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4 Life Insurers to Benefit From Rising Rate, Product Redesigning
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Redesigning and repricing of products and services to maintain sales and profitability have been driving Zacks Life Insurance industry players. Life insurers, being the direct beneficiaries of an improving rate environment, are poised to benefit. Increased automation is expected to drive premium growth and boost the efficiency of Manulife Financial Corporation (MFC - Free Report) , Reinsurance Group of America, Incorporated (RGA - Free Report) , Voya Financial (VOYA - Free Report) and Primerica (PRI - Free Report) . As life insurers invest a large portion of their premiums, an improving rate environment proves to be beneficial for them.
However, with accelerated digitalization, expenses are likely to increase.
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 benefis is increasing. Per a report by IBISWorld, the $1.1 trillion U.S. Life Insurance & Annuities Market is expected to grow 3.2% in 2023. Increased vaccinations and economic growth instill confidence. The industry has also been witnessing accelerated adoption of technology. However, rising mortality may impact the profitability of these life insurers.
3 Trends Shaping the Future of the Life Insurance Industry
A Rising 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 already made four hikes in 2023, taking the tally to 11 since March 2022. Life insurers, being the direct beneficiaries of an improving rate environment, are performing well. Depending on the overall economic condition, there could be more hikes on the horizon.
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. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023. Per a report published in ReporterLinker, global life insurance gross written premium is expected to be $2.5 trillion by 2026.
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 is making premium calculation easier and reducing risk. Increased automation is expected to drive premium growth and boost efficiency. Moreover, accelerated digitization, as evident from the adoption of artificial intelligence, robotic process automation, 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, the players must shield themselves from falling prey to cyber threats.
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 for the near term. The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #88, which places it in the top 35% 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 top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimate for 2023 has gone up 2.5% year to date.
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 outperformed the Finance sector but underperformed the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively gained 11% compared with the Finance sector’s increase of 6% and the Zacks S&P 500 composite’s increase of 18.1% 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 1.53X compared with the S&P 500’s 5.69X and the sector’s 3.09X.
Over the past five years, the industry has traded as high as 1.71, as low as 0.65X, and at the median of 1.31X.
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 benefits 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 2023 and 2024 earnings indicates a year-over-year increase of 39.9% and 9.6%, respectively. The consensus estimate for 2023 and 2024 has moved up 2% and 1.4%, respectively, in the past seven days. PRI delivered a four-quarter average earnings surprise of 7.84%.
Price and Consensus: PRI
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 Zacks Rank #3 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 2023 earnings indicates a year-over-year increase of 31.5%. The consensus estimate for 2023 and 2024 earnings has moved up 4.6% and 2.2%, respectively, in the past 30 days. RGA delivered a four-quarter average earnings surprise of 18.81%.
Price and Consensus: RGA
Manulife Financial: Headquartered in Toronto, Canada, this Zacks Rank #3 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 2023 and 2024 earnings indicates a year-over-year increase of 2.9% and 7.1%, respectively. The expected long-term earnings growth rate is pegged at 10%. MFC has a VGM Score of B. It delivered a four-quarter average earnings surprise of 6.66%.
Price and Consensus: MFC
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. This Zacks Rank #3 insurer expects adjusted EPS growth of 12-17% through 2024.
The Zacks Consensus Estimate for Voya Financial’s 2023 and 2024 earnings indicates a year-over-year increase of 0.5% and 16.9%, respectively. VOYA delivered an average earnings surprise of 13.12% in the trailing four quarters. The expected long-term earnings growth rate is pegged at 12.2%.
Price and Consensus: VOYA
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4 Life Insurers to Benefit From Rising Rate, Product Redesigning
Redesigning and repricing of products and services to maintain sales and profitability have been driving Zacks Life Insurance industry players. Life insurers, being the direct beneficiaries of an improving rate environment, are poised to benefit. Increased automation is expected to drive premium growth and boost the efficiency of Manulife Financial Corporation (MFC - Free Report) , Reinsurance Group of America, Incorporated (RGA - Free Report) , Voya Financial (VOYA - Free Report) and Primerica (PRI - Free Report) . As life insurers invest a large portion of their premiums, an improving rate environment proves to be beneficial for them.
However, with accelerated digitalization, expenses are likely to increase.
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 benefis is increasing. Per a report by IBISWorld, the $1.1 trillion U.S. Life Insurance & Annuities Market is expected to grow 3.2% in 2023. Increased vaccinations and economic growth instill confidence. The industry has also been witnessing accelerated adoption of technology. However, rising mortality may impact the profitability of these life insurers.
3 Trends Shaping the Future of the Life Insurance Industry
A Rising 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 already made four hikes in 2023, taking the tally to 11 since March 2022. Life insurers, being the direct beneficiaries of an improving rate environment, are performing well. Depending on the overall economic condition, there could be more hikes on the horizon.
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. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023. Per a report published in ReporterLinker, global life insurance gross written premium is expected to be $2.5 trillion by 2026.
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 is making premium calculation easier and reducing risk. Increased automation is expected to drive premium growth and boost efficiency. Moreover, accelerated digitization, as evident from the adoption of artificial intelligence, robotic process automation, 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, the players must shield themselves from falling prey to cyber threats.
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 for the near term.
The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #88, which places it in the top 35% 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 top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimate for 2023 has gone up 2.5% year to date.
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 outperformed the Finance sector but underperformed the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively gained 11% compared with the Finance sector’s increase of 6% and the Zacks S&P 500 composite’s increase of 18.1% 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 1.53X compared with the S&P 500’s 5.69X and the sector’s 3.09X.
Over the past five years, the industry has traded as high as 1.71, as low as 0.65X, and at the median of 1.31X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
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4 Life Insurers in Focus
Here, we present one stock with a Zacks Rank #2 (Buy) and three stocks with a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank 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 benefits 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 2023 and 2024 earnings indicates a year-over-year increase of 39.9% and 9.6%, respectively. The consensus estimate for 2023 and 2024 has moved up 2% and 1.4%, respectively, in the past seven days. PRI delivered a four-quarter average earnings surprise of 7.84%.
Price and Consensus: PRI
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 Zacks Rank #3 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 2023 earnings indicates a year-over-year increase of 31.5%. The consensus estimate for 2023 and 2024 earnings has moved up 4.6% and 2.2%, respectively, in the past 30 days. RGA delivered a four-quarter average earnings surprise of 18.81%.
Price and Consensus: RGA
Manulife Financial: Headquartered in Toronto, Canada, this Zacks Rank #3 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 2023 and 2024 earnings indicates a year-over-year increase of 2.9% and 7.1%, respectively. The expected long-term earnings growth rate is pegged at 10%. MFC has a VGM Score of B. It delivered a four-quarter average earnings surprise of 6.66%.
Price and Consensus: MFC
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. This Zacks Rank #3 insurer expects adjusted EPS growth of 12-17% through 2024.
The Zacks Consensus Estimate for Voya Financial’s 2023 and 2024 earnings indicates a year-over-year increase of 0.5% and 16.9%, respectively. VOYA delivered an average earnings surprise of 13.12% in the trailing four quarters. The expected long-term earnings growth rate is pegged at 12.2%.
Price and Consensus: VOYA
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