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Zacks Industry Outlook Highlights Reinsurance Group of America, Voya Financial and American Equity Investment Life Holding
Read MoreHide Full Article
For Immediate Release
Chicago, IL – December 21, 2022 – Today, Zacks Equity Research discusses Reinsurance Group of America Inc. (RGA - Free Report) , Voya Financial (VOYA - Free Report) and American Equity Investment Life Holding Co. .
Redesigning and repricing of products and services to maintain sales and profitability have been driving the Zacks Life Insurance industry players. Given an improving rate environment, life insurers, being the direct beneficiary of an improving rate environment, are poised to benefit. Increased automation is expected to drive premium growth and boost the efficiency of Reinsurance Group of America Inc., Voya Financial and American Equity Investment Life Holding Co.. Also, with an improving rate environment, life insurers are poised to benefit as they invest a large portion of their premiums.
However, with accelerated digitalization, expenses should continue 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 benefits is increasing. Per a report by IBISWorld, the $909 billion U.S. Life Insurance & Annuities Market is expected to grow 2.5% in 2022. Increased vaccinations and economic growth instill confidence. Rising mortality may impact the profitability of these life insurers. The industry has also been witnessing accelerated adoption of technology.
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. Nonetheless, with the Fed already raising rates seven times this year, life insurers, being the direct beneficiary of an improving rate environment, are poised to perform well.
Also, at its December meeting, the Fed predicted to take the interest rate to 5.1% in 2023 to combat its expected 3.1% inflation. The current federal interest rate currently stands at 4.25% to 4.50%. Thus, there is more room for rate hikes in 2023.
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 following the pandemic continues to support the life insurance business. A compelling product portfolio will thus aid sales of life insurers. Per Deloitte Insights, the life insurance premium is estimated to increase 1.9% in 2023.
Increased Adoption of Technology: The life insurance industry, which has so far been operating mostly manually, started witnessing accelerated adoption of technology in its operations due to the COVID-led disruption. Companies are now using electronic applications, e-signatures and electronic policy delivery. Carriers started selling policies online that appealed 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. Accelerated digitization, as evident from the adoption of artificial intelligence, robotic process automation, cognitive intelligence and blockchain, of operations should help life insurers curb operational costs and aid margin expansion.
Thus, 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 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 #90, which places it in the top 36% 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.
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 both the Finance sector and the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively lost 11.1% compared with the Finance sector's decrease of 12.3% and the Zacks S&P 500 composite's decline of 13.5% in the said time frame.
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 1.23X compared with the S&P 500's 5.37X and the sector's 3.33X.
Over the past five years, the industry has traded as high as 1.81X, as low as 0.65X, and at the median of 1.33X.
Reinsurance Group of America: This leader in the U.S. and Latin American traditional market is poised to benefit from the changing life reinsurance pricing environment, expanding business in the pension risk transfer market and disciplined capital management. Individual mortality has matured and provides a base for stable earnings and capital generation for this Zacks Rank #2 insurer. Significant value embedded in the in-force business is anticipated to generate predictable long-term earnings. Product-line expansion is also expected to contribute to risk diversification.
The Zacks Consensus Estimate for 2023 earnings indicates a year-over-year increase of 3.4% and has moved up 0.6% in the past 30 days. It carries a VGM Score of A.
American Equity Investment Life Holding: This leader in the development and sale of fixed index and fixed rate annuity products carries a Zacks Rank #3. The increasing popularity of index products, compelling product portfolio, expansion into middle market credit, real estate, infrastructure debt and agricultural loans continue to drive AEL. American Equity has been working diligently toward executing its AEL 2.0 strategy to accelerate growth.
The Zacks Consensus Estimate for American Equity's 2023 earnings indicates a year-over-year increase of 29.2%. AEL delivered an average earnings surprise of 49.74% in the trailing four quarters. It carries a VGM Score of B.
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 2023 earnings indicates a year-over-year increase of 11.4% and has moved up 2 cents in the past 30 days. VOYA delivered an average earnings surprise of 35.15% in the trailing four quarters. The expected long-term earnings growth rate is pegged at 2.7%. It has a VGM Score of B.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Reinsurance Group of America, Voya Financial and American Equity Investment Life Holding
For Immediate Release
Chicago, IL – December 21, 2022 – Today, Zacks Equity Research discusses Reinsurance Group of America Inc. (RGA - Free Report) , Voya Financial (VOYA - Free Report) and American Equity Investment Life Holding Co. .
Industry: Life Insurance
Link: https://www.zacks.com/commentary/2030456/3-stocks-to-watch-from-the-prospering-life-insurance-industry
Redesigning and repricing of products and services to maintain sales and profitability have been driving the Zacks Life Insurance industry players. Given an improving rate environment, life insurers, being the direct beneficiary of an improving rate environment, are poised to benefit. Increased automation is expected to drive premium growth and boost the efficiency of Reinsurance Group of America Inc., Voya Financial and American Equity Investment Life Holding Co.. Also, with an improving rate environment, life insurers are poised to benefit as they invest a large portion of their premiums.
However, with accelerated digitalization, expenses should continue 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 benefits is increasing. Per a report by IBISWorld, the $909 billion U.S. Life Insurance & Annuities Market is expected to grow 2.5% in 2022. Increased vaccinations and economic growth instill confidence. Rising mortality may impact the profitability of these life insurers. The industry has also been witnessing accelerated adoption of technology.
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. Nonetheless, with the Fed already raising rates seven times this year, life insurers, being the direct beneficiary of an improving rate environment, are poised to perform well.
Also, at its December meeting, the Fed predicted to take the interest rate to 5.1% in 2023 to combat its expected 3.1% inflation. The current federal interest rate currently stands at 4.25% to 4.50%. Thus, there is more room for rate hikes in 2023.
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 following the pandemic continues to support the life insurance business. A compelling product portfolio will thus aid sales of life insurers. Per Deloitte Insights, the life insurance premium is estimated to increase 1.9% in 2023.
Increased Adoption of Technology: The life insurance industry, which has so far been operating mostly manually, started witnessing accelerated adoption of technology in its operations due to the COVID-led disruption. Companies are now using electronic applications, e-signatures and electronic policy delivery. Carriers started selling policies online that appealed 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. Accelerated digitization, as evident from the adoption of artificial intelligence, robotic process automation, cognitive intelligence and blockchain, of operations should help life insurers curb operational costs and aid margin expansion.
Thus, 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 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 #90, which places it in the top 36% 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.
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 both the Finance sector and the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively lost 11.1% compared with the Finance sector's decrease of 12.3% and the Zacks S&P 500 composite's decline of 13.5% in the said time frame.
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 1.23X compared with the S&P 500's 5.37X and the sector's 3.33X.
Over the past five years, the industry has traded as high as 1.81X, as low as 0.65X, and at the median of 1.33X.
3 Life Insurers to Watch for Better Returns
Here we present one stock with a Zacks Rank #2 (Buy) and two with a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Reinsurance Group of America: This leader in the U.S. and Latin American traditional market is poised to benefit from the changing life reinsurance pricing environment, expanding business in the pension risk transfer market and disciplined capital management. Individual mortality has matured and provides a base for stable earnings and capital generation for this Zacks Rank #2 insurer. Significant value embedded in the in-force business is anticipated to generate predictable long-term earnings. Product-line expansion is also expected to contribute to risk diversification.
The Zacks Consensus Estimate for 2023 earnings indicates a year-over-year increase of 3.4% and has moved up 0.6% in the past 30 days. It carries a VGM Score of A.
American Equity Investment Life Holding: This leader in the development and sale of fixed index and fixed rate annuity products carries a Zacks Rank #3. The increasing popularity of index products, compelling product portfolio, expansion into middle market credit, real estate, infrastructure debt and agricultural loans continue to drive AEL. American Equity has been working diligently toward executing its AEL 2.0 strategy to accelerate growth.
The Zacks Consensus Estimate for American Equity's 2023 earnings indicates a year-over-year increase of 29.2%. AEL delivered an average earnings surprise of 49.74% in the trailing four quarters. It carries a VGM Score of B.
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 2023 earnings indicates a year-over-year increase of 11.4% and has moved up 2 cents in the past 30 days. VOYA delivered an average earnings surprise of 35.15% in the trailing four quarters. The expected long-term earnings growth rate is pegged at 2.7%. It has a VGM Score of B.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.