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According to Graham, Is This Insurer Cheap?

Robert Eberhard
September 5, 2012

Earlier this year, I spent some time dissecting Benjamin Graham's The Intelligent Investor, the seminal book on value investing. Along the way, I talked about the Graham number as a means of valuation when it comes to stocks. The formula is pretty straightforward: Multiply earnings per share by book value per share, then multiply that by 22.5, and finally take the square root. The result, in dollars, is the Graham number.

However, a quick check can help determine whether a company might be worthy of a look using the teachings of Graham. He said that in an ideal situation, the P/E ratio and P/B ratio multiplied together should not exceed 22.5, with a maximum P/E ratio of 15 and P/B of 1.5. With that in mind, I looked at the stocks of the S&P 500 that met this ideal situation. Currently, there are 71 companies in the index that meet these criteria. I will be making a CAPScall on these companies after comparing them with competitors and their current value in relation to their Graham numbers. Up next is insurer Assurant (NYSE: AIZ  ) .

What is it?
Assurant is a provider of specialty insurance products, both in the U.S. and select world markets. Among the products it offers is health insurance, but unlike large providers such as Aetna, it primarily focuses on customers who are not part of a larger group plan. It's also a one-stop shop for employers in managing employee benefit plans, helping provide long-term and short-term disability coverage, life and dental insurance, and other coverage to employers of various sizes.

Assurant came under fire in New York over collusion with large banks on the fees associated with force-placed homeowner's insurance, or insurance the banks place on a home on which they have a mortgage. Increased premiums were then passed on to the homeowners, and "sweetheart deals" transpired between Assurant and banks such as JPMorgan Chase and Citigroup. With increased focus on this portion of its business, Assurant needs to be mindful that people are paying attention.

What's it worth?
Assurant is nevertheless still the best value among its peer group, trading at a steep discount to its Graham valuation.



Book Value Per Share (MRQ)

Graham Number

Recent Price


Assurant $6.23 $61.09 $92.54 $35.26 162.4%
StanCorp Financial Group (NYSE: SFG  ) $3.22 $47.27 $58.52 $31.65 84.9%
Triple-S Management (NYSE: GTS  ) $1.92 $25.56 $33.23 $20.78 59.9%
AFLAC (NYSE: AFL  ) $5.49 $30.29 $61.17 $46.50 31.5%
Unum Group (NYSE: UNM