The importance of the life insurance industry was highlighted by the COVID-19 pandemic, which triggered severe financial volatilities and led to extremely high mortality rates worldwide. The dismal period underlined the importance of purchasing life insurance policies and the dire need to secure one’s financial future.
While sales of life insurers continued to witness an uptick amid the pandemic, customers came up with varied financial requirements. Thus, it was not easy for U.S. life insurers to capitalize on the prevailing scenario and sustain their growth prospects.
Life insurance providers were prompted to transform their product portfolio, and pursue re-evaluation and redesigning of their products and policies. With customers preferring policies with “living” benefits more than those with death benefits, traditional life insurance policies with a death benefit option failed to serve the purpose. The industry participants rolled out investment products that provide bundled covers of guaranteed retirement income, life and healthcare.
Though the investment yields of life insurers took a hit from the low-interest-rate environment induced by the pandemic, enhanced risk management strategies helped them to endure the impact. With significant exposure to rate-sensitive products and investments, the insurers steadily pursued alterations in the business mix to include more products without long-term guarantees that are less affected by interest rates. The intensified focus on non-guaranteed products is anticipated to lower a company’s risk profile. With the Fed signaling three interest rate hikes in 2022 (published on CNBC), the future prospects appear bright for life insurers.
Meanwhile, an aging U.S. population is likely to sustain the solid demand for insurance and protection products. The advent of the newer variants of the virus resulting in an escalation in COVID-19 cases and continued fatality incidences remains a cause of concern for life insurers. Increased claim payments by insurers might dampen their underwriting results. Nevertheless, massive vaccination programs conducted with an aim to offer immunity for residents are likely to offer a sigh of relief to these companies.
Another remarkable move on the part of life insurers has been their committed efforts to match the accelerated pace of digitization being infused in every sphere of life. The companies digitized the process of purchasing life insurance policies, which has made it increasingly convenient for customers to purchase policies from the comfort of their homes. Technological upgradations in the form of artificial intelligence, robotic process automation, cognitive intelligence or blockchain also came to the forefront. These technology advancements help life insurers with accelerated claim payments and automation in processes. Consequently, they also curb operational costs and bolster one’s margins.
The prevailing scenario makes us optimistic regarding consistent growth in this industry, which should boost the prospects of companies with sound business fundamentals.
The Zacks Life Insurance industry, which is housed within the broader Zacks Finance sector, has lost 4.1% in the past year against the sector’s growth of 21.1%. The S&P Index rallied 23.7% in the same time frame.
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Against this backdrop, let’s take a look at the two life insurers Manulife Financial Corporation MFC and Sun Life Financial Inc. SLF with market capitalizations of $39.3 billion and $32.8 billion, respectively. Both stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into specific parameters to ascertain which company is better positioned at the moment.
Shares of Sun Life gained 17.2% in a year against the industry’s decline of 4.1%. Meanwhile, Manulife stock rose 6.6% in the same time frame. Evidently, SLF has the edge over MFC here.
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Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Sun Life’s bottom line beat estimates in each of the trailing four quarters, the average surprise being 7.74%. Meanwhile, Manulife’s earnings surpassed the mark in three of the trailing four quarters and missed once, the average surprise being 4.50%. It is clear that SLF has a better reading than MFC here.
Return on equity (ROE) is a profitability measure, which indicates how efficiently the company is utilizing its shareholders’ funds.
Sun Life’s ROE of 14.1% compares favorably with Manulife’s ROE of 13.1%. Both the stocks have a higher ROE than the industry average of 11.4%.
The lower the debt-to-equity ratio, the better it is for the company as it implies a sound solvency level. MFC’s leverage ratio of 8.8X betters SLF’s ratio of 16.8X and remains lower than the industry average of 11.4%. Therefore, Manulife holds an edge over Sun Life on this front.
Robust 2022 Prospect
The Zacks Consensus Estimate for MFC’s 2022 earnings indicates a year-over-year improvement of 10%, while earnings for SLF suggest 8.8% year-over-year growth this year. Evidently, Manulife has the edge over Sun Life here.
Both stocks’ expected long-term earnings growth rate is lower than the industry’s average of 19.3%. But the metric for Manulife is pegged at 10%, which is better than Sun Life’s figure of 9%. Consequently, MFC is the clear winner here.
VGM Score rates each stock on their combined weighted styles, thus helping to identify those with the most attractive value, best growth and the most promising momentum. Both Manulife and Sun Life have an impressive VGM Score of B, faring equally on this front.
Undoubtedly, one of the major metrics that boost a life insurer’s revenues is its sales figures. Insurance sales reported by Manulife were $3.9 billion for the first nine months of 2021, while the metric for Sun Life totaled $2.1 billion in the same time frame. Thus, MFC wins this round.
Our comparative analysis shows that Manulife is better-placed than Sun Life with respect to the leverage ratio, solid 2022 prospect, dividend history, expected long-term earnings growth and sales figures. Meanwhile, SLF scores higher in terms of price performance, earnings surprise and ROE. With the scale tilted slightly toward Manulife, the stock appears to be better poised.
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