The Zacks Life Insurance industry comprises companies that offer life insurance coverages and retirement benefits to individuals and groups. The products include annuities, whole and term life insurance, accidental death insurance, health insurance, Medicare supplements and long-term healthcare policies.
The industry also includes companies providing wealth and asset management solutions.
Let us take a look at the industry’s three major themes:
- A low interest rate environment makes life insurers prone to interest rate risks, given their rate-sensitive products and investments. A low interest rate can impact life insurers' earnings, capital and reserves, liquidity and competitiveness. In times of persistently low interest rates, life insurers' income from investments becomes insufficient to meet the contractually guaranteed obligations of policyholders, which cannot be lowered. Moreover, the rising incidence of COVID-19 cases poses a threat to life insurers. A spike in mortality will induce higher claim payments by life insurers, which might drain their underwriting incomes. They could also face higher claims for certain types of insurance including trade credit and event cancellation insurance.
- In an effort to navigate the current low interest rate environment, industry players are finding new solutions and ways to maintain their sales and profitability. Insurers are refraining from selling long duration term life insurance. The companies also made changes to their product portfolio by moving away from guaranteed savings products toward protection products of unit-linked savings products, which pass the investment risks to policyholders. Further, given the slowdown in economic growth, contributions from employers and employees have also declined. Sales are also expected to remain sluggish.
- The life insurance industry, which has so far been operating mostly manually, is witnessing accelerated adoption of technology in its operations due to the COVID-19 led disruption. Companies are using electronic applications, e-signatures and electronic policy delivery. This transition to technology will enable it to survive in the post-coronavirus world. Carriers started selling policies online that appeal to the tech-savvy population. At the same time, the use of real-time data is making premium calculation easier and reducing risk. Increased automation is expected to drive premium growth and boost efficiency. Moreover, adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence or blockchain should help life insurers curb operational costs and aid margin expansion.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates attractive prospects for the near term.
The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #84, which places it in the top 33% of 253 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimate for 2020 has gone up 1.1% since June end.
Before we present a few life insurance stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Life Insurance industry has outperformed its own sector but underperformed the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively lost 5% compared with the Finance sector’s decline of 7.4%. The Zacks S&P 500 composite has risen 15.7%. in the said time frame.
One-Year Price Performance
Life Insurance Industry’s Current Valuation
On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 2.47X compared with the S&P 500’s 4.53X and the sector’s 2.46X.
Over the past five years, the industry has traded as high as 2.53X, as low as 0.91X and at the median of 1.82X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Insurers are likely to be hurt by COVID-19 led economic weakness, which will undermine prospects and perhaps even contract insurable exposures. Low interest rate will lead to new type of products, which will shield insurers from interest rate risk and equity market volatility.
Uptake of technologies will continue at full speed, which despite escalating operating expenses will enhance business operational efficiency.
Only one stock in the Zacks Life insurance space currently holds a Zacks Rank #1 (Strong Buy) while one carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Toronto, Canada, Manulife Financial Corporation (MFC - Free Report) was founded in 1887. Manulife is one of the three dominant life insurers within its domestic market and possesses rapidly growing operations in the United States and several Asian countries. It sports a Zacks Rank of 1 and the expected long-term earnings growth rate is pegged at 10%, better than the industry average of 9.5%.
The Zacks Consensus Estimate for 2020 EPS has moved north by 10.3% and while that for 2021 has risen 7.4% in the past 30 days. The company delivered four-quarter average positive surprise of 6.79%.
Price and Consensus: MFC
Founded in 1865 and based in Toronto, Canada, Sun Life Financial (SLF - Free Report) is the third largest insurer in Canada. It provides protection and wealth management products and services to individual and group customers worldwide, including in Canada, the United States, United Kingdom, Ireland, Hong Kong , the Philippines , Japan , Indonesia , India , China , Australia , Singapore , Vietnam , Malaysia and Bermuda. This Zacks Rank #2 company delivered four-quarter average earnings surprise of 11.58%.
The Zacks Consensus Estimate for 2020 EPS has moved north by 5.5% while the same for 2021 has risen 5.3% in the past 30 days.
Price and Consensus: SLF
Here are five life insurers carrying a Zacks Rank #3 (Hold) that investors may retain in their portfolio.
Headquartered in Philadelphia, PA, Lincoln National Corp. (LNC - Free Report) is a diversified life insurance and investment management company.
The Zacks Consensus Estimate for 2020 EPS indicates a rise of 78.5% while that for 2021 projects 24.7% increase from the year-ago reported figure.
Price and Consensus: LNC
Headquartered in Bermuda, Athene Holdings (ATH - Free Report) offers various insurance and reinsurance retirement products across the United States and Bermuda. The Zacks Consensus Estimate for EPS has moved north by 3.4% for 2020 and 1.8% for 2021 in the past 30 days.
Price and Consensus: ATH
Charlotte, NC-based Brighthouse Financial, Inc. (BHF - Free Report) is one of the largest providers of annuity and life insurance products in the United States.
The Zacks Consensus Estimate for 2020 EPS indicates a rise of 202.4% while that for 2021 projects 59.1% increase from the year-ago reported figure.
Price and Consensus: BHF
Timberlake, MO, Reinsurance Group of America Inc. (RGA - Free Report) is a leading global provider of traditional life and health reinsurance and financial solutions with operations in the United States, Latin America, Canada, Europe, the Middle East, Africa, Asia, and Australia.
The Zacks Consensus Estimate for 2020 EPS has moved north by 42.6% while that for 2021 has risen 0.2% in the past 30 days. The company delivered four-quarter average earnings surprise of 49.23%.
Price and Consensus: RGA
Based in New York, Voya Financial, Inc. (VOYA - Free Report) operates as a retirement, investment, and employee benefits company in the United States. The company delivered four-quarter average earnings surprise of 16.34%.
The Zacks Consensus Estimate for 2020 EPS indicates a rise of 15.7% while that for 2021 projects 52.3% increase from the year-ago reported figure.
Price and Consensus: VOYA