The Zacks Life Insurance industry is poised to benefit from repricing and changing products and policies, improved interest rate conditions, lower death rates, and continued investment in technology.
Life insurers are making efforts to include in their portfolios investment products that provide comprehensive coverage of retirement income, life and healthcare. A diversified portfolio is expected to boost sales of life insurance policies, on which life insurers receive premiums, one of the most significant components of their income.
The increase in the number of people reaching retirement age indicates that the aging of the US population is likely to lead to an increase in demand for life insurance policies in the coming days. According to Statista, in 2020, about 16.9% of the US population was aged 65 or over, and that percentage is expected to reach 22% by 2050. As the pandemic slowly recedes, the death rate has been declining for some time. The lower death rates are a good sign for life insurers, leading to lower claims payouts and better underwriting results and combined ratios in the coming days.
With access to interest rate sensitive products and investments, life insurers’ investment returns will reap the benefits of improved interest rate conditions. After four rate hikes implemented by the Fed in 2022, several reports have emerged hinting at a likely 50 basis point (bp) or 75 bp rate hike when the Fed meets this week. To tame high inflation, it is likely that the Fed will continue to raise interest rates.
Life insurers continue to invest heavily in technologies such as blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation. These advances are expected to digitize the purchase of life insurance policies, speed up claims payouts, and automate processes. However, large investments could increase insurers’ costs, putting pressure on margins in the coming days.
As the bright outlook for the industry continues, investing in high-quality dividend stocks will provide stable income and protection from volatile markets, which is a bonus for investors. These stocks can be relied upon when it comes to long-term investment planning.
With the help of Zacks Stock Screener, we have selected two life insurers, namely: Sun Life Finance Inc. (SLF – free report) and Lincoln National Corporation (LNC – free report). These stocks currently have a Zacks Rank #3 (Hold).
You can see Full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sun Life Finance: With a market cap of $25.7 billion, the life insurance company provides wealth management, wealth, insurance and healthcare solutions to individual and institutional clients. In May 2022, the SLF announced a 4.5% dividend increase to reiterate its commitment to providing high returns to its shareholders. The dividend payout ratio is planned to be in the range of 40-50%.
A strong financial position, combined with a low leverage ratio, provides flexibility and the possibility of further investment of capital. Sun Life Financial aims to keep at least $500 million in cash and other liquid assets in the holding company. SLF’s current dividend yield is 4.9%, better than the industry average of 4%. The insurer’s payout ratio is 46, with a five-year dividend growth rate of 8.4%. (Check the Sun Life Financial dividend history here)
Lincoln National: The $8.4 billion market cap life insurer offers a wide range of products and solutions for wealth protection, savings, retirement income, and group protection. In November 2021, the board of directors authorized a 7% dividend increase.
Lincoln National’s financial position looks strong, with a solid cash balance that has helped it leverage capital wisely through share repurchases and dividend increases. LNC has a dividend yield of 3.7%, a payout ratio of 25 and an annual growth rate of 9% over the past five years. (Check the Lincoln National dividend history here).
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