Asset allocation model
INSURANCE COMPANIES

The insurance industry may not seem like a particularly sexy investment opportunity, but smart investing can result in big returns over time. Loosely speaking, the industry is divided into three main types of offerings: health, life, and property and casualty insurance. Insurance companies can be viewed as financial institutions, but ones that operate differently than banks because of their structure. Policyholders pay the insurance companies premiums, which in turn are invested by company portfolio managers – typically conservatively, in the form of bonds or fixed-income securities – to maximize returns in order to pay for liabilities when called upon. Each type of company is subject to different risks and affected more seriously by different market behavior: for example, life insurance companies can be adversely affected by high interest rates, while fluctuations in market conditions for property and casualty insurance companies (called the underwriting cycle) have an outsized effect on that portion of the industry. Some recognizable names include life insurance companies MetLife, Prudential, and Lincoln National; property and casualty giants include Allstate and Progressive. There are under the radar choices available, too: specialty insurers like Markel can be hugely profitable, while upstarts like health-insurance-for-pets leader Trupanion address growing markets and may potentially generate hefty returns.