The Hanover Insurance Group (NYSE: THG) and Allied World Assurance (OTCMKTS:AWHHF) are both mid-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their risk, earnings, profitability, dividends, analyst recommendations, valuation and institutional ownership.

Profitability

This table compares The Hanover Insurance Group and Allied World Assurance’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
The Hanover Insurance Group 2.37% 3.35% 0.67%
Allied World Assurance 12.56% 8.96% 2.42%

Institutional and Insider Ownership

83.9% of The Hanover Insurance Group shares are owned by institutional investors. Comparatively, 86.5% of Allied World Assurance shares are owned by institutional investors. 1.1% of The Hanover Insurance Group shares are owned by insiders. Comparatively, 3.2% of Allied World Assurance shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Risk & Volatility

The Hanover Insurance Group has a beta of 1.14, indicating that its share price is 14% more volatile than the S&P 500. Comparatively, Allied World Assurance has a beta of 0.7, indicating that its share price is 30% less volatile than the S&P 500.

Dividends

The Hanover Insurance Group pays an annual dividend of $2.00 per share and has a dividend yield of 1.9%. Allied World Assurance pays an annual dividend of $0.52 per share and has a dividend yield of 1.0%. The Hanover Insurance Group pays out 70.9% of its earnings in the form of a dividend. Allied World Assurance pays out 17.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. The Hanover Insurance Group has increased its dividend for 5 consecutive years. The Hanover Insurance Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares The Hanover Insurance Group and Allied World Assurance’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
The Hanover Insurance Group $4.95 billion 0.90 $155.10 million $2.82 37.28
Allied World Assurance N/A N/A N/A $2.97 17.36

The Hanover Insurance Group has higher revenue and earnings than Allied World Assurance. Allied World Assurance is trading at a lower price-to-earnings ratio than The Hanover Insurance Group, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of recent ratings and price targets for The Hanover Insurance Group and Allied World Assurance, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
The Hanover Insurance Group 0 1 0 0 2.00
Allied World Assurance 0 4 0 0 2.00

The Hanover Insurance Group presently has a consensus price target of $91.00, indicating a potential downside of 13.43%. Allied World Assurance has a consensus price target of $39.25, indicating a potential downside of 23.86%. Given The Hanover Insurance Group’s higher possible upside, research analysts clearly believe The Hanover Insurance Group is more favorable than Allied World Assurance.

Summary

Allied World Assurance beats The Hanover Insurance Group on 7 of the 12 factors compared between the two stocks.

The Hanover Insurance Group Company Profile

The Hanover Insurance Group, Inc. is a holding company. The Company is engaged in providing property and casualty insurance products and services. The Company has four segments: Commercial Lines, Personal Lines, Chaucer and Other. It markets its domestic products and services through independent agents and brokers in the United States, and conducts business internationally through a subsidiary, Chaucer Holdings Limited, which operates through the Society and Corporation of Lloyd’s (Lloyd’s). Its Commercial Lines product suite provides agents and customers with products designed for small, middle and specialized markets. Its Personal Lines coverages include other personal lines, which consist of umbrella and fire, among others. The Chaucer segment consists of international business written through Lloyd’s, including marine and aviation, and property. The Other segment consists of Opus Investment Management, Inc. (Opus), which provides investment advisory services to affiliates.

Allied World Assurance Company Profile

Allied World Assurance Company Holdings Ltd is a Germany-based holding company. It provides property, casualty and specialty insurance and reinsurance solutions to clients around the world. The Company operates in three segments: North American Insurance, Global Markets Insurance and Reinsurance. The North American Insurance segment consists of the Company’s direct insurance operations in the United States, Bermuda and Canada. The Global Markets Insurance segment includes all of the Company’s direct insurance operations outside of North America. The Company’s reinsurance segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverage’s written by other reinsurance companies. The Company leases space in Australia, Bermuda, Canada, Hong Kong, Ireland, Labuan, Singapore, the United Kingdom and the United States for the operation of its North American Insurance, Global Markets Insurance and Reinsurance segments.

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