Once at the cornerstone of many households' finances, life insurance policies no longer command the same appeal. According to industry-funded research firm Limra, individual life insurance sales have fallen by 45% since the 1980s but have remained relatively stagnant since 2010 – telltale signs of a mature market.
In addition to lackluster demand, interest rates sitting near historic lows have tightened spreads between insurance premiums charged and interest received on those premiums that continue to erode profit margins. Life insurers also have to brace for elevated payouts to owners of long-term care policies written when life expectancies were shorter and health care expenses were lower. Premiums charged at the time these policies were issued fall short of covering today's increased aged care costs, such as nursing homes fees and hiring assisted living professionals.
"The good news is that we're living longer, and the bad news is that we're living longer," Michael Frank, an actuary and president of Aquarius Capital, told Reuters.
Traders who feel bearish about life insurance companies may find these three trading ideas of particular interest. Let's look at each stock in further detail.
MetLife, Inc. (MET)
MetLife, Inc. (MET), with a market capitalization of $42.93 billion, is a global provider of insurance, annuities, employee benefits and asset management services. Outside of the United States, the New York-based company operates in Asia, Latin America, Europe, the Middle East and Africa. The insurer recently named insider Michel Khalaf as its new CEO to succeed Steven Kandarian, who has held the position since 2011. MetLife stock offers a 3.93% dividend yield and has fallen 13.75% over the past year, underperforming the life insurance industry average by roughly 23% over the same period as of Jan. 10, 2019.
MetLife shares traded within a five-point trading range between February and September before dropping sharply in October. Price has since stabilized but is approaching key resistance at $44 from a four-month downtrend line and the 200-day simple moving average (SMA). Also, the relative strength index (RSI) is approaching 70.0, indicating short-term overbought conditions. Traders who open a short position at this level should look to bank profits near the late December lows and place a stop-loss order above the November swing high.
Prudential Financial, Inc. (PRU)
Headquartered in Newark, New Jersey, Prudential Financial, Inc. (PRU) provides insurance, investment management and other financial products and services. Although the company operates in many countries, it generates the lion's share of its revenue from the United States and Japan. Prudential reported that its annuities unit fell 21.3% to $454 million in the third quarter of 2018. The insurer attributed the decline to higher costs for hedging against risk and higher distribution costs. As of Jan. 10, 2019, Prudential stock, with a market cap of $35.88 billion and offering a 4.21% dividend yield, is down nearly 24% over the past 12 months.
The "death cross" that formed on Prudential's chart in early April hasn't disappointed the bears. Since that time, the stock has fallen close to 13% – admittedly, mostly in the fourth quarter of last year. Traders should look to execute a short sale at the $89 level – an area where the price encounters a confluence of resistance from a downtrend line dating back to October, several recent swing lows and the 50-day SMA. Consider placing a stop-loss order just above the December high and taking profits if price tumbles back to last month's low.
Torchmark Corporation (TMK)
With a market cap of $8.89 billion, Torchmark Corporation (TMK) provides life and health insurance products as well as annuities in the United States, Canada and New Zealand. The company's life insurance segment contributes to over 70% of annual premium revenue. Investment bank The Goldman Sachs Group, Inc. (GS) downgraded the stock in September, citing that the sales environment for Torchmark is deteriorating due to declining union membership. Torchmark stock pays a meager 0.80% dividend and has dropped 12.73% over the last year as of Jan. 10, 2019.
Torchmark's share price traded sideways through much of 2018, making the stock a mean reversion trader's delight. Things got interesting in December when it closed out the month down 11.86%, buckling to broad market weakness. Since Dec. 26, the price has made an impressive recovery but now runs into a wall of resistance from a horizontal line that sits across the bottom of last year's 10-month trading range and the falling 50-day SMA. The 50% Fibonacci retracement level also sits near this area to further help fortify against the bulls. Those who short the stock at current levels should set a take-profit order near the December swing low at $69.53. Consider placing a stop above the 200-day SMA to protect trading capital if the price moves in the opposite direction.