Major U.S Insurers showing mixed-bag
between growth, decline for Q3 2014
Analysts foresee a roughly even mix of year-over-year EPS growth and decline for the 10 largest publicly traded U.S. life insurers ranked by total equity, according to an SNL analysis of third-quarter earnings estimates.
Consensus third-quarter EPS estimates are up for six of the top 10 public life insurers when compared to the year-ago quarter, while the remaining four are expected to post declines as compared to a year ago. These estimates reflect the mean analyst recommendation for each stock, as tracked by FactSet.
The interest rate environment will be a main theme this quarter, according to analysts. Declining interest rates may lead to lower earnings at major life insurers this quarter, especially among those companies that have significant exposure to fixed-income securities that are interest rate sensitive. Randy Binner from FBR Capital Markets said in an Oct. 1 report that “with the 10-year Treasury yield flat in 3Q14 and over the past year, the main macro theme in owning life insurers (rising interest rates) is seriously in question.”
Some of the companies in this analysis have already reported earnings, providing insight into trends for the other companies that have yet to report. Thus far, all reporting companies have beaten consensus analyst EPS estimates for the third quarter.
Principal Financial Group Inc., for instance, on Oct. 23 reported third-quarter operating EPS of $1.19, which was up 32% versus the year-ago period. Operating earnings overall for the third quarter were $353.7 million, up year over year from $269.2 million. The impact of the recent low interest rate environment was minimal upon Principal’s operations this quarter, as it had already “made a significant change in its long-term interest rate assumption and glide path” in the third quarter of 2012. CFO Terrance Lillis reiterated that “our predominantly fee-based business model limits our sensitivity to interest rate movements” during the company’s third-quarter earnings conference call.
Analysts had expected Principal to post third quarter operating EPS of $1.05, which it beat by 14 cents. It primarily benefitted from a positive $39 million actuarial review during the quarter, which could be a trend for other companies as well. Sterne Agee & Leach analyst John Nadel stated that actuarial reviews are also conducted by companies such as MetLife Inc., Prudential Financial Inc., Lincoln National Corp. and Voya Financial Inc. in the third quarter, and could be a significant factor in each insurer’s bottom line, possibly contributing to headline EPS misses.
Read the full report and analysis here.