Credit risk, mortality results to top US life insurers' Q2'23 earnings docket

US life insurers are expected to report improving mortality results for the second quarter and field questions related to credit risk as concerns mount over the industry's exposure to commercial real estate.

Credit risk was a hot-button issue for life insurers in the first quarter. Many life companies released commercial real estate disclosures in an attempt to quell investor anxiety, but scrutiny over exposure to the sector is likely to continue, particularly as worries around office space grow.

Credit losses and ratings migration impacts have been fairly modest for life insurers to date despite the uncertain macroeconomic environment, according to Keefe Bruyette & Woods analyst Ryan Krueger.

"Most life insurers continue to return capital in normal course, and we don't foresee meaningful credit impacts yet," Krueger said in a note to clients.

Mortality, investment income and risk transfer trends

Piper Sandler analyst John Barnidge expects to see improving mortality results in the second quarter, which would particularly favor names like Globe Life Inc. and Reinsurance Group of America Inc.

The industry is set to report "relatively normal" underwriting experience in the second quarter, KBW's Kreuger said.

"There continues to be some excess deaths in the US population, but at a much lower level than the pandemic," he said. "Volatility in quarterly mortality will likely continue, but it's challenging to predict."

Variable investment income in the second quarter remains a "wildcard," Barnidge said in an interview. Variable investment income had been a headwind for the last several quarters, but since markets have been higher in recent quarters it should boost fee-based businesses, he added.

MetLife Inc. is expected to conduct its office revaluation in the second quarter and Prudential Financial Inc. is expected to undertake its annual actuarial assumption. Krueger noted that Prudential made "significant assumption updates" in 2022, and there will likely be fewer impacts for the overall life industry this year after the adoption of the long-duration targeted improvements, or LDTI, accounting standard.

Risk transfers are also expected to be a hot topic as a good chunk of the life insurance universe has sold itself or announced risk transfers over the past several months, Barnidge said. Just earlier this week, Prudential agreed to reinsure approximately $12.5 billion of reserves backing its guaranteed universal life policies with Somerset Reinsurance Ltd.

Earnings forecast a bit cloudy

Earnings projections for the sector are mixed, with five of the top 15 publicly traded US life insurers for which analyst estimates are available expected to book year-over-year increases in earnings for the second quarter, according to analyst estimates compiled by S&P Global Market Intelligence. 11 of the 15 insurers are projected to see earnings increase sequentially.

Revenue estimates for the group are evenly split, with half of the insurers for which analyst estimates are available expected to log stronger revenue figures on a year-over-year basis and the rest projected to see weaker revenue. Two insurers are expected to see no changes year over year.

The majority of insurers in the group are estimated to book higher revenue when compared to the first quarter.

– Read S&P Global Market Intelligence's 2023 outlook for life insurers. – Read about the 2023 outlook for US financial institutions across the board.