What to expect from revived life insurers: UBS analyst

Jun 11, 2010 @ 3:34 pm

By Darla Mercado

Life carriers’ outlook appears to be taking a turn for the better, according to a prominent equities analyst.

“The [insurance] industry did a sound job of strengthening its capital,” said UBS equities analyst Andrew Kligerman at Standard & Poor’s insurance conference in New York yesterday.

“Virtually all the companies I cover have raised common equity,” he said.

In fact, many of the carriers are now holding even more capital than they did before their investment portfolios and variable annuity businesses were severely damaged by the financial crisis, Mr. Kligerman said.

With revived capitalizations, Mr. Kligerman said he is upbeat about the future of variable annuities, despite noting that fees are up and step-ups are down. Big players making hay in that area include Prudential Financial Inc., MetLife Inc. and Lincoln National Corp., the analyst noted in an interview afterward.

“Some players have demonstrated success in their ability to hedge, and they did well even with increased pricing,” Mr. Kligerman said in the interview. But don’t expect any sudden product innovations, as the insurers’ days of engineering sexy products are over.

“Companies are going to be more rational, except for the one or two outliers,” he said.

As for merger activity, Canadian carriers Manulife Financial Corp. — parent of John Hancock Financial Services Inc. — and Sun Life Financial Inc. have the appetite for deals, while Prudential Financial has about $4 billion it could put toward an acquisition, Mr. Kligerman said. But low valuations remain the wild card: They are currently low, and if they were to increase, then sellers would have an easier time getting rid of their businesses.

The MetLife and American Life Insurance Co. match received the analyst’s blessing; he expects that it will be “successful.”

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