3 Names in the Property & Casualty Insurance Business: Hilltop Holdings Inc. (HTH), ProAssurance Corporation (PRA), The Allstate Corporation (ALL)

Lately, the property and casualty insurance business has been showing a few market outperformers, companies showing strong sings of post-crisis recoveries and aiming towards double-digit growth and above average profitability. Three very interesting companies in this sector are Hilltop Holdings Inc. (NYSE:HTH), ProAssurance Corporation (NYSE:PRA) and The Allstate Corporation (NYSE:ALL)

A promising stock

After reporting a strong fiscal first quarter on May 6, Hilltop Holdings Inc. (NYSE:HTH)’s stock price rose by 8%. However, if you are looking for a buy-and-hold kind of investment, this company could certainly offer plenty of upside in spite of its elevated valuation. Although currently trading at high P/E values, the stock is actually cheap, exchanging at only 11.15 times the earnings estimate for 2013 (Zacks), a 20% discount to the 14 time industry average. The average price target indicates an expected 10% upsurge in stock price as well. Besides these quantitative reasons, here are some other motives to believe that Hilltop Holdings Inc. (NYSE:HTH) will outperform the market:

1) The company has mutated from a property-casualty insurance firm toward a successful banking operation, mainly on the back of the PlainsCapital acquisition in November 2012. This should considerably increase the earnings and stockholders’ equity in the upcoming years, especially as the purchased baking firm will not only expand Hilltop Holdings Inc. (NYSE:HTH)’s geographical presence and product portfolio, but will also continue to benefit from “the ongoing low interest rate environment and the refining housing sector, since these factors provide promising opportunities for investors to park their funds such high-quality banks.” (Zacks Research)

2) A couple of purchases that have taken place over the past semester portray an encouraging long-term outlook. On the one hand, John Martin´s (EVP/CFO of PlainsCapital) insider buy shows inside confidence in upcoming results. On the other hand, Chuck Royce increased his participation in this company by about 34%; with a quarter/quarter turnover of 6%, I would believe that tailing his buys is not such a bad idea.

3) Notwithstanding the operational challenges faced, Hilltop Holdings Inc. (NYSE:HTH) has managed to keep strong capital position and liquid and risk free balance sheet. While keeping $200 million in freely usable cash, the firm offers a Tier 1 Leverage Ratio of 13.39% and Total Capital Ratio of 18.58%.

4)   Earnings rose at tremendous rates, reaching $0.39 last quarter, up 3800% year over year, mainly due to the business diversification that the PlainsCapital purchase provided and the top line growth delivered by NLASCO, its main revenue driver, on the back of an expanded product distribution and disciplined underwriting philosophy. This trend is expected to continue, as full year estimates portray earnings of $1.30 per share, up from last year’s loss of 12 cents.

A stock with solid market position

ProAssurance Corporation (NYSE:PRA) is another property-casualty insurance company that, like Hilltop, posted stronger than expected first quarter results and stands as a buy case for both the short and long-term. The company has a history surpassing analyst estimates and last quarter was no exception. Earnings came in at $0.97 per share, beating consensus estimate of $0.76 and rising 24% from the prior-year quarter, mainly on the back of an 8% growth in revenue, to $195 million, surpassing consensus estimate by 10%, and a 10% decrease in expenses, to $95 million.

In the long run, ProAssurance Corporation (NYSE:PRA)’s firmly established track record, solid competitive market position, prudent operating and financial leverage, responsible pricing, loss reserve practice and conservative investments in assets will likely generate fundamental growth. (Zacks)