Life insurance stocks have gotten a boost from Dai-ichi Life's deal to purchase Protective Life (PL) for $70 a share, or $5.7 billion. Protective Life is up 18%, to $69.30 at 11:55 a.m., trading just below the deal value. While the deal has been rumored for a few days, the actual price is about 16% higher than the $4.9 billion price that had been discussed in the media.
Bloomberg Life stocks are up more than 2% on average, making them one of the strongest groups in the S&P 500 today. The Protective Life deal highlights the discounted valuation in the sector, where leading stocks have some of the lowest valuations in the S&P 500. MetLife (MET) is up 3% to $54.80; Prudential Financial (PRU) has risen 2.8% to $88.44 and Lincoln National (LNC) has gained 2.6% to $51.25.
Dai-ichi Life is paying 1.3 times book value for Protective and nearly 1.7 times book excluding investment gains. Protective's first quarter book was $54.09 and its book excluding accumulated other comprehensive income (AOCI) was $41.71. Many investors focus on book excluding AOCI as a conservative measure of shareholder equity.
By contrast, MetLife trades for under its stated book value and for about 1.1 times book excluding AOCI. Prudential trades for about 1.1 times book. Based on earnings, Dai-ichi is paying about 14 times projected 2014 earnings, while life insurers like MetLife and Prudential trade for 10 times projected 2014 profits or less. MetLife and Prudential are much larger than Protective with MetLife valued at about $65 billion, making them less likely to become takeover targets. Still, the Dai-ichi deal for Protective seems to highlight the value in the life sector, which has been depressed by continued low interest rates.
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