Value Investing with Quality in the US Public Insurance Companies

Peerapong Dhangwatnotai and Sampan Nettayanun

No 93, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This study explores the value investing strategy coupling with quality metrics for the U.S. insurance industry. It uses apparent measures of insurance company efficiency such as loss ratio, expense ratio, combined ratio, and investment yield to construct portfolios. There are evidences of value premium as measured by PB and PE ratios. It is not clear that the quality metrics can give superior returns for investors. The anomalies can partially be explained by Fama-French five-factor model (FF5)'s market factor, value factor and profitability factor. The study also proposes using a new five-factor model that changes the profitability (quality) factor slightly from the Fama-French five-factor model. The adjusted FF5 "local" using insurance local factors do not improve the ability to explain the portfolios' returns.

Keywords: Value Investing; Quality Investing; Portfolio Management; Life Insurance; Property and Casualty Insurance; Risk Management (search for similar items in EconPapers)
JEL-codes: G11 G22 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2018-08
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