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6 Impressive Life Insurers as Market Speculates Rate Hike
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With another Federal Open Market Committee (FOMC) meeting scheduled between Sep 20 and Sep 21, the market is yet again optimistic about a rate hike, especially due to the favorable developments on the employment front in July and August.
As per the U.S. Bureau of Labor Statistics, unemployment rate remained unchanged at 4.9% over the last three months. Employment, on the other hand, increased in both July and August. In addition, inflation was below 2%. All such favorable economic conditions indicate the possibility of a rate hike.
Notably, the Fed reduced the median forecast for the number of rate hikes this year to two at its Mar 2016 meeting from four decided upon at its meeting last December. In fact, the Fed at the July meeting this year indicated at a possibility of only one hike. The Fed had last increased the interest rate in Dec 2015 to only 0.25–0.50%, which has remained unchanged ever since.
While the rate hike may be unfavorable for some sectors, the Insurance industry is among those that stand to benefit from the same. This is because investment income, which is directly proportional to interest rate, is an important component for insurers’ top line. Life insurers are poised to benefit the most in case of a rise in interest rate.
Higher rates should come as a respite for life insurers that suffered spread compression on products like fixed annuities and universal life due to sustained low rates. These insurers generate most of their earnings from the spread between investment returns and what they credit as interest on insurance policies and products. Hence, a higher interest rate yields more investment return for life insurers.
Insurers invest the premium they receive form policy holders in bonds and securities, which are reinvested in fixed-income securities upon maturity. Due to a sustained low interest rate, the reinvestment rates have also declined, in turn, hurting income. The potential rise in rates is therefore being viewed as a silver lining for the life insurance stocks. Annuity sales too should benefit from a higher rate environment.
Making prudent investment decision can be an uphill task. Hence, we have zeroed in on six life insurers that are worth investing in amid a higher interest rate environment, based on favorable Zacks Rank #1 (Strong Buy) or #2 (Buy). We further fine tune our search by considering only those stocks that have been upgraded to Rank 1 or 2 over the last week. You can see the complete list of today’s Zacks #1 Rank stocks here. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based in Tampa, FL, Health Insurance Innovations, Inc. operates as a developer, distributor, and administrator of cloud-based individual health and family insurance plans, and supplemental products in the U.S. The company has an excellent track record, having beaten estimates in the last four quarters with an average beat of a spectacular 262.5%. The price to earnings ratio of 8.16 compares favorably with 17.80 of S&P 500. The life insurer currently sports Zacks Rank #1.
Headquartered in Duluth, GA, Primerica, Inc. (PRI - Free Report) , along with its subsidiaries, distributes financial products to middle income households in the U.S. and Canada. The company posted positive surprise in the last four quarters with an average beat of 5.73%. While the Zacks Consensus Estimate for both 2016 and 2017 has witnessed upward revisions in the last eight weeks, the expected long-term earnings growth is currently pegged at 16%, which is much better than the industry average of 9.1%. The price to earnings ratio of 12.70 compares favorably with 17.80 of S&P 500. This life insurer carries a Zacks Rank #2.
Formed in 1992 in Timberlake, MO, Reinsurance Group of America Inc. (RGA - Free Report) is an insurance holding company that primarily engages in traditional individual and group life, asset-intensive, critical illness and financial reinsurance. The company delivered positive surprise in two of the last four quarter with an average beat of 3.55%. The Zacks Consensus Estimate for 2016 has been revised upward over the last eight weeks. The price to earnings ratio of Reinsurance Group is 12.70, which compares favorably with 17.80 of S&P 500. This life insurer carries a Zacks Rank #2.
Toronto, Canada-based Sun Life Financial Inc. (SLF - Free Report) is the third-largest insurer in Canada. The company provides protection and wealth management products and services to individual and group customers across the world. The company delivered positive surprise in three of the last four quarters with an average beat of 3.95%. The price to earnings ratio is 11.25 compares favorably with 17.80 of S&P 500. While the Zacks Consensus Estimate for both 2016 and 2017 has witnessed upward revision in the last eight weeks, the expected long-term earnings growth is currently pegged at 4.6%. The stock holds a Zacks Rank #2.
Headquartered in White Plains, NY, Universal American Corp. , along with its subsidiaries, provides health insurance and managed care products and services to Medicare and Medicaid customers in the United States. This life insurer carries a Zacks Rank #2.
Sony Financial Holdings Inc. , which is headquartered in Tokyo, Japan, operates in life insurance, non-life insurance, and banking businesses. The price to earnings ratio of 12.44 compares favorably with 17.80 of S&P 500. While the Zacks Consensus Estimate for both 2016 and 2017 has witnessed upward revision over the last eight weeks, the expected long-term earnings growth is currently pegged at 4.7%. The stock carries a Zacks Rank #2.
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6 Impressive Life Insurers as Market Speculates Rate Hike
With another Federal Open Market Committee (FOMC) meeting scheduled between Sep 20 and Sep 21, the market is yet again optimistic about a rate hike, especially due to the favorable developments on the employment front in July and August.
As per the U.S. Bureau of Labor Statistics, unemployment rate remained unchanged at 4.9% over the last three months. Employment, on the other hand, increased in both July and August. In addition, inflation was below 2%. All such favorable economic conditions indicate the possibility of a rate hike.
Notably, the Fed reduced the median forecast for the number of rate hikes this year to two at its Mar 2016 meeting from four decided upon at its meeting last December. In fact, the Fed at the July meeting this year indicated at a possibility of only one hike. The Fed had last increased the interest rate in Dec 2015 to only 0.25–0.50%, which has remained unchanged ever since.
While the rate hike may be unfavorable for some sectors, the Insurance industry is among those that stand to benefit from the same. This is because investment income, which is directly proportional to interest rate, is an important component for insurers’ top line. Life insurers are poised to benefit the most in case of a rise in interest rate.
Higher rates should come as a respite for life insurers that suffered spread compression on products like fixed annuities and universal life due to sustained low rates. These insurers generate most of their earnings from the spread between investment returns and what they credit as interest on insurance policies and products. Hence, a higher interest rate yields more investment return for life insurers.
Insurers invest the premium they receive form policy holders in bonds and securities, which are reinvested in fixed-income securities upon maturity. Due to a sustained low interest rate, the reinvestment rates have also declined, in turn, hurting income. The potential rise in rates is therefore being viewed as a silver lining for the life insurance stocks. Annuity sales too should benefit from a higher rate environment.
INSURANCE-LIFE Industry Price Index
INSURANCE-LIFE Industry Price Index
Impressive Life Insurance Stocks
Making prudent investment decision can be an uphill task. Hence, we have zeroed in on six life insurers that are worth investing in amid a higher interest rate environment, based on favorable Zacks Rank #1 (Strong Buy) or #2 (Buy). We further fine tune our search by considering only those stocks that have been upgraded to Rank 1 or 2 over the last week. You can see the complete list of today’s Zacks #1 Rank stocks here. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based in Tampa, FL, Health Insurance Innovations, Inc. operates as a developer, distributor, and administrator of cloud-based individual health and family insurance plans, and supplemental products in the U.S. The company has an excellent track record, having beaten estimates in the last four quarters with an average beat of a spectacular 262.5%. The price to earnings ratio of 8.16 compares favorably with 17.80 of S&P 500. The life insurer currently sports Zacks Rank #1.
Headquartered in Duluth, GA, Primerica, Inc. (PRI - Free Report) , along with its subsidiaries, distributes financial products to middle income households in the U.S. and Canada. The company posted positive surprise in the last four quarters with an average beat of 5.73%. While the Zacks Consensus Estimate for both 2016 and 2017 has witnessed upward revisions in the last eight weeks, the expected long-term earnings growth is currently pegged at 16%, which is much better than the industry average of 9.1%. The price to earnings ratio of 12.70 compares favorably with 17.80 of S&P 500. This life insurer carries a Zacks Rank #2.
Formed in 1992 in Timberlake, MO, Reinsurance Group of America Inc. (RGA - Free Report) is an insurance holding company that primarily engages in traditional individual and group life, asset-intensive, critical illness and financial reinsurance. The company delivered positive surprise in two of the last four quarter with an average beat of 3.55%. The Zacks Consensus Estimate for 2016 has been revised upward over the last eight weeks. The price to earnings ratio of Reinsurance Group is 12.70, which compares favorably with 17.80 of S&P 500. This life insurer carries a Zacks Rank #2.
Toronto, Canada-based Sun Life Financial Inc. (SLF - Free Report) is the third-largest insurer in Canada. The company provides protection and wealth management products and services to individual and group customers across the world. The company delivered positive surprise in three of the last four quarters with an average beat of 3.95%. The price to earnings ratio is 11.25 compares favorably with 17.80 of S&P 500. While the Zacks Consensus Estimate for both 2016 and 2017 has witnessed upward revision in the last eight weeks, the expected long-term earnings growth is currently pegged at 4.6%. The stock holds a Zacks Rank #2.
Headquartered in White Plains, NY, Universal American Corp. , along with its subsidiaries, provides health insurance and managed care products and services to Medicare and Medicaid customers in the United States. This life insurer carries a Zacks Rank #2.
Sony Financial Holdings Inc. , which is headquartered in Tokyo, Japan, operates in life insurance, non-life insurance, and banking businesses. The price to earnings ratio of 12.44 compares favorably with 17.80 of S&P 500. While the Zacks Consensus Estimate for both 2016 and 2017 has witnessed upward revision over the last eight weeks, the expected long-term earnings growth is currently pegged at 4.7%. The stock carries a Zacks Rank #2.
Zacks' Best Investment Ideas for Long-Term Profit
Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here>>