From a stock performance perspective, the property/casualty sector is likely to continue outperforming life, according to stock analysts Sterne Agee, which views the risk/reward as only slightly more attractive than the general market, considering exceptionally low long-term interest rates, modest regulatory pressure and weak growth. Mergers and acquisitions favor buyers over sellers in the life sector.
Stern Agee raised earnings per share estimates for life insurers by 1 percent for 2012, and 2 percent for 2013 based on Q2 2012 performance and strength in the equities markets in general. The Upside/Downside for the sector is considered only somewhat attractive, with the mean and median having shifted to 1.7x and 1.3x from 2.4x and 2.1x on July 13.
Stern Agee’s top picks for the life sector include Prudential (PRU), based on its business mix and organic growth, Hartford Financial Services Group Inc. (HIG), and Aflac Inc. (AFL). “HIG, at a continued substantial discount to Statutory BV net of Hold Co net debt, remains a high conviction idea as restructuring activity continues which combined with strong equity markets and faster pace of run-off of U.S. VA business should improve outlook for capital redeployment,” according to the research note.
Noted Companies:
Symbol Rating Price
AFL Buy $46.18
AIG Buy $34.47
AIZ Underperform $34.18
HIG Buy $18.15
LNC Neutral $23.78
MET Buy $34.65
PFG Buy $27.27
PL Neutral $28.60
PRU Buy $54.62
RGA Neutral $57.53
SFG Underperform $30.54
The NIAC continues to debate the possibility of changes to reserving requirements for universal life with secondary guarantees (AG38 or AXXX), the note says, and Stern Agee analysts anticipate a “change in the requirements with a look back to a 2005 implementation date,” and sales issued prior would be grandfathered in.
