JP 摩根-美股-保险行业-Q2寿险行业展望：利率下降和本年迄今强劲的表现使寿险股不那么引人注目-71-113页.pdf
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www.jpmorganmarkets.com
North America Equity Research
01 July 2019
Life Insurance 2Q19 Outlook
Drop in Rates and Strong YTD Performance Make Life
Stocks Less Compelling
Insurance -- Life
Jimmy S. Bhullar, CFA
AC
(1-212) 622-6397
Bloomberg JPMA BHULLAR <GO>
Pablo S. Singzon
(1-212) 622-2295
J.P. Morgan Securities LLC
See page 111 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its
research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this rep
ort as only a single
factor in making their investment decision.
We are shifting our view on the life insurance sector from positive to
neutral. Our outlook for business fundamentals is consistent with previously,
but we feel that the sharp drop in interest rates and the group’s strong
performance makes the risk-reward in stocks less compelling. We feel that life
stocks have not fully adjusted to reflect the decline in rates. This, along with
expected reductions in EPS forecasts could weigh on the group’s performance.
Reducing EPS estimates. We are cutting estimates for most life insurers to
reflect the decline in new money yields and other company-specific factors,
partly offset by the strong equity market in 2Q19. Our forecasts for most
insurers are below consensus, but we feel that 2Q estimates for AIG, HIG,
and MET are especially optimistic. For 2020, we are considerably below
consensus on AIG, ATH, and VOYA, but slightly above for AFL and PFG.
We expect life insurers to report healthy results in 2Q19. Although our
EPS estimates are below consensus, we expect business trends to be healthy
overall, marked by robust alternative investment income (given the 1-quarter
lag for private equity funds), a sequential increase in fee income (due to the
strong equity market), and stable mortality/morbidity margins. On a cautious
note, we expect organic growth for most life insurance products to be poor.
Our long-term outlook is downbeat. On a positive note, life insurers have
ample capital flexibility for ongoing share buybacks and dividend hikes. In
addition, we expect price competition in most products to be rational.
Conversely, while the strong equity market is a near-term tailwind, the drop
in rates presents a bigger risk to EPS and book values in the long run. Our
models project the sector to generate a roughly 12% ROE on operating EPS
and a 9-10% net ROE in the next few years, close to its cost of equity. Also,
we remain wary of tail risk in legacy LTC and VA blocks.
The decline in interest rates is a major negative and will hurt results in
future periods. We estimate that life insurers’ new money yields dropped
about 50 bps in 2Q19, driven by a sharp drop in Treasury yields and modest
spread compression. New money yields in the first half of 2019 have
reversed the entire uptick in 2018. The EPS impact of low rates is modest in
the near term but should compound over time. Low rates could also drive
charges in 3Q, when most insurers conduct their annual actuarial reviews.
Risk-reward seems more balanced after strong recent performance. The
sector has risen 21% in 1H19 and is trading at 1.3x BV ex. AOCI and 9.1x
forward EPS, up from 1.1x and 7.7x, respectively, at 12/31/18. While not
stretched, we feel that valuations are reasonable considering the sector’s
ROE (close to cost of equity), business trends, and macro conditions.
TMK and LNC are our top picks and we remain negative on BHF.
Among our Neutral-rated stocks, we favor UNM and are cautious on AIG,
primarily due to downside risk to consensus EPS forecasts.
Life Insurance 2
Q19 Outlook
Key Positives:
Capital flexibility for buybacks
Rational pricing in most products
Key Negatives:
Downside risk to consensus EPS
Poor ROEs
Low rates & risk of charges in 3Q
2019 Estimate Changes:
Reducing EPS: AEL, AIG, ATH,
BHF, FG, GNW, HIG, MET,
PRU, RGA, TMK, UNM
Increasing EPS: AFL, EQH, LNC,
PFG, VOYA
No Change: None
Best Trade Ideas:
Defensive long: TMK
High-beta long: LNC
Short: BHF
Pair: long LNC, short BHF
Please visit our Bloomberg page on
JPMA Bhullar <GO>
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