Redesigning and repricing of products and services to maintain sales and profitability drive Zacks Life Insurance industry players. Increased automation is expected to weather coronavirus-induced challenges and drive premium growth and boost efficiency of Manulife Financial Corporation (MFC), Sun Life Financial (SLF), Brighthouse Financial (BHF), Lincoln National Corporation (LNC), Voya Financial (VOYA) and Primerica (PRI).
However, a sustained low rate environment weighs on investment income. Moreover, rising incidence of COVID-19 cases poses a threat to life insurers as it raises higher claim payments.
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.
The industry also includes companies providing wealth and asset management solutions.
3 Trends Shaping the Future of the Life Insurance Industry
Low Rate Environment: A low interest rate environment makes life insurers prone to interest rate risks, given their rate-sensitive products and investments. A low interest rate can impact life insurers' earnings, capital and reserves, liquidity and competitiveness. 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. In the latest FOMC meeting, the interest rate was retained at near-zero level with indication of no raises until 2023.
Moreover, the rising incidence of COVID-19 cases poses a threat to life insurers. A spike in mortality will induce higher claim payments by life insurers, which might drain their underwriting incomes.
Product Redesigning: In an effort to navigate the current low interest rate environment, industry players are finding new solutions and ways to maintain their sales and profitability. Insurers are refraining from selling long duration term life insurance. The companies also made changes to their product portfolio by moving away from guaranteed savings products toward protection products of unit-linked savings products, which pass the investment risks to policyholders.
Uncertainty surrounding the pandemic and increase in mortality are expected to increase demand for life insurance products. A compelling product portfolio will thus aid sales of life insurers.
Increased Adoption of Technology: The life insurance industry, which has so far been operating mostly manually, is witnessing accelerated adoption of technology in its operations due to the COVID-19 led disruption. As such, companies are using electronic applications, e-signatures and electronic policy delivery. This transition to technology will enable it to survive through the coronavirus-induced challenges. Carriers 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, adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence and blockchain should help life insurers curb operational costs and aid margin expansion.
Zacks Industry Rank Indicates Dull Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects for the near term.
The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #239, which places it in the bottom 6% of 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 a result of negative earnings outlook for the constituent companies in aggregate. The industry’s earnings estimate for 2021 has gone down 0.8% since March end.
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 Lags Sector and S&P 500
The Life Insurance industry has underperformed its own sector as well as the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively gained 37.1% compared with the Finance sector’s increase of 57% and the Zacks S&P 500 composite’s rise of 46.5% 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 1.52X compared with the S&P 500’s 6.93X and the sector’s 3.4X.
Over the past five years, the industry has traded as high as 2.47X, as low as 0.91X and at the median of 1.75X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
6 Life Insurers to Keep an Eye On
Only one stock in the space currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Manulife Financial Corporation: It is one of the three dominant life insurers in Canada and should benefit from growth in Asian business and expansion of Wealth and Asset Management business.
The company delivered an average earnings surprise of 13.01% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 earnings has been revised 3.3% and 4.6% upward over the past 60 days, implying year-over-year growth of 20.5% and 11.1% respectively. The expected long-term earnings growth rate is pegged at 10%.
Price and Consensus: MFC
Here are five stocks that carry a Zacks Rank #3 (Hold).
Brighthouse Financial: It is one of the largest providers of annuity and life insurance products in the United States. It is poised to grow on a compelling suite of life and annuity products, growing individual insurance and focus on transitioning the business mix to less capital-intensive products.
The Zacks Consensus Estimate for 2021 and 2020 earnings indicates year-over-year increase of 199.2% and 15.8% respectively.
Price and Consensus: BHF
Primerica: This second largest issuer of term life insurance coverage in North America should benefit from stronger demand for insurance protection due to the pandemic, the untapped $12 trillion market of middle-income households and growing mortgage distribution business.
The company delivered an average earnings surprise of 8.11% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 earnings has been revised up by 0.7% each over the past 60 days. The consensus estimates indicates year-over-year increase of 14.4% and 11.1%, respectively.
Price and Consensus: PRI
Sun Life Financial: The third largest insurer in Canada should benefit from strengthening Asian presence, expanding global asset management business and favorable business mix.
The company delivered an average earnings surprise of 13.56% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 earnings has been revised 1.6% and 2.2% upward, respectively over the past 60 days, indicating year-over-year increase of 9% and 13.2% respectively. The expected long-term earnings growth rate is pegged at 9%.
Price and Consensus: SLF
Lincoln National: This diversified life insurance and investment management company is poised to grow on strong performance of the Life Insurance segment. The company has been making changes in its sales mix to emphasize on sale without long-term guarantees to improve profitability.
The Zacks Consensus Estimate for 2021 and 2022 earnings has been revised 0.6% and 1.2% upward over the past 60 days and indicates 99.8% and 20.2% year-over-year increase. The expected long-term earnings growth rate is pegged at 38.7%, better than its industry average of 19.7%.
Price and Consensus: LNC
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.
The company delivered an average earnings surprise of 11.53% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 earnings indicates 15.4% and 22.4% year-over year-increase. and moved up 2.6% and 0.3%, respectively in the past30 days.
Price and Consensus: VOYA
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Voya Financial, Inc. (VOYA) : Free Stock Analysis Report
Sun Life Financial Inc. (SLF) : Free Stock Analysis Report
Primerica, Inc. (PRI) : Free Stock Analysis Report
Manulife Financial Corp (MFC) : Free Stock Analysis Report
Lincoln National Corporation (LNC) : Free Stock Analysis Report
Brighthouse Financial, Inc. (BHF) : Free Stock Analysis Report
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