Don't Miss These Insurers for Big Gains Ahead
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According to a Swiss Re study, life insurance premiums are predicted to rise by approximately 3% in 2013 which could help the insurance companies to generate robust results. The insurance market in Asia and Latin America are quite developed so the life insurance companies are focusing on countries like India and Brazil that has great growth potential. The growing population coupled with the lack of health protection for individuals in these countries forms a lucrative ground and stimulates demand, and those companies that can service such demand can see their sales and profits rising at an unbelievable speed.
Despite challenges in the industry with competition at its prime and interest rates so low, the recovering economy in the U.S. coupled with strong foreign demand could easily elevate life insurers this year.
Genworth – Worth an investment
Genworth Financial (NYSE: GNW) is a Fortune 500 company, headquartered in Richmond, Virginia, USA. It has more than $100 billion in assets with a presence in more than 25 countries. The company specializes in life and long term care insurance, wealth management, mortgage insurance, lifestyle protection insurance and annuities. Although a recent adage to the insurance family it has put its root down to immeasurable extents.
The company recently unveiled a comprehensive U.S. Mortgage Insurance capital plan. This proposal will not only trim down Genworth Mortgage Insurance Company's risk-to-capital by 12 to 15 points, but will also reduce linkage and dependency with the holding company. This will help them to strengthen their capital structure and increase financial flexibility in the business. The capital plan consists of several actions, some of which are still subject to regulatory approval. This plan would further facilitate them to write new profitable business and also help them to reduce uncertainties related to their U.S. mortgage insurance subsidiaries, thereby increasing shareholders value. It’s a three dimensional plan to corner the market smoothly, i.e. Capital Efficient- Cost Effective-Beneficial to share holders.
In order to improve its business structure, Genworth is planning to divest non-core assets, grow internationally and secure top executives to head up operations. Genworth is planning to separate most of the company from mortgage-insurance operations that weighed down the firm with losses and threatened its investment-grade credit rating. Genworth posted operating losses of $106 million in the first nine months of last year and $513 million in 2011.
The company is currently trading at a P/E of 12, vs the industry P/E of 24. In the last one year the stock has given a return of almost 40% to investors, Since the life insurance industry is poised for growth in 2013, and the company is restructuring its business to generate good results, one can be certainly optimistic on a similar kind of return this year and can hold on to the stock as the company has finally tunneled through the dark lanes of losses.
MetLife – Targets being met.
MetLife (NYSE: MET) domiciled in United States, having a market capitalization of almost $40 billion, is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers. The company through its subsidiaries and affiliated holdings is leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East.
In order to maintain its position as a world class company, MetLife, like Genworth, is also planning to divest its non-core operations to enhance its business. The company recently completed the sales of its bank deposits for $6.4 billion. This is a very vital step taken by the company to exit the retail banking business and focus on its core insurance business.
With the expenses being administered appropriately, underwriting margins improving, and investment spreads benefiting from variable investment income and interest rate hedges, the company estimates the normalized earnings per share for 2012 to be in the range of $5.22-$5.32. The long term outlook of the company is very positive. Despite interest rates remaining at its all time low, the company expects to achieve a 12% ROE by 2016. Focusing on the emerging markets could be the key driver for growth in earnings. The company’s change in product mix - shift from market sensitive products to protection products will allow the company to achieve its target of improving the free cash flow by at least 10% over time. This change in product mix will also improve the company’s risk profile. It will also give the investors the confidence to hold tight.
The company is currently trading at a P/E of 14.8, though higher than Genworth, but quite low as compared to the industry. In the last one year the company has given a return of 16% on the stock, which is very good in this challenging environment. Though 2013 appears to be exigent, a double digit ROE seems to be rewarding. The diverse range of products, strong positioning in the markets, lucrative international outlook, and restructuring plans to generate shareholders value formulates into a good investment option for investors and sets grounds to make MetLife a black duckling of the insurance family.
Prudential’s prudent decision
Prudential Financial (NYSE: PRU) in the United States is the abode for of variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management.
Since life insurers are poised for growth, there seems to be a rising appetite for deals this year in order to fight the low yield sluggish environment prevailing in the US. Prudential financial recently completed the acquisition of The Hartford’s Individual Life Insurance business through a reinsurance transaction, which will help the company to broaden its product and distribution competence and strengthen its position in the market.
In this low interest rate environment the company targets an ROE of 12% to 13% in 2013, which is quite commendable. The company predicts an increase in operating earnings over 2012 ($6.18) to between $7.50 and $7.90 a share in 2013. In the last one year the company has provided an 18% return on the stock. I believe this stock is undervalued given the fact that it is targeting a double digit ROE and the recent acquisition are yet to reap benefits for the company. Although on uncertain grounds, the hopes of the company are quite high which is beguiling the investors to blindly invest in it.
vikashagarwal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!