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Monthly Drivers & Vital Signs
Overview: Life insurers had a difficult month in October,
significantly underperforming the broader market, fully
eliminating prior year-to-date outperformance. While we
would continue to be selective, the most recent sell-off is
leading us to warm up to various stocks. MetLife’s
sell-off post earnings looks overdone, while we also
have Overweight ratings on RGA and Principal. On the
margin, we are warming up to Aflac and Lincoln at
current valuation levels.
Monthly price action: Despite encouraging earnings,
life insurers fell 8.8% in the month of October,
significantly more than the 2% decline in the broader
markets. RGA was the only stock to post gains (rising
3.4%), while Genworth, Sun Life and MetLife all posted
declines of more than 10%.
Earnings — so far, so good: Of the 11 companies that
have reported results thus far, seven have exceeded
expectations, one met expectations, while only three
have fallen shy. However, given high expectations
headed into the earnings season, the upside has not
been sufficient to spark additional buying interest in the
group.
Low interest rates — double edged sword: The
sharp decline in spreads and interest rates in the third
quarter has provided a sizable benefit to the life insurers’
reported book values, which have grown on average
nearly 20%. However, we are also hearing more
companies warn of the potential negative impact of
continued low rates on their earnings prospects, which if
sustained, could emerge as new and meaningful
headwind for the group.
Tentative signs of capital deployment: StanCorp
announced plans to resume modest buybacks, while
Torchmark and Principal both increased their dividends.
AIG says no to sale of Star and Edison: AIG
announced its intention to hold onto these subsidiaries,
which is a negative on the margin for consolidation
opportunities across the group.
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