Life Insurance Stocks: Alive And, Yes, Well

Buying life insurance is a long-term proposition. You have to wait years until a policy's cash value builds up enough to turn the purchase into a worthwhile investment. Likewise, those who bought shares in life-

insurance companies have needed a bit of patience. The stocks took a dive during the 1991 collapse of several major carriers, rallied the following year, then dipped again during this past spring's inflation scare, which menaced insurer bond portfolios.

But earnings prospects for the industry are favorable. Salomon Brothers forecasts 10% to 12% yearly earnings increases this year and next. The chief reason is demographic. The aging baby-boom population is thinking about retirement, so annuity sales are soaring. Annuity premiums were 21% of the industry's total last year, up six points from 1988, according to A.M. Best, the insurance rating firm.

On top of that, the industry is considerably more stable financially than in the dark days of 1991, when such carriers as Executive Life and Mutual Benefit collapsed. Nowadays, life insurers have beefed up their capital and shed riskier assets, such as junk bonds.

What are the good buys? Equitable, despite lingering real estate woes that threatened its existence two years ago, has survived thanks to the deep pockets of its 49% owner, French insurance giant Axa. Sales of life and annuity policies are hot, and its investment subsidiaries--Donaldson, Lufkin & Jenrette and Alliance Capital--are romping on Wall Street. After running huge losses for the past two years, it's back in the black and should keep on surging: Salomon analysts expect Equitable's earnings per share to jump from $0.22 in 1992 to $1 this year and $1.50 in 1994. Equitable of Iowa (no relation) has prospered because it avoided 1980s forays into risky real estate investments. Ditto for Capital Holding.

THE PRICE IS RIGHT. The true beauty of life-insurance stocks is that they're cheap relative to the broader market. That's the result of misplaced worries about past problems and future interest-rate volatility, which wouldn't have as great an impact on portfolios as some fear: Insurers nowadays are adept at hedging and other sophisticated tactics. The price-earnings ratio for life companies is 12, vs. 23 for the Standard & Poor's 500-stock index. Says Goldman Sachs analyst Joan Zief: "There's room for appreciation."

If that's true, buying life-insurance stock may be a better, albeit riskier, investment than a stodgy old whole life policy.

      Company              Stock   Price/   Est. 1993
                            price earnings*  earnings-per-
                           8/9/93            share growth
      AMERICAN GENERAL      315/8   12       12.0%
      CAPITAL HOLDING       433/8   13       10.0
      EQUITABLE             201/8   NA       354.0
      EQUITABLE OF IOWA     321/4   13       19.2
      UNUM                  585/8   15       13.4
      *12-month trailing earnings as of Aug. 9, 1993  NA=Not Applicable
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