EARNINGS PREVIEW: Life Insurers Riding Equity Market's Rise
January 26 2011 - 9:29AM
Dow Jones News
TAKING THE PULSE: Life insurers' large investment portfolios
mean their bottom lines generally follow broad strokes in the
markets, which this quarter set up the firms for improvement. The
S&P 500 index rose roughly 10% over the period, and interest
rates improved some from the prior quarter, although they remain on
the weak side historically. Some companies were still struggling
with investment losses in the year-earlier period, setting up easy
comparisons.
As for underwriting results, the insurers continue to operate in
a less-than-ideal market of intense competition with weak economics
weighing on demand. However, analysts' expectations for improved
operating profits on the whole indicate business may be
improving.
COMPANIES TO WATCH:
Aflac Inc. (AFL) - Reports Feb. 1
Wall Street Expectations: Analysts surveyed by Thomson Reuters
expect operating earnings, which exclude investment gains and
losses, of $1.35 on revenue of $5.58 billion. For the same period a
year earlier, operating earnings were $1.18 and revenue, $4.6
billion.
Key Issues: The company, which earns the majority of its revenue
in Japan, will see less of an boost to its bottom line from yen
than in recent quarters, though yen effects are mostly symbolic
because Aflac doesn't actually convert yen to dollars. It had $307
million in investment losses weighing on the bottom line a year
earlier, setting up a nice reversal to gains, but it does have some
risky exposure to debt holdings in Europe. However, Aflac also has
a large amount of cash to handle the stress.
Hartford Financial Services Group Inc. (HIG) - Reports Feb. 2
Wall Street Expectations: Operating earnings are expected to be
93 cents on property-and-casualty written premiums from ongoing
operations of $2.37 billion, compared with $1.51 and $2.35 billion,
respectively.
Key Issues: Of the major life insurers, Hartford is the only one
expected to post lower operating earnings. That comes after the
prior quarter was its best for core earnings in more than two
years. With its large property-and-casualty insurance business, it
is more exposed than others to storm activity in the most recent
period that was higher than normal but by no means dramatic: a
large Northeast blizzard, violent Southwest storms and almost
double the number of tornadoes. It continues to narrow its focus on
its core operations, selling its its third-party claims
administrator subsidiary for $278 million last month.
MetLife Inc. (MET) - Reports Feb. 9
Wall Street Expectations: Analysts anticipated operating
earnings of $1.10 on revenue of $13.49 billion. A year earlier, it
posted 96 cents in operating earnings on $13.32 billion in
revenue.
Key Issues: The largest life insurer in the country
significantly expanded its international reach in November by
completing its $16.2 billion purchase of Alico, a major
life-insurance unit, from American International Group Inc. (AIG).
The most recent period will include one month of results from
Alico, which the company expects will increase operating earnings
45% in 2011. Like Aflac, it also had large investment losses a year
earlier, setting up an easy comparison for the bottom line.
Prudential Financial Inc. (PRU) - Reports Feb. 9
Wall Street Expectations: Analysts forecast $1.46 in operating
earnings and revenue of $7.83 billion in the financial-services
business. A year earlier, the earnings were $1.07 a share on
revenue of $6.79 billion.
Key Issues: Prudential also plans to expand abroad through an
AIG purchase: It agreed to buy two AIG life-insurance units in
Japan for $4.8 billion in September. Analyst Colin W. Devine at
Citigroup Global Markets say the deal, while not transformational,
is still an attractive purchase. He also raised worries that
Prudential may have sacrificed its risk controls and underwriting
standards some to achieve the strong sales gains its reported
recently in several insurance lines.
(The Thomson Reuters estimates and year-earlier results may not
be comparable because of one-time items and other adjustments.)
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291;
joan.solsman@dowjones.com
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