The Zacks Life Insurance industry comprises companies that offer life insurance coverages and well as retirement benefits to individuals and groups. The products include annuities, whole and term life insurance, accidental death insurance, health insurance, Medicare supplements as well as long-term healthcare policies.
The industry also includes companies that provide wealth and asset management solutions.
Let us take a look at the three major themes in the industry:
- The rising interest rate environment is a boon to life insurance industry. This year has already seen three hikes and one more is expected before the year ends. The Fed has also indicated about three rate increases in 2019 and two more in 2020. Life insurers invest a big chunk they receive as premiums so that they have enough funds at the time of claims or upon maturity. As a rising rate environment helps life insures reinvest funds at higher rates, their investment income increases.
- Improving economic conditions and a strong labor market (with declining unemployment and rising wages) are driving policy sales even at higher premiums. Also, the growth in aging population is driving the demand for retirement benefit products.
- Life insurers have been gradually adopting technology in their daily operations. Carriers have started selling policies online that are much appealing to tech savvy population. At the same time, the use of real time data is making premium calculation easier and reducing risk. Moreover, adoption of technologies like artificial intelligence (AI), robotic process automation (RPA), cognitive intelligence (CI) or blockchain should help life insurers curb operational costs.
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 bright prospects in the near term. The Zacks Life Insurance industry, which is a 16-stock group within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #63, which places it at the top 25% of 256 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. In a year’s time, the industry’s earnings estimate for the current year has gone up 2.4%.
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 S&P 500 and Sector in Terms of Shareholder Returns
The Life Insurance industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively declined 23% in the past year while the Finance sector has dipped 0.7%. Meanwhile, the Zacks S&P 500 composite has increased 8.9% over the same period.
One-Year Price Performance
Life Insurance Industry’s Current Valuation
On the basis of trailing 12-month price-to-book (P/B) ratio, which is commonly used for valuing insurance stocks, the industry is currently trading at 1.78X compared with the S&P 500’s 4.09X and the sector’s 2.50X.
Over the past five years, the industry has traded as high as 2.68X, as low as 1.27X and at the median of 2.23X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Strengthening of the economy and the rising rate environment should consistently favor the industry’s performance. Trimming underwriting expenses and modestly increasing premium rates should help life insurers continue to improve net income. Also, a beefed-up capital market should solidify the industry’s liquidity profile in the upcoming quarters and aid its participants to confront any unforeseen challenge.
However, the Department of Labor’s Fiduciary Rule, which is expected to take effect on Jul 1, 2019, might make it difficult for life insurers to sell their retirement products.
Life Insurance Stocks to Buy Now
One of the stocks in the Zacks Life insurance space currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Athene Holding Ltd. ATH: The Zacks Consensus Estimate for current-year earnings of this Pembroke, Bermuda-based company has moved 3.8% north over the past 30 days.
We are also presenting four stocks with a Zacks Rank #2 (Buy) that is well positioned to grow and combat challenges.
American Equity Investment Life Holding Company AEL: The Zacks Consensus Estimate for 2018 earnings of this West Des Moines, IO-based company has been revised 1.1% upward over the past 30 days.
Lincoln National Corporation LNC: The Zacks Consensus Estimate for 2018 bottom line of this Radnor, PA-based company has been raised 1.8% over the past 30 days.
Reinsurance Group of America, Incorporated RGA: The Zacks Consensus Estimate for this Chesterfield, MO-based company’s 2018 earnings has gone up 7.7% over the past 30 days.
Torchmark Corporation : The Zacks Consensus Estimate for current-year earnings of this McKinney, TX-based company has inched 1% up over the past 30 days.
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