Wall Street analysts are upbeat on life insurance stocks, citing higher asset quality and better sales numbers.
Life insurers, cash-rich and displaying improved fundamentals, have bounced back from the financial crisis, but their shares are still cheap compared with those of banks, said Arun Kumar, managing director at J.P. Morgan Securities Inc. He spoke this morning at the Standard & Poor's Financial Services LLC's 2011 insurance conference in New York.
“Values have improved dramatically at the insurers,” said Mr. Kumar. “Asset qualities are higher and product sales are through the roof. From many perspectives, insurers are healthier now than they were a few years ago.”
Mr. Kumar pointed to
Prudential Financial Inc.'s and
MetLife Inc.'s large first-quarter sales of variable annuities. Prudential sold $6.81 billion in variable annuities during the first three months of the year, while
MetLife sold a total of $5.68 billion in the same period.
The market punished life insurers during the
recession, leading to falling share prices. Genworth Financial Inc. dipped to as low as 70 cents per share during intraday trading in November 2008 and Lincoln National Corp. sank to $4.90 per share when the market plummeted on March 9, 2009.
But analysts maintained that the crisis was never really about the insurers.
Further, insurers were spared the “run on the bank” that felled banking giants like The Bear Stearns Cos. Inc. and Washington Mutual Inc. “What brought down the big companies was the capital flowing out of the business,” said panelist Jay A. Cohen, managing director of equity research at
Bank of America Merrill Lynch. “It just doesn't happen that way with insurance companies.”
Still, insurers owned less than attractive assets during the crisis, including residential-mortgage-backed securities, analysts added.
On the business diversification front, the panelists noted that insurers have largely done best by concentrating on their most important products. Noncore assets have been a headache for insurers, Mr. Kumar said, using Genworth and its mortgage insurance business as an example. “The markets generally ignore the noncore business until it becomes a problem, and then there's general panic,” he said.
A Genworth spokesman said the company does not comment on analyst opinions.
For his part, Mr. Cohen agreed with Mr. Kumar's assessment. “When I think of diversity, there are two questions,” he said. “Are the right people running those businesses? And is there an enterprise risk management structure in place?”
