Redesigning and repricing of products and services to maintain sales and profitability drive Zacks
Life Insurance industry players. Increased automation is expected to drive premium growth and boost efficiency of Manulife Financial Corporation ( MFC Quick Quote MFC - Free Report) , Sun Life Financial ( SLF Quick Quote SLF - Free Report) , Reinsurance Group of America ( RGA Quick Quote RGA - Free Report) , Brighthouse Financial ( BHF Quick Quote BHF - Free Report) , Lincoln National Corporation ( LNC Quick Quote LNC - Free Report) , Voya Financial ( VOYA Quick Quote VOYA - Free Report) and Primerica ( PRI Quick Quote PRI - Free Report) . However, a sustained low rate environment weighs on investment income. Moreover, rising incidence of COVID-19 cases poses a threat to life insurers as it raises higher claim payments About the Industry
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. 3 Trends Shaping the Future of the Life Insurance Industry : 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. In the latest FOMC meeting, the interest rate was retained at near-zero level with indication of no raises until 2023. Low Rate Environment 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. : 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. Product Redesigning : 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. As such, 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. Increased Adoption of Technology Zacks Industry Rank Indicates Dull Prospects
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects for the near term. The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #133, which places it in the bottom 48% of 255 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 bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. The industry’s earnings estimate for 2021 has gone down 39.2% in a year. 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 Lags Sector and S&P 500
The Life Insurance industry has underperformed its own sector as well as the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively lost 14.9% compared with the Finance sector’s decline of 2.7%. In contrast, the Zacks S&P 500 composite has risen 17.7% 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 1.37X compared with the S&P 500’s 6.36X and the sector’s 2.8X.
Over the past five years, the industry has traded as high as 2.47X, as low as 0.91X and at the median of 1.75X. Price-to-Book (P/B) Ratio (TTM) Price-to-Book (P/B) Ratio (TTM) 7 Life Insurers to Keep an Eye On
Four stocks in the space currently carry a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Manulife Financial Corporation: It is one of the three dominant life insurers in Canada and should benefit from growth in Asian business and expansion of Wealth and Asset Management business. The company delivered an average earnings surprise of 6.87% in the trailing four quarters. The Zacks Consensus Estimate for 2021 earnings has been revised 3.6% upward over the past 60 days. The expected long-term earnings growth rate is pegged at 10%. Price and Consensus: MFC Reinsurance Group of America: This leading global provider of traditional life and health reinsurance and financial solutions steadily benefits from a mix of organic and transactional opportunities, niche position in reinsurance markets, expanding business in the pension risk transfer market and improved life reinsurance pricing. The company delivered an average earnings surprise of 14.78% in the trailing four quarters. The Zacks Consensus Estimate for 2021 earnings has been revised about 22% upward over the past 60 days. Price and Consensus: RGA Brighthouse Financial: It is one of the largest providers of annuity and life insurance products in the United States. It is poised to grow on a compelling suite of life and annuity products, growing individual insurance and focus on transitioning the business mix to less capital-intensive products. The Zacks Consensus Estimate for 2021 earnings has been revised about 1% higher over the past 60 days. Price and Consensus: BHF Primerica: The second largest issuer of term life insurance coverage in North America should benefit from stronger demand for insurance protection due to the pandemic, the untapped $12 trillion market of middle-income households and growing mortgage distribution business. The company delivered an average earnings surprise of 10.04% in the trailing four quarters. The Zacks Consensus Estimate for 2021 earnings has been revised about 22% upward over the past 60 days. Price and Consensus: PRI
Here are three stocks that carry a Zacks Rank #3 (Hold).
Sun Life Financial: The third largest insurer in Canada should benefit from strengthening Asian presence, expanding global asset management business and favorable business mix. The company delivered an average earnings surprise of 14.78% in the trailing four quarters. The Zacks Consensus Estimate for 2021 earnings has been revised 6.6% upward over the past 60 days. The expected long-term earnings growth rate is pegged at 9%. Price and Consensus: SLF Lincoln National: This diversified life insurance and investment management company is poised to grow on strong performance of the Life Insurance segment. The company has been making changes in its sales mix to emphasize on sale without long-term guarantees to improve profitability. The Zacks Consensus Estimate for 2021 earnings has been revised 0.3% upward over the past 60 days and indicates106.6% year-over-year increase. Price and Consensus: LNC Voya Financial: This retirement, investment, and employee benefits company in the United States is poised to grow given its focus on high-growth, high-return, capital-light businesses, solid market presence and cost savings. The company delivered an average earnings surprise of 13.16% in the trailing four quarters. The Zacks Consensus Estimate for 2021 earnings indicates 118.8% year-over year-increase. Price and Consensus: VOYA