Does U.K. Bond Volatility Matter to U.S. Life and Annuity Issuers?

And five other questions for the third-quarter earnings release season.

Publicly traded life and annuity issuers may be about to give investors hints about whether all of that commotion in bond markets in the United Kingdom will have any effect on their investment portfolios.

U.K. Prime Minister Liz Truss started weeks of extra volatility in world financial markets by calling for new tax cuts and energy bill subsidies.

The Bank of England has been buying significant amounts of U.K. government bonds this week because of concerns about liquidity pressure on pensions’ investment funds, the “prospect of self-reinforcing ‘fire sale’ dynamics,” and the risk that dysfunction in the U.K. government bond market could lead to hurt credit conditions for U.K. households and businesses.

U.S. life insurers, rating analysts and regulators have not said much about whether all of that volatility in the United Kingdom could have any big direct or indirect effect on U.S. life and annuity issuers.

UnitedHealth Group, a health insurer, is posting its earnings for the third quarter of the year, which ended Sept. 30, today.

Principal Financial is on track to be the first life and annuity issuer to post third-quarter results. When it goes over the numbers with securities analysts, that might give the analysts a chance to ask about the impact of the U.K. turmoil.

Many more life and issuers will post results and hold analyst calls starting Nov. 1.

What It Means

This quarter could be a chance for securities analysts, investment advisors and your clients to see how well efforts to strengthen life insurers’ defenses against market volatility have worked.

Michael Cook, an investment analyst at Penn Mutual Asset Management, has predicted that this will be a difficult earnings release season for many companies of all kinds.

“I expect to see more companies miss consensus [earnings] estimates,” Cook wrote earlier this week. “It will be especially difficult for those companies at the lower end of the ratings spectrum, where there is more exposure to bank debt, greater earnings volatility, and where liquidity is weakest.”

Quarterly Earnings

Most U.S. life insurers are owned either by the policyholders or by a small group of shareholders. Those insurers file quarterly and annual reports with state insurance regulators.

Some other insurers have raised capital by selling large numbers of shares of stock to members of the public. Those publicly traded insurers file financial reports with state regulators, and they also release separate sets of results prepared using the U.S. Generally Accepted Accounting Principals, or GAAP standards.

Agents and advisors can find the earnings releases and related documents in the investor relations sections of public insurers’ websites.

Questions

Analysts will ask questions about many topics in addition to the U.K. turmoil during life and annuity issuers’ analyst calls.

These are five other questions that could come up:

1. Interest rates have been rising rapidly. How have increasing rates helped the insurers’ portfolio yields, and how have they hurt the insurers’ investment performance?

2. How is the new interest rate environment affecting the sales of various types of life and annuity products?

3. Primerica reported that 75% of the 1,546 U.S. middle-income adult consumers it surveyed in September rated their ability to save for the future as poor, up from 65% in December 2020. How are inflation and responses to inflation affecting insurers’ performance?

4. About 37% of the Primerica survey participants said their level of credit card debt has increased in the past three months. That’s up from 29% in June, and up from 25% in December 2020. What can insurers say about individual and business customers’ debt levels?

5. The overall U.S. death rate was lower this summer than at the peak of the COVID-19 pandemic, but much higher than the typical level before the pandemic came to light, in January 2020. How will life and annuity issuers do if overall mortality continues to be similar to what it was this summer?

The Calendar

Here’s a look at when insurers have scheduled their earnings release dates for the third quarter.

Oct. 14

Oct. 19

Oct. 25

Oct. 26

Oct. 27

Oct. 31

Nov. 1

Nov. 2

Nov. 3

Nov. 4

Nov. 7

Nov. 8

Nov. 9

Nov. 15

To Be Announced

Pictured: The Bank of England, in London. (Photo: Bank of England)

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