Goldman's Upgrades And Downgrades For The Life Insurance Industry

Life Insurance stocks have recovered more than 10 percent from their post-Brexit-vote lows. While 2Q16 earnings are likely to reflect a recovery from the weak 1Q results, the sector’s outlook is under pressure due to macro headwinds, Goldman Sachs’ Michael Kovac said in a report. He recommended buying defensive stocks with growth catalysts.

Buy Recommendations

“In the current environment we think insurers that demonstrate growth with limited macro sensitive will trade at a premium,” analyst Michael Kovac wrote. He upgraded the rating on Reinsurance Group of America Inc RGA to Buy, while raising the price target from $96 to $108.

The company is poised to benefit from regulatory growth. While Solvency II has resulted in some European insurers exiting lines or seeking additional reinsurance, the US is witnessed continued restructuring and a shift away from Life businesses. These present opportunities for Reinsurance Group of America.

Kovac maintained a Buy rating on Assurant, Inc. AIZ, with a price target of $95. He said the company was a defensive insurer “for whom we are positive on growth prospects.”

Related Link: Sun Life Financial Still Seeing Strong Results Despite Low Interest Rates

Sell Recommended

The analyst downgraded the rating on Unum Group UNM to Sell, while maintained a price target of $30.

While Unum Group appears well positioned in the US Group Market, there are risks to both EPS and sales in the near and medium term. “We believe that near- and medium-term challenges arising from Brexit and increasing competition in US Group businesses are not fully incorporated into consensus estimates,” the Goldman Sachs report noted.

In the longer term, long-term care insurance could be among the most challenged lines if the rate environment continues to be lower for longer, Kovac commented.

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