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Life and Annuity Issuers Prep for Q4 Earnings

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Wall Street investors were already shunning life and annuity issuers in 2018, and that underlying current of negativity could help issuers muddle through the upcoming earnings season reasonably well.

Securities analysts at three firms — Keefe, Bruyette & Woods; Morgan Stanley; and Wells Fargo — talk about the possible effects of new stock market volatility, and pre-existing investor suspicion, in recent commentaries.

(Related: How 6 Annuity Issuers Are Doing Now)

Publicly traded companies are scheduling their earnings announcement dates for results for the fourth quarter of 2018, and all of 2018, now.

Ameriprise Financial Inc., the life and annuity issuer that has been the first to post its earnings in recent quarterly earnings release periods, says it will publish fourth-quarter earnings Jan. 30.

The earnings of publicly traded life insurers do not have a direct effect on the performance of the insurers’ life insurance policies and annuity contracts, but earnings may affect how much business insurers want to write, what kinds of business they want to write, and what they will do about prices for new and in-force products.

Ryan Krueger and Peter Xuan of Keefe, Bruyette  predicted in a recent life insurance issuer preview that the stock market volatility will be “a headwind for equity sensitive life insurers.”

At most life insurers, variable investment income is likely to be modestly weaker than normal, the Keefe, Bruyette analysts write.

“That said,” the analysts write, “we’re not sure how much 4Q18 results will really matter, given the focus on 2019 and low expectations/valuations for life stocks.”

The analysts note that the title of their 2019 life insurance stock outlook commentary is, “The Opposite of Life Is Not Death, It’s Indifference.”

Nigel Dally and Bob Huang, analysts at Morgan Stanley, have given their outlook commentary for the fourth quarter “Winter Is Already Here.”

“Sharply lower equity markets are leading us to meaningfully cut estimates and price targets,” the analysts write.

But the analysts go on to say, “We see substantial upside potential across many stocks, given the sell-off.”

Investors have already pushed life stocks so much lower that some could rise as much as 30%, the analysts write.

“While we are looking at a more challenging macro backdrop and expect estimates to be under pressure, we are more inclined to view the recent pullback as an opportunity to increase ownership across the industry,” the analysts write.

Elyse Greenspan and Weston Bloomer of Wells Fargo started coverage of Prudential Financial Inc. last week with an “outperform” rating, and a commentary with the subtitle, “Rock On With a Defensive Life Insurer.”

The analysts emphasize that they like the idea of investing in a life insurer that can do relatively well when the overall economy is bad.

The analysts say they see Prudential as a company with a good stock because of the company’s broad and diversified business mix; its strong position in selling group annuities that large pension plan sponsors can use to transfer pension risk; and its strong name among global life insurers.

The company’s stock price valuation “valuation is attractive relative to life insurance peers given the more diverse and defensive nature of its business lines,” the analysts write.

Wells Fargo analysts do, however, see the possibility that some life and annuity operations could do well this year.

“We expect annuity flows to improve,” the analysts write in a discussion of key themes for 2019, in a 2019 life insurance stock outlook commentary.

The Wells Fargo analysts also expect the pension risk transfer market to remain strong.

Like the analysts at Keefe, Bruyette and Morgan Stanley, the Wells Fargo analysts see low life insurer stock prices giving investors in life insurer stocks a boost.

“Given inexpensive valuations, we see pockets of opportunities for life insurers that have company-specific catalysts to drive [earnings per share] growth or generally have lower market risk versus peers,” the analysts write.

— Read Life and Health Stock Prices Drop With Rest of Market, on ThinkAdvisor.

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