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Zacks Industry Outlook Highlights: Sun Life Financial Inc., Lincoln National Corp., Voya Financial Inc., Primerica Inc. and American Equity Investment Life Holding

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For Immediate Release

Chicago, IL – January 26, 2022 – Today, Zacks Equity Research discusses Sun Life Financial Inc. SLF, Lincoln National Corp. LNC, Voya Financial Inc. VOYA, Primerica Inc. PRI and American Equity Investment Life Holding AEL.

Industry: Life Insurance

Link: https://www.zacks.com/commentary/1856950/5-life-insurers-to-watch-amid-a-still-low-rate-environment

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 Sun Life Financial Inc., Lincoln National Corp., Voya Financial Inc., Primerica Inc. and American Equity Investment Life Holding.

However, a sustained low rate environment weighs on investment income. Moreover, the rising incidence of COVID-19 cases poses a threat to life insurers as it raises 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. 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.

Though increased vaccinations and an encouraging economic growth outlook by the Fed instill confidence, new virus variants are a concern. The industry has also been witnessing accelerated adoption of technology.

3 Trends Shaping the Future of the Life Insurance Industry

A 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.

Thus, they are directing their funds into alternative investments like private equity, hedge funds, and real estate, among others, to counter the challenge. Moreover, the rising incidence of COVID-19 cases poses a threat to life insurers. However, with the Fed indicating several rate hikes this year, 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 digitalization to include artificial intelligence, robotic process automation, cognitive intelligence, and blockchain in operations should help life insurers curb operational costs and aid margin expansion.

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 encouraging prospects for the near term.

The Zacks Life Insurance industry, within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #233, which places it in the bottom 8% 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 a result of a negative earnings outlook for the constituent companies in aggregate. The industry’s earnings estimate for 2022 has gone down 3.9% since November 2021 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 sector as well as the Zacks S&P 500 composite in the past year. The stocks in this industry have collectively lost 2.6% against the Finance sector’s increase of 16.1% and the Zacks S&P 500 composite’s rise of 14.4% in the said time frame.

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 1.22X compared with the S&P 500’s 6.73X and the sector’s 3.26X.

Over the past five years, the industry has traded as high as 2.42X, as low as 0.91X, and at the median of 1.75X.

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.

Primerica: This second-largest issuer of term life insurance coverage in North America is well poised to cater to the middle market's increased demand for financial security, given a strong business model. Solid demand for protection products should continue to drive sales growth and policy persistence. Primerica’s U.S. mortgage distribution business is also gaining traction. Thus, PRI remains focused on expanding distribution.

The Zacks Consensus Estimate for Primerica’s 2022 earnings indicates a year-over-year increase of 13.3%. Primerica delivered an average earnings surprise of 3.26% in the trailing four quarters.

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 emphasize sales without long-term guarantees to improve profitability.

The Zacks Consensus Estimate for Lincoln National’s 2022 earnings indicates a year-over-year increase of 28.9%. The expected long-term earnings growth rate is pegged at 33.3%, better than its industry average of 17%. Lincoln delivered an average earnings surprise of 2.11% in the trailing four quarters.

Sun Life Financial: The third-largest insurer in Canada 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 estimates medium-term ROE objectives of 16%.

The Zacks Consensus Estimate for 2022 earnings indicates a year-over-year increase of 8.9%. The expected long-term (three to five) earnings growth rate is pegged at 9%. Sun Life delivered an average earnings surprise of 7.74% in the trailing four quarters.

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.

Voya Financial delivered an average earnings surprise of 9.86% in the trailing four quarters.  The Zacks Consensus Estimate for 2022 earnings has moved up 2.4% in the past 30 days.

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 2021 earnings indicates a year-over-year increase of 48.3%. AEL delivered an average earnings surprise of 31.49% in the trailing four quarters.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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Lincoln National Corporation (LNC) : Free Stock Analysis Report
 
American Equity Investment Life Holding Company (AEL) : Free Stock Analysis Report
 
Primerica, Inc. (PRI) : Free Stock Analysis Report
 
Sun Life Financial Inc. (SLF) : Free Stock Analysis Report
 
Voya Financial, Inc. (VOYA) : Free Stock Analysis Report
 
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