Ameriprise, MetLife and Prudential among those favored in a plummeting market
The trauma that life insurers went through in 2008-09 may have been painful, but it seems the lessons learned during the financial meltdown may pay off during the current market turmoil.
Indeed, Andrew S. Kligerman, a life insurance analyst with UBS Securities LLC, believes the carriers are much better positioned to handle the latest chaos on Wall Street. In a research note, Mr. Kilgerman pointed out that while the S&P 500 is close to where it was in the third quarter of 2008, insurers are going in with stronger levels of risk-based capital — the capital insurers must carry relative to the risks of their business.
The numbers seem to back up his assertion. During the middle of the downturn in the third quarter of 2008, the average RBC ratio for UBS' life group was 375%. As of the second quarter of 2011, that figure was up to a healthier 466%. Insurance regulators tend to react when carriers' RBC ratios drop to around 200%.
Further, insurers are holding higher levels of cash and can cover up to two years of corporate cash needs, Mr. Kligerman noted.
That's a big difference from 2008, when some carriers had debt maturing just as capital markets seized up. Others kept only minimal levels of cash at the holding-company level.
Still, some carriers look better than others. Mr. Kligerman highlighted Ameriprise Financial Inc., MetLife Inc., Prudential Financial Inc. and Reinsurance Group of America Inc., rating all four “buys.”
Ameriprise and MetLife received praise from the analyst for the recent performance of their variable annuity hedging programs. Meanwhile, Prudential was lauded for below-peer-average exposures to risky investments such as residential- and commercial-mortgage-backed securities, and non-investment grade securities.
RGA, a life reinsurer, also was given a positive rating because its life reinsurance business generates a stable cash flow and because its low exposure to residential-mortgage-backed securities relative to its peers. (Calls to Ameriprise, MetLife, Prudential and Reinsurance Group of America were not immediately returned).
Life insurers stock fared well during the second-quarter earnings season, but their shares tumbled amid this week's turmoil. The KBW Insurance Index has fallen 4.08% since Monday, while the Standard & Poor's 500 Index has lost 1.44%.
