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The odds are stacked against the market. Oil prices are crawling up but are still way below their glorious highs, no one, not even the Fed itself, has any clue to the timing of the next interest rate hike, Bank of Japan’s (BOJ) monetary policy remains ultra-loose, U.S. employment data disappointed in May, global growth is tepid and as if these weren’t enough, an increased possibility of a Brexit recently cropped up.
Market Impact on Insurance Sector
While Bank of Japan or Brexit are not giving the insurance space a major headache, the employment scene is brewing trouble. Thanks to only about 0.04 million jobs added in May against more than the 0.2 million expected, all hopes of a June hike were washed away. This is because Fed’s decision of raising rates depends largely on employment numbers, which came in lower than expected for the second straight month in May.
This was followed by Fed Chairperson Janet Yellen’s positive rhetoric on the state of the U.S. economy that brushed off worries stemming from the shockingly downbeat job data. Yet, Yellen made no specific comment on the timing of the next increase and the broader market almost wrote off a June rate hike.
Yellen, however, stressed on the fact that a lone data cannot be the sole judge of the economy’s health. Other economic indicators have lately been strong. As per the Institute for Supply Management (ISM), the manufacturing PMI was 51.3 in May, up from 50.8 in April. Overall retail sales increased 1.3% in April from March, representing the largest gain since Mar 2015. New U.S. single-family home sales logged the biggest leap in 24 years in April and the existing home sales for April hit a three-month high. All these keep insurers’ hopes of a hike in July still alive.
According to Jan Hatzius of Goldman Sachs “there is a decent chance it will raise rates in July”. Goldman Sachs estimates 35% chance of a rate increase in July with 35% chance that the same may materialize in September.
But even if these do not translate into a rate hike, the insurance sector has no such reason to panic. This is because insurers hold a considerable amount in bonds, which would see a decline in value if rates rise. A low interest rate environment thus is not all bad news for insurers.
Nonetheless, interest rate has a direct impact on investment results of insurers. A low rate thus puts pressure on investment income and investment yield. Notably, investment income forms a major revenue component of insurers. Life insurers, in particular, suffer spread compression on products like fixed annuities and universal life due to sustained low rates.
However, a broader invested asset base and alternative asset classes have to some extent cushioned investment results in the low interest rate environment. Though investment performance remains far from their historic highs, yet investment income and yields have been exhibiting improvement.
3 Insurance Stocks with Winning Potential
Amid all the looming uncertainty, the insurance industry seems somewhat insulated by its fundamental strength. Operators from the accident and health (A&H) insurance industry in particular are well positioned with a rock-solid industry rank of 5. This falls on the upper end of the top 1/3 tier of our Industry Rank leading to a clear positive outlook for the industry.
We have picked some solid operators from the space that have the potential to boost one’s portfolio even more. We refine our search using the VGM score, a solid Zacks Rank, and attractive price-to-earnings (P/E). Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Also, these stocks posted average positive earnings surprises over the past four quarters.
Headquartered in Columbus, GA, Aflac Inc. (AFL - Free Report) , through its subsidiary – American Family Life Assurance Company of Columbus – provides supplemental health and life insurance. Aflac Financial has a Zacks Rank #3 (Hold) and a VGM Score of B. The company has expected earnings growth of 5% for the current year. The forward P/E ratio is 10.3. Aflac delivered positive surprises in three of the last four quarters, with an average beat of 4.1%. Notably, the stock has been witnessing upward estimate revisions over the last 60 days.
Headquartered in DeRidder, LA, Amerisafe Inc. (AMSF - Free Report) is a specialty provider of workers’ compensation insurance, which markets and underwrites insurance through its subsidiaries. Amerisafe has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. Its expected earnings growth is 8.8% for the current year. The forward P/E ratio is 15.7, which is lower than the industry average of 16.5. The company delivered positive surprises in the last four quarters, with an average beat of 25.9%. Notably, the stock has witnessed upward estimate revisions over the last 60 days.
Headquartered in Chattanooga, TN, Unum Group (UNM - Free Report) provides disability insurance, long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. Unum Group has a Zacks Rank #3 and a VGM Score of A. The company has expected earnings growth of 4.7% for the current year. The forward P/E ratio is 9.1. Unum Group delivered positive surprises in two of the last four quarters, with an average beat of 1.9%. The stock has seen estimates being revised upward over the last 60 days.
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3 Rock-Steady Insurers in an Erratic Market
The odds are stacked against the market. Oil prices are crawling up but are still way below their glorious highs, no one, not even the Fed itself, has any clue to the timing of the next interest rate hike, Bank of Japan’s (BOJ) monetary policy remains ultra-loose, U.S. employment data disappointed in May, global growth is tepid and as if these weren’t enough, an increased possibility of a Brexit recently cropped up.
Market Impact on Insurance Sector
While Bank of Japan or Brexit are not giving the insurance space a major headache, the employment scene is brewing trouble. Thanks to only about 0.04 million jobs added in May against more than the 0.2 million expected, all hopes of a June hike were washed away. This is because Fed’s decision of raising rates depends largely on employment numbers, which came in lower than expected for the second straight month in May.
This was followed by Fed Chairperson Janet Yellen’s positive rhetoric on the state of the U.S. economy that brushed off worries stemming from the shockingly downbeat job data. Yet, Yellen made no specific comment on the timing of the next increase and the broader market almost wrote off a June rate hike.
Yellen, however, stressed on the fact that a lone data cannot be the sole judge of the economy’s health. Other economic indicators have lately been strong. As per the Institute for Supply Management (ISM), the manufacturing PMI was 51.3 in May, up from 50.8 in April. Overall retail sales increased 1.3% in April from March, representing the largest gain since Mar 2015. New U.S. single-family home sales logged the biggest leap in 24 years in April and the existing home sales for April hit a three-month high. All these keep insurers’ hopes of a hike in July still alive.
According to Jan Hatzius of Goldman Sachs “there is a decent chance it will raise rates in July”. Goldman Sachs estimates 35% chance of a rate increase in July with 35% chance that the same may materialize in September.
But even if these do not translate into a rate hike, the insurance sector has no such reason to panic. This is because insurers hold a considerable amount in bonds, which would see a decline in value if rates rise. A low interest rate environment thus is not all bad news for insurers.
Nonetheless, interest rate has a direct impact on investment results of insurers. A low rate thus puts pressure on investment income and investment yield. Notably, investment income forms a major revenue component of insurers. Life insurers, in particular, suffer spread compression on products like fixed annuities and universal life due to sustained low rates.
However, a broader invested asset base and alternative asset classes have to some extent cushioned investment results in the low interest rate environment. Though investment performance remains far from their historic highs, yet investment income and yields have been exhibiting improvement.
3 Insurance Stocks with Winning Potential
Amid all the looming uncertainty, the insurance industry seems somewhat insulated by its fundamental strength. Operators from the accident and health (A&H) insurance industry in particular are well positioned with a rock-solid industry rank of 5. This falls on the upper end of the top 1/3 tier of our Industry Rank leading to a clear positive outlook for the industry.
We have picked some solid operators from the space that have the potential to boost one’s portfolio even more. We refine our search using the VGM score, a solid Zacks Rank, and attractive price-to-earnings (P/E). Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Also, these stocks posted average positive earnings surprises over the past four quarters.
Headquartered in Columbus, GA, Aflac Inc. (AFL - Free Report) , through its subsidiary – American Family Life Assurance Company of Columbus – provides supplemental health and life insurance. Aflac Financial has a Zacks Rank #3 (Hold) and a VGM Score of B. The company has expected earnings growth of 5% for the current year. The forward P/E ratio is 10.3. Aflac delivered positive surprises in three of the last four quarters, with an average beat of 4.1%. Notably, the stock has been witnessing upward estimate revisions over the last 60 days.
Headquartered in DeRidder, LA, Amerisafe Inc. (AMSF - Free Report) is a specialty provider of workers’ compensation insurance, which markets and underwrites insurance through its subsidiaries. Amerisafe has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. Its expected earnings growth is 8.8% for the current year. The forward P/E ratio is 15.7, which is lower than the industry average of 16.5. The company delivered positive surprises in the last four quarters, with an average beat of 25.9%. Notably, the stock has witnessed upward estimate revisions over the last 60 days.
Headquartered in Chattanooga, TN, Unum Group (UNM - Free Report) provides disability insurance, long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. Unum Group has a Zacks Rank #3 and a VGM Score of A. The company has expected earnings growth of 4.7% for the current year. The forward P/E ratio is 9.1. Unum Group delivered positive surprises in two of the last four quarters, with an average beat of 1.9%. The stock has seen estimates being revised upward over the last 60 days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>