10-year Treasury yield climbed 12 basis points to approximately 2.05% last week, topping the 2% mark for the first time since August 2019. U.S. Treasury yields are rising faster than many forecasts, due mainly to expectations that the Fed might increase rates more aggressively than anticipated to counter the rising inflation. “I would say the chances of yields continuing to go higher are pretty high,” said Gargi Chaudhuri, Head of iShares Investment Strategy, Americas. The 10-year Treasury yield topped 2% again Tuesday with a slight indication Russia may not invade Ukraine and a hot inflation report.
In addition, last week, St. Louis Fed President James Bullard said that he is open to a 50-basis point hike in March and thinks the Fed should raise rates a full percentage point by July. The rising yields and the anticipated interest rate hike this year bode well for life insurance companies. The fortunes of life insurance companies have positive correlation with interest rate movements because insurers often reinvest policyholder premiums into bond instruments, which deliver a better return when Treasury yields increase.
Given this backdrop, we think this could be the right time to scoop up life insurance company stocks, China Life Insurance Company Limited (LFC), MetLife, Inc. (MET), and National Western Life Group, Inc. (NWLI).
China Life Insurance Company Limited (LFC)
Based in Beijing, China, LFC, and its subsidiaries operate as a life insurance company in the People’s Republic of China. It operates in four segments: Life Insurance Business; Health Insurance Business; Accident Insurance Business; and Other Businesses.
For the nine months ended September 30, LFC’s operating income increased 5.2% year-over-year to RMB727.71 billion ($114.71 billion). Its net profit stood at RMB49.59 billion ($7.82 billion), up 3.5% from the same period the prior year, while its EPS increased 3.6% year-over-year to RMB1.72. In addition, LFC’s EPS is expected to increase 62.3% per annum over the next five years.
The stock has gained 12.2% in price year-to-date. And over the past six months, the stock has gained 10.3% in price to close yesterday’s trading session at $9.23.
It is no surprise LFC has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
LFC also has a B grade for Value and Momentum. Among the 29 stocks in the Insurance - Life industry, LFC is ranked #2. Click here to view additional LFC ratings for Growth, Sentiment, Quality, and Stability.
MetLife, Inc. (MET)
MET in New York City operates as a financial services company, providing insurance, annuities, employee benefits, and asset management services worldwide. It operates through five segments: U.S.; Asia; Latin America; Europe, the Middle East, Africa; and MetLife Holdings.
MET launched its 360Health solution in Bangladesh this month, marking the fourth Asian market to benefit from MetLife’s award-winning solution, which is already available to consumers in China, Korea, and Australia. With people increasingly prioritizing their health and wellbeing, the launch should allow MET to expand its reach to more customers and increase returns.
Also, MET announced that it had placed long-term, first mortgage loans secured by approximately 832,000 acres of timberland and timber across the Southeastern United States, allowing Tamarack Timberlands LLC to complete a $625 million redemption transaction and assume direct ownership of its timberland assets in the U.S. South. “This transaction reflects MetLife Investment Management’s commitment to investing in assets that produce sustainable returns–both environmentally and economically,” said Greg Gallaway, Managing Director and Head of the Agricultural Strategies group at MetLife Investment Management.
MET’s total revenues increased 3.5% year-over-year to $20.09 billion in its fiscal fourth quarter, ended December 31. Its adjusted net investment income jumped 6.7% from the prior-year quarter to $5.20 billion, driven by higher returns from its private equity investments. The company’s adjusted earnings per share increased 6.9% year-over-year to $2.17.
Analysts expect MET’s EPS to grow 5% per annum over the next five years. In addition, MET surpassed the Street’s EPS estimates in each of the trailing four quarters.
Shares of MET have gained 26% in price over the past year and 12.2% year-to-date to close yesterday’s trading session at $70.13.
MET has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The stock also has a B grade for Growth, Sentiment, and Momentum. MET is ranked #5 in the Insurance - Life industry. To see additional MET ratings for Value, Quality, and Stability, click here.
National Western Life Group, Inc. (NWLI)
Austin, Tex.-based NWLI, through its subsidiary, National Western Life Insurance Company, operates as a stock life insurance company. It operates through Domestic Life Insurance; International Life Insurance; Annuities; and Acquired Businesses segments.
NWLI’s net earnings increased 268% year-over-year to $39.84 million for its fiscal third quarter, ended September 30. Its earnings per Class A share increased 268.3% from the year-ago value to $11.27. And for the nine months ended September 30, its cash and cash equivalents balance came in at $540.23 million, indicating a 6.5% increase year-over-year.
NWLI shares have gained 5.8% in price to close the last trading session at $212.
NWLI’s solid fundamentals are reflected in its POWR Ratings. NWLI has an overall B rating, which equates to Buy in our POWR Ratings system. It also has a B grade for Growth, Value, Momentum, and Sentiment. It is ranked #6 in the Insurance - Life industry.
In addition to the POWR Ratings grades highlighted, one can see the NWLI’s Stability and Quality ratings here.
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LFC shares were trading at $9.15 per share on Tuesday morning, down $0.08 (-0.87%). Year-to-date, LFC has gained 11.18%, versus a -6.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
3 Life Insurance Stocks to Buy as Treasury Yields Hit 2-Year Highs StockNews.com
