Life Insurance

Invest in Life Insurance Industry with These 4 Value Bets – December 22, 2017


With 2017 at its threshold, investors have many reasons to cheer for. The economic backdrop has improved with GDP rising, improving employment scenario and major indices gaining year to date. While the S&P 500 has rallied 20.3%, Nasdaq has gained 12.3%.

Gross domestic product (GDP) rose 3.3% in the third quarter of 2017, a nice pick up from 3.1% in the second quarter. The Fed now estimates GDP to grow at 2.5% in both 2017 and 2018, reflecting an increase of 2.4% for 2017 and 2.1% for 2018, projected earlier. The Fed officials expect the unemployment rate to grow at 4.1% for 2017 while the same is likely to decline to 3.9% in 2018 and 2019.

The Fed has kept its promise of three rate hikes this year, reflecting President Donald Trump’s bias for higher interest rates and the Fed’s confidence in the progressing U.S. economy. The interest rate now stands at 1.25-1.50% after hikes in March, June and December. The outgoing Fed chairperson Janet Yellen reiterated the expectation to raise rates thrice in 2018 and twice in 2019.

Insurers are major beneficiaries of an improving rate environment. Life insurers are sensitive to interest rates. They have suffered spread compression on products like fixed annuities and universal life due to persistently low rates. To withstand the unfavorable environment, they have gradually shifted to riskier asset like equities only to fetch in more returns from the policyholders’ claims and even lowered exposure to interest-sensitive product lines. Life insurers have redesigned and re-priced products, which should help them write higher premiums.

Stronger corporate bonds and bettering real estate market might aid to curtail the credit-related investment losses. Also, the improving economy and higher inflation induced bonds look to yield good returns. In fact, a progressing economy indicates more disposable income with people opting for more insurance coverages.

The Life Insurance industry is currently ranked at #54 (out of 265 Zacks Industry), representing the top 20% of the Zacks Industry Rank. The industry has outperformed the S&P 500 in a year by registering a 24.5% rally so far this year, thereby outperforming the elite index.

Assured Value Picks

We have zeroed in on five undervalued stocks that investors might add to their portfolio with the help of our Zacks Stock Screener. Value investing is for those looking to buy stocks with the value lower than the intrinsic one. Hence, these investors target stocks with a low price-to-book (P/B) ratio or with high dividend yields. P/B ratio is the best multiple for valuing insurers owing to their unpredictable financial results.

We thus refine our search using the Value Score of A or B and a bullish Zacks Rank. Buy-rated stocks with a Value Score of A or B are best investment bets. These have also witnessed upward estimate revisions over the last 60 days supporting the favorable Zacks Rank.

Radnor, PA-based Lincoln National Corp. (LNC Free Report) engages in the multiple insurance and retirement businesses in the United States. The company has a Value Score of A and a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2017 has moved 2.9% north for 2017 and 1.9% for 2018 over the last 60 days. It is currently trading at a P/B ratio of 1.06, lower than the industry average of 2.29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of the company have climbed 17.6% year-to-date, underperforming the industry’s increase.  

West Des Moines, IO-based American Equity Investment Life Holding Co. (AEL Free Report) develops and sells fixed index and fixed rate annuity products in the United States. The company has a Value Score of A and a Zacks Rank #1. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 13.2% upward and moved 4.1% north for 2018 over the last 60 days. It is currently trading at a P/B ratio of 1.04.

Shares of the company have soared 42.8% year-to-date, outperforming the industry.  

Chesterfield, MO-based Reinsurance Group of America, Inc. (RGA Free Report) engages in reinsurance business. The company has a Value Score of A and a Zacks Rank of 2. The Zacks Consensus Estimate for 2017 has been raised 8.6% and 0.7% for 2018 over the last 60 days.  It is currently trading at a P/B ratio of 1.23.

Shares of the company have jumped 23.3% year-to-date, outperforming the industry’s increase.  

McKinney, TX-based Torchmark Corp. (TMK Free Report) provides various life and health insurance products and annuities in the United States, Canada and New Zealand. The company has a Value Score of A and is a #2 Ranked player. The Zacks Consensus Estimate for 2017 has been increased 1% for 2017 and 1.4% for 2018 over the last 60 days.  It is currently trading at a P/B ratio of 1.23.

Shares of the company have surged 22.7% year-to-date, underperforming the industry’s growth.  

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