Piper Sandler's Weekly Life Insurance Valuation Analysis

Piper Sandler's John Barnidge provides a comprehensive overview of key trends and insights in the life insurance sector in this week's valuation analysis.

The analyst said: "The predicted S&P 1500 Life and Health Insurance Index suggests the life group is undervalued by ~3.6% as of December 27th. This compares to 3.7% undervalued a week ago. We believe this is due to the Life index increasing ~86 bps, the S&P 500 increasing ~68 bps and the U.S. 10-year treasury yield increasing 10 bps over the last week. We note this does not suggest every company is under/overvalued but the industry as a whole. The S&P 1500 Life and Health Insurance Index prediction compares the S&P 1500 Life and Health Insurance Index and regresses it against the U.S. 10-year treasury yield and S&P 500 to determine how over/undervalued the group is on a group level basis. Regressing it against both the U.S. 10-year treasury yield and the S&P 500 makes sense because it factors in the largest earnings drivers for life insurers – interest rates and equity market.

The predicted S&P 1500 Life and Health Insurance Index suggests the life group is undervalued by ~3.6% as of December 27th. This compares to 3.7% undervalued a week ago. We believe this is due to the Life index increasing ~86 bps, the S&P 500 increasing ~68 bps and the U.S. 10-year treasury yield increasing 10 bps over the last week. We note this does not suggest that every single company is under/overvalued but the industry as a whole.

The group had outperformed in much of ’21 and throughout ’22 as the value trade outperformed growth. This trend reversed in ’23 continuing into '24 despite an improving health landscape and tailwinds from higher rates as greater concern about credit and macro has emerged.

The S&P 1500 Life and Health Insurance Index prediction compares the S&P 1500 Life and Health Insurance Index and regresses it against both the U.S. 10-year treasury yield and the S&P 500 to determine how over/undervalued the group is on a group level basis. Regressing it against both the U.S. 10-year treasury yield and the S&P 500 makes sense in our opinion because it factors in the largest sources of business for the life insurers – interest rates and the equity market. Evidence of the efficacy of this analysis comes from an ~80% R squared for the regression analysis."

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