How we value Insurance stocks
Model: Peer-Relative P/B
Insurance companies hold long-duration liabilities (future claims) whose true economic value isn't fully captured by accounting book value. This model benchmarks the insurer against peers: it takes the median P/B of comparable insurers and adjusts it based on how the target's profitability (ROE) compares to the peer group. A more profitable insurer deserves a premium; a less profitable one, a discount.
Why this model
Insurers' embedded value (present value of future profits from in-force policies) is difficult to calculate from public data alone. Peer-relative P/B with an ROE adjustment serves as a practical proxy within the limits of the available data.
How it is calculated
Takes the median P/B multiple of listed insurance peers and pulls it toward a 1.5x prior, more strongly when there are few peers (weight N/(N+4)). Adjusts by the ratio of the company's ROE to the peer median ROE (clamped to 0.7x-1.5x to prevent extremes). Multiplies adjusted P/B by current BVPS.
Best suited to
Life and non-life insurance companies where embedded value data is unavailable and peer benchmarking provides the most reliable reference.