Your 3-share insurance portfolio

Insurance companies are stronger than they ever have been. So which ones are right for your portfolio?

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Throughout the years, Australia has been dealt numerous types of natural disasters and insurance companies have been there to pay up but today they are stronger than they ever have been. So which ones are right for your portfolio?

Many financial institutions like the big four and smaller banks offer insurance products through a subsidiary or directly to individuals and businesses. For example, the Commonwealth Bank (ASX: CBA) offers its clients insurance products through its CommInsure business. However, outside the big four there are plenty of bargains to be had. Here are three companies that offer solid dividends, have great business models and derive most of their revenue through insurance premiums and products.

QBE (ASX: QBE) is an international general insurance and reinsurance group that operates in over 40 companies throughout the world. In its most recent half-year report ended 31 December 2012, the company declared NPAT up 8% to US $761 million, despite a large amount of claims from the damage posted by Hurricane Sandy in the US. At a P/E around 19, investors are expecting a lot from this pure play insurer, so unless you're investing for the long term, wait till the market offers this one a little cheaper.

Insurance Australia Group (ASX: IAG) has risen incredibly over the past 18 months but is still trading at a relatively cheap price. In the past 12 months alone it has increased more than 60% but has a current P/E of only 11. The company's first-half revenues ended 31 December 2012, showed weakening revenue, which could explain the lower current P/E. The group also operates internationally, with over 25% coming from New Zealand, Asia and the UK; domestically it writes insurance through its major brand names CGU, NRMA Insurance, SGIO, SGIC and Swann Insurance.

The last company is a diversified financial that every year posts more and more of its revenue through its general insurance division. Suncorp (ASX: SUN) is a Queensland-based financial services conglomerate offering retail and business banking, insurance, superannuation and investment products. Suncorp's most recent report showed revenue up a staggering 47% to over $574 million. Its well-known insurance divisions are Suncorp, AAMI, Apia and GIO, which add up to over 70% of its revenue. Recently, it has gone without any major natural disasters and has improved operational efficiency to post large gains.

Foolish takeaway

Buying and selling shares for a profit is not easy, but finding good business models and management who are willing to implement them will put your portfolio on the right foot and almost certainly return gains. These three companies offer fully franked dividends over 3% and have huge market capitals, good for income and long term investors alike.

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Motley Fool contributor Owen Raszkiewicz does not own shares in any of the companies mentioned in this article.

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