A.M. Best Special Reports

Stock Prices in U.S. Life/Annuity and Health Sectors Decrease in Q3

Negative performances driven by macro-economic factors

OLDWICK, N.J., December 10, 2015—According to two special reports by A.M. Best, the average returns of publicly traded life/annuity (L/A) and health populations decreased 2.8% and 12.2%, respectively, in the third quarter of 2015, compared with a 6.4% drop in the broad market.

The first Best’s Special Report, titled, “Failed Rate Hike Leaves Life/Annuity Companies Waiting Longer for Interest Rate Relief,” states that for the 23 publicly traded U.S. L/A companies followed for this report, the negative performance of the L/A segment was driven by macro-economic factors, partially offset by noteworthy company-specific announcements, such as mergers and acquisitions, which pushed up the  return. During the end of second-quarter 2015, interest rates rose as investors began to factor in an interest rate hike during the September meeting of the Federal Reserve (Fed) on improving economic indicators.

Interest rate remains doggedly low

However, in a move that surprised many investors, the Fed policy makers decided against an increase in rates, citing global economic weakness and financial market turmoil, and agreed to keep interest rates at near zero despite  improvements in the domestic labor market. As a result, interest rates dropped 32 basis points, or 13%, during the quarter.

StanCorp Financial Group was the best-performing stock during the third quarter of 2015, up 51%. The worst-performing stock for the same quarter was Genworth Financial, down 39% as investors continued to lose faith after
the company posted a 210% decline in net income, to a net loss of $193 million.

StanCorp Financial Group was the best-performing stock during the third quarter of 2015, up 51%. The worst-performing stock for the same quarter was Genworth Financial, down 39%

For the full copy of this L/A special report, please visit here.

In the second report, titled, “Health Stock Prices Pull Back, Full Year Performance Remains Favorable,” it states that despite the quarterly declines, stock prices for the health insurers followed for this report still increased 8.5% as of Sept. 30, 2015.

Seven companies posted double-digit declines for the third quarter of 2015, with Centene Corp., Universal American Corp. and Triple-S Management Corp., each posting decreases of more than 30%. Stock price performance for the
same quarter was unfavorable for every company in the population except WellCare Health Plans, which increased 1.6%.

Despite the pullback, the average operating return on equity (ROE) was a strong 22.7%, aided by the fact that all but three companies reported a double-digit ROE. In addition, the health industry reported strong year-over-year revenue growth of 13.7% through the third quarter of 2015.

The report notes that a domino effect related to UnitedHealth’s decision to possibly exit the health insurance exchanges in the coming months could affect the rest of the industry. Additionally, A.M. Best notes that fewer than half of the CO-OPs remain less than two years after the plans started writing business, placing some further uncertainty around some of the
health exchange dynamic.

For the full copy of this health special report, please visit here.



A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.