Fans of Insurers Cite
Their Pricing Power

In a low-inflation environment, property and casualty insurers are among the few businesses with significant pricing power.

Rates for commercial insurance, such as workers' compensation and liability, are rising 20% annually. For "personal" lines like car and home coverage, gains average about 10%.

It all hasn't helped the stock prices of big property and casualty insurers, hurt this year by concern over growing asbestos liabilities, losses in homeowners business and the financial-stock rout.

Travelers Property Casualty, a spinoff of Citigroup, appeals to investors such as Mark Boyar, head of Mark Boyar & Co., a New York investment firm. He says Travelers has been hurt unduly by selling from Citigroup holders who got shares in August and didn't want to keep them. Travelers went public in March at $18.50. At $14.50, it trades for 1.4 times book value and 10 times projected 2002 profit of $1.40 a share (the Street expects $1.60 in 2003).

Other investors are partial to rival property and casualty insurers like Chubb, St. Paul, Hartford Financial Services and Allstate. Chubb, above $57, trades for 1.4 times book value and 13 times projected 2002 profit of $4.40 a share. Chubb is known for its high-end "Masterpiece" homeowners insurance. Hartford, at $42, trades just above its $39 book value and at 9 times projected 2002 earnings of $4.50 a share.

Allstate, a favorite of Morgan Stanley analyst Alice Schroeder, has less asbestos risk than peers because of its focus on auto and home policies. It's trading around $36, about 1.5 times book value and 13 times estimated profit of $2.75 a share.

-- Andrew Bary is a senior editor of Barron's magazine, which is available online at www.barrons.com¹

Updated October 13, 2002