Pandemic-induced market volatility and global economic contraction – as we have seen this year – could potentially be characterized by insurers as tail risk or "black swan" events.
Financial services and insurance giant Allianz (DE 🙂 (OTC: ALIZY) highlights:
"In the financial services industry, a black swan describes a very unlikely and serious event that can cause shock waves through the financial markets as a whole or specific asset classes. Given its nature, such an event cannot be predicted."
By 2020, the activities of a wide range of companies, including those in financial services and especially insurance, will be disrupted. As a result, their earnings, and in most cases their stock prices, have also suffered. British multinational life insurance and pension firm Prudential PLC (LON :), (NYSE 🙂 is a perfect example of how events this year have put pressure on the industry.
Year-to-date, shares of PRU are down about 14%. On December 7, it closed at 1,258.74p ($ 33.71 for US-domiciled stocks).
Although PRU stocks have gained significant ground since hitting lows earlier this year, they are still at multi-year lows. In comparison, it's down 2.5% on YTD.
Transforming The Business
member Prudential has been reorganizing his operations in recent quarters. In October 2019, it completed the spin-off from investment manager M&G (LON :), (OTC: MGPUF) . The two are now separately listed companies.
Now Prudential is ready to channel its resources mainly to Asia, especially China, but also Africa. The group is already a well-known supplier of life insurance in Asia.
CEO Mike Wells recently commented:
"The Asian insurance market is not only growing, but is approaching a tipping point of even faster growth … When per capita income reaches about $ 10,000 per capita, insurance penetration is booming. .. Prudential is particularly trying to focus on those markets in Asia where we see the greatest growth opportunities. "
In August the group announced. Management emphasized that following the divestment of M&G in the UK, the spin-off from Jackson National, its US company, is next.
An initial public offering (IPO) is in the pipeline in 2021. According to the Secure Retirement Institute (SRI), "Jackson was the best-selling total annuity insurance in 2019."
In the first half of the year, Prudential's operating profit was $ 2.5 billion (or £ 1.87 billion), down $ 2.81 billion (or £ 2.1 billion). Meanwhile, pre-tax profit fell 54% to $ 534 million (or £ 340 million).
Wells was satisfied with the statistics:
“We delivered resilient performance in the first half, despite a challenging new business sales environment, which is likely to continue for the remainder of the year, and further interest rate declines. Our diverse, high-quality platform in Asia and our focus on writing profitable value-adding activities led to a 14 percent increase in adjusted operating profit for Asia. "
Forward P / E and P / S ratios are 9.89 and 1.24, respectively. The current dividend yield is more than 2%. We believe that PUK shares offer value at the current level. Further investigation would show that it is one of the high quality insurance stocks that are still trading cheaply.
Bottom Line
Despite current uncertainties, the insurance industry, especially in Asia and frontier markets such as Africa, will continue to grow. In 2019, "the average insurance penetration worldwide was approximately 7.2 percent." In other words, there is plenty of room for growth for Prudential and his colleagues.
Investors willing to look beyond short-term economic or industry-related news and capture some of the growth in Asia could put Prudential on their radar.
Those investors who do not want to put the full capital into Prudential may also consider investing in an exchange-traded fund that holds stock in the company.
Funds that merit further due diligence include the Invesco International Dividend Achievers ETF (NASDAQ 🙂 and the Pacer Trendpilot International ETF (NYSE 🙂 .
Finally, those investors who want to focus on insurers can research the Invesco KBW Property & Casualty Insurance ETF (NASDAQ 🙂 the iShares US Insurance ETF (NYSE 🙂 SPDR S&P Insurance ETF (NYSE 🙂 .
Several companies currently held in these funds are Allstate (NYSE :), American International Group (NYSE :), Chubb ( NYSE :), Lincoln National (NYSE :), MetLife (NYSE :), Progressive (NYSE :), Travelers (NYSE 🙂 and Unum Group (NYSE 🙂 . Despite recent surges in stock prices, mainly due to the optimism of the COVID-19 vaccine, the industry still offers market participants value stocks with respectable dividends for passive income seekers.
