5 Top Life and Annuity Q3 Strength Indicators

By Allison Bell

News November 22, 2022 at 10:17 AM Share & Print

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Sometimes, helpful economic conditions make most big, publicly traded life and annuity issuers move in sync.

After those quarters, most or all issuers report higher net income on higher revenue.

In the third quarter of this year, which ended Sept. 30, different strategies produced noticeably different results.

Nigel Dally and other securities analysts at Morgan Stanley last week released a review of what went right and what went wrong.

For a look at five key factors, ranked in terms of how little, or how much, they separated the top performers from competitors, see the gallery above.

The Morgan Stanley building in New York. (Image: Shutterstock)

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5. Rising Interest Rates

Effect: Helped all companies.

In the third quarter, at the life and annuity issuers Morgan Stanley tracks, higher rates and spreads “helped drive solid upside, especially for those exposed to short-term interest rates or floating-rate securities,” analysts say.

”We also saw some companies lock in higher interest rates through the use of hedges,” the analysts add.

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4. The COVID-19 Pandemic

Effect: Neutral for most companies.

The pandemic and its side effects increased overall third-quarter U.S. mortality about 10% over pre-pandemic levels.

But in the United States, the pandemic “looks to be firmly in the past,” the analysts say. “In most cases, COVID-related claims for group and individual life were immaterial.”

(Image: Adobe Stock)

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3. Stock Prices

Effect: Hurt some companies.

The stock market looked ugly in the third quarter.

Life and annuity issuers don’t invest much in stocks, but they do sell variable annuities, variable universal life insurance policies and other products linked to the performance of the stock market.

”We had expected margins and earnings from equity-sensitive product lines to come under pressure,” the analyst note. ”In aggregate, they matched expectations, but there was considerable divergence between the companies.”

The analysts list Ameriprise, Equitable, Jackson, Prudential and Voya as companies that weathered stock market volatility better than expected.

(Image: katjen/Shutterstock)

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2. Capital

Effect: Hurt some companies, and the extent of effects on others seems to be unclear.

Big, publicly traded life insurers should have more than enough to pay the promised life and annuity benefits. But they might not have enough extra capital to keep buying back shares of their own stock, the analysts warn.

The analysts cite Aflac and Jackson as examples of companies with strong capital, and Unum as an example of a company with an improving capital position.

(Image: Diego M. Radzinschi/ALM)

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1. Alternative Investments

Effect: Hurt some companies, and some companies say the impact could get worse this quarter.

At U.S. life and issuers, the most common assets are investment-grade corporate bonds.

The list of alternative assets includes private equity funds, real estate investment trusts, energy exploration investments and other investments with returns that often move on a different track than the overall stock and bond markets.

In the third quarter, “adverse marks on alternative investments had a large negative impact on the results of several companies, with some warning fourth quarter returns are likely to remain under pressure,” the analysts report.

The analysts say MetLife is the only issuer they included that posted good alternative investments performance for the third quarter.

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