Will Earnings Growth Trend Of The Top 50 Insurers Continue?

1st and 2nd quarter results were up smartly for industry leaders

With third quarter life insurer earnings announcements starting to trickle in, the question is: Will earnings continue the growth trend of the year’s first two quarters? Initial indications are mixed.

Although reported on a statutory as opposed to a GAAP basis, quarterly net income filings for the top 50 insurers from the National Association of Insurance Commissioners’ annual statement database via National Underwriter Insurance Data Services/Highline Data show quarterly net income is increasing.

For these top 50 insurers, net income increased 27% in second quarter 2005 over second quarter 2004 and 6% in first quarter 2005 over first quarter 2004, according to the statutory data.

For the top 10 companies, the increase in quarterly net income in second quarter 2005 over second quarter 2004 was 61.5% and for first quarter 2005 over first quarter 2004 the increase was 20%, the data indicates.

In a third quarter earnings preview, published on Oct. 20, UBS analysts, including Andrew Kligerman, write that trends for the quarter for covered companies are neutral to modestly positive with “minimal surprises.”

“Macro and industrywide trends were overall neutral to modestly positive for life insurers–with positives including equity market appreciation and rising [but still historically low] new money yields; and negatives including a flatter yield curve and greater regulatory pressures.”

One expectation the UBS report noted was that third quarter variable annuity sales would be flat year over year “in part due to increased regulatory scrutiny and guidelines over annuity product suitability and sales practices.”

UBS said it has a ‘neutral’ stance on the domestic life insurance sector, with the UBS life group trading in line with historical average price/equity and price/book multiples based on monthly data since 1992.