Skip to main content

Investing in Insurance Companies


Lloyds of London
Insurance is often described as banking without money given it engages in a risk management business model using other people's money. But is it wise to invest in such insurance companies? Definitely Yes ! Many analysts say the insurance market is in better shape than banking, and it may be an ideal time to invest in companies with better fundamentals and history.

Insurance is the transfer of risk from one party to another in exchange for the payment of a premium. The premium, in turn, is invested and used to pay out future claims and to operate the insurance company. In short, insurance companies are engaged in two primary revenue streams:
1. the assumption of other people's risk in exchange for money/premiums.
2. the management of such premiums (asset management).

What should investors look for when investing in insurance companies?

As with traditional metrics of investing stocks, there are some things that investors should look at while investing in insurance companies.
The first and foremost thing would be look at is its business model. As mentioned above it all depends on how well the company is selling its premiums and how well it manages such premiums.A critical piece of an insurance company's operations is to ensure that it always has enough capital to manage all the risk it has assumed.
Premium growth - Premium is the life-line of any insuring company’s growth. Premium growth is so important that commissions paid are generally the largest expense after premiums paid.
Credit rating. All insurance companies have a credit rating which reflects a third parties assessment of their ability to pay policies as they become due. The higher the credit rating the better.
Investment income. Money is made mostly through investment income. Investors have to watch out for, how well the insurance companies manage the investment income and what they are investing in and whether they are engaging in any hedging strategies.

Hence,  insurance companies satisfying the above criteria and with good fundamentals can be considered for investing.  Investors should look at the business side of the insurance companies and good distribution network. For those looking to invest in such insurance companies, you should keep an eye on Lloyds of London , where there is a lot of information on movements within the insurance industry.

Popular posts from this blog

Historical Sensex Returns Updated - 2024

Historically Sensex has given returns of about 15% per year, despite volatility and price fluctuations of about -20% to +60%. The following table shows S&P BSE Sensex historical data - start  & close values and the yearly returns of the sensex from 2000 to 2024. So far during the year the   index has hit an all-time high of  75,124   and despite markets hitting all time highs not all stocks make all-time highs. There are many stocks still below their highs. Stocks like HDFC Bank, ITC, Asian paints are still well below their highs and some of them have given low returns over last 3-5 years. Individual or Retail investors can achieve consistent returns through investing via mutual funds , whether it be active or passive. Chasing returns from individual stocks is futile. Be a wise investor !

Walmart and Costco Selling Gold and Silver

Costco Wholesale and Walmart are both starting to sell gold bars. First, Costco sold gold bars to its members looking to invest in more than bulk household purchases. Now the warehouse retailer is selling silver coins too. Walmart has also started selling precious metals such as gold and silver in its online store, following in the footsteps of Costco Wholesale. Against the backdrop of high inflation, gold has become the new favorite of American consumers. The value of gold and silver is expected to continue to climb in 2024 on expectations that the Federal Reserve will start cutting interest rates. Gold currently trades at $2255. Will Indian supermarkets sell gold?  Gold has been always been one of the favorite investments for Indians, as evident from the fact that Indian households hold over 21,000 tonnes of gold. Indians prefer to buy gold jewelry and this trend could change if Gold is sold in supermarkets. There are Gold ETFs and Sovereign Gold Bonds  (SGB) as well. Addi...