The Fed’s hawkish tilt, with interest rate hikes in the offing, bodes well for insurance companies because higher interest rates will help them to generate better revenues. Higher bond yields increase risk-free returns, thus benefiting insurance companies, which invest in them to meet their promised returns to policyholders.

U.S. Treasury bond yields have been on the rise since the start of the year, but the benchmark 10-year rate jumped 12 basis points to about 2.05% on Feb. 10, 2022. It breached the 2% level for the first time since August 2019.

U.S. Treasury bond yields rose after the Labor Department released Consumer Price Index data for January, with inflation rising 7.5% year-on-year, beating the Dow Jones estimate of 7.2% and marking the highest inflation rate since February 1982. The red-hot inflation data coupled with a hawkish Federal Reserve fueled the notion   that U.S. interest rates would be hiked more aggressively than already expected.

Given this backdrop, we think it could be wise to add fundamentally strong insurance stocks MetLife, Inc. (MET) and Aegon N.V. (AEG) to one’s portfolio this month because  higher bond yields will likely benefit them.

MetLife, Inc. (MET)

New York City-based MET is a financial services company that provides insurance, annuities, employee benefits, and asset management services worldwide. The company offers life, dental, group short and long-term disability, individual disability, accidental death and dismemberment, vision, and accident and health coverage. It also provides pension risk transfers, structured settlements, institutional income annuities, and more.

On Jan. 28, 2022, MET announced that its subsidiary, Metropolitan Tower Life Insurance Company, had completed two longevity reinsurance transactions with Phoenix Group. Senior VP and Head of Risk Solutions for MET’s Retirement & Income Solutions business Jay Wang said, “Despite the continuing uncertainty around the pandemic, the U.K. pension and longevity risk transfer markets remains resilient, and we are excited to continue to grow our presence in this space.”

MET’s total revenues increased 3.4% year-over-year to $20.08 billion for the fourth quarter, ended Dec. 31, 2021. The company’s net income came in at $1.17 billion, compared to $124 million in the year-ago period. Also, its adjusted EPS increased 6.8% year-over-year to $2.17.

Analysts expect MET’s EPS for fiscal 2023 to increase 11.1% year-over-year to $8.03. Its revenue for the quarter ending June 30, 2022, is expected to increase 4.3% year-over-year to $16.56 billion. Also, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 28.2% in price  to close the last trading session at $70.50.

MET’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has a B grade for Growth, Value, Momentum, and Sentiment. It is ranked #5 of 29 stocks in the B-rated Insurance – Life industry. Click here to see the ratings of MET for Stability and Quality.

Aegon N.V. (AEG)

Headquartered in The Hague, the Netherlands, AEG provides a range of financial services in the Americas, Europe, and Asia. Its insurance products include life, accident, health insurance, property and casualty insurance, household and car insurance, and pension products. The company also offers savings products, such as retirement plan services, annuities, mutual funds, and stable value solutions.

On Nov. 2, 2021, AEG announced its commitment to achieving net-zero greenhouse gas emissions by 2050 by transitioning its €156 billion ($176.9 billion) general account investment portfolio. This will enable AEG to strengthen its group-wide approach towards corporate sustainability and help it join the Net-Zero Asset Owner Alliance, a UN-convened group of institutional investors committed to transitioning their portfolios to net-zero greenhouse gas emissions.

For its fiscal fourth quarter, ended Dec. 31, 2021, AEG’s operating result increased 6% sequentially to €470 million ($537.37 million). The company’s net result increased 94% year-over-year to €526 million ($601.40 million). Also, its total gross deposits increased 56% year-over-year to €69.02 million ($78.91 million).

For its fiscal year 2022, analysts expect AEG’s EPS to increase 10% year-over-year to $0.99. Over the past year, the stock has gained 30.5% in price to close the last trading session at $5.69.

AEG’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system.

It has a B grade for Value, Momentum, and Sentiment. It is ranked #4 in the Insurance – Life industry. To see the additional ratings of AEG for Growth, Stability, and Quality, click here.

MET shares were trading at $71.38 per share on Friday afternoon, up $0.88 (+1.25%). Year-to-date, MET has gained 15.03%, versus a -6.80% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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