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US life insurers shrug off credit concerns; stocks up modestly after Q1 earnings


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US life insurers shrug off credit concerns; stocks up modestly after Q1 earnings

A majority of US life insurers' stocks finished the week ending May 19 in the green with first-quarter earnings wrapped up.

Going into the season, unease around credit risk had investors on edge even as rising interest rates were expected to make spread-based businesses like fixed annuities profitable. Another concern coming into the quarter had been increased surrender activity in annuity-based products, according to Piper Sandler analyst John Barnidge. But management commentary suggested that crediting rates were getting normalized as the quarter ended, which resulted in a favorable view for the next quarter.

"That's probably why you've seen some recent strength," Barnidge said in an interview.

Lincoln among leaders

Lincoln National Corp. was among the biggest winners of the week, though its stock has been fairly "volatile," Barnidge noted.

"The takeaway on that name ... is the company now is having to do additional risk transfers," Barnidge said. "But that suggests that they're trying to rationalize their in-force portfolio more."

Life insurers continue to buy back shares with Lincoln being the "lone exception," Wells Fargo analyst Elyse Greenspan said in a note. Lincoln entered into a reinsurance transaction that will lead to an extra $100 million of cash flow, Greenspan said, but the insurer was hesitant to elaborate on capital deployment beyond 2023.

Lincoln was up more than 9% for the week through mid-afternoon on May 19.

Aflac Inc. and Globe Life Inc. were able to provide good investment portfolio disclosure, in Barnidge's view. Aflac shares were buoyed in the week it released earnings and abated concerns over its investment exposure to commercial real estate and middle-market loans.

While Aflac reported some pressure in the commercial real estate space amid a difficult market for office leasing, company executives told investors and analysts that the impact was still "manageable," even in a potential severe downturn scenario.

As of mid-afternoon on May, Aflac's shares were up just over 1% on the week, while Globe Life's shares were higher by 1.2%.

The broader markets were also in positive territory as the S&P had gained around 1.4% for the week through mid-afternoon on the final trading day. The S&P 500 US Insurance index was mostly flat.

April property and casualty results

Two major US property and casualty insurers released results from the first month of the second quarter this week.

The Allstate Corp. estimated its catastrophe losses for the month at $799 million, or $631 million after tax. Those losses encompass 12 events estimated at $872 million, with about 60% of the losses related to wind and hail events, which were partially offset by favorable reserve reestimates for previous events.

The Progressive Corp. reported net income for April of $196.3 million, or 33 cents per share, compared to a net loss of $198.3 million, or a loss of 34 cents per share, in the year-ago period.

Based on Allstate and Progressive's figures, catastrophe losses for April appear to be "above average" for the industry, according to Piper Sandler analyst Paul Newsome.

"While only two data points, both insurers write nationally so that implies elevated catastrophe losses for most property and casualty insurers in April," Newsome said.

Allstate's shares were about flat for the week as of mid-afternoon on May 19, while Progressive's shares were up more than 1.5%.