Life Insurance/Annuities Nigel Dally (212-761-4132)
US Life Insurance
Nigel.Dally@morganstanley.com
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Equity Research
North America September 23, 2009
Downgrading from Attractive to In-Line:
Running out of Steam
Abstract:We are downgrading our industry view on the life insurers
from Attractive to In-line. It has been a wild ride for the life insurers in
2009, and the substantial appreciation we have seen in the group in
recent months leads us to the conclusion that further upside is
beginning to look more limited. To be sure — we continue to expect
strong fundamental improvement, especially in the third quarter where
we see solid growth in reported book values and stronger returns on
equity sensitive products given the equity market rally. However, we
also remain somewhat wary over commercial real estate exposure, and
on a longer-term basis, we also believe the potential returns on equity
for the industry will be lower than that in the past as a result of higher
capital requirements and less risky investment portfolios, among other
things. With the group now trading at a premium to book value, we
expect the rally to run out of steam and for further appreciation to be
more in-line with the broader market.