On May 22, we upgraded our recommendation on the shares of
Protective Life Corp.
) to Outperform from Neutral to reflect our optimism regarding
the announced acquisition of MONY Life insurance Company and
efforts to enhance shareholders value.
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Why the Upgrade?
Mid April, Protective Life Insurance Company announced a deal to
acquire MONY Life insurance Company ("MONY") and reinsure an
in-force book of life insurance policies of MONY Life Insurance
Company of America ("MLOA"). The acquisition is expected to be
accretive to Protective's earnings in the upcoming period. It is
expected to aid earnings by 10 to 15 cents per share in 2013, 55
to 65 cents per share in 2014 and to a further 65 to 75 cents per
share in 2015 excluding, integration and transition costs
Protective has a long history of successfully acquiring both
closed blocks of business and small companies. It has been
traditionally successful in generating operating efficiencies and
at the same time increasing business scale via these
acquisitions. Going forward we expect more such deals to be
sealed by the company, given sufficient cash in hand.
Protective has been changing its sales mix to improve life
insurance margins and reduce interest rate exposure. It has
therefore significantly increased its business in short-guarantee
universal life products. These products are less costly to
underwrite and more mortality driven, which is why management
expects short-guarantee universal life to be a higher proportion
of life sales going forward.
Despite increasing competition, we expect Protective to benefit
from the changing demographic pattern of America where a large
population is aging and thus generating greater demand for
retirement savings products. We expect this trend will
drive strong earnings growth in this business, given that the
company is already witnessing strong variable annuity sales and
Also, to share more profits with shareholders, the Board of
Directors of Protective Life announced an 11% increase in its
quarterly dividend to 20 cents. Its dividend yield of 2.1%
compares favorably with industry average of 1.5%
Other Insurers That Warrant a Look
Other stocks in the insurance sector that are worth considering
StanCorp Financial Group Inc
) with Zacks Rank #1 Strong Buy) and
China Life Insurance Co
Prudential Financial Inc
) with Zacks Rank #2 (Buy).