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Goldman Sachs sees ongoing risks for life insurers amid low rates

The outlook for life insurers includes continuing risks to earningsand balance sheets if interest rates remain low, according to Goldman Sachs analystMichael Kovac.

Kovac in a research note downgraded shares of and to "neutral"from "buy," and downgraded Unum to "sell" from "neutral."He upgraded Torchmark Corp.to "neutral" from "sell," and raised his rating for to "buy" from "neutral."

Kovac thinks Reinsurance Group of America could be among insurancecompanies that trade at a premium if it demonstrates growth with limited macro sensitivity.

He increased his price target for the company to $108. His fiscalyear 2016 EPS estimate edged up to $8.91 from $8.90. For 2017, he held his EPS estimateat $9.85, and raised it for 2017 to $10.80 from $10.70.

For Torchmark, Kovac thinks near-term risk from deterioratingcredit has subsided and that its core product and domestic focus limit its macrosensitivity. The company's asset leverage is well below that of its peers, the analystsaid.

"[Torchmark] is among the most defensive insurers in ourcoverage universe and is likely to outperform the group if interest rates remainlow and equity market volatility remains elevated," Kovac added.

He raised his price target for the company to $60 from $54 andmaintained his full-year EPS estimates at $4.40, $4.74 and $5.10 for 2016, 2017and 2018, respectively.

Voya has experienced a slowdown in EPS expansion and saw renewedbalance sheet concerns due to the low interest rate outlook and slower performancein the equity markets. A $350 million investment spend coming as organic growthslows likely means cost-cutting will not be available to improve its books, he said.

Kovac lowered his price target for the company to $29 from $39.He reduced full-year EPS estimates to $3.12 from $3.17 for 2016, to $3.90 from $3.95for 2017 and to $4.70 from $4.75 for 2018.

The worsening macro environment has dimmed share prospects forLincoln, Kovac wrote. The analyst agrees with management's assertion that low interestrates for the long term are a manageable headwind for its balance sheets.

"However, [return on equity] is under pressure from lowerreinvestment rates and consensus EPS is likely still too high," Kovac said.

He lowered his price target for the company to $46 from $51.His EPS estimates he decreased to $6.13 from $6.22, to $6.85 from $7.05 and to $7.50from $7.70 for 2016, 2017 and 2018, respectively.

Kovac sees Unum's group business as attractive in current conditions,but believes near and medium-term risks loom for EPS and sales. Its run-off blockfaces long-term risks if interest rates remain the same, he added.

Further challenges lay ahead from a weakening pound pressuringearnings and elevated competition in the domestic market, where companies are diversifyingaway from slow growth in life and annuity businesses.

"Unum has emphasized a disciplined approach, but this couldchallenge the top line," Kovac wrote.

He moved his price target down to $30 from $36. He adjusted EPSestimates downward to $3.75 from $3.80, to $3.95 from $4.10 and to $4.30 from $4.50for 2016, 2017 and 2018, respectively.