Elyse Greenpan and colleagues at Wells Fargo suggested in the title for their earnings preview that, for life and annuity issuers, "pricing & rates are all that matter." Nigel Dally and Bob Huang, analysts at Morgan Stanley, have warned, "Sharply lower interest rates and equity market appreciation below normal levels is leading us to trim estimates."
Analysts note that life insurers generally are out of favor with investors, in part because of concerns about interest rates. But they say investors' low expectations may leave room for some issuers to startle investors with pleasant earnings surprises. The Morgan Stanley analysts say of AXA Equitable, for example, that the investment thesis for that company "revolves around its ability to deliver moderate earnings growth and expand its return on equity while appropriately managing the risks associated with its substantial variable annuity exposure." AXA Equitable has an insurance arm and the AllianceBernstein money management arm. The insurance arm is so unpopular with investors that the insurance component of the stock price is equal to just 3.3 times projected 2020 earnings, according to the Morgan Stanley analysts. Typical companies have stock prices equal to about 10 times projected earnings or higher.
The Keefe Bruyette & Woods analysts say they "expect some near-term pressure on fixed annuity sales." — Read Life and Health Stock Prices Drop With Rest of Market, on ThinkAdvisor. — Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.
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