5 Insurance Stocks Built to Keep Paying Dividends Through Hurricanes and Market Crashes

Insurance stocks offer modest yields. What they give income investors is harder to find: dividend checks that keep coming after hurricanes, market crashes and rate shocks. The reason is a business with two drivers. Underwriting profit is whatever is left from premiums after claims and expenses are paid. Investment income comes from the float, the pool of premium cash an insurer holds and invests until claims come due.

When rates rise, the float makes more. A rate shock that pressures a heavily indebted industrial company can actually help an insurer. Right now both drivers are running hard: Chubb (NYSE:CB | CB Price Prediction) reported that its property and casualty combined ratio improved to 84.0% from 95.7% in the first quarter as the prior year’s wildfire losses rolled off. Yields in this group are modest. The case for owning them is durability.

These five stocks fall into two camps, and each camp has its own weak spot. Chubb, Travelers (NYSE:TRV) and Allstate (NYSE:ALL) are property and casualty (P&C) insurers. Their dividends depend on underwriting discipline, reserve adequacy and catastrophe exposure. MetLife (NYSE:MET) and Prudential Financial (NYSE:PRU) are life and annuity companies. Their dividends depend on interest rate spreads, reserve assumptions and liabilities that run for decades.

Chubb (P&C Camp): An All-Weather Payer With Room to Spare

Chubb yields 1.19% at $336.69. The quarterly dividend rose to $1.02 from $0.97, which works out to an annualized $4.08. Trailing dividends of $3.93 against EPS of $28.23 give a payout ratio of about 13.9%. A very large margin remains. Adjusted operating cash flow came to $3.5 billion in the quarter, and book value reached a record $75 billion, or $195.45 per share.

The dividend record holds up under stress. The payout rose every year from $0.67 in March 2016 to today’s level, including during the pandemic and through a wildfire quarter in which catastrophe losses hit $1.64B.

For income investors, investment income is the main attraction. Adjusted net investment income reached a record $1.88 billion, up more than 11%. Chubb’s investment chief said “our reinvestment rate of 5.5% is a structurally attractive level, sitting well above the portfolio’s book yield of 5.1%.” On top of that, the board approved a new $7.5 billion buyback.

Risk: Catastrophe exposure. Weather events alone caused $475 million in pre-tax catastrophe losses last quarter, and a severe hurricane season could quickly take back part of the recent combined ratio gains.

Travelers (P&C Camp): 22 Straight Raises and a Rare Reserve Cushion

Travelers yields 1.26% at $362.64. Its $1.25 quarterly dividend was a 14% increase, and management said it marked 22 consecutive years of dividend increases with an 8% compound annual growth rate. The payout ratio is about 12.2% of trailing EPS. Trailing 12-month operating cash flow surpassed $11 billion. The investment portfolio tops $100 billion, and 99% of its fixed income holdings are investment grade.

Reserves are where Travelers stands out. The company recorded net positive prior-year development in 19 of the last 20 years, totaling $15 billion pre-tax. Its payment history shows the dividend rising from $0.30 in 2008 to $0.33 in 2009, so it kept growing through the financial crisis.

The bull case is earnings power. The second-quarter combined ratio came in at 83.6%, core ROE was 24.9%, and after-tax net investment income rose 14% to $883M. New-money yields were about 90 basis points above the portfolio’s embedded yield. Travelers’ chief executive describes the model as built for “industry-leading returns at industry-low volatility.”

Risk: Catastrophe exposure. Travelers chose not to renew the personal-lines CAT XOL treaty it had bought in prior years, which means it now keeps more storm risk on its own books.

Allstate (P&C Camp): Thinnest Payout Ratio in the Group After a Sharp Pullback

Allstate yields 1.85% at $224.74, after the stock fell 13.42% over the past month. The quarterly dividend went to $1.08 from $1.00. The payout ratio is only about 8.3%, the lowest of the five. The holding company has $9.5 billion of available capital, roughly $37 per share.

This history includes a real lesson. The quarterly dividend fell from $0.41 in 2008 to $0.20 in 2009. Since then it has rebuilt to more than five times that level, and it rose from $0.54 in 2020 to $0.81 in 2021, raising through the pandemic.

The bull case is valuation supported by results. Second-quarter adjusted EPS of $8.99 beat the $6.07 estimate. The combined ratio improved to 86.6, and net investment income reached $1.009B. The stock trades at a trailing P/E of 4 and a forward P/E of 8, with $2.6 billion still remaining on its buyback authorization.

Risk: Catastrophe exposure. Management calls Allstate “certainly the biggest U.S. buyer of property liability catastrophe insurance,” but catastrophe losses still came to $1.72B last quarter, and homeowners ran at a 94.6 combined ratio.

The second camp faces a different kind of stress. For MetLife and Prudential, a hurricane matters far less than a long slide in interest rates, a weak private equity quarter or a change in mortality assumptions.

MetLife (Life Camp): Steady Raises Backed by a Liquidity Buffer

MetLife yields 2.37% at $96.22. The quarterly dividend increased to $0.5925 from $0.5675. The payout ratio is about 43.8% of GAAP EPS of $5.24, a figure pulled down by derivative marks and investment losses. Holding companies held $3.4 billion in cash and liquid assets, inside the $3 to $4 billion target range.

The dividend rose every year in the record, from $0.40 during 2016 to 2017 to today’s level. That includes a move from $0.44 to $0.46 during the pandemic.

The bull case comes from balance. First-quarter adjusted EPS rose 23% and net investment income grew 10% to $5.36B. The PineBridge deal added roughly $99.5B of institutional assets. Management describes two earnings drivers that make the company “more balanced, more resilient, and better positioned to perform through different market environments.” The forward P/E is 11.

Risk: Spread sensitivity. Total investment spread came in at 97 basis points, short of the 100 to 120 basis points guidance range because private equity returns were weaker. Management also warned that “there’s no free lunch with just changing the portfolio.”

Prudential Financial (Life Camp): Richest Yield of the Five, 18 Years of Raises

Prudential yields 4.85% at $112.28, more than any peer in this group. The $1.40 quarterly dividend was a 4% increase, and the company said it marked the 18th consecutive year of dividend increases. The payout ratio runs about 49.8%, the highest of the five, so coverage is solid with a smaller margin than its peers. Cash and liquid assets totaled $4.2 billion, above the $3 billion minimum, and management says capital supports its AA financial strength ratings. Management also expects no material capital impact from the Prudential of Japan sales suspension. One note on the trailing dividend: it includes a separate $0.3516 payment in addition to the regular dividend.

Prudential’s history includes a crisis-era reset: annual records show $1.15 in 2007 and $0.58 in 2008. The current run of increases has been building ever since.

The bull case is a business mix shifting toward fee income. Second-quarter adjusted operating income was $4.08 per share, up 14%. The asset management arm’s margin hit 28.2%, and management is targeting $750 million in run-rate savings. The forward P/E is 10.

Risk: Spread and assumption sensitivity. The annual assumption update produced a $379 million GAAP loss, linked to lapse and mortality changes. Management also said statutory impacts can shift with interest rates and equity markets.

Two Camps, One Basket Built to Absorb Shocks

Chubb, Travelers and Allstate pay out a small share of earnings and rely on underwriting discipline to get through storm seasons. MetLife and Prudential pay out more, but their exposure is to interest rates and spreads, which are a different set of risks from hurricanes. Owning both camps spreads a portfolio’s income across hurricanes, market crashes and rate shocks. Keep an eye on hurricane-season losses and the direction of interest rates, since these businesses earn more on its float whenever rates rise.

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