Serious Money: AIG, ALL, CB, HIG, MET, ORI - cheap insurance

Price-to-sales ratio - P/S: Historically, anything close to 1.0 is exceptional and under 2.0 is very good. From this perspective they all look cheap.

• MetLife Inc. (NYSE: MET): 1.0
• Allstate Corp (NYSE: ALL): 1.06
• Hartford Investment Services (NYSE: HIG): 1.12
• Old Republic Inc. (NYSE: ORI): 1.33
• Chubb Corp (NYSE: CB): 1.5
• American International Group (NYSE: AIG) : 1.54

Price-to-book ratio - P/B: A deep value investor would generally seek a P/B under 1.0 but that is hard to find. Allstate is the standout, but again, they all look reasonable.

• Allstate Corp (NYSE: ALL): 1.09
• Chubb Corp (NYSE: CB): 1.53
• MetLife Inc. (NYSE: MET): 1.58
• Hartford Investment Services (NYSE: HIG): 1.73
• Old Republic Inc. (NYSE: ORI): 1.77
• American International Group (NYSE: AIG) : 1.9

Price-to-cash-flow - P/CF: In any serious discussion about investing in the stock market you will find mention of the importance of good cash-flow. In the case of the top five you will note you are paying for a company that has a P/CF less than the P/E. AIG is totally unacceptable and this alone drops it from my investment consideration even though I have heard it talked up often, including by colleagues on BloggingStocks. For comparison, Apple Inc. (NASDAQ: AAPL) has a P/CF of 27.85 and AIG is not the high flyer Apple is of late.

• Old Republic Inc. (NYSE: ORI): 5.03
• Hartford Investment Services (NYSE: HIG): 5.28
• Chubb Corp (NYSE: CB): 6.28
• MetLife Inc. (NYSE: MET): 7.21
• Allstate Corp (NYSE: ALL): 7.53
• American International Group (NYSE: AIG) : 25.68

Return-on-invested capital - ROIC: This is important because it reflects how well management is able to allocate the company's resources. Allstate, at least over the past twelve months, has done a great job and Chubb is not far behind. MetLife and Hartford were respectable; Old Republic barely stayed ahead of the long term market average, otherwise it might as well take the money and buy an index fund. AIG, with an undistinguished ROIC, again must have stalled out this past year for reasons I would have to study in more depth to ascertain. Otherwise it is not good enough.

• Allstate Corp (NYSE: ALL): 20.1%
• Chubb Corp (NYSE: CB): 16.76%
• MetLife Inc. (NYSE: MET): 14.51%
• Hartford Investment Services (NYSE: HIG): 13.5%
• Old Republic Inc. (NYSE: ORI): 10.86%
• American International Group (NYSE: AIG) : 7.24%

Price-to-earnings ratio - P/E: Surprisingly, my reading of historic market data concludes that the P/E ratio is less important as an indicator of future stock appreciation than the other five criteria above. Yet, it seems to be the most commonly discussed figure, even among journals that have pointed this fact out in various studies and articles. The only reason I can think of for the references to the P/E ratios so consistently is perhaps because it is easier to understand. Having noted this information, it is interesting that Allstate and MetLife have the lowest P/E and AIG the highest.

• Allstate Corp (NYSE: ALL): 7.64
• MetLife Inc. (NYSE: MET): 7.93
• Chubb Corp (NYSE: CB): 8.64
• Hartford Investment Services (NYSE: HIG): 10.88
• Old Republic Inc. (NYSE: ORI): 11.03
• American International Group (NYSE: AIG) : 12.55

Closing stock prices March 28, 2007

• Allstate Corp (NYSE: ALL): $59.86 MetLife Inc. (NYSE: MET): $63.36
• Chubb Corp (NYSE: CB): $51.64
• Hartford Investment Services (NYSE: HIG): $94.55
• Old Republic Inc. (NYSE: ORI): $21.95
• American International Group (NYSE: AIG) : $67.15

Based on my findings displayed hear, and more, Allstate and MetLife are the front-runners for my investment dollar. Allstate is a direct sales company leaving out the middle man while MetLife having acquired Travelers Insurance from Cititgroup Inc. (NYSE: C) now has scaling advantages and is in position to increase it's international growth . In speaking with my trusted insurance advisors (including Randy Slaughter (the best) of W. Brown & Associeas in Irvine, CA) and questioning why these stocks seemed to be such bargains I was told that the market for insurance is becoming more competitive. More companies are chasing business and this is likely to lead to less profit in the future. These patterns can run for many years and that may be priced into the stocks. All the more reason not to overpay and seek the margin of safety that deep value investing affords.

Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.