22 Dec 2015

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SPfilter US Insurance Companies

22 Dec 2015

Last Wednesday, the Federal Reserve decided to raise short-term interest rates for the first time since 2009. While it is true to say that higher interest rates generally mean higher borrowing costs, there are still some sectors that should benefit from this. The Insurance industry is one of them. Insurance companies almost only hold safe debt to back their policies, and these investments have been returning weak returns since the financial crisis. They will yield much better returns in a higher rate environment. Higher interest rates also mean the economy is strengthening and consumer spending is increasing; more car and home sales, which is definitely good news for insurance companies!

We have thus screened the US Insurance companies with four criteria, covering economic performance and also accounting performance.

– An economic performance index, or EPI (return on capital divided by cost of capital) above 1.0. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);

– Return on Capital above 10 per cent;

– Dividend yield above 1.5 per cent;

– An annualized dividend growth rate of 5 per cent or more over the last 1, 2, 3 and 4 years.

10 US Insurance companies are identified by our screener (click Download ). Amtrust Financial Services (AFSI) is by far the best economic performer with an EPI of 3.1, and also one of the top dividend growers of this group. Maiden Holdings Ltd (MHLD) has the smallest market cap of this group, but offers the best dividend yield with a very aggressive dividend growth too. For someone who wants to stick with Large Caps (Marsh & McLennan, Chubb Corp, Travelers Cos Inc), Chubb (CB) not only offers the best dividend growth rate, but you can see this growth rate has been accelerating every year over the last 4 years.

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