Barclays on U.S. Insurance/Life: Navigating a Volatile Macro Environment

Barclays on U.S. Insurance/Life: Navigating a Volatile Macro Environment

Barclays analyst, Jay Gelb, said, "We view life insurers' depressed valuations as already reflecting the brunt of anticipated impacts from falling equity markets, declining interest rates, a flattening of the yield curve, dislocations in Europe, and a weak U.S. economy. Investors appear to be penalizing life insurance stocks by applying trough valuation multiples on reduced EPS expectations. Notably, this means the life insurance stocks could be revalued sharply higher once investor sentiment improves-although the timing is unclear."

"Near-term, we anticipate broad macro concerns will continue to weigh on life
insurance stocks, including a flattening of the yield curve, which creates headwinds on spread income. As a result, the pace of share buybacks for life insurers could be slower than we initially anticipated through 2012 as managements become more conservative."

"Our EPS estimates and price targets for the life insurers are under review, especially for the equity and rate sensitive life insurers including Ameriprise Financial (NYSE: AMP) Hartford (NYSE: HIG), Principal Financial (NYSE: PFG), Prudential (NYSE: PRU), MetLife (NYSE: MET), and AIG (NYSE: AIG). Realistically, life insurance stocks might face additional near-term downside risk based on concerns about macro financial conditions. However, we believe patient investors can be rewarded by buying shares of strongly capitalized life insurers with sustainable franchises including MET, Aflac (NYSE: AFL), PRU, and AMP...We remind investors that MET and PRU generate roughly half of their earnings from outside the U.S., AFL has meaningfully de-risked its investment portfolio, and AMP continues to improve its ROE profile and generate excess capital."

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