Lubin Investment · Blog

Insurance: top-quality stocks the market underprices

2026-06-11 ·

In June 2026, insurance is the most represented sector in my top of stocks rated 10/10, with cash priced at about 5 times on average. These companies tick my 10 quality criteria, yet the market pays little for them. Ignored bargain or real risk? I separate quality from price to answer.

The pattern that jumped out at me

When I filter my stocks rated 10 out of 10 on quality, one sector keeps coming back, far more than the others: insurance. Not tech, not luxury, not healthcare. Insurance, the business everyone finds boring, is today the most represented at the top of my list.

And the most striking part is not even that. These elite insurers trade on average at about 5 times their cash. Put another way, the market treats them at once as very high quality companies (by their fundamentals) and as bargain-bin deals (by their price). Both at once is rare, and worth stopping for.

Before going further, let us define the two words that come up everywhere. The score out of 10 first: I run each company through 10 fundamental quality criteria (profitability, growth, balance sheet strength, return on capital). A company that ticks them all gets 10 out of 10. It is rare, by design. Then the P/FCF (price to free cash flow): the share price relative to the free cash flow it generates each year. Free cash flow is the money that truly stays in the bank once every bill is paid. A P/FCF of 5 means you pay barely five years of that cash. Meaning first: the lower it is, the cheaper it is.

The list, with nothing invented on the numbers

Here are the insurers earning my top score, with what you pay for their cash. Read the P/FCF column as a number of years of free cash flow: the lower it is, the cheaper the stock relative to what it generates.

All these names share two things, and that is the whole point: a perfect quality score, and a cash multiple below the market average. Good business and good price, together. For the fine mechanics of one of these cases, I detailed Kinsale in my full Kinsale Capital analysis.

Why so many insurers tick my 10 criteria

A whole sector crowding the top of my ranking is no accident. Three drivers explain it, and each deserves a plain word.

The first is the float. An insurer collects your premiums today and pays a possible claim only months, sometimes years later. In between, it keeps that pile and invests it. This other people's money, collected before it is spent, works for free. When the float is well managed, it becomes a near-permanent source of cash, with very little need to invest in machines or factories. Hence margins that sometimes look like a software company's.

The second is underwriting discipline. Underwriting is the act of deciding which risk you accept and at what price. The best insurers say no far more often than they say yes, and refuse to chase volume when prices get too low. This restraint, in a business where the temptation to grow fast is constant, shows up in one number: the combined ratio. It is the sum of claims and expenses relative to premiums collected. Below 100 percent, the insurer makes money just by insuring, before earning a cent on its investments. The companies on my list operate structurally below that line.

The third is the cycle. Insurance lives in cycles: when claims have been costly, weak insurers retreat, supply tightens, and premium prices rise. This is called a hard cycle. In 2026, several lines remain in a hard cycle, which boosts premium growth and the profitability of the most disciplined. This context temporarily amplifies the quality on display, and I keep it in mind: a cycle turns.

So why does the market pay so little for them?

That is the real question. If these companies are so solid, why pay 3, 4, 5 times their cash, where a fine growth stock trades at 20 or 30 times? The market is not stupid. It applies a discount for three honest reasons, which must be weighed.

First, insurance is seen as cyclical. Results climb in a hard cycle but can fall back when premium prices ease. The market refuses to pay up for earnings it deems temporary. A low P/FCF, here, is partly the market saying: I do not believe this level of cash lasts.

Next, catastrophe risk. A hurricane, an earthquake, a string of wildfires, and a single bad year can wipe out several years of profit, especially at reinsurers like RenaissanceRe or insurers heavily exposed to one region like Universal Insurance in Florida. This sensitivity to catastrophes makes results less predictable, and the market hates the unpredictable.

Finally, reserve accounting is viewed as opaque. An insurer must estimate today what it will pay tomorrow for claims not yet settled: these are reserves. Those estimates rest on assumptions outsiders cannot easily verify. An insurer could, in theory, under-reserve to inflate current profits. This grey area pushes many investors to be wary, and therefore to pay less.

A market blind spot, or a real risk?

My answer is nuanced, and it runs through my core rule: I always separate two questions most people confuse. One: is this a good company? Two, entirely apart: is this the right price? A great company bought too expensive is still a bad investment, and a low price can hide a very real decline.

On quality, the answer is clear: these insurers are excellent businesses, and my 10 out of 10 says so without ambiguity. The float, the discipline, the conversion of profit into real cash are there, measured, not assumed.

On price, it is subtler. Part of the discount is a genuine blind spot: the market hates the cyclical and the unpredictable to the point of underpaying the durable quality of some of these houses. But another part is a real risk: a turning cycle, a brutal catastrophe season, mis-set reserves. A low P/FCF is never a bargain in itself. It only is if the quality holds in bad weather, not just in good.

That is why I never treat this list as a basket to buy in one block. I look case by case: a catastrophe-exposed reinsurer is not judged like a steady auto insurer. The quality score tells me where to look. The price tells me when. And each company's own risk tells me how much I believe in it.

What I actually do with this

I will not sell you certainty on timing. No one knows when an insurance cycle turns, nor when the market will stop underpaying these businesses. What I do know is that buying quality at a good price has aged well historically, as long as you never confuse a discount with a decline.

In practice, I start with quality, then check the price, then weigh the specific risk. You can walk the same path: filter the companies I rate 10 out of 10 on quality, cross them with my ranking of undervalued stocks, and understand how those two judgments are built in my methodology.

That is exactly what I wanted to be able to do in a few seconds for any stock: judge quality on one side, price on the other, and spot the rare cases where the two align. Since I could not find the tool, I built it. Cheap is everywhere. Quality on the cheap, and that holds through the storm, far more rarely.

FAQ

Why does insurance dominate your top of 10/10 stocks?

Because the best insurers combine three strengths my criteria reward: a profitable float (premium money collected in advance and invested), underwriting discipline that makes them profitable just by insuring, and rising premiums in a hard cycle. These three drivers produce a lot of cash with little need to invest.

Why does the market pay so little for these insurers?

For three honest reasons. They are seen as cyclical, so the market doubts their current earnings will last. They are exposed to catastrophes, which makes results unpredictable. And their reserve accounting, the sums estimated for future claims, is viewed as opaque. This wariness lowers the price, hence the P/FCF.

Is a P/FCF of 5 times a bargain?

Not on its own. A P/FCF of 5 means you pay five years of the cash generated, which is very low. But a low price can hide a cycle about to turn or a poorly measured catastrophe risk. It is only attractive if the quality of the business also holds in bad weather. Hence my rule: quality first, price second.

What are the float and the combined ratio, in plain terms?

The float is the premium money an insurer collects before paying possible claims: it invests it in the meantime, for free. The combined ratio is the sum of claims and expenses relative to premiums. Below 100 percent, the insurer makes money just by insuring, before its investments even count.

Should you buy these insurance stocks now?

It depends on your price discipline and your read of each company's own risk, not on a market forecast. A 10/10 quality score and a low P/FCF signal a good business at a reasonable price, but do not say whether tomorrow will be green or red. This is not personalized investment advice: do your own research.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).