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Life insurers to see headwinds in Q2 as market volatility takes toll


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Life insurers to see headwinds in Q2 as market volatility takes toll

Fourteen of the top 15 publicly traded U.S. life insurers are expected to post year-over-year decreases in earnings in the second quarter, according to analyst estimates compiled by S&P Global Market Intelligence.

Ten of the top 15 U.S. life insurers are projected to report sequential earnings decreases in the second quarter. Only a handful of companies, Lincoln National Corp., Genworth Financial Inc., CNO Financial Group Inc., Globe Life Inc. and Primerica Inc., are projected to book higher quarter-over-quarter earnings for the period.

Second-quarter revenue estimates vary greatly both sequentially and year over year among the group of top publicly traded U.S. life insurers.

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Market volatility causing headwind

Life insurers are expected to use second-quarter earnings calls to address the impacts of a souring economy as inflation continues to surge and the possibility for a recession looms.

Market volatility is causing a headwind for fee-based businesses like asset management, annuities and retirement businesses, Piper Sandler analyst John Barnidge said in an interview.

In particular, Barnidge said he will be looking at how CNO's investment portfolio performed in the second quarter as the company had some "challenged" risk-based capital ratios in the first quarter. Barnidge will also see how Prudential Financial Inc.'s annual actuarial assumption review in the second quarter turned out.

Credit Suisse analyst Andrew Kligerman said he expects companies to report pressure on variable investment income, which could affect companies such as Brighthouse Financial Inc. and MetLife Inc. The impact will likely be worse in the third quarter due to a reporting lag, Kligerman said.

Credit exposures and how companies are managing expenses are also expected to be topics of conversation during second-quarter earnings calls.

Analysts are also anticipating more color about any long-anticipated impacts that may come as a result of life insurers' work to comply with an accounting standard that significantly changes the accounting and disclosure requirements for long-duration insurance contracts.

Established by the Financial Accounting Standards Board, Long Duration Targeted Improvements, or LDTI, will require insurers to review, and if necessary, update cash flow assumptions used to measure the liability for future policy benefits for traditional and limited-payment contracts at least annually, with changes recognized in earnings. Public insurers must adopt the standard by Jan. 1, 2023, but have the option to do so sooner.

With a few exceptions, life insurers have yet to provide details related to the expected impact of the new accounting standard.

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COVID mortality pressure wanes

Mortality related to COVID-19 should be materially better, Barnidge said. The potential impact to insurers from cases of long-COVID will likely take some time to play out and have not been experienced in a "dramatic way" so far, the analyst added.

Kligerman said he will be watching Lincoln National and Globe Life in particular for their mortality experience outside of COVID-19. Globe Life has had some elevated non-COVID mortality, and Lincoln National is a company that has been set for unfavorable mortality even without the impacts of COVID-19, Kligerman added.