Earnings Update Favorable for Life Insurers

With the industry’s largest life insurers expected to report third-quarter earnings later today, Morgan Stanley analyst Nigel Dally updates clients with a rundown on what to expect from an insurance product perspective:

Equity Sensitive Products

Analysts have “seen strong upside in equity sensitive products, especially at companies such as Ameriprise in advice and asset management,” Dally wrote. “This bodes well for other companies with sizeable equity sensitive operations, including Brighthouse, Lincoln, Prudential and Voya.”

American Financial Group and Voya Financial report earnings Tuesday after market close, and MetLife, Lincoln Financial, Prudential Financial and Brighthouse Financial report Wednesday after market close.

FBL Financial reports on Thursday and American Equity Investment Life reports next week.

Group Insurance

“Results remain solid but did not provide the sizable upside we saw last quarter at companies such as Unum,” Dally wrote. “Nonetheless, expect solid group results at companies such as MetLife.”

MetLife’s group benefits turned in a strong second quarter and benefits are expected to be one of the company’s largest growth engines in the U.S. following the summer separation of Brighthouse Financial, said chairman, president and CEO Steven Kandarian.

Brighthouse began trading as a separate company in August.

Long Term Care

“Ameriprise took a charge, while Unum also saw deterioration,” Dally wrote. “While small, both Prudential and MetLife have some LTC exposure, which could be a risk on the margin.”

Individual Life Insurance

Ameriprise, which reported last week, was in line, and CNO, which also reported last week, was “disappointing,” Dally wrote.

Third quarter for individual life insurance results “look like an in-line quarter,” and any big surprises at Lincoln, Prudential and Voya are unlikely, he wrote.

International

“Results were modestly adverse to our expectations at companies such as Aflac,” which reported last week, Dally wrote.

A “read through” of the financials for MetLife and Prudential also looks relatively weak, he added.

Alternatives

Alternative investment segments continue to deliver strong returns at CNO, and that should also be the case at Lincoln, MetLife, Prudential and Voya, Dally wrote.

Pensions and 401(k)

Changing 401(k) pre-tax or tax-deferred contributions, to contributions made with after-tax dollars is viewed as a threat to companies with big pension businesses.

On Tuesday, House Ways and Means Chairman Rep. Kevin Brady, R-Texas, said 401(k)s are safe unless there is "broad agreement" that a different system would prompt Americans to save more.

Changes would slash the maximum limit on pre-tax contributions to $2,400 a year, down from $18,000 a year for people under age 50, and down from $24,000 a year for people older than 50 in 2017.

Companies such Principal Financial, Prudential Financial, Voya and Lincoln Financial would see a sharp reduction in deposits with no corresponding change in withdrawals, which would exert pressure on asset flows, Dally wrote.

House GOP members planned to unveil their tax reform proposal this week.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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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 cyril.tuohy@innfeedback.com.