My Top Life Insurance Stock to Buy in October


Investing in the stock market has been increasing worrisome in 2022, with the S&P 500 and Dow Jones Industrial Average recently hitting new 52-week lows. But not all stocks are falling. The stock of employee benefits provider General Group (NYSE: UNM) is skyrocketing in 2022, up over 67% so far this year.

This insurer admittedly struggled early in the pandemic, but now the business is thriving as headwinds from the pandemic greatly ease. The stock price is already up significantly, but here’s why you should consider adding it to your portfolio even now.

The top employee benefits provider struggled in the pandemic

Unum Group provides employee benefit policies covering dental, vision, and life insurance. The past few years have been a roller coaster for the insurer.

When the COVID-19 virus emerged, widespread lockdowns in unemployment rates skyrocketing. The US unemployment rate reached nearly 15% in April 2020. This reduced the number of customers Unum Group could serve since there was a smaller pool of employees.

Its business faced more struggles in the months that followed as morbidity rates and claims costs on life insurance policies jumped due to the virus. From 2019 to 2021, Unum saw group life claims jump 23% to 49,000 and disability claims increase 40% to 700,000. Two older people meet with a business person in a living room.

Image source: Getty Images.

Unum’s impressive turnaround story

With the worst of the pandemic mostly behind us, Unum Group’s business now has tailwinds working in its favor. As of September, the unemployment rate is 3.5%, and employee wage growth is solid at around 5%. This is good news for Unum, as rising wages allow it to increase the amount it charges on its policies. Rising wages increase Unum’s premiums collected, up 5% and double its growth seen before the pandemic.

The company also expects to see improvements from fewer claims on group life insurance and group disability over the next few years as ratios improve to pre-pandemic levels. A chart shows Unum Group's projects claims ratios falling over the next three years following the pandemic.

Image source: Unum Group.

Growth expectations for Unum keep improving

Unum Group has raised its outlook for 2022 multiple times since the beginning of the year. At the start of the year, Unum guided after-tax adjusted operating income per-share growth between 4% to 7% this year. It raised its expectations after each quarterly earnings, with its updated guidance from August showing growth of 40% to 45%.

These optimistic projections have been well received by investors, and the stock has gained more than 67% this year while the S&P 500 is down nearly 25%. Investors should be cautious that the big run-up in the stock may be behind it. However, favorable tailwinds will continue to help the business — which can also benefit from rising interest rates.

Insurers collect premiums upfront and pay out claims at a later date. This is called “float” and is other people’s money that the insurer can put to work in an investment portfolio. These investments can help boost the company’s earnings, which is a huge reason famous investor Warren Buffett loves investing in insurers.

CFO Stevel Zabel said the company was beginning to see portfolio yields stabilize after several years of decline due to ultra-low interest rates. Unum’s yield on new investments in the second quarter was 4.8%, compared to 3.2% in the same quarter last year. In the second quarter, Unum’s miscellaneous investment income increased to $57 million from $41 million in the first quarter.

Unum has plenty of cash and will keep rewarding shareholders

Unum is on firm financial footing, with over $1.2 billion in cash and cash equivalents. The company is committed to rewarding its shareholders, returning hundreds of millions in the form of dividends and share repurchases. Its 3% dividend yield makes this a solid stock for investors looking for some passive income.

Unum committed to $200 million in annual share repurchases, which will help support the stock that trades below book value with a price-to-tangible book value of 0.88.

UNM Price to Tangible Book Value Chart

UNM Price to Tangible Book Value data by YCharts.

Unum Group is well positioned to benefit from inflation, which increases wages and premiums on its group policies. Rising interest rates help boost its investment portfolio returns in the long run — making the stock for this life insurer a solid buy today.

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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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