5 Value Picks From Top-Ranked Life Insurance Industry

Banking on a favorable operating backdrop, the insurance industry seems well-poised for growth. Improving rate environment and a favorable employment backdrop should keep the momentum alive in the life insurance space.

The Federal Reserve has already made two rate hikes this year, taking the tally to seven increases since December 2015. The Central Bank has also hinted at four rate raises in 2018. Though the strengthening of the U.S. economy instills hope, certain concerns still keep looming over the ongoing trade war tensions. Nonetheless, per current market speculation, there is a very high possibility of nearly 96% for a rate hike in September 2018, followed by a 60% chance of another hike in December 2018.

A gradual increase in interest rate will tend to lower hedging costs and coupled with control over underwriting expenses might further expand margins. Life insurers have redesigned and re-priced products, which should help write higher premiums.

Given the healthy graph of U.S. corporate bond market and a stable real estate market owing to a thriving job market, life insurers’ credit-related investment loss should stay below average.

Job growth has been solid over the last three months of 2018 with an average of nearly 0.22 million. The unemployment rate was 3.9% in July, improving 10 basis points sequentially.

Improving GDP (Fed predicts GDP to grow at 2.8% in 2018 and at 2.4% in 2019) buoys optimism. Recent minutes from the FOMC meeting held on Jul 30-Aug 1 stated that real GDP increased at a solid rate during the first half of the year while for the remaining half, it should be slightly lower than the first six months’ tally. The inflation target is expected to be 2%.

A robust economy and an improving employment scenario should spike demand for life insurance and annuity products.

Life Insurance industry is currently ranked at #23, representing the top 9% of the Zacks Industry Ranks. On a positive note, the rank has scaled up by three notches from last week. This upswing was likely as there were three positive estimate revisions and no negative movement.

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