Long term bond yields are pushing to decade highs, inflation is sitting at 3.4% against a 2% Fed target, and a new Fed chair who avoids clear forward guidance is keeping markets on edge. That mix can punish some stocks while opening different types of opportunities for others. This article explains how that backdrop relates to three U.S. insurance and annuity providers that may be especially exposed to the news.
The stocks covered below are only a sample, and the full screen surfaced 20 more U.S. insurance and annuity companies with similarly detailed narratives that are not included here. If you want to go straight to the source, use the U.S. Insurance and Annuity Providers Benefiting from Higher Long-Term Yields screener to identify, analyze, and focus on the ideas that best fit your own conviction and risk profile.
Brighthouse Financial (BHF)
Overview: Brighthouse Financial is a U.S. insurer focused on annuities and life insurance, using a large, long-duration investment portfolio to earn a spread between what it pays policyholders and what it earns on invested premiums. That structure can be closely tied to long-term bond yields, so higher-for-longer rates directly influence how it prices products and generates earnings.
Operations: Brighthouse Financial generates about US$3.5b of revenue from Annuities, US$1.4b from Run off, US$1.1b from Life and US$643 million from Corporate and Other, with all US$6.8b of revenue coming from the United States.
Market Cap: US$3.0b
Brighthouse Financial is a pure-play way to get exposure to higher long-term yields through annuities and life products, which are backed by a sizable long-duration portfolio and spread-based pricing. Management highlights a strong capital position, including a combined RBC ratio above the stated 400% to 450% target range at times. Continued preferred dividends and buybacks show an ongoing focus on capital return. At the same time, the company has reported periods of statutory and GAAP losses and faces rating pressure linked to the proposed Aquarian take private, which could reshape its balance sheet and risk profile. For investors who care about how rising long-term rates feed into real insurance earnings, this is a story worth looking at more closely.
Brighthouse Financial’s capital strength and higher long-term yields could be masking a very different return profile beneath the surface. Put the full story in context with the 5 key rewards and 1 important major warning sign
Reinsurance Group of America (RGA)
Overview: Reinsurance Group of America is a global life and health reinsurer that takes on long term insurance risks from primary insurers and invests the associated premiums, so its earnings are closely tied to the returns it earns on a large, long duration investment portfolio. That makes Reinsurance Group of America a direct way to gain exposure to how higher long term yields flow through into investment income on life, health and annuity style liabilities.
Operations: Reinsurance Group of America generates most of its revenue from U.S. and Latin America Traditional business at about US$9.2b and U.S. and Latin America Financial Solutions at about US$4.6b, with further billions from Asia Pacific, EMEA and Canada across both Traditional and Financial Solutions segments.
Market Cap: US$16.1b
Reinsurance Group of America offers exposure to the link between higher long term yields and an insurer’s investment income, since a large share of its earnings comes from reinvesting premiums on long duration liabilities at new money rates the company has recently cited in the 5% to 6% range on parts of the portfolio. Analysts highlight growth in Asia and emerging markets and the use of data driven underwriting as potential supports for business volumes and efficiency, while news this August noted strong investment results, higher dividends and active capital deployment. On the other hand, funding is more reliant on external sources, earnings can be volatile when claims spike, and return on equity remains in the low double digits, so investors need to weigh yield potential against these risks.
Reinsurance Group of America’s higher new money yields and global reach could be masking a very different earnings mix. Put the pieces together with the 4 key rewards and 1 important warning sign
Genworth Financial (GNW)
Overview: Genworth Financial is a U.S. insurer that combines mortgage insurance with long term care coverage and other protection and retirement income products. This gives it a mix of housing related cash flows and long duration insurance liabilities that can be sensitive to higher long term yields. Its sizable fixed income portfolio and long term care exposure mean investment income and pricing choices are closely linked to where bond yields settle.
Operations: Genworth Financial generates about US$1.3b of revenue from Enact, US$6.1b from the Closed Block segment and US$35 million from Corporate and Other.
Market Cap: US$3.7b
Genworth Financial may appeal to investors who are considering an insurer where higher long term yields are an important factor but not the only driver. Long term care liabilities and a large fixed income book can benefit from better reinvestment rates and more room to reprice coverage. At the same time, recent earnings have been pressured, profit margins are thin and return on equity is low. Enact mortgage insurance remains a key cash generator, with capital returns and buybacks contributing to shareholder value, while management highlights strong capital levels and conservative leverage. Long term care losses, reliance on external funding and recent insider selling present risks that investors may wish to weigh when assessing how much of the higher yield theme is already reflected in the stock.
Genworth Financial’s mix of long term care risk, mortgage cash flows and a large fixed income book could be masking a very different risk reward profile. Get the full picture with the 1 key reward and 2 important warning signs (1 is major!)
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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