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 Sun Life Financial Inc. (SLF – Free Report) , Reinsurance Group of America Incorporated (RGA – Free Report) , Lincoln National Corporation (LNC – Free Report) , Voya Financial (VOYA – Free Report) , and Brighthouse Financial Inc. (BHF – Free Report) . 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 five times this year, life insurers, being the direct beneficiary of an improving rate environment, are poised to perform well.
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, 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. 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. Moreover, 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 encouraging prospects for the near term.
The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #62, which places it in the top 25% 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 2022 has gone up 2.1% since July.
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 performed on par with its sector but outperformed the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively lost 11.8% compared with the Finance sector’s decrease of 11.8% and the Zacks S&P 500 composite’s decline of 13.5% 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 1.12X compared with the S&P 500’s 5.45X and the sector’s 3.18X.
Over the past five years, the industry has traded as high as 1.81X, as low as 0.65X, and at the median of 1.32X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
5 Life Insurers to Watch for Better Returns
Here we present one stock with Zacks Rank #1 (Strong Buy), one with a Zacks Rank #2 (Buy) and three with a Zacks Rank #3 (Hold).
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 #1 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 2022 and 2023 earnings indicates a year-over-year increase of 763.7% and 56.3%, respectively. The consensus estimate for 2022 and 2023 earnings has moved up 8.6% and 0.4%, respectively, in the past 30 days.
Price and Consensus: RGA
Brighthouse Financial: It is one of the largest providers of annuity and life insurance products in the United States. Brighthouse Financial is well poised to benefit from the growing individual insurance market, given an expansive and compelling suite of life and annuity products along with a strong market presence. This Zacks Rank #2 insurer remains focused on ramping up new sales of life insurance products and expanding its distribution network, thus aiming to become a premier player in the industry.
The Zacks Consensus Estimate for Brighthouse Financial’s 2022 and 2023 earnings has moved up 17.3% and 3.6%, respectively, in the past 30 days. BHF delivered an average earnings surprise of 42.34% in the trailing four quarters.
Price and Consensus: BHF
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 its profitability. It carries a Zacks Rank #3 currently.
The Zacks Consensus Estimate for Lincoln National’s 2022 and 2023 earnings indicates a year-over-year increase of 3.9% and 35.6%, respectively. The expected long-term earnings growth rate is pegged at 17.8%, better than the industry average of 10.6%. It has a VGM Score of A.
Price and Consensus: LNC
Sun Life Financial: It is the third-largest insurer in Canada and is poised to gain from a compelling Asia business, growing global asset management business and favorable business mix. SLF is also growing its global base and expanding in Asia’s largest and fastest-growing markets. Given the ongoing shift to fee-based capital-light businesses, Sun Life targets medium-term ROE of 16%. SLF currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for Sun Life Financial’s 2022 earnings has moved up 2 cents in the past 30 days. SLF delivered an average earnings surprise of 3.65% in the trailing four quarters. The expected long-term earnings growth rate is pegged at 9%.
Price and Consensus: SLF
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 2022 and 2023 earnings has moved up 2.7% and 0.9%, respectively, in the past 30 days. VOYA delivered an average earnings surprise of 10.81% in the trailing four quarters. The expected long-term earnings growth rate is pegged at 4.8%. It has a VGM Score of B.
Price and Consensus: VOYA