Allstate Corporation and AFLAC Inc. are in the right industries at the right time.
The right industries? Property and causality insurance for Allstate, and supplemental health and life insurance for AFLAC.
And the time? Now, as short-term interest rates are heading higher.
That’s good for both industries. Property and causality and health and life insurance companies generate a great deal of cash for policy premiums that can be invested in higher yielding money instruments.
Markets have taken notice, sending the stocks of both companies sharply higher. Allstate is up 21.86% so far, this year, while AFLAC is up 33.53%. Both stocks beat the S&P 500 nicely–see table.
Company/index YTD* 5-year performance*
Allstate 21.86% 144.73%
AFLAC 33.53 60.51
S&P 500 15.26 83.73
This is especially the case for AFLAC, which has a large presence in Japan that accounts for a large chunk of its revenues — Aflac insures one in four households.
Meanwhile, both companies enjoy “moats,” barriers to entry, which provide them with limited competition, helping them to maintain high operating margins and low PEG ratios—see table
Company Operating Margin PEG Ratio Dividend Yield
Allstate (ALL) 11.37% 1.02 1.49%
AFLAC (AFL) 20.74 0.93 2.15
That’s unusual for an American insurance company. Japan’s highly regulated insurance market—one of the largest in the world — has been off-limits for foreign insurers, especially the smaller ones. But not AFLAC, which identified and exploited a market niche within the Japanese insurance industry back in 1974: supplemental health and life insurance.
The rest is history.Over time, favorable demographics, deregulation, and strategic alliances with domestic insurers turned Aflac Japan’s market niche into a mass market, handsomely rewarding its investors with a generous dividend and equity gains—Aflac has outperformed the S&P 500 2-1 over the last five year