My top life insurance stocks to buy in October

Investing in the stock market has become increasingly concerning in 2022. S&P 500 When Dow Jones Industrial Average It recently hit a new 52-week low. But not all stocks are falling.Shares of Benefit Providers Unam Group (UNM 2.66%) will skyrocket in 2022, up more than 67% so far this year.

The insurer admittedly struggled in the early days of the pandemic, but is now doing well as the headwinds from the pandemic have eased significantly. The stock has already risen significantly, but here are some reasons why you should still consider adding it to your portfolio:

Top employee benefits providers struggled during pandemic

Unum Group offers employee benefits policies covering dental, vision and life insurance. The past few years have been a rollercoaster for insurance companies.

When the COVID-19 virus emerged, widespread lockdowns caused unemployment to soar. The U.S. unemployment rate reached nearly 15% in April 2020. This has reduced the number of customers the Unum Group can serve, as it has a smaller pool of employees.

In the months that followed, the company’s business struggled further as morbidity and life insurance claims costs skyrocketed due to the impact of COVID-19. From 2019 to 2021, Unum saw a 23% increase in group insurance claims to 49,000 and a 40% increase in disability claims to reach 700,000.

Image Source: Getty Images.

Unum’s impressive turnaround story

The worst of the pandemic is almost over and Unum Group’s business is now booming. As of September, the unemployment rate he stood at 3.5%, and employee wage growth is solid at about 5%. This is good news for Unum. This is because higher wages can lead to higher premium claims. The rise in wages has seen him increase Unum’s premiums by 5%, doubling his pre-pandemic growth.

The company also expects improvements from lower group life insurance and group disability claims over the next few years as ratios improve to pre-pandemic levels.

Image Source: Unum Group.

Unum’s growth expectations continue to improve

Unum Group has raised its outlook for 2022 several times since the beginning of the year. Earlier this year, Unum led an after-tax adjusted operating profit per share growth rate of between 4% and 7% this year. Raising expectations after quarterly earnings, updated guidance from August points to 40% to 45% growth.

These optimistic forecasts have been well received by investors, with stocks up more than 67% this year while the S&P 500 is down nearly 25%. Investors should be aware that a significant increase in the stock price could be behind it. However, favorable tailwinds will continue to support business and could also benefit from higher interest rates.

Insurance companies collect premiums in advance and pay out claims later. This is called “float” and is someone else’s money that an insurance company can put into its investment portfolio. These investments help boost the company’s bottom line. This is a big reason why famous investor Warren Buffett likes to invest in insurance companies.

Chief Financial Officer Steven Zabel said portfolio yields are starting to stabilize after years of declines due to ultra-low interest rates. Unum’s yield on new investments in the second quarter was 4.8%, compared with 3.2% in the same period last year. In the second quarter, he Unum’s other investment income increased from $41 million in the first quarter to $57 million.

Unum has plenty of cash to continue rewarding shareholders

Unum has a strong financial position with over $1.2 billion in cash and cash equivalents. The company is committed to rewarding shareholders, returning hundreds of millions of dollars in the form of dividends and share buybacks. A 3% dividend yield is a solid stock for investors looking for passive income.

Unum has committed to a $200 million annual share buyback.

UNM price and tangible book value data by YCharts.

Unum Group is well-positioned to benefit from inflation, which raises group insurance wages and premiums. Rising interest rates can help boost investment portfolio returns in the long run.