5 Life Insurers to Watch Amid Heavy Technological Investment
Redesigning and repricing of products and services to maintain sales and profitability have been driving the Zacks Life Insurance industry players. Increased automation is expected to help them weather coronavirus-induced challenges. It is also expected to drive premium growth and boost the efficiency of Lincoln National Corporation LNC, Reinsurance Group of America Incorporated RGA, Voya Financial VOYA, American Equity Investment Life Holding AEL and Brighthouse Financial Inc. BHF. 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, 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 an encouraging economic growth outlook instill confidence. Rising mortality may impact the profitability of these life insurers. The industry has also been witnessing accelerated adoption
3 Trends Shaping the Future of the Life Insurance Industry
A Rising Rate Environment: Given their rate-sensitive products and investments, an improving interest rate environment benefits life insurers. 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 have been directing 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 twice this year and more on the horizon, life insurers, being the direct beneficiary of an improving rate environment, are poised to benefit.
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. 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 4% in 2022.
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. As such, companies are using electronic applications, e-signatures, and electronic policy delivery. This transition to technology will enable it to survive through 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, accelerated digitization to include artificial intelligence, robotic process automation, cognitive intelligence, and blockchain in operations should help life insurers curb operational costs and aid margin expansion. Thus, insurers are heavily investing in technological advancements to ensure efficiency and smooth functioning.
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 dim prospects for the near term.
The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #235, which places it in the bottom 7% 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 2022 has gone down 20.4% in a year’s time.
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 sector as well as the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively lost 22% against the Finance sector’s decrease of 9.7% and the Zacks S&P 500 composite’s decline of 6.3% 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 1.04X compared with the S&P 500’s 5.89X and the sector’s 3.1X.
Over the past five years, the industry has traded as high as 2.42X, as low as 0.91X, and at the median of 1.61X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
5 Life Insurers to Retain in Your Portfolio for Better Returns
Five stocks in the space currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lincoln National: This diversified life insurance and investment management company is poised to grow on the strong performance of the Life Insurance segment. Lincoln National has been making changes in its sales mix to focus on sales without long-term guarantees to improve profitability.
The Zacks Consensus Estimate for Lincoln National’s 2022 and 2023 earnings indicates a year-over-year increase of 19.4% and 27.9%, respectively. The expected long-term earnings growth rate is pegged at 19%, better than its industry average of 11.8%.
Price and Consensus: LNC
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. 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 2022 and 2023 earnings indicates a year-over-year increase of 763.7% and 56.3%, respectively. RGA has an impressive VGM Score of A.
Price and Consensus: RGA
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. VOYA expects adjusted EPS growth of 12-17% through 2024.
The company delivered an average earnings surprise of 19.78% in the trailing four quarters. The expected long-term earnings growth rate is pegged at 3.1%.
Price and Consensus: VOYA
American Equity Investment Life Holding: This leader in the development and sale of fixed index and fixed rate annuity products expects to grow fixed index annuity product sales beyond $6 billion in 2022. This premier fixed index annuity producer in the independent agent channel remains focused on expanding into middle market credit, real estate, infrastructure debt, and agricultural loans. American Equity Investment believes its mix of fee revenues would support a higher-return business profile and aims above 15% in return on equity on an average over the long term.
The Zacks Consensus Estimate for American Equity Investment’s 2022 and 2023 earnings indicates a year-over-year increase of 4.1% and 25%, respectively. AEL delivered an average earnings surprise of 31.49% in the trailing four quarters. AEL has an impressive VGM Score of B.
Price and Consensus: AEL
Brighthouse Financial: This one of the largest providers of annuity and life insurance products in the United States is well poised to benefit from the growing individual insurance market, given an expansive and compelling suite of life and annuity products plus a strong market presence. BHF remains focused on ramping up new sales of life insurance products and expanding its distribution network, aiming to become a premier player in the industry.
The Zacks Consensus Estimate for Brighthouse Financial’s 2022 earnings has moved up 2.9% in the past 60 days. BHF delivered an average earnings surprise of 55.91% in the trailing four quarters.
Price and Consensus: BHF
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Lincoln National Corporation (LNC) : Free Stock Analysis Report
American Equity Investment Life Holding Company (AEL) : Free Stock Analysis Report
Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report
Voya Financial, Inc. (VOYA) : Free Stock Analysis Report
Brighthouse Financial, Inc. (BHF) : Free Stock Analysis Report
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