Insurance as a sector is very interesting and at the same time economics of the insurance sector is peculiar. Hence, looking at the sector from plain vanilla sales/profit perspective may not be appropriate. One of the important parameter based on which companies are evaluated - is Embedded value and equivalent to ROE. Return on embedded value. The calculation and underlying logic of EV is a very involved topic, however, I would strongly recommend you to study it and understand, if you want to invest in insurance sector.
On a broader level, economics of an insurance company is governed by two things
Float: Money lying with the company as premium that policy holders pay but company is not obligated to pay at the moment
Underwriting economics: Whether the company is making money or losing money while underwriting the policy on aggregate level (both in terms of paying for claims + operating cost)- typically it is measured through combined ratio.
With this basic understanding, I generally look for two key skill set in any insurance company, which positions them for success over long period of time
Ability to underwrite profitably: This is THE most important expertise that is required to succeed over long period of time. This means, company understands and assesses the underwriting risk correctly and prices it accurately so it is economically viable. Even though, it may sound very logical and simple, very few companies around the world, have consistently demonstrated this ability. As mentioned earlier, this is generally measured by combined ratio. Combined ratio of above 100 indicates underwriting loss while below 100 indicates underwriting profit. Good companies, ALWAYS focus on profitably underwriting the risk while growth is seldom the priority. In fact, great insurance companies, may be willing to walk away from business, if they think the underwriting at present price point will result into loss. Thus, while investing in insurance companies, it is important to defocus from growth and focus on how well the insurer is underwriting.
Investment Skills : All insurance companies will have some float with them which is policy holder’s premium that is paid upfront until the claim is made. Now, how efficiently this float is managed, becomes extremely important. If you can very efficiently deploy this extra capital, it will give a good bump off to your profitability and return ratios. Hence, one must look at, how well this float is managed, by the insurance company. You will find a lot of divergence in Return on policy holders’ funds and this diveregence, if observed over long period of time, will clearly give you clues about investment skills of the company.
Regarding the choice between life insurance and general insurance companies, I think both of them have their own advantages and disadvantages. Also, even within life insurance companies, one need to understand the product contributions (ULIP versus non-ULIP policy mix) to judge the quality of the business.
However, one thing that stands out, is that for life insurance companies, the float generated is much more sticky (as once you buy the term policy, typically one is locked in for long period of time (typically 25-30 years). For general insurance companies, the float generated may not be too sticky as the policy comes up for renewal every year or two. Hence, the churn in policy and hence float may be much higher. On the downside, in life insurance, once the company underwrites risk, it may have to live with it for long period of time and hence any mistake committed is not reversible. In general insurance, since policy comes up for renewal every year, insurers may get chance to correct those mistakes at the time of renewal.
Overall, If we look around the world, both kind of businesses (general insurance- more popularly known as property and casualty and life insurance have grown really big and some of them have survived for many decades. Thus, what I like about the industry is that it can give longevity and scale, which are essential for compounding. Another important factor is the base rate for survival of the company in industry seems good (this is based on hunch and not based on data)The key is to buy the businesses that is run on good economics (and not chase growth)- and stay put.
Discl: I am still developing understanding of this sector and hence my views may evolve as I get more understanding. I do not have any direct exposure to insurance business in my portfolio except for one indirect exposure to health insurance through my investment in Max India.