5 A+ Rated Insurance Stocks

NEW YORK ( TheStreet) -- Only five actively traded insurance stocks are currently assigned coveted A+ (Excellent) ratings by TheStreet Ratings, and all are property and casualty carriers.

TheStreet Ratings takes a very conservative approach to rating all stocks publicly traded on the New York Stock Exchange, AMEX and NASDAQ, that have at least five quarters of financial data available. The ratings emphasize long-term total returns, as well as revenue trends, capital strength and dividends, while also considering short-term performance, financial stability and volatility. A rating of B-minus (Good) or higher is considered a "Buy" recommendation.

It's been a difficult two years for many insurance companies in the prolonged low rate environment. Property and casualty carriers are "particularly sensitive to low interest rates," according to Gavin Magor, a senior analyst with Weiss Ratings, since the group "typically seeks to break even on underwriting premiums, while making profits on cash invested in securities." The P&C carriers are "still under significant pressure and are struggling to implement a normal pricing that you would see in a hard market, due to oversupply."

Magor does see opportunities among certain P&C carriers that may be undervalued, saying that "speculators may start to look at the surviving bond and mortgage guaranty insurers, but they are not for Granny's pension."

Life insurance companies are also under pressure, as "profitability for the largest ones dropped by 84% during 2011," according to Magor, because "the life insurers have had a lot of guarantees on their annuities that they have to live up to, while they haven't got the yields to back them up."

Insurers have underperformed banks so far this year. The KBW Bank Index ( I:BKX) was up 10% year-to-date, through Wednesday's close at 43.42, while the KBW Insurance Index ( I:KIX) was down 1% to 109.50.

A quick look at two of the largest U.S. insurance companies -- by market capitalization -- paints a stark contrast for share valuations, and a possible opportunity for investors.

The shares closed at $81.72 Thursday, returning 7% year-to-date, following a 5% return during 2011. The shares trade for 1.8 times tangible book value, according to Worldscope data provided by Thomson Reuters, and 15 times the consensus 2013 earnings estimate of $5.40 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.93.

Of course, being led by the legendary Warren Buffett supports quite a premium for the shares. TheStreet Ratings rates Berkshire's class B shares A-minus.

MetLife ( MET) is rated C+ by TheStreet Ratings. The company's shares closed at $29.17 Thursday, down 6% year to date, after declining 28% during 2011.

The shares trade for 1.1 times tangible book value and just five times the consensus 2013 EPS estimate of $5.63. The consensus 2012 EPS estimate is $5.22.

MetLife is in the midst of a transition from being considered a bank holding company, and hopefully escaping regulatory supervision by the Federal Reserve. The company agreed in November to sell "most of the depository business" of its MetLife Bank subsidiary to General Electric ( GE) (GE) unit GE Capital. In January, MetLife announced it was exiting the forward residential mortgage business.

The company continues to originate reverse mortgages and to service existing mortgage loans.

During March, MetLife's plan to increase its return of capital to investors during 2012 was rejected by the Federal Reserve.

The sale of the MetLife Bank depository business is expected to be completed before the end of the second quarter, after which the company plans to deregister as a bank holding company.

Out of 21 sell-side analysts covering MetLife, 18 rate the shares a buy. With such a low multiple to forward earnings, patient investors willing to wait for the company's transition and for the eventual return of capital, may be looking at quite a bargain. Meanwhile, the shares have a yield of 2.54%, based on 74-cent annual dividend, paid in November.

The insurers rated A+ by TheStreet Ratings trade at valuations to forward earnings between those of Berkshire Hathaway and MetLife. Here they are, in order of descending valuation to consensus 2013 earnings estimates.

5. ProAssurance Corp.

Shares of ProAssurance Corp. ( PRA) of Birmingham, Ala., closed at $87.07 Thursday returning 9% year-to-date, following a 33% return during 2011. Based on a quarterly payout of 25 cents, the shares have a dividend yield of 1.15%.

The shares trade for 1.4 times tangible book value, according to Worldscope data provided by Thomson Reuters, and for 12 times the consensus 2013 earnings estimate of $7.15 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $7.57.

ProAssurance specializes in medical malpractice insurance, within the U.S. The company reported first-quarter operating earnings of $48.2 million, or $1.56 a share, increasing from $45.0 million, or $1.46 a share, in the first quarter of 2011. Net premiums written increased to $158.0 million during the first quarter, from $149.9 million a year earlier, net premiums earned increased to $136.7 million from $132.1 million. Net investment income declined to $33.5 million during the first quarter, from $36.2 million a year earlier.

KBW analyst Matthew Rohrmann rates ProAssurance "Outperform," with a $110 price target, saying on May 7 that the company's first-quarter "combined ratio was a very good 76.1%, and even excluding the tail policies written in the quarter, the top line grew ~1.2%."

For insurance companies, the combined ratio is incurred losses plus expenses, divided by earned premiums. A ratio below 100% means that the company's insurance underwriting is profitable, because it earns more in premiums than it pays out. A ratio above 100% means that claims outweigh earned premiums.

After ProAssurance reported its first-quarter results, Rohrmann raised his 2012 earnings estimate for ProAssurance to $7.25 a share from $5.80, and raised his 2013 EPS estimate to $7.00 from $5.75, "given the company's continued success and better-than-expected underlying trends."

The analyst said that "ProAssurance has been our top pick the past two years and the company has done nothing short of impress the investment community," and that "management continues to uphold its track record of strong book value growth over the long-term and underlying trends point towards this continuing for quite some time."

Interested in more on ProAssurance Corp.? See TheStreet Ratings' report card for this stock.

4. AmTrust Financial Services

Shares of AmTrust Financial Services ( AFSI) of New York closed at $29.30 Thursday, returning 24% year-to-date, following a 38% return during 2011. Based on a quarterly payout of nine cents, the shares have a dividend yield of 1.23%.

The shares trade for 2.7 times tangible book value, and nine times the consensus 2013 EPS estimate of $3.17. The consensus 2012 EPS estimate is $2.85.

AmTrust is a P&C carrier, primarily focused on workers' compensation, extended warranty and other commercial coverage. The company reported first-quarter operating earnings of $44.0 million, or 71 cents a share, declining from $47.2 million, or 76 cents a share, during the first quarter of 2011.

Net premiums written increased to $359.8 million during the first quarter, from $234.0 million a year earlier, while net premiums earned increased to $314.0 million, from $200.4 million. Total expenses increased to $359.6 million during the first quarter, from $230.1 million a year earlier, including an increase in loss and adjustment expenses to $199.9 million from $128.7 million, and an increase in acquisition costs and other underwriting expenses to $124 million, from $42.8 million, reflecting several acquisitions.

The earnings decline also reflected $18.9 million in gains on life settlement contracts, during the first quarter of 2011.

William Blair analyst Adam Klauber rates AmTrust "Outperform," and estimates the company will earn $2.87 a share this year, followed by 2013 EPS of $3.00.

Following a presentation at his firm's annual Growth Stock Conference, Klauber said on June 12 that AmTrust's acquisitions "and renewal rights transactions in the past year, including Majestic, BancInsure, and BTIS, which have helped to fuel 38% gross written premium growth over the past four quarters."

The analyst noted that after seeing overall rates for workers' compensation remaining flat from 2010 to 2011, "in the first quarter, rates were up 5%, with New York at 8%, Florida at 8%, and California at 15%," and that "in April, management reported that its California book experienced rate increases of 19%."

At the conference, AmTrust's management "commented that demand is strong for its extended warranty product," and that the business is "operating at a favorable combined ratio," according to Klauber.

Interested in more on AmTrust Financial Services? See TheStreet Ratings' report card for this stock.

3. Montpelier RE Holdings Ltd.

Shares of Montpelier RE Holdings ( MRH) of Pembroke, Bermuda, closed at $20.35 Thursday, returning 15% year-to-date, after a 9% decline during 2011. Based on a quarterly dividend of 10.5 cents, the shares have a yield of 2.06%.

The shares trade for 0.8 times tangible book value, and for eight times the consensus 2013 EPS estimate of $2.45. The consensus 2012 EPS estimate is $2.96.

Montpelier RE Holdings is a global provider of various types of property and casualty insurance and reinsurance. The company reported first-quarter operating income available to common shareholders of $75.7 million, or $1.23 a share, compared to a loss of $118.5 million, or $1.90 a share, during the first quarter of 2011, when the company booked current year loss and adjustment expenses of $282 million, from several catastrophes, including earthquakes in Japan and New Zealand, along with flooding in Australia. Current year underwriting and adjustment losses declined to $$72.7 million during the first quarter of 2012.

Net premiums written declined to $220 million during the first quarter, from $226.5 million a year earlier. Net premiums earned declined to $160.5 million, from $166.1 million.

Sterne Agee analyst Dan Farrell has a neutral rating on Montpelier RE Holdings, with a $22 price target, saying in April after the company reported its first-quarter results that the "impressive" results were "driven by strong reserve releases and light cat impact," but that he was maintaining his neutral rating because "we feel expected ROEs are not yet attractive enough to offset volatility concerns."

Sterne Agee estimates operating returns on equity of 12.7% for Montpelier RE Holdings this year, followed by ROE of 9.2% in 2013. Farrell estimates the company will earn $3.10 a share during 2012, followed by EPS of $3.10 in 2013.

The company repurchased two million shares during the first quarter, for $37 million. With total equity of $1.615 billion as of March 31, Farrell said there was implied "potential repurchase capacity of $115 mm plus any future earnings."

Interested in more on Montpelier RE Holdings? See TheStreet Ratings' report card for this stock.

2. RenaissanceRe Holdings Ltd.

Shares of RenaissanceRe Holdings ( RNR) of Pembroke, Bermuda, closed at $74.20 Thursday, returning 1% Year-to-date, following a 19% return last year. Based on a quarterly payout of 27 cents, the shares have a dividend yield of 1.46%.

The shares trade for 1.2 times tangible book value, and for less than eight times the consensus 2013 EPS estimate of $9.42. The consensus 2012 EPS estimate is $9.24.

RenaissanceRe Holdings focuses primarily on property catastrophe reinsurance. The company reported first-quarter net income available to common shareholders of $201.4 million, or $3.88 a share, compared to a net loss of $248.0 million, or $4.66 a share, in the first quarter of 2011, when the company's claims and expenses totaled $658 million, from the earthquakes in Japan and New Zealand, and the flooding in Australia. During the first quarter of 2012, the company's net claims and expenses totaled just $15.6 million, reflecting "a light catastrophe quarter," according to CEO Neill Currie.

The company's net premiums written grew during the first quarter to $492.6 million from $452.6 million a year earlier, while net premiums earned declined to $278.7 million from $305.5 million. First-quarter underwriting income was $196.6 million, for a combined ratio of 29.4%, again reflecting the light losses.

The company reported other losses of $39.1 million during the first quarter, compared to other income of $50.1 million during the first quarter of 2011, "primarily due to trading losses within the Company's weather and energy risk management operations as a result of the unusually warm weather experienced in parts of the United Kingdom and parts of the United States during the first quarter of 2012."

Deutsche Bank analyst Joshua Shanker has a "Sell" rating on RenaissanceRe Holdings, although the analyst on May 21 raised his price target for the shares by five dollars to $74, and raised his 2012 earnings estimate to $8.50 from $6.40, to reflect the light losses so far this year, while saying that forecasting earnings for a property reinsurer "is literally like trying to predict the weather."

Shanker said that "Assuming no additional losses in the Catastrophe segment through year-end, we forecast an 18.5% return on equity, or ROE ," while pointing out that non-catastrophe "quarters used to produce ROEs in the 20-40% range," and adding that "the industry has become commoditized and ROEs have declined."

The analyst said that "RenRe is not a damaged company," but that "its market advantages have declined with time."

Interested in more on RenaissanceRe Holdings? See TheStreet Ratings' report card for this stock.

1. Everest Re Group, Ltd.

Shares of Everest Re Group ( RE) of Hamilton, Bermuda, closed at $103.51 Thursday, returning 24% year-to-date, following a 1% return during 2011. Based on a 48 cent quarterly payout, the shares have a dividend yield of 1.85%.

The shares for 0.9 times their reported March 31 book value of $120.30, and for less than eight times the consensus 2013 EPS estimate of $13.29. The consensus 2012 EPS estimate is $13.61.

Everest is mainly a property and casualty insurer, also underwriting reinsurance. The company reported first-quarter net income of $304.7 million, or $5.68 a share, compared to a net loss of $315.9 million, or $5.81 a share during the first quarter of 2011. Excluding after-tax realized capital gains, first-quarter operating income was $239.9 million, or $4.48 a share, compared to an operating loss of $323.6 million, or $5.95 a share, a year earlier, when the company reported $1.2 billion in losses and adjustment expenses, mainly from the disasters in Japan, New Zealand, and Australia. During the first quarter of 2012, incurred losses and adjustment expenses totaled $602.5 million.

Premiums earned during the first quarter were $998.0 million, declining slightly from $1.0 billion a year earlier, while net investment income declined to $152.4 million from $178.7 million.

Deutsche Bank analyst Joshua Shanker rates Everest Re Group a "Buy". After the company reported its first-quarter results, the analyst said he was "modestly more optimistic about Everest Re's opportunities in the reinsurance market," and raised his price target for the shares to $110 from $99, while increasing his 2012 EPS estimate to $13.95 from $11.40, and his 2013 estimate to $12.95 from $11.60.

During the first quarter, Everest Re Group repurchased 1.4 million common shares at an average price of $90.73, for a cost of $125 million. The company was authorized to buy back another 5.9 million shares at the end of the first quarter, and Shanker said that continuing buybacks below tangible book value "could support the stock if not provide it with a lift over the next 12 months."

Interested in more on Everest Re Group? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.