EARNINGS PREVIEW: Life Insurers Riding Equity Market's Rise

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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