Redesigning and repricing of products and services to maintain sales and profitability have been driving Zacks Life Insurance industry players. Life insurers are the direct beneficiaries of an improving rate environment as they invest a large portion of their premiums. Increased automation is expected to drive premium growth and boost the efficiency of Manulife Financial Corporation (MFC Quick QuoteMFC - Free Report) , Sun Life Financial Inc. (SLF Quick QuoteSLF - Free Report) , Reinsurance Group of America, Incorporated (RGA Quick QuoteRGA - Free Report) , Primerica (PRI Quick QuotePRI - Free Report) and Lincoln National Corporation (LNC Quick QuoteLNC - Free Report) .  However, with accelerated digitalization, expenses are likely to increase. Also, prudently pricing the products, balancing customers preferences and claim costs, remains a challenge.

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. Sales benefit from the increasing demand for protection products. The industry also includes companies providing wealth and asset management solutions. With a rise in the number of baby boomers, the demand for retirement benefits is increasing. Economic growth instills confidence. Per a Statista report, the life insurance market is expected to grow, with gross written premium expected to be $3.67 trillion in 2024. The industry has also been witnessing the accelerated adoption of technology. However, rising mortality or loss cost trends may impact the profitability of insurers.

3 Trends Shaping the Future of the Life Insurance Industry

An Improved Rate Environment: An improving interest rate environment benefits life insurers as their products and investments are rate-sensitive. A favorable interest rate thus impacts life insurers' earnings, capital and reserves, liquidity and competitiveness positively. 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.  Thus, they direct their funds into alternative investments like private equity, hedge funds and real estate, among others, to counter the challenge. The Fed has made 11 rate hikes since March 2022. Life insurers, being the direct beneficiaries of an improving rate environment, have performed well. However, concerns over the Fed’s decision to cut rates loom. Nonetheless, these insurers stay focused on navigating the challenges faced by their commercial real estate portfolio.

Product Redesigning: Industry players are finding new solutions and ways to improve their sales and profitability. Insurers are refraining from selling long-duration term life insurance. Also, life insurers continue to roll out investment products that provide bundled covers of guaranteed retirement income, life and healthcare to cater to customers preferring policies with “living” benefits more than those with death benefits. Increased awareness continues to support the life insurance business. A compelling product portfolio will thus aid sales of life insurers. Also, prudently pricing the products, balancing customers' preferences and claim costs, will be the key to driving growth. Per a report published in ReporterLinker, global life insurance gross written premium is expected to be $2.5 trillion by 2026. Per Statista’s report, gross written premium is expected to show an annual growth rate (CAGR 2024-2028) of 1.7%.

Increased Adoption of Technology: Companies are now using electronic applications, e-signatures and electronic policy delivery. Carriers have started selling policies online that appeal to the tech-savvy population. At the same time, the use of real-time data makes premium calculation easier and reduces risk. Increased automation is expected to drive premium growth and boost efficiency. Moreover, accelerated digitization, as evident from the increased adoption of generative AI, cognitive intelligence and blockchain, should help life insurers curb operational costs and aid margin expansion. Insurers are investing heavily in technological advancements to ensure efficiency and smooth functioning. At the same time, players must shield themselves from falling prey to cyber threats.

Zacks Industry Rank Indicates Bleak Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull prospects for the near term. The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #223, which places it in the bottom 11% of the 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 the result of a negative earnings outlook for the constituent companies in aggregate. The industry’s earnings estimate for 2024 has gone down 0.2% 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 Vs. Sector & S&P 500

The Life Insurance industry has underperformed the Finance sector and the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively gained 17.5% compared with the Finance sector’s increase of 19.9% and the Zacks S&P 500 composite’s increase of 23.8% 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 1.78X compared with the S&P 500’s 6.35X and the sector’s 3.01X.

Over the past five years, the industry has traded as high as 1.9, as low as 0.65X, and at the median of 1.33X.

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

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

 

5 Life Insurers in Focus

Here, we present one stock with a Zacks Rank #2 (Buy) and four stocks with a Zacks Rank #3 (Hold) each from the industry.   You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Primerica: This Duluth, GA-based, second-largest issuer of term-life insurance coverage in North America aims to be a successful senior health business while continuing to enhance its shareholders’ value. Strong demand for protection products drives sales growth and policy persistency benefit of this Zacks Rank #2 insurer. A strong business model makes Primerica well-poised to cater to the middle market's increased demand for financial security.

The Zacks Consensus Estimate for PRI’s 2024 earnings indicates a year-over-year increase of 10.2% and has moved up 0.2% north in the past seven days.  PRI delivered a four-quarter average earnings surprise of 7.84%.

Price and Consensus: PRI

Lincoln National: Headquartered in Radnor, PA, Lincoln National is a diversified life insurance and investment management company. A fast-recovering Group Protection business, strong fixed annuity business and positive flows in the Retirement Plan Services coupled with pricing discipline and new product introductions should favor this Zacks Rank #3 insurer.

The Zacks Consensus Estimate for Lincoln’s 2024 and 2025 earnings indicates a year-over-year increase of 24% and 16.8%, respectively. The expected long-term earnings growth rate is pegged at 24%, better than the industry average of 17%.

Price and Consensus: LNC

Manulife Financial: Headquartered in Toronto, Canada, this insurer 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. A strong Asia business, expanding wealth and asset management business, investments to ramp up digital capabilities and solid capital position poise this life insurer well for growth. MFC estimates core EPS growth between 10% and 12% over the medium term.

The Zacks Consensus Estimate for Manulife’s 2024 and 2025 earnings indicates a year-over-year increase of 5.1% and 8.5%, respectively. The expected long-term earnings growth rate is pegged at 10%. It delivered a four-quarter average earnings surprise of 7.01%.

Price and Consensus: MFC

Sun Life: Based in Toronto, SLF is the third largest insurer in Canada. The company is well diversified by geography and product, providing protection and wealth management products and services to individual and group customers worldwide. Its focus on Asia operations, growing asset management businesses, scaling-up and integration of U.S. operations and strategic buyouts bode well for growth. The underlying return on equity continues to trend toward a medium-term financial objective of 18% plus, thus reflecting a sustained emphasis on capital-light businesses.

The Zacks Consensus Estimate for Sun Life’s 2024 and 2025 earnings indicates a year-over-year increase of 6.8% and 7.1%, respectively. The expected long-term earnings growth rate is pegged at 8%. The company delivered a four-quarter average earnings surprise of 3.32%. It has a VGM Score of B.

Price and Consensus: SLF

Reinsurance Group of America: It 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. This insurer is set to benefit from the changing life reinsurance pricing environment, expanding business in the pension risk transfer market and disciplined capital management.     

The Zacks Consensus Estimate for Reinsurance Group’s 2024 and 2025 earnings has moved up 0.8% and 1%, respectively, in the past 30 days. RGA delivered a four-quarter average earnings surprise of 24.39%. It has a VGM Score of B.

Price and Consensus: RGA