EARNINGS PREVIEW: U.S. Life Insurers May Feel Market's Sting

TAKING THE PULSE: With their massive investment portfolios, life insurers often find their quarterly results move with the direction of the markets. Analysts who track the industry warn that the 12% decline in the Standard & Poor's 500 index in the second quarter means insurers that sold variable annuities may record charges tied to the decline in the equity market when the largest life insurers begin reporting results next week.

Still, those costs will be minimal compared with some of the losses insurers suffered on both debt and equity investments at the height of the financial crisis in late 2008 and early 2009.

Life insurers are also large investors in commercial real estate, both with direct holdings of buildings and with securities tied to commercial mortgages. Large insurers including MetLife Inc. (MET) and Prudential Financial Inc. (PRU) have expressed optimism that the sector will rebound this year, and investors will be listening for an update on that outlook.

Lastly, industry executives may use their quarterly conference calls to discuss the impact of the financial overhaul bill approved by Congress earlier this month. While insurers were not the primary targets of the bill, they may provide commentary on its impact on their operations.

 
   COMPANIES TO WATCH: 
 
   Aflac Inc. (AFL) reports July 27

Wall Street Expectations: Analysts surveyed by Thomson Reuters project second-quarter operating income for Aflac of $1.33 a share. For the same period a year earlier, operating income, which excludes some investment results, was $1.20 a share on revenue of $4.3 billion.

Key Issues: Aflac's exposure to European sovereign debt has hurt the stock as investors worried that troubles in places like Greece and Ireland could cause defaults in the company's portfolio. In response, Aflac unloaded its holdings of Greek debt and sold two European hybrid securities at the end of June. Listen for commentary on the asset class on Aflac's quarterly conference call. The insurer, which sells supplemental insurance, does the majority of its business in Japan.

 
   MetLife Inc. (MET) reports July 29

Wall Street Expectations: Analysts are predicting operating profit of $1.01 a share. In last year's second quarter, operating income was 88 cents a share on revenue of $8.4 billion.

Key Issues: MetLife, the largest U.S. life insurer, has reported increased demand for its products domestically and overseas in recent quarters, and improved investment results have yielded two straight profitable quarters. Expect at least a mention by MetLife of the company's agreement to buy Alico, an international insurance operation, from American International Group Inc. (AIG) for $15.5 billion. The deal will expand MetLife's reach in Japan and in emerging markets like China and Brazil.

 
   Prudential Financial Inc. (PRU) reports Aug. 4

Wall Street Expectations: Analysts have estimated operating profit of $1.32 a share. A year ago, operating income was $1.88 a share and revenue was $6.3 billion.

Key Issues: Prudential has reported four straight quarters of profit. In the past year, Chief Executive John Strangfeld has built a substantial capital cushion with stock and debt offerings and the sale of a securities brokerage to Wells Fargo & Co. (WFC) The company, the second-largest U.S. life insurer, has said it is looking for "market opportunities" after MetLife's Alico deal. Listen for Prudential's outlook for its commercial real-estate investments.

 
   Hartford Financial Services Group Inc. (HIG) reports Aug. 4

Wall Street Expectations: Analysts have estimated operating profit of 75 cents a share. A year ago, operating income was $1.90 a share and the company had a net loss of $15 million.

Key Issues: Hartford's new chief executive, Liam McGee, has spent recent months outlining where the company is headed now that the insurer has repaid its federal bailout, and that conversation may continue on the company's conference call. Hartford is more exposed than some rivals to swings in certain assets classes, including commercial real estate, hedge funds and equity markets. Also, the company differs from the other large life insurers because it has a sizable property-insurance operation. Its home insurance business may report higher-than-usual losses from second-quarter storms in the Midwest.

(The Thomson Reuters estimates and year-earlier results may not be comparable because of one-time items and other adjustments, including stock sales that dilute per-share numbers.)

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com

AFLAC (NYSE:AFL)
Historical Stock Chart
From May 2024 to Jun 2024