3 Insurance Companies Focusing on Future Growth
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to a research by MarketLine, the global insurance sector is expected to reach $5.1 trillion in 2015. This growth will be mainly driven by the recovery in developed countries like the U.S. The companies within this sector foresee growth opportunities through focusing on products with new insurable risk, international expansions, and regulatory changes. I have analyzed three companies from the industry and observed how they are framing their strategies to gain higher revenue and expand their customer base.
Future growth expectation
Recently, Unum Group (NYSE: UNM) launched its "Group hospital indemnity" product, which will help its customers to be safeguarded from the costs incurred at the time of unexpected health events resulting in hospitalization. This product will be mainly offered to employers who are looking to restructure health care costs incurred on employees. This product makes the employees eligible for a lump-sum benefit when hospitalized due to health issues. Unum will make the product available in Alaska, New Mexico, Florida, and Ohio in July 2013. Based on the success of the new product and the current operations, the company is anticipating a rise in operating earnings of around 6% in 2013; earnings were $887 million in 2012.
Unum bought $95 million worth of shares in the first quarter of 2013. It also has a plan to buy back shares worth $500 million in fiscal year 2013. Unum is optimistic about the repurchase plan, as it generates more than $400 million of free cash flow every year. It has repurchased stocks worth $2.2 billion since 2007. Unum expects to continue its strong performance in 2013 and 2014.
Strategies to attract new customers
While AFLAC’s (NYSE: AFL) operations are in the U.S., it claims to insure one out of four households in Japan and is one of the biggest insurers in the Japanese market. The company is expecting a repatriation profit of around $760 million in the 2013 and $1 billion in 2014 from Japan, based on launching new products and targeting its under-penetrated product segment.
AFLAC is planning to launch life policy ‘’GIFT,’’ where it will pay annuities on a monthly basis to the beneficiary from the time of the policy holder’s death or when the person has reached the age of 60. It is targeting the under-penetrated market of ‘’20 to 40 year-olds’’ by introducing low-premium medical products in the second half of 2013. The company is pushing the cross-selling of a lower face-value product, ‘’WAYS,” a hybrid life insurance product, through its 200 consultants. To assure further growth in the sale of the product, the company is planning to increase its consultant count to 600 by 2015.
The implementation of the Patient Protection and Affordable Care Act, or PPACA, in the U.S. is scheduled in 2013. This act will help the Federal Government to increase the rate of people covered under health insurance by making it mandatory and providing tax credits to the individuals. The company observed $997 million in sales in fiscal year 2012. But now AFLAC is expecting a 5% increase in sales in the second half of 2013 based on an increase in the number of people getting insured. In addition to this, it is planning to build an independent health insurance exchange in 2014, where it will offer government-regulated health care plans, which will make individuals eligible for federal subsidies. With 94% brand awareness, the company is forecasting an increase in demand for its medical insurance products.
New product and estimation bringing revenue
American Security Insurance, a subsidiary of Assurant (NYSE: AIZ), filed for a 0% rate change in Florida in March 2013, which will be effective from August 2013. Assurant has plans to launch a new ‘’lender-placed’’ insurance, an insurance policy placed by a bank on a homeowner whose property insurance is lapsed, which will be affected by this rate change. This new insurance product is more flexible and less costly. Currently, American Security has 140,000 policies in Florida alone, which have premiums worth more than $500 million. Florida contributes one third of the total premium received by American Security. With this, the company expects Florida to contribute, in total premium, more than the current one third. Furthermore, the company is planning to launch this new product in 28 states by the end of the second quarter of 2013 and all over the U.S. by the end of 2013.
Assurant, on its investor day in 2011, announced the five-year estimate for the placement rates on loans to steady down to 1.8%, as it was expecting the sales to decrease. The placement rate in the first quarter of 2013 was 2.85% due to sales of new loans in 2012. In the first quarter of 2013, it sold 32.9 million loans, a 1.7 million quarter-over-quarter rise. Going forward, Assurant is expecting to sell 900,000 loans more in the second quarter of 2013. With this, the company is expecting high growth from the sale of new loans.
Insured for growth
With the plan of a country-wide launch of new products and anticipation of the placement rates, Assurant is very optimistic about growth in revenue.
AFLAC is expected to show an uptrend in sales in Japan based on its excellent performance in the Japanese market. Additionally, after the implementation of the health care act, the company is anticipating a rise in sales, which will result in higher top-line growth.
A new product launch and repurchase plan are expected to boost Unum's revenue in upcoming years. The company’s strong presence in the market and its free cash flow depict future growth in terms of higher profit.
I recommend a buy on all these stocks.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends Aflac. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!