2%.

Market Indicators:

With a price-to-earnings ratio of 14.5 much higher than the insurer average of 9.3, the stock looks expensive. However, the price-to-book value is only 71% compared to the 91% average. With the stock trading 22% below analysts' consensus price target and 2010 expected to be much improved, there are opportunities.


SNL projects a 2.2% rise in book value per share when fourth-quarter results are released today.




: An annuity provider specializing in high-net-worth individuals. Applied and withdrew TARP application.



Financial Fundamentals:

The 25.4% negative operating return on average equity in the third quarter compared poorly to the peer average of positive 11.7%. Reserves at 12.5 times equity are considerably higher than the 8.5 average. Debt levels of 26.8% of total capital are slightly above the average of 24.5%.

Market Indicators:

The price-to-book value of 23.6% is significantly lower than the 91% insurer average. The stock price is 45% below analysts' consensus price target, despite short interest growing 37% to 11.5 last week.


Last month's downgrade by A.M. Best has taken the wind out of Phoenix's sails. A.M. Best cited financial constraints. Phoenix had indicated progress at the end of 2009 with its balance-sheet-strengthening initiatives, cost cutting and a sustainable growth strategy, among other things.

Gavin Magor is the senior analyst responsible for assigning financial-strength ratings to insurance companies. He conducts industry analysis and supports consumer products. Magor has more than 22 years of international experience in operations and credit-risk management, commercial lending and analysis. His experience includes international assignments in Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.