Insurance companies are in everyone's lives. Our cars, homes, income and very lives are protected by them. When a business has contact with so many customers, and is paid regularly for that protection, it can become a good investment.
Money taken in as premiums is used to cover the cost of claims, but excess funds can be used for investment. Some of the success of Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), the company of chairman and CEO Warren Buffett, is partly due to the investing power of its GEICO insurance business.
Here are three insurance companies that you may already use for your own personal coverage and could benefit you as a shareholder.
Insurance Australia Group Limited (ASX: IAG), the $12.5 billion company, is the market leader for general insurance, holding about 20% market share. You may know its brands like NRMA and CGU.
It had a surge in profits in FY2013 and its share price is returning towards the highs it hit before the GFC. It has agreed to buy the insurance underwriting business of Wesfarmers Limited (ASX: WES) for $1.85 billion. The deal includes a 10-year insurance distribution agreement through Coles supermarkets, which are owned by Wesfarmers.
Suncorp Group Ltd (ASX: SUN) is a $15.8 billion company which gets the majority of its revenue and profit from general insurance. It operates such brands as Suncorp, AAMI and GIO.
It is restructuring itself after a drop in profit due to natural disaster claims and issues with its banking division. It has an extra $1.2 billion in capital above its expected operating expense needs. Its H1 2014 interim dividend was increased to 35 cents per share, up 40% from H1 2013, which should interest investors.
QBE Insurance Group Ltd (ASX: QBE) is a $15.2 billion international insurance and reinsurance company. It is also restructuring its business following its $272 million net loss in FY2013.
Its share price has recovered somewhat from its December low of around $10, but the changes it plans to make will take some time. This may be an opportunity to begin following it as those changes take place.
Foolish takeaway
Insurance Australia Group has an opportunity to add to its business through acquisition and make its market-leader position stronger.
QBE Insurance Group and Suncorp Group offer investors the chance to potentially benefit as short-term issues are resolved.
