Despite a surprise downward revision to the first quarter GDP
growth rate, the US economic picture has been improving. Recent
economic numbers-particularly in areas of housing, labor markets
and consumer spending-have been upbeat and point to a stronger
second quarter. It appears that the impact of tax hike and
sequester was not as bad as earlier feared.
Improving economic picture is positive for all insurers as
their business volume is highly correlated to the health of the
economy. Further, improvement in the labor market is also
positive for all insurers but benefits health insurers the most.
3 Sector ETFs to profit from rising rates
Insurers also stand to benefit from the rising rate scenario.
Many insurance companies-life insurance companies in
particular-invest in longer-duration bonds and have thus been
hurt by low interest rates. Higher interest rates will enable
these companies to earn higher returns on their investment
At the same time, the value of long duration bonds in
insurers' portfolio will go down as rates go up, however since
these companies have very long-term investment horizons, they can
hold investments till maturity and no losses are actually
3 ETFs to buy for Obama's climate change
According to a recent
t from the Property Casualty Insures of America, U.S.
property/casualty insurers' net income rose to $14.4 billion in
Q1 2013 from $10.2 billion in Q1 2012, while their annualized
rate of return surged to 9.6% from 7.2%. The improvement was
largely driven by $4.6 billion in net gains on underwriting from
$0.1 billion in net losses on the prior-year quarter.
Property & Casualty insurers appear poised for a strong
top-line growth this year, as premiums have been
in mid-single digits-a trend that may gain momentum this year.
Forget dividends, focus on buybacks
The outlook for Life insurers also appears to be brightening
now, albeit slowly. Per Fitch Ratings, the sector's strong
balance sheet fundamentals and improved liquidity
profile help mitigate ongoing concerns over challenging
macroeconomic conditions pressuring industry operating
As a result of improved outlook, analysts have been raising
estimates for insurance companies. Insurance industry looks very
well poised to outperform in the coming months from the Zacks M
industry rank (1 out of 63) perspective too.
Below we have analyzed three
that provide a diversified exposure to the insurance sector.
SPDR S&P Insurance ETF (
KIE follows the S&P Insurance Select Industry Index, which
is an equal weight index. Launched in August 2005, the product
has amassed $322.8 million in assets, which are currently
invested in 46 securities.
The product charges a reasonable 35 basis points per year in
fees. It currently pays out a decent dividend of 2.01%.
In terms of holdings, about 39% of the assets are invested
property and casualty insurance sector while life & health
account for another 20% of the asset base. Due to the equal
weight methodology, no one security accounts for more than 2.4%
Dow Jones U.S. Insurance Index Fund
IAK tracks the Dow Jones U.S. Select Insurance Index, holding
68 stocks in its basket and charging investors 45 basis points a
year in fees.
The ETF is a bit top heavy with close to 60% of assets in the
top ten securities. From sector perspective, it is tilted towards
property and casualty insurance firms, which accounts for about
50% of the asset base while life insurance companies hold about
In terms of individual holdings, AIG (11.9%) occupies the top
spot, followed by MetLife (9.4%) and Prudential Financial (6.5%).
The yield is moderate at 1.33% currently.
PowerShares KBW Insurance Portfolio (
KBWI follows the KBW Insurance index which is comprised of 24
insurance companies. The product charges investors just 35 basis
points a year in fees, while the yield is also nice at 1.9%.
Metlife, Travelers, Chubb, Prudential and Aflac are the top
five holdings. In terms of sectors, property and casualty
insurance companies accounts for about 42% of the asset base
while life and health insurance companies hold about 31% of
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ISHARS-DJ INSUR (IAK): ETF Research Reports
PWRSH-KBW IP (KBWI): ETF Research Reports
SPDR-KBW INSUR (KIE): ETF Research Reports
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