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Life Insurance Industry Near-Term Prospects Encouraging

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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 industry’s three major themes:

  • A rising interest rate environment is a boon for the life insurance industry. After hiking rates nine times since December 2015, the Federal Reserve lowered the rate by one quarter basis points to a range of 2%-2.25% due to slowing economic growth and sluggish inflation. Life insurers invest a big chunk they receive as premiums so that they have enough funds at the time of claims or upon maturity. Since higher interest rates help the industry, the recent rate cut could weigh on investment income and reinvestment rate.
  • A strong labor market (with declining unemployment and rising wages) is driving policy sales even at higher premiums. Also, growth in aging population is driving demand for retirement benefit products. Annuities products have also gained momentum.
  • Life insurers have been gradually adopting technology in their daily operations. Carriers have 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. The increased usage of health and fitness apps is helping the cause. The increasing use of technology is expected to drive premium growth for life insurers. Moreover, adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence or blockchain should help life insurers curb operational costs and lead to profits.

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 solid 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 #44, which places it in the top 17% 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 the last six months, the industry’s earnings estimate for the current year has gone up 11.3%.
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 S&P 500 and Sector

The Life Insurance industry has outperformed the Zacks S&P 500 composite as well as its own sector year to date. The stocks in this industry have collectively gained 20.7% year to date compared with the Finance sector and Zacks S&P 500 composite’s increase of 11.5% and 17.5%, respectively.

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 1.8X compared with the S&P 500’s 4.06X and the sector’s 2.71X.

Over the past five years, the industry has traded as high as 2.63X, as low as 1.27X and at the median of 2.04X.

Price-to-Book (P/B) Ratio (TTM)

Life Insurance Industry v S&P 500

Price-to-Book (P/B) Ratio (TTM)

Life Insurance Industry v Sector

Bottom Line
Adoption of technologies should help to trim underwriting expenses. This coupled with modestly increasing premium rates should help life insurers improve net income. Also, a beefed-up capital market should solidify the industry’s liquidity profile in the upcoming quarters and aid its participants in confronting any unforeseen challenges.
Two stocks in the Zacks Life insurance space currently sport a Zacks Rank #1 (Strong Buy) while three others carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Health Insurance Innovations, Inc. HIIQ: Based in Tampa, FL, this operator of cloud-based technology platform and distributor of individual and family health insurance plans, and supplemental products in the United States sports a Zacks Rank #1. The Zacks Consensus Estimate for current-year earnings has increased 11.4% while the same for 2020 jumped 10.5% over the past 60 days.

Price and Consensus: HIIQ

China Life Insurance Company Limited LFC: This Zacks Rank #1 life insurer in the People's Republic of China has seen the consensus estimate increase 14.3% for 2019 and 5.4% for 2020 over the past 30 days.

Price and Consensus: LFC

Manulife Financial Corporation MFC: The company provides financial advice, insurance, and wealth and asset management solutions to individuals, groups, and institutions in Asia, Canada, and the United States. The Zacks Consensus Estimate for this Toronto, Canada-based Zacks Rank #2 company has gone up 0.9% for 2019 and 0.4% for 2020 over the past 30 days.

Price and Consensus: MFC

Sun Life Financial Inc. (SLF - Free Report) : Toronto, Canada-based Sun Life provides insurance, wealth, and asset management solutions to individuals and corporate clients worldwide. It has seen the Zacks Consensus Estimate for 2019 move 2.2% north in the past 30 days and the same for 2020 move up 2.7%. It carries a Zacks Rank #2.

Price and Consensus: SLF

Torchmark Corporation TMK: This McKinney, TX based life insurer provides various life and health insurance products, and annuities in the United States, Canada, and New Zealand. The Zacks Consensus Estimate for this Zacks Rank #2 company has moved up 0.7% for 2019 and 0.4% for 2020 in the past 30 days.

Price and Consensus: TMK

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