Insurance. Its an unexciting industry, and one that I dont often write about. But after all of the volatility and crashes weve had in recent years, I think thats a good thing.And world-renowned investor Warren Buffett loves this industry, which comprises a substantial part of the Berkshire Hathaway empire.
So here aretwo of my top picks in this sector, one a market leader and the other thats taking price comparison insurance around the world.
Admiral
Admiral Insurance Group (LSE:ADM) was created in 1993 as a start-up business with 57 employees, headquartered in South Wales. Since then it has grown rapidly. It now has businesses in Spain, Italy, France and the US, and is one of the leading online and price comparison insurance companies in the world.
The appeal of this firm is that its an incredibly lean and efficient organisation. And in many ways it represents the future of the insurance industry. Almost everything is internet-based, and Admiral is building a whole host of online insurance brands, including confused.com, lolivier and Bell.
Take-up of online insurance and price comparison sites is lowerin countries such as Spain and France compared to the UK, and so theres substantial potential for growth. And Admirals low cost base means that it can pay out a bigproportion of its profits as shareholder dividends.
The share price has been trending steadily upwards ever since the lows of the Eurozone crisis, and the stock now stands at a trailing P/E ratio of 21, with a dividend yield of 2.12%.
Direct Line Insurance
Spun out from Royal Bank of Scotland in 2012, Direct Line Insurance Group (LSE:DLG) doesnt have the international reach of Admiral, but it represents the leading insurancename in the UK. And this is a company that has been going from strength to strength in recent years. As well as the Direct Line brand, it owns Churchill and Green Flag. It has 14% of the UK motor insurance market, and 17% of the UK home insurance market.
Direct Line has always been one of Britains premium insurance companies, and this has given thebusiness pricing power that it has used to increase profitability. Today it remains Britains most preferred brand. The company has also been steadily reducing costs, and thus improving the bottom line, and it has also taken advantage of rising car insurance premiums.
The firm is also working on being at the forefront of evolving trends such as telematics.
Earnings per share have progressed from 22.58p in 2013 to 27.6p in 2015. And the share price has been on the up since the IPO.
Whats more, this is a share thats still cheap, with a trailing P/E ratio of just 11, and a dividend yieldof 3.55%. And as well as earnings growth, the dividend has been rising steadily year-on-year. Since the IPO, Direct Line has paid out more than 1.5bn in income.
Thats why I think this company is an even better bet than Admiral.
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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
