What You Need to Know
- Most of the effects of increased interest rates will take a long time to help insurer earnings.
- Stock market volatility hurts variable annuity, asset management and retirement revenue quickly.
- A 79% decrease in the number of COVID-19 deaths should help life insurers.
- Big insurers can meet existing guarantees but may face pressure to tilt away from firm investment guarantees.
The financial wind howling outside may have knocked some shingles off some life and annuity issuers’ roofs in the second quarter.
A Morgan Stanley team led by Nigel Dally sizes up the companies’ storm resistance in a new earnings preview article. The second quarter ended June 30.
UnitedHealth Group, a health insurer, will kick off the new round of life, health and annuity issuer earnings releases by posting its results July 15.
Rising interest rates and a big drop in the number of COVID-19 deaths probably helped second-quarter results, but currency exchange rate fluctuations, weak performance at hedge funds and private equity funds, and the effects of rising interest rates on non-insurance operations probably added to the damage done by falling stock prices, the analysts say.
The average level of the S&P 500 Index was 8.1% lower in the second quarter than in the first quarter.
“This should serve as a headwind for the earnings of the more equity sensitive business lines, such as variable annuities, asset management and retirement,” the analysts note.
What It Means
The big, publicly traded life and annuity issuers that Morgan Stanley tracks are still doing fine, and they should have no trouble making good on the life and annuity guarantees they have already sold to your clients.
But securities analysts and investors may step up efforts to push issuers away from offering new, unhedged guarantees.