The year 2017 is turning out to be quite tumultuous for the insurance industry as a whole. Blame it on catastrophic events threatening to hurt the economy, albeit on a short-term basis, along with ambiguities reflected in the Federal Reserves decision to leave the interest rates persistently unchanged for the time being.
If we focus on the life insurance industry, the aforementioned challenges apart, the life insurers have been experiencing continued disruptions in the form of evolving customer demands as well as economic and regulatory changes.
The life insurance industrys heavy dependence on investment income will benefit most companies from the rising interest rate environment. Profitability in this particular industry is deeply connected to the changes in interest rates as well as any increase in bond yields that promises to provide a required relief to insurers struggling to maintain margins. Therefore, life insurers suffering spread compression on products like fixed annuities and universal life due to persistently low rates will breathe a sigh of relief.
Although the Federal Reserve has left the interest rates unchanged (following the Federal Open Market Committees meeting on Sep 20, 2017), ranging between 1% and 1.25%, the life insurers are still looking forward to another interest rate hike this year, as indicated by policymakers at the meeting. Interestingly, the Fed committee also expects to raise interest rates thrice in 2018. Hence, the life insurance industry remains optimistic about the investment income growth in the near term, which might help strengthen its market position.
A progressing rate environment will lessen the burden on life insurers investment income, thus boosting their earnings. This in turn will also accelerate the insurance companies overall growth in the future.
Certain Other Factors Impacting the Life Insurance Industry
Stronger corporate bonds and improving real estate market might help curtail the credit-related investment losses. Also, bettering economy and higher inflation induced bonds look to yield good returns to investors. Life insurers are expected to gain from this favorable trend if it continues in the long run. In fact, succeeding economy indicates more disposable income with people opting for more insurance coverage.
Interestingly, life insurers are increasingly moving toward redesigned and re-priced products with potential to help them write higher premiums in the upcoming quarter.
Further, the demand for life insurance is estimated to improve and strengthen on the back of customers need for greater safety in a volatile financial environment. Per a recent report by the worldwide insurance association, Life Insurance Management Research Association (LIMRA), minimum 34% of Americans are likely to buy life insurance in 2017. This will in fact encourage the demand for life insurance with the industry reaping benefits derived from such an upside.
It is important to note here that the Zacks Life Insurance industry has outperformed the broader market during the third quarter of 2017. The industrys shares have gained nearly 4% compared with the S&P 500 indexs 3.8% increase. Notably, the life insurance industry ranks among the top 6% of the Zacks industries.
With growing interest rates and a developing economy, the life insurers are capable of garnering profits through underlying strength and business modification.
We have specifically zeroed in on five life insurers, poised for an earnings beat when they report third-quarter 2017 results. This seems possible as our proven model shows that these stocks have the right combination of two key ingredients to beat estimates in the soon-to-be-reported quarter, which are a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before theyre reported with our Earnings ESP Filter. Both are indicative of a substantially higher possibility of beating estimates.
Radnor, PA-based Lincoln National Corporation LNC engages in multiple insurance and retirement businesses in the United States. The company is set to report third-quarter earnings on Nov 1 with an Earnings ESP of +0.05% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before theyre reported with our Earnings ESP Filter. You can see the complete list of todays Zacks #1 Rank stocks here.
Also, shares of Lincoln National have gained 8.7% compared with the industrys increase of about 4% during the third quarter of 2017.
Toronto, Canada-based Manulife Financial Corporation MFC offers financial advice, insurance, and wealth and asset management solutions for individuals, groups and institutions in Asia, Canada and the United States. The company is expected to report third-quarter earnings figures on Nov 9. It has an Earnings ESP of +1.35% and also carries the bullish Zacks Rank of 2.
Shares of Manulife Financial have gained 8.2% compared with the industrys 4% growth during third-quarter 2017.
Chesterfield, MO-based Reinsurance Group of America, Incorporated RGA provides individual and group life plus health insurance products besides asset-intensive and financial reinsurance products. The Zacks #2 Ranked company is slated to report third-quarter earnings results on Oct 26, having an Earnings ESP of +0.32%.
Shares of Reinsurance Group have gained 8.7% compared with the industrys increase of 4% this quarter.
Toronto, Canada-based Sun Life Financial Inc. SLF provides protection and wealth products and services to individuals, businesses and institutions worldwide. The company, expected to post third-quarter earnings report on Nov 8, has an Earnings ESP of +1.05% and carries a Zacks Rank #3.
Shares of Sun Life Financial have rallied 11.4% compared with the industrys 4% gain during the same time around.
West Des Moines, IA-based American Equity Investment Life Holding Company AEL develops and sells fixed index and fixed rate annuity products in the United States. The #2 Ranked company is set to report third-quarter earnings numbers on Nov 6 with an Earnings ESP of +0.40%.
Shares of American Equity have gained 10.7% compared with the industrys increase of 4% during the third quarter of 2017.
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. Its a once-in-a-generation opportunity to invest in pure genius.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lincoln National Corporation (LNC): Free Stock Analysis Report
Manulife Financial Corp (MFC): 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
Sun Life Financial Inc. (SLF): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research