EARNINGS PREVIEW: US Life Insurers Face Headwinds, But Some May Shine

TAKING THE PULSE: U.S. life insurers faced headwinds in the second quarter from weak equity markets, low interest rates and a still-struggling economy. Wall Street is well aware of those trends, and life insurers are currently trading below historical levels. Analysts say investors may be surprised by the way some companies still managed to buy back a substantial number of shares in the quarter, and some theorize the sector could appear more attractive by the end of the earnings season when results are compared to those put up by their cousins in the property-casualty sector.

COMPANIES TO WATCH:

MetLife Inc. (MET)--reports July 28.

Wall Street Expectations: Analysts surveyed by Thomson Reuters expect $1.10 a share in operating profit on average. (Operating earnings exclude some investment results.) A year earlier, the company earned $1.23 a share, before it issued stock to acquire Alico, a massive international life insurer from American International Group Inc. (AIG)

Key Issues: Steven Kandarian, who took over as chief executive in May, will no doubt spend time discussing Alico's performance on the company's conference call. He may also touch on what it would take for the company to do another deal after the company reportedly missed out on acquiring the Latin American insurance operations of ING Groep NV (INGA.AE) just this week. Another topic: the shifting regulatory landscape in Washington, which could result in greater scrutiny of the country's largest insurers.

Prudential Financial Inc. (PRU)--reports Aug. 3.

Wall Street Expectations: Analyst consensus is an operating profit of $1.55 a share. The insurer earned $1.51 a share in the same period a year earlier.

Key Issues: Prudential is certain to discuss Japan, where it expanded with its own purchase of AIG operations in February. In the U.S., both Prudential and MetLife have grown to dominate the variable annuity space in recent years, and analysts will look to see whether efforts by smaller rivals to reclaim a portion of the business are gaining traction. Prudential instituted a $1.5 billion share buyback program in June, its first since 2007.

Aflac Inc. (AFL)--July 27.

Wall Street Expectations: Wall Street expects $1.54 in operating profit. Aflac earned $1.35 a share in last year's second quarter.

Key Issues: While operating results are expected to improve, the company has already warned that net income will be hurt because it sold off some investments at a $610 million loss as it repositioned its portfolio. The company is seeking to reduce risk in the portfolio by unloading some of its sovereign and bank debt from financially stressed regions, and reducing the size of the largest positions in the portfolio. While CEO Dan Amos has said the Japan earthquake won't be a substantial drag on results, it remains a topic of interest for investors.

Hartford Financial Services Group Inc. (HIG)--reports Aug. 3.

Wall Street Expectations: In a pre-announcement that took much of the drama out of the company's coming Aug. 3 announcement, the company warned last week second-quarter core earnings, its closest equivalent to operating earnings, were about $12 million. That's roughly zero cents per share after paying a dividend on preferred stock. A year ago it had core earnings of 17 cents a share.

Key Issues: The company's lack of per-share earnings were a result of issues on the property-casualty side of its operations. The problems were two-fold: high claims costs from record tornadoes, and a boost in reserves for asbestos claims it's gotten on commercial insurance policies. On the life insurance side, Hartford is among the companies trying to climb back in to the fight for variable annuity customers.

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

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