NEW YORK (

TheStreet

) -- As the Dow declines, insurance stocks drop more.

Companies including

MetLife

(MET) - Get Report

and

Prudential Financial

(PRU) - Get Report

are scheduled to publish third-quarter earnings by the end of next week, so higher volatility -- even nervousness -- can be expected.

But are investors making a smart move by unloading insurers? The past three months, when the stock-market rally powered along while the economy probably started growing again for the first time in a year and a half, helped separate insurance winners from losers. In other words, now is not the time to get out of the industry as another push upward is likely on the way.

Hartford Financial Services

(HIG) - Get Report

and

Genworth Financial

(GNW) - Get Report

, which have fallen as much as 16% in the past week, don't deserve such punishment. Hartford is up seven-fold from a low in early March, while Genworth has jumped 11-fold.

Some selling of stocks has occurred to lock in investment gains, although volume is at 77% of its average. There has been a rise in shorting -- investors betting on declines -- with an average short interest ratio of 4.7 versus 4.6 for the month. Investors don't entirely believe that insurers' third-quarter results will indicate a positive end for the year. Maybe it's all too good to be true.

After all, Standard & Poor's on Tuesday put seven mortgage-insurance companies on credit watch with negative implications because of recent results from MGIC and

Old Republic International

(ORI) - Get Report

. Those included

PMI Group

( PMI),

Radian Group

(RDN) - Get Report

and, more surprisingly, Genworth.

The catch-all approach reflects S&P's belief that earnings will be lower than expected and that it misjudged the market in previous reviews. S&P said it may reduce or affirm ratings at previous levels, depending on analyses of third-quarter results.

Still, if

Ameriprise

(AMP) - Get Report

is any indicator of the future, investors are being too cautious. Ameriprise exceeded analysts' expectations, with earnings of $1 a share, much higher than the consensus of 64 cents.

Hartford and Genworth, in particular, stand out as opportunities. The companies' price-to-book values are 76% and 42%, respectively. If quarterly earnings show an improvement, their book values will rise, and their share prices will have to keep pace.

If investments haven't performed as well as expected -- insurers have been lowering risks, after all -- results may come up short. For longer-term investors, however, that shouldn't be a problem. As soon as investment returns rebound, so will asset values. That's why seeking out undervalued shares now would give investors a lead on the market.

There's no reason returns won't improve in the medium term. Consider

Conseco

(CNO) - Get Report

, whose shares have dropped 13% in a week. Conseco is trading at less than 44% of its book value. Unless you're a pessimist by nature, how long can book values be depressed by the financial crisis?

For those less risk-averse, take a look at Radian, down 46% in a month, and PMI, down 39%. The two companies were hurt by rival

MGIC's

(MTG) - Get Report

poor third-quarter results. Nervous investors are creating opportunities for you.

-- Reported by Gavin Magor in Jupiter, Fla.

Gavin Magor joined TheStreet.com Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.