By Cyril Tuohy
Financial analysts at Keefe, Bruyette & Woods project estimated median operating revenue growth for a group of 14 life carriers at 2.9 percent for 2014 due to stock market performance, rising interest rates, and higher sales of fixed annuities and basic life insurance.
Estimated median operating revenue growth in 2014 is down slightly from revised estimated median operating revenue growth of 3.6 percent in 2013. Median operating revenue growth is expected at 3.9 percent in 2015, the analysts said in a research note to investors.
Analysts Jeffrey Schuman and William Clark noted two specific trends that would help life insurers next year. Higher interest rates “should create less of a drag on investment income compared to recent years,” they said.
Some experts also expect the Federal Reserve to cut back on its bond purchasing program, which would raise interest rates. For months, the central bank has bought approximately $85 billion a month of bonds to keep interest rates low in order to help the economy.
Analysts also cited the “discipline” the industry has exhibited around retooling its life and annuities products. Such products are seen as higher quality than similar products issued in the past, the analysts said.
“Given industry discipline around VAs (variable annuities) and risker life products , we view the quality of growth as generally high,” the report said.
In the past several years, sellers of annuities have cut back on contract terms and raised prices in order to fund the living benefits guarantees sought by retirees. Demand for annuities is expected to remain strong as tens of millions of baby boomers retire and search for ways to guarantee income.
The analysts wrote that life insurers with the highest revenue growth estimates in 2014 are Ameriprise Financial, Primerica and Principal Financial Group. Life carriers with the lowest revenue growth estimates are Unum Group, Genworth Financial and Aflac.
Ameriprise and Prudential Financial are the two “stocks to own” in 2014, the analysts said. Ameriprise is worth owning because of its “low-risk” balance sheet, robust capital position and its “rising advisor productivity, rising advice and wealth management margins.”
Prudential’s diversified portfolio of businesses spread between the U.S. and the company’s foreign operations, notably Japan, shows Prudential is skilled at acquiring and managing the businesses it buys, the analysts said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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