The rising economic tide will lift all boats — but life insurance companies will float especially high, analysts said.
Analysts from Goldman Sachs Group Inc. said Wednesday that big life insurers are poised to profit from rising interest rates and the recovering stock market. Higher rates will allow the companies to earn higher yields from the relatively safe bonds where they park client money. The booming equities markets will boost the insurers' managed asset portfolios, allowing them to collect more fees from clients.
The analysts upgraded the industry coverage to "attractive" from "neutral." They also upgraded a slew of companies and increased their price targets and earnings estimates.
Higher interest rates allow life insurers to generate higher yie
lds on their investments. That makes them more profitable in general. It also boosts their margins from products that pay out at lower, fixed rates.
As the companies continue investing newly-collected premiums at higher rates, their earnings will keep growing, the analysts said.
Meanwhile, a booming stock market will boost the companies' earnings and force other analysts to raise share price targets and other metrics, the Goldman group said. They said most estimates currently are tied to management expectations, which tend to be more conservative.
They said life insurers are better investments than property and casualty insurers at this stage of the economic cycle. Property and casualty companies don't benefit from rising rates because they don't manage massive portfolios of long-term investments as life insurers do.
The analysts upgraded Lincoln National Corp. to "buy" from "neutral."
They said the company will benefit more than others from the market's recovery because higher rates should increase demand for its variable annuity products.
Shares of Lincoln National added 23 cents to $28.23 Wednesday.
The analysts upgraded Protective Life Corp. to "neutral" from "sell." About 60 percent of Protective's revenue comes from investment income, compared to an industry average of 35 percent, they said.
Protective shares jumped 55 cents, or 2 percent, to $27.16.
They downgraded Torchmark to "sell" from "neutral." The company is more stable than most, the analysts said. They said its low-risk approach is attractive during an economic slump, but limits the company's gains during periods of recovery and growth.
Torchmark shares dropped 95 cents, or 2 percent, to $60.55.
The note reiterates a "CL-Buy" rating for Principal Financial Group Inc. and a "buy" rating for Unum Group.
Principal's stock edged up 5 cents to $32.47. Unum's shares drifted down 10 cents to $23.82.
The report was prepared by Goldman analysts Christopher Giovanni, Michael Nannizzi and Eric Fraser.
© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.