Seeing as how very few people want anything to do with the housing market or industries that benefit from it, Homeowner's Choice (Nasdaq:HCII) may be an interesting contrarian bet. The company provides homeowner's, condominium and other property and casualty related insurance in the state of Florida. The fact that the state of Florida was one of the worst hit during the housing crisis may be another reason many are overlooking this company. (For a quick refresher, check out Intro To Insurance: Property And Casualty Insurance.)

IN PICTURES: 8 Ways To Survive A Market Downturn

Pessimism Creates Opportunity
Shares in Homeowner's Choice trade for 12 times trailing earnings and under 8 times forward earnings based on consensus estimates. The company trades for 85% of book value where book value is mostly easy to value financial assets. Overall the insurance industry is facing a soft market today - premiums are low relative to the risks incurred. You can find quality insurance names like White Mountains Insurance Group (NYSE:WTM) trading at 75% of book value and United Fire and Casualty (Nasdaq:UFCS) trading at 80% of book value. Even larger players like Markel (NYSE:MKL) and Alleghany (NYSE:Y) are trading at book value, despite long records of excellent underwriting performance.

The market is pessimistic on the current state of insurance. Yet the insurance cycle is such that over time, claims begin to overcome the low premiums charged and the businesses that were writing insurance at lower premiums either go away or raise premiums. As a result the entire industry begins to benefit. (For more, see Digging Into Book Value.)

You Need This Insurance
Unlike auto insurance, most homeowner's insurance is voluntary. On the other hand, typical homeowner's policy cost very little relative to the value of one's home and belongings. For example, a $400,000 policy can get annual protection for under $2,000 a year, sometimes much less, depending on the coverage. Condo insurance is often a couple of hundred a year because the condo association usually carries a policy that insurance the building structure.

Despite the weakened Florida real estate market, Florida remains one of the most desirable places to live in the United States. Great weather, favorable taxation structure and beaches all but ensure the state as a good home destination. HCII, at current valuations, is an opportunity to own an insurance company at the cycle bottom. As premiums improve, income and book value should go up. (For more, see The History Of Insurance In America.)

A Lot to Like
With a market cap of $40 million, over $100 million in cash and investments, and no debt, if this company is taking a disciplined approach to underwriting, it offers an interesting opportunity that investors should investigate. (For more, see Insurance Articles And Insight.)

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Tickers in this Article: HCII, UFCS, WTM, Y, MKL

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