Analysts Expect Sunnier 2Q For Life Insurers

Fewer deaths, higher fees and higher investment income are expected to help life insurance companies post better results in the second financial quarter than they did in the first quarter, a pair of Wall Street analysts said.

With 149,000 deaths in the second quarter, down from 161,000 deaths in the first quarter, insurance companies likely will pay out less in claims. That's according to Keefe, Bruyette & Woods analysts Ryan Krueger and Blake Mock, in a research note to clients.

A number of other factors also should lead to better second-quarter results, the analysts said. Those factors include a 6.4 percent daily average increase in the Standard & Poor’s 500 index compared with the first quarter, a rebound in investment income, expense control and good capital management.

A better-performing stock market means more fee income earned on the accounts managed by the life insurers. Higher investment income contributes directly to the bottom line.

Even so, low interest rates “continue to rule the day” for most of the life insurance companies KBW tracks, the analysts said.

Low interest rates hurt life insurers because they can’t reinvest their bond holdings at higher rates than what those investments yielded previously. The bulk of life insurance company investments reside in fixed-income instruments.

Insurance companies with long-term care liabilities such as Genworth, Unum and CNO Financial are especially sensitive to low interest rates, the analysts said. Those companies, as well as Voya’s variable annuity block “are in particular focus,” the analysts wrote.

The lower interest rate forecast led the two KBW analysts to cut their 2017 earnings per share estimate by 2 percent, on average, for the 13 life and annuity insurers tracked by the Wall Street boutique house.

A stronger Japanese yen is expected to be positive for Aflac, Prudential and MetLife, according to the research note. Those companies generate tens of millions of dollars in revenue from Japan-based subsidiaries.

MetLife, which accelerated its variable annuity policyholder review to the second quarter from the third quarter, is preparing to sell its retail field force to MassMutual. However, that move is viewed as a risk, the analysts wrote.

In February, MetLife announced it would part with as many as 4,000 agents and advisors and move them to MassMutual. MetLife said this move was expected to save the company about $250 million a year after taxes. The move is expected to take place this month.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].