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Life Insurers Triumphed Over Q2 Storms: Morgan Stanley

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What You Need to Know

  • Life insurers’ investments performed pretty well in part because stocks and alternative investments performed somewhat better than the analysts had feared.

U.S. life insurers went into the second quarter facing low background interest rates, rising rates, inflation, the COVID-19 pandemic, and worries about the effects of Russia’s invasion of Ukraine.

And they did well.

Nigel Dally and Erica Reynolds, securities analysts at Morgan Stanley, say the big, publicly traded life insurers they follow did so well, in spite of all of the howling storms, that they now have a more positive view of the prospects for all of the life insurers they track.

What It Means

The life insurers backing life insurance and annuity guarantees for your clients are looking good.

Another implication is that many retail investors who have taken a cautious, long-term approach to retirement income planning may have done better than advisors and analysts had feared.

Positives

Life insurers’ investments performed pretty well, because stocks and “alternative investments,” such as stakes in hedge funds, private equity and real estate, performed somewhat better than the analysts had feared.

Life insurers tend to put a large majority of their assets in high-grade corporate bonds and similar types of instruments, and rising interest rates helped the performance of life insurers’ interest-sensitive holdings, the analysts say.

Although COVID-19 killed about 30,000 people in the second quarter, that was much lower than the 155,000 death toll in the first quarter, and the decrease in mortality helped all companies with substantial amounts of life insurance policies in force.

Negatives

The analysts note that some factors that did well in the second quarter, such as the performance of alternative investments, might look better than they should because of reporting lags, and that the future course of other factors, such as COVID-19 mortality, are hard to predict.

The Future

The analysts are hoping that the new drop in COVID-19 mortality is the start of a return to normal, not just the result of a temporary lull.

“The debate is now shifting to whether we will see a period of favorable mortality, as a number of claims that would have occurred in the next several years were essentially brought forward by the pandemic,” the analysts write.

Morgan Stanley’s headquarters in New York. (Photographer: Victor J. Blue/Bloomberg)