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【出版时间及名称】：2010年4月美国寿险行业研究报告
【作者】：瑞士信贷
【文件格式】：pdf
【页数】：34
【目录或简介】：
Summary: We remain moderately positive on the sector largely because: 1.
Even after stripping out all of the capital relief benefits from regulators and
holding company cash needs, we estimate that the average company has
excess capital of 5-10% of market cap. 2. We are increasingly becoming
convinced (see our analysis of statutory and GAAP impairments in 08/09 vs. our
credit burndown assumptions) that the vast bulk of credit losses are behind
us, suggesting a greater convergence of operating and net income over the next
few years, and 3. The sector appears relatively inexpensive vs. banks (1.2x
TBV for life insurance vs. 1.7x TBV for large cap banks, in line with historical
averages when likely changes in regulation argues for the valuation gap to
narrow). 4. At less than 10x 2010 P/Es and at a slight premium to book
value, valuations are still cheap vs. 2 to 3 year ROE expectations in our view.
■
Increasing Target Prices Across Sector: As a result of improved visibility on
net income, book value growth, and marginally improved operating EPS
prospects, we are now more confident in using 1 year forward book value and
2011 EPS to value the sector, which leads us to increase price targets by
approximately 17% on average.
■
Differentiation: In this report we analyzed 1) the impact of ratings migration (85-
90% of the RBC denominator) and noted dramatic differences with actual
reported RBC ratios compared to our expectations, 2) compared individual
company portfolio yields and durations to new money yields and estimated the
EPS impact, 3) a quantitative analysis of life insurance company and holding
company capital and cash needs in several non-traditional ways.
■
Stock Calls: We are sticking with our Outperform ratings on AFL, PRU and
LNC.
Summary
Following the recent strong rally in life insurance stocks and ahead of 1Q '10 earnings
season, we remain constructive on the sector overall, even though absolute valuations
appear less compelling than when we last published a sector update titled
‘Demutualization Redux.'
We remain moderately positive on the sector largely because: 1. Even after stripping out
all of the capital relief benefits from regulators and holding company cash needs, we
estimate that the average company has excess capital of 5-10% of market cap. 2. We
are increasingly becoming convinced (see our analysis of statutory and GAAP
impairments in 08/09 vs. our credit burndown assumptions) that the vast bulk of credit
losses are behind us, suggesting a greater convergence of operating and net income
over the next few years, and 3. The sector appears relatively inexpensive vs. banks
(1.2x TBV for life insurance vs. 1.7x TBV for large cap banks, in line with historical
averages when likely changes in regulation argues for the valuation gap to narrow). 4. At
less than 10x 2010 P/Es and at a slight premium to book value, valuations are still
cheap vs. 2 to 3 year ROE expectations in our view.
As a result of improved visibility on net income, book value growth, and marginally
improved operating EPS prospects, we are now more confident in using 1 year forward
book value and 2011 EPS to value the sector, which leads us to increase price targets
by approximately 17% on average. Historically, valuations at less than 10x have been a
good buying signal for the sector and we think that earnings are somewhat depressed due
to low alternative investment returns, low cash yields and tight credit spreads/new money
yields. However, if spreads and rates remain as is, we are likely to see downward EPS
revisions ahead.
Three risk factors for the sector, which tempers our enthusiasm somewhat, are: 1. Some
of the positive contributors to near term book value growth, that is low interest rates and
continued tightening of credit spreads, will become an operating EPS headwind for
the sector if the current environment persists, 2. Although current risk based capital levels
suggest considerable excess capital levels for the sector, multiple rule changes (PIMCO,
DTA’s, permitted practices) have inflated the ratios, which waters down the real excess for
certain companies, and 3. Variable annuities and universal life insurance have
become 'capital hogs' which leads to the question of when and if companies will be able
to release the excess capital backing these lines of business.
In this report we analyzed 1) the impact of ratings migration (85-90% of the RBC
denominator) and noted dramatic differences with actual reported RBC ratios compared to
our expectations (Exhibit 10), 2) compared individual company portfolio yields and
durations to market new money yields and estimated the EPS impact (Exhibit 8), 3) a
quantitative analysis of life insurance company and holding company capital and cash
needs in several non-traditional ways (Exhibit 13 through Exhibit 18). 4) an estimate of the
portion of capital backing variable annuity policies (Exhibit 19).
Heading into 1Q 2010 earnings season, The favorable equity market and credit market
performance in 1Q 10 should mean a solid quarter in terms of both EPS and book value
growth (up 5% on average sequentially) for most companies, and the recent strong
performance of the sector largely reflects positive near term expectations in our view.
We are sticking with our outperform ratings on AFL, PRU and LNC. For PRU, we see
positive near terms catalysts should PRU deploy capital through a buyback or an
acquisition and note that PRU does not look expensive on 2011 earnings relative to other
large cap financials including BAC, JPM and WFC. Although LNC is not exciting
fundamentally and structurally since variable annuities and universal life will constrain
ROE expansion, we think LNC will grow book value organically and its valuation will grind
towards book value. LNC may even be a takeout target over the next couple years should
a European or Canadian player look for US expansion. We favor AFL as having the best
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