Insurance companies enjoy a two-sided business model, which explains their popularity with investors. Not only do they collect premiums on the policies they write, but they’re then able to pool their capital and invest it, earning even more money.
That explains why legendary investor Warren Buffett is such a fan of insurance companies. He proved it by buying Geico, and has made billions from the investment for him and Berkshire Hathaway‘s investors.
Funny commercials, serious money
For investors interested in insurance stocks, your research should begin with supplemental insurer AFLAC Incorporated (NYSE:AFL). You’ve likely seen AFLAC Incorporated (NYSE:AFL)’s commercials, and while its namesake duck makes for humorous advertisements, its underlying business is a serious money maker.
Interestingly, AFLAC Incorporated (NYSE:AFL) is essentially an American company in name only. You may be surprised to know that that the vast majority of the company’s business is done far outside of the United States. In fact, AFLAC Incorporated (NYSE:AFL) derived 78% of its revenue from Japan in 2012.
From an operational standpoint, AFLAC Incorporated (NYSE:AFL) is a very high-quality business. In the last fiscal year, total revenue was up 14.4% to $25.4 billion versus a year ago. Operating earnings for the full year were $6.60 per diluted share, compared with $2.9 billion, or $6.27 per diluted share, in 2011.
And, even better, AFLAC Incorporated (NYSE:AFL) is off to a good start to the current fiscal year as well. Revenue and operating earnings were up 2.4% and 1%, respectively, in the second quarter.
This consistent profitability is what has allowed Aflac to reward its shareholders with 30 years of consecutive annual dividend increases.
Of course, Aflac isn’t the only insurance company with a strong track record of increasing shareholder rewards. Property and casualty insurer RLI Corp. (NYSE:RLI) has provided its shareholders with 38 years in a row of increased dividends.
RLI Corp. (NYSE:RLI) is successful in its own right, having reported 9% higher operating earnings over the first six months of the year, but it’s a much smaller industry player that is struggling to perform as well in its underlying investment portfolio.
Fellow insurer and Dow component Travelers Companies Inc (NYSE:TRV) reported 2% higher revenue over the first half of the year and, like Aflac, aggressively rewards shareholders with a strong 2.5% dividend.
A promising road ahead
Aflac stands apart from the competition because of its strong brand recognition, superb investment performance, and new products that are currently seeing success.
