The global life insurance market is set to top $3.5 trillion in 2023. With quarterly results coming out at the start of May, we take a look at why the life insurance market is an attractive addition to portfolios.
As investors increasingly look to diversify their holdings in an unstable environment, insurance offers promising opportunities. The life insurance space is generally regarded as recession-resilient. There’s a reason Warren Buffet’s Berkshire Hathaway holds a significant stake in the sector.
At its core function, insurance benefits from the fact that no matter the economic environment, it is not something which individuals and businesses can escape from. And increasingly everyone engages with an insurance policy one way or another. These days you can insure everything from cars, homes and personal possessions, to pets, body parts, even your fantasy sports team. These policy premiums are then invested, giving insurers a two revenue streams. This can create tricky valuations but it plays a large role in their ability to weather financial turbulence.
The inevitability of death, taxes, and insurance
Life insurance specifically adds a steady income stream in the way of premiums which increased over 20% in 2021, the largest increase in 30 years. And with life insurance in particular, these are usually invested in long-term positions which means safer, less volatile investments. Much like fixed income.
The life insurance market looks like it will continue to grow. Some of the more important facts include how North America currently contributes nearly 40% to the global market. This is followed by China and Japan. However, in the US only 50% of people reported owning life insurance. Conversely, while only 34% of people aged 18 to 24 have coverage, this age group is the only one to have increased ownership since 2011. The top 3 reasons for not having coverage are: cost, other financial priorities, or not knowing how much or what type of coverage one needs. Basically there is a problem with financial education. Something that many life insurers are working on through videos, infographics and other useful materials.
Life Insurance in Emerging Markets
China, Brazil, and India are some of the countries counted as emerging markets when it comes to life insurance. China is the leading country among the other emerging nations, with market revenues of £323 billion in 2020. India had $76.3 billion and Brazil $40.4 billion. All these markets are expected to grow by a minimum of 10% by 2025.
As the middle class grows in countries like China, the potential customer base is on a constant rise. As disposable income increases so too does the number of potential customers. The key market players’ expansion in emerging markets is thus expected to be the biggest driver of global growth. Asia Pacific is set to see the fastest rates.
Advances in technology will also be key to insurers growth. Customer service is improving through improved online offerings and distribution channels. As consumers increasingly want to access their policies with easy UX apps, this is crucial. And AI will provide ever better data for insurers’ actuaries to work from. Companies that invest in their digital capabilities will be better placed to move with the rapid pace of change.
Is ESG a Consideration When it Comes to Life Insurance?
Interestingly the majority, ie. over 70%, of life insurance is made up of individual policy-holders. The rest being represented by group life insurance policies which employers offer their staff. Differences include tax implications, medicals, and having a say in which life insurance provider to use. If you rely on your company, you may not be able to change the choice of provider and are likely to have to start from scratch with a new provider should you change your job.
This is not ideal with a new generation of life insurance customers entering the job market. A generation that is more keen on environmental and ethical topics. Topics that they are getting used to having the ability to have a say over.
In a recent survey by the Responsible Investment Association Australasia (RIAA) it was found that 72% of customers are concerned that their financial providers are engaged in greenwashing. And that 74% would consider moving to another provider if they discovered that their financial services provider invested in companies that are not looking at a sustainable future.
These same customers are looking for the same approach when it comes to life insurance.
Key Players in the Life Insurance Space Today
Today, the largest insurance companies who offer life insurance include some household names, and some less well known businesses.
Prudential Financial, Inc (NYSE:PRU), familiarly known as ‘The Pru’ was founded in 1875. It has a current market cap of $31.6 billion and employee count is just shy of 40,000. It has one of the highest dividend yields in the sector at 5.79%. Its share price has gone up 4.81% in the last month from $82 to $86.32. The business has suffered in Asia, particularly as a result of China’s strong lockdown measures. However, sales were up 15% in February and a return to higher growth in 23/24 is expected.
According to TradingView’s Analyst Rating, the Pru is a Neutral to Buy.
Unum (NYSE:UNM) currently has a strong buy rating and topped SeekingAlpha’s recommended list of life insurers to look at in 2022. While younger and smaller than MET and PRU, with a market cap of $8.3 billion, it has strong momentum behind it. Beating estimates in 3 of 4 quarters last year, estimates are for strong sales again in Q1 23.
According to TradingView’s Analyst Rating, Unum is a Buy.
Voya (NYSE:VOYA) is another strong buy recommendation based on 17 analysts ratings in the past 3 months. With a market cap of $7.4 billion, its performance is what is driving investor interest, up 23.57% YTD. It closed April at a 52 week high of $77.90 and has a price target of $84.50.
According to TradingView’s Analyst Rating, Voya is a Strong Buy.
Globe Life (NYSE:GL) has a market cap of $10.3 billion and has been around since 1979. Recent performance has not been stellar, down YTD 11.60%. However, its five year performance is +23.28% and its sheer size makes it worth keeping an eye on. Wells Fargo has given it an equal-weight rating and a target of $120 (against its current $1106.55).
According to TradingView’s Analyst Rating, Globe Life is a Neutral.
MetLife (NYSE:MET) is the largest provider by market share in the US life market (12.1%). It provides insurance, annuities, employee benefits, and asset management services worldwide. It operates through five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa; and MetLife Holdings. MET has a market cap of $ 47.4 billion. It was trading at $61.26 when market closed, 1 May 2023. Employee counts stands at 45,000. For a full report on MET, see our take on its Q1 2023 results on 3 May.
According to TradingView’s Analyst Rating, MET is a Buy.
Key Thoughts for Our Readers
It is unusual for us to write about insurance at #DisruptionBanking. Most of our readers have portfolios that we hope will provide for their futures. However, with the cost of life insurance being less than the monthly subscription fees needed to gain access to Netflix, could it not be another useful hedge?
Today people want to engage with their suppliers on multiple levels. As a customer, as a participant in an ecosystem and ideally as an ambassador to the companies that hold their money. Perhaps our story helped in identifying a space that had been under-reported until now. And perhaps you also want to rethink your strategy when it comes to life insurance.
All share prices and share advice was taken from TradingView at 4 pm on the 2nd of May.
Author: Mike Davies
Disclaimer:
The Editorial Team at #DisruptionBanking have taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this Article. This Article is most definitely not Financial Advice.
The ratings taken from TradingView are widely available to any interested potential investor and were correct as of 4pm on the 2nd of May.
