August 6th, 2009

Life Insurance Stocks: GNW, HIG, LNC, AZ, PFG and Others

An industry group that seems to be flying under the radar are those in the Life Insurance industry group. It’s understandable because there are so many fundamental reasons to just hate these stocks (click here for an interesting analysis written on April 2, 2009, suggesting that you short these stocks), including:

  • They make about half their earnings from their investments, both bonds and stocks.
  • Companies that sell annuities have been caught holding the bag as they must make guaranteed payments to their annuitant, while being able to earn less on their investments.
  • Some life insurance companies qualified for TARP money, took it and are now subject to the same or similar restrictions as their banking cousins.

But perhaps the reasons, however, for not wanting to own these stocks through the financial crises of the past year may be the same reasons for wanting to pick some up now. The stock market has improved, there are prospects that interest rates may start increasing as we go into the winter (also explains why TBT may be a good buy now) and the profitablility of life insurers may start improving.

Of the 20 stocks in this group, 12 have doubled since March 9. Much of that price move can be explained as bounce back that saw 12 of these stocks (not necessarily the same twelve) sell off 70% or more to abysmal lows from this time last year to March 9. So even if many made nice moves since the March low, several of them appear to be reigniting for the next leg, along with the financials.

  • GNW
  • HIG
  • LNC
  • AZ
  • PFG
  • PL
  • PRU
  • AXA

I like most of these stocks at this stage of the market’s life cycle since they tend to have higher than average volatility due to their step declines since last year’s highs. I especially like (and, in full disclosure, own) GNW but can see favorable bottom reversal patterns in them all.

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