September 2019

Life Insurance Underwriters – Q2 2019

---

2019Q2 was largely a successful quarter for the publicly traded life insurers. Of the 26 life insurance companies tracked by 7 Mile Advisors, 54% (14 companies) surpassed earnings expectations, 12% (3 companies) were in line, while just 27% ( 7 companies) missed expectations (8% or 2 companies are not tracked by analysts). Importantly, book value growth was impressive, averaging 22% yr/yr in 2019Q2. Rapid book value growth may explain the modest contraction in price to book multiples over the last few quarters as seen within the report.

Below we note some common themes that we gleaned from earnings transcripts.

• Interest rates are on everyone’s mind – Almost all of the tracked life insurers weighed in on the low interest rate environment; however, the commentary was not overly concerning. Several insurers pointed to their well capitalized balance sheet and business diversification (MetLife, Globe Life, Lincoln Financial Group, Sun Life, Brighthouse) as hedges against the risks of interest rates. Specifically, MetLife stated that its 2019Q2 results highlight that the company has become less interest rate sensitive, though it will look to reevaluate its ALM practices which could help marginally.
• Share repurchases are the primary use of capital – Despite concerns of lower interest rates, share repurchase activity remains brisk with practically all our tracked companies. Of note, MetLife announced a new $2b share repurchase authorization, while Sun Life announced a new 15m share repurchase program.
• Life insurers are investing in digital – A handful of tracked companies commented on digital investments including Manulife which is “using technology to attract and gauge and retain customers by delivering an outstanding experience.” Aflac partially attributed improvements in its expense ratio to “digital initiatives,” while Sun Life touted its digital platform which reached 10,000 searches per day.