In this piece, I evaluated two insurance company stocks, Allstate (NYSE:ALL) and MetLife (NYSE:MET), using TipRanks’ comparison tool to determine which is better. Allstate is the largest publicly-traded property casualty insurer in the U.S., while MetLife is one of the largest global providers of insurance, annuities, and employee benefit programs.
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Allstate has plunged nearly 20% year-to-date, dragging its one-year return into the red at -14.2%. It’s a similar story with MetLife, which is off 21.9% year-to-date and down 8.4% over the past year.
Insurance companies can be difficult to value because there are so many moving parts. However, for comparison, the U.S. insurance industry is trading at a price-to-earnings (P/E) ratio of 26.7 versus its three-year average P/E of 16.1 and a price-to-sales (P/S) ratio of 1.3, which is in line with its three-year average.
Allstate (NYSE:ALL)
Allstate is trading at a P/S of 0.6 and is currently unprofitable. A review of its financials reveals steadily worsening trends over the last few years, suggesting a bearish view might be appropriate, especially considering the recent shift to an underwriting loss.
Broadly, Allstate’s financial trends are not heading in the right direction. The company is managing revenue growth of around 1% in most years, which is typical of traditional insurance companies. However, its operating expenses have exploded over the last year or so. In 2021, Allstate recorded $7 billion in operating income. However, it slipped to an operating loss of almost $1.5 billion in 2022 and a loss of $2.66 billion for the last 12 months.
One of the biggest indicators of how well an insurance company is doing is its underwriting numbers. For the first quarter, Allstate reported an underwriting loss of $1 billion versus an underwriting income of $280 million in the year-ago quarter. For all of 2022, the company recorded an underwriting loss of $2.9 billion versus an underwriting income of $1.7 billion in 2021.
An underwriting loss means the premiums the insurer is taking in are not covering its long-term losses and expenses. When an insurer is running at an underwriting loss, it suggests either the company is not bringing in enough new policies or the policies it is writing are exceptionally risky, meaning claims are being paid out frequently.
Allstate cited its auto insurance operations as being responsible for the underwriting losses, suggesting its auto policies are risky versus the premiums it’s collecting.
However, the company does have a dividend yield of 3.2%, which is one somewhat redeeming factor.
What is the Price Target for ALL Stock?
Allstate has a Moderate Buy consensus rating based on eight Buys, five Holds, and one Sell rating assigned over the last three months. At $131.08, the average Allstate stock price target implies upside potential of 18.1%.
MetLife (NYSE:MET)
MetLife is trading at a P/E of 55.3 and a P/S of 0.6, which gives mixed signals in terms of its valuation. However, it’s clearly in a more stable financial position than Allstate, but its five-year mean P/E of 13.9 suggests a better entry point may appear. Thus, a neutral view seems appropriate, at least for now.
It’s clear that these are rocky times for insurance companies, given the rapidly rising operating expenses that are taking a bite out of their net income. In fact, the one place MetLife is particularly hurting is in its investment income, but that’s not unusual in the current market conditions.
In the first quarter and for all of 2022, the company reported “favorable” underwriting trends across the board, although it did not provide concrete numbers. Nevertheless, the rising investment losses are providing no protection for the company’s underwriting efforts currently.
Thus, it seems likely that MetLife would swing to a loss if its underwriting efforts are poor. Still, while MetLife’s net income has tumbled due to rising operating expenses, it’s generating plenty of cash from operations, at $13.2 billion for the last 12 months.
Finally, MetLife has an attractive dividend yield of 3.6%, making it a potential dividend play.
What is the Price Target for MET Stock?
MetLife has a Moderate Buy consensus rating based on eight Buys, three Holds, and zero Sell ratings assigned over the last three months. At $73.44, the average MetLife stock price target implies upside potential of 27.4%.
Conclusion: Bearish on ALL, Neutral on MET
Generally, insurers with solid underwriting income are more financially stable because they don’t have to make up for their weak performance. At a time when the investment markets are particularly volatile, as they have been recently, recording underwriting income rather than losses becomes even more important.
However, this is a challenging time for insurance companies, so a wait-and-see approach may be best for MetLife, while Allstate is already displaying some concerning financial results.
