Investing.com

A "strong case" can be made for a re-valuation higher of the life insurance sector, according to analysts at Evercore ISI.

In a note to clients, the analysts led by Thomas Gallagher argued that a number of recent sources of pressures on the industry are expected to ease over the next three to five years. This includes a series of divestitures, new public life insurers entering the market, and a reduction in uncertainty fueled by the COVID-19 pandemic.

The overall macroeconomic environment has also become "more favorable" for these companies following the US presidential election. This change is expected to lead to increased interest from investors in life insurance players, the analysts noted.

Currently, the sector trades at 8.5 times forward earnings estimates. This is in line with its 10-year average and represents a "modest premium" to its 5-year average. Moreover, this level is at a discount compared to property and casualty insurers, banks, and traditional asset managers.

The analysts remarked, "Some of these investors are likely just tourists, while others have dipped their toes in the water." They anticipate that as the investor base broadens, life insurance stocks will trend higher, with shrinking tail risks.

They have raised their price targets by 15% to 25% across the sector, suggesting that some businesses will benefit from a post-election boost in equities and credit spreads. Additionally, they upgraded their rating on Unum Group (NYSE: UNM) to "Outperform" from "In Line," and Prudential Financial Inc (NYSE: PRU) to "In Line" from "Underperform."