Groundbreaking advances in weight-loss treatments have been lauded for helping people live a longer, healthier life, according to Fidelity Portfolio Manager Fahim Razzaque, who notes that they also could result in life insurers becoming stronger and more profitable.
“Life insurance is essentially a bet on time, requiring insurers to calculate premiums based on how long they expect policyholders to live,” says Razzaque, who manages Fidelity® Select Insurance Portfolio (FSPCX). “Enter GLP-1s, potential game-changers in extending life expectancy and improving quality of life that, for insurers, could lead to fewer payouts and more time to grow their reserves.”
In running the industry-based, equity-focused strategy since 2022, Razzaque relies on bottom-up, fundamental research, supported by Fidelity’s global financials team, to seek insurance firms generating high and sustainable returns on equity, given these businesses’ unique underwriting, distribution and scale advantages. He prefers companies with strong organic reinvestment opportunities that may help drive faster earnings growth.
“With GLP-1 drugs, we can now see where the science of longevity meets the business of risk,” says Razzaque. “Simply put, these breakthrough treatments reduce the odds of a customer dying while a life insurance policy is still active.”
He explains that this lowers the likelihood of large payouts to policyholders, which may help significantly boost profit margins for life insurance firms.
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“But the potential boost to insurers doesn’t stop there,” Razzaque notes. “Over time, as insurers gain confidence in an improved mortality rate, they will be able to pass the savings along to customers, quite possibly resulting in lower premiums and better pricing becoming the new norm.”
Razzaque believes several of the fund’s holdings are well-positioned to potentially benefit from the emergence of GLP-1 drugs and other health care advances, especially Reinsurance Group of America (RGA), a sizable position on April 30.
“As a reinsurer, RGA provides coverage to insurance companies, making it uniquely positioned to ride improving trends in life expectancy,” Razzaque notes. “In other words, when its policyholders live longer and age with reduced health complications, RGA should find itself with fewer and/or less-expensive claims to pay.”
That said, he also offers a dash of caution, conceding that it is still early days in terms of assessing the financial implications of GLP-1 drugs on both life insurers and reinsurers.
Despite his optimism, he contends that more data is needed before life insurers start to reduce premiums or reserves, although the trajectory could be quite promising.
“In the end, this is more than just a story about drugs or insurance,” Razzaque concludes. “I have had multiple discussions with industry professionals who are equally enthusiastic about what the future may hold: opportunities for better health, more-durable insurance businesses and the potential for outsized investment returns.”
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Fahim Razzaque is a research analyst and portfolio manager in the Equity division at Fidelity Investments.
In this role, Mr. Razzaque covers insurance stocks and is the portfolio manager of the Fidelity Select Insurance Portfolio.
Prior to assuming his current position, Mr. Razzaque was a managing director of research and oversaw the Small Cap Analyst Team. He co-managed Fidelity Enduring Opportunities Fund, Fidelity Disruptive Automation Fund, Fidelity Disruptive Communications Fund, Fidelity Disruptive Finance Fund, Fidelity Disruptive Medicine Fund, Fidelity Disruptive Technology Fund, and Fidelity Disruptors Fund.
Before joining Fidelity Investments in August 2008, Mr. Razzaque worked as an equity research intern at Adage Capital Management in 2007, as a senior engineer at Qualcomm from 2004 to 2006, and as an electrical engineer at HP from 2001 to 2004. He has been in the financial industry since 2007.
Mr. Razzaque earned his bachelor of science degree in computer engineering from the University of Michigan, his master of science degree in electrical and computer engineering from the Georgia Institute of Technology, and his master of business administration degree in finance from Cornell University. He is also a CFA® charterholder.