One securities analysts is hoping for pleasant surprises when North American life insurers start announcing first quarter earnings, and another is hoping insurers will replace stock buybacks with dividend increases.

John Nadel and Dennis Zavolock of the New York office of Sterne, Agee & Leach Inc. say they “are feeling good about this overlooked group.”

The stock market looked good in the first quarter, fee-based earnings streams should be strong, and this quarter prices seem softer, because investor feelings about publicly traded life insurers are somewhat cooler, Nadel and Zavolock say.

The stocks of major group insurers could be more volatile, because the first quarter tends to be weak for group insurers and at least one group insurer has said first-quarter results may be weaker than expected, the analysts say.

At Sanford C. Bernstein & Co. L.L.C., New York, Suneet Kamath and other analysts say life insurer efforts to deploy extra capital by investing in shares of their own stock have not done much for ordinary investors.

Management teams seem to be considering a shift back toward an emphasis on dividends, the analysts say.

“To the extent that companies do adjust their approach in favor of dividends, we would be supportive,” the analysts say.

In theory, life insurer stock should be a good investment, but life insurers have had a tendency to buy back their stock when prices were already high, the analysts say.

“While we acknowledge there are valid reasons why the life sector has traditionally emphasized buybacks (e.g., rating agency concerns around fixed payment coverage), we feel there is a plausible case to be made that higher dividends will lower the volatility and cost of capital in the life sector,” the analysts say.

Other life insurer earnings coverage from National Underwriter Life & Health: