美股保险行业2019年q2寿险行业展望利率下降和本年迄今强劲的表现使股不那么引人注目

1、North America Equity Research01 July 2019Life Insurance 2Q19 OutlookDrop in Rates and Strong YTD Performance Make Life Stocks Less CompellingWe are shifting our view on the life insurance sector from positive to neutral. Our outlook for business fundamentals is consistent with previously, but we fee

2、l that the sharp drop in interest rates and the groups strong performance makes the risk-reward in stocks less compelling. We feel that life stocks have not fully adjusted to reflect the decline in rates. This, along with expected reductions in EPS forecasts could weigh on the groups performance.Ins

3、urance - LifeJimmy S. Bhullar, CFA AC(1-212) 622-6397jimmy.s.bhullarBloomberg JPMA BHULLAR <GO>Pablo S. Singzon(1-212) 622-2295pablo.s.singzonJ.P. Morgan Securities LLC·Reducing EPS estimates. We are cutting estimates for most life insurers to reflect the decline in new money yields and o

4、ther company-specific factors, partly offset by the strong equity market in 2Q19. Our forecasts for most insurers are below consensus, but we feel that 2Q estimates for AIG, HIG, and MET are especially optimistic. For 2020, we are considerably below consensus on AIG, ATH, and VOYA, but slightly abov

5、e for AFL and PFG.We expect life insurers to report healthy results in 2Q19. Although our EPS estimates are below consensus, we expect business trends to be healthy overall, marked by robust alternative investment income (given the 1-quarter lag for private equity funds), a sequential increase in fe

6、e income (due to the strong equity market), and stable mortality/morbidity margins. On a cautious note, we expect organic growth for most life insurance products to be poor.Our long-term outlook is downbeat. On a positive note, life insurers have ample capital flexibility for ongoing share buybacks

7、and dividend hikes. In addition, we expect price competition in most products to be rational. Conversely, while the strong equity market is a near-term tailwind, the drop in rates presents a bigger risk to EPS and book values in the long run. OurLife Insurance 2Q19 Outlook·Key Positives:Capital

8、 flexibility for buybacks Rational pricing in most productsKey Negatives:Downside risk to consensus EPS Poor ROEsLow rates & risk of charges in 3Q·2019 Estimate Changes: Reducing EPS: AEL, AIG, ATH, BHF, FG, GNW, HIG, MET, PRU, RGA, TMK, UNMms project the sector to generate a roughly 12% RO

9、E on operating EPSand a 9-10% net ROE in the next few years, close to its cost of equity. Also,we remain wary of tail risk in legacy LTC and VA blocks.The decline in interest rates is a major negative and will hurt results in future periods. We estimate that life insurers new money yields dropped ab

10、out 50 bps in 2Q19, driven by a sharp drop in Treasury yields and modest spread compression. New money yields in the first half of 2019 have reversed the entire uptick in 2018. The EPS impact of low rates is modest in the near term but should compound over time. Low rates could also drive charges in

11、 3Q, when most insurers conduct their annual actuarial reviews.Risk-reward seems more balanced after strong recent performance. The sector has risen 21% in 1H19 and is trading at 1.3x BV ex. AOCI and 9.1x forward EPS, up from 1.1x and 7.7x, respectively, at 12/31/18. While not stretched, we feel tha

12、t valuations are reasonable considering the sectors ROE (close to cost of equity), business trends, and macro conditions.TMK and LNC are our top picks and we remain negative on BHF. Among our Neutral-rated stocks, we favor UNM and are cautious on AIG, primarily due to downside risk to consensus EPS

13、forecasts.Increasing EPS: AFL, EQH, LNC, PFG, VOYA·No Change: NoneBest Trade Ideas:Defensive long: TMKHigh-bong: LNC·Short: BHFPair: long LNC, short BHFPlease visit our Bloomberg page onJPMA Bhullar <GO>·See page 111 for analyst certification and important disclosures.J.P. Morga

14、n does and seeks to do business with companies covered in its research reports. As a result, investors should be aware thatthe firm may have aof interest that could affect the objectivity of this report. Investors should consider this report as only a singlefactor in making their investment decision

15、.获取报告1、2、3、每周群内7+报告；当日华尔街日报、4、行研报告均为公开利归原作者所有，起点财经仅分发做内部学习。扫一扫关注 回复：加入“起点财经”群。Jimmy S. Bhullar, CFA (1-212) 622-6397jimmy.s.bhullarNorth America Equity Research01 July 2019Table of ContentsRisk-Reward in Life Stocks More Balanced5Reducing EPS Estimates6Major Industry Themes10Key Topics of Focus with

16、 2Q19 Results26Valuations less Enticing After 1H Runup31AFLAC, Inc.34American Equity Investment Life38American International Group42Athene Holding46AXA Equitable49Brighthouse Financial52FGL Holdings56Genworth Financial, Inc.60Hartford Financial Services63Lincoln National66MetLife, Inc.69Principal Fi

17、nancial Group72Prudential Financial76Reinsurance Group of America79Torchmark Corp83Unum Group86Voya Financial, Inc.902Jimmy S. Bhullar, CFA (1-212) 622-6397jimmy.s.bhullarNorth America Equity Research01 July 2019Equity Ratings and Price TargetsMkt Cap ($ mn) Rating Price TargetCompanyTickerPrice ($)

18、CurPrevCurEnd Date Dec-20PrevEnd Date Dec-19AFLAC, Inc.American Equity Investment Life American International Group Athene HoldingAXA Equitable Brighthouse Financial FGL HoldingsGenworth Financial, Inc. Hartford Financial Services Lincoln NationalMetLife, Inc.Principal Financial Group Prudential Fin

19、ancial Reinsurance Group of America Torchmark CorpUnum GroupVoya Financial, Inc.AFL US AEL US AIG US ATH US EQH US BHF US FG US GNW US HIG US LNC US MET US PFG US PRU US RGA US TMK US UNM US VOYA US40,914.952,465.7046,137.588,177.439,957.484,069.881,788.631,867.2420,226.5413,083.3547,196.4315,801.76

20、42,207.909,800.939,954.907,122.338,023.5754.8127.1653.0542.1320.2835.038.233.7155.4064.4549.6756.80101.00156.0388.4433.5554.25N N N N N UW N N NOW OW N OW N OW N UWn/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c57.0032.0055.0061.0027.0042.0011.0057.0092.0061.0060.00127.00156.0095

21、.0049.0053.0052.0034.0052.0058.0024.0043.0010.00n/c 52.00n/c 57.0064.00128.00151.0090.0045.0052.00Dec-20 Dec-20 Dec-20 Dec-20 Dec-20 Dec-20Dec-20 Dec-20 Dec-20 Dec-20 Dec-20 Dec-20 Dec-20 Dec-20 Dec-20Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-19n/c Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-1

22、9 Dec-19Source: Company data, Bloomberg, J P. Morgan estimates. n/c = no change. All prices as of 27 Jun 19 except for AFL US 28 Jun 19 AEL US 28 Jun 19 GNW US 28 Jun 19 LNC US 28 Jun 19 MET US 28 Jun 19 PRU US 28 Jun 19 RGA US 28 Jun 19 UNM US 28 Jun 19.3Jimmy S. Bhullar, CFA (1-212) 622-6397jimmy.

23、s.bhullarNorth America Equity Research01 July 2019J.P. Morgan Life Insurance CoverageOverweightLNC MET PRUTMKLincoln National MetLife, Inc.Prudential FinancialTorchmark Corp.$64.45$49.67$101 00$89.46$92$61$127$957.08.98.113 56.48.67.512.80.800.860.741.650.940.981.081.972.301.273.141.649.215.5512.516

24、.6310.015.7913.437.002 341 343 241 659.365.6512.706.686.136.1313 867.149.405.5012.766.7013 6%10 8%13 6%14.7%$80.87$58.06$135.65$54.13$68.88$50.79$93.58$45.45$1.48$1.76$4.00$0.692 3%3 5%4 0%0 8%203.0950.2409.2111.6$13,083$47,196$41,329$9,988NeutralAEL AFL AIG ATH EQH FG GNW HIG PFG RGAUNMAmerican Equ

25、ity Life AFLAC, Inc.American International Group Athene HoldingAXA Equitable Holdings, Inc. FGL HoldingsGenw orth Financial Hartford Financial Principal Financial Reinsurance GroupUnum Group$27.16$54.81$53.28$43.06$20.90$8.40$3.71$55.72$57.92$156 03$33.55$32$57$55$61$27$117.012.711 26.34.96.03.811.1

26、10 012 06.26.912.211.05.64.65.03.910.79.311.15.80.841.570.770.820.781.370.141.451.271.010.791.021.900.800.890.751.180.181.371.231.230.740.951.071.071.861.070.320.251.081.433.431.333.864.314.756.794.271.390.975.005.8113.045.393.944.494.847.724.581.670.955.206.2114.005.820 951 071.131 831 040 330 281.

27、181 383 391 343.884.294.907.134.181.431.015.125.6913.265.434.064.455.138.264.621.741.135.486.143.854.364.367.174.361.400.984.955.8814.4%15.1%6.5%14 8%15.7%19 6%4.7%12.1%12 5% 12 2%$32.38$34.90$69.34$52.28$26.77$6.15$25.98$38.36$45.63$154.61$42.68$26.72$28.89$66.89$48.49$27.81$7.15$21.03$40.79$47.14$

28、126.38$45.04$0.28$1.08$1.28$0.00$0.52$0.04$0.00$1.20$2.16$2.40$1.141 0%2 0%2.4%0 0%2 5%0 5%0 0%2 2%3.7%1 5%3.4%90.8746.5869.7194.1491.0217.3503.3365.1278.262.5212.3$2,466$40,915$46,338$8,358$10,262$1,826$1,867$20,343$16,113$9,759$7,123$57$60$156$495.805.49UnderweightBHFBrighthouse Financial VOYA Voy

29、a Financial, Inc.$36.69$55.30$42$534.210.43.89.50.280.940.321.212.241.408.765.319.565.802 251.448.955.5210.176.369.085.517.9%12 0%$129.66$59.09$115.28$45.81$0.00$0.040 0%0.1%116.2148.0$4,263$8,184Source: Bloomberg, company reports, and J P. Morgan estimates. Notes: All EPS estimates exclude realized

30、 gains/losses.Street estimates refer to Bloomberg consensus forecasts. P/E is based on J P. Morgan estimates.NTM ROE refers to next-twelve-month earnings divided by current BV/Share.406/28/19 12/31/202019 2020Ticker Company Nam ePriceTargetP/EP/EP/BVJPM Estim ate sStreet Estim atesNTMNTMEPSROE3/31/1

31、9 BV/ ShareAnnual Divide ndShares Mkt. Cap. (MM)($, m il.)TotalEx. AOCI2Q-Q-19 20192020TotalEx. AOCI Pe r Share Yie ldJimmy S. Bhullar, CFA (1-212) 622-6397jimmy.s.bhullarNorth America Equity Research01 July 2019Risk-Reward in Life Stocks More BalancedIn our opinion, the risk-reward in life insuranc

32、e stocks is more balanced following the drop in interest rates and the sectors strong 1H performance. We turned bullish on the group at the beginning of 2019 due to an expected improvement in business trends (especially underwriting margins and sales/flows), the rise in rates through 2018, and the s

33、ignificant drop in stock prices. In our view, life insurers will report healthy results in 2Q19, marked by strong alternative investment income, an increase in fee income, and stable mortality/morbidity margins. In addition, we project companies to remain active with share buybacks. However, we feel

34、 that life stocks have yet to react to the meaningful decline in interest rates this year, which could pressure results in the second half and in 2020. Lower interest rates also pose the risk of charges in 3Q19, when most companies conduct annual actuarial assumptions reviews. Below is a summary of

35、our key investment ideas:The J.P. Morgan Life Insurance Index has risen 21% thus far in 2019 versus a 17% increase in the S&P 500 Index and an 16% rise in the S&P Financials Index. In 2018, the life index declined 21% versus a 6% decrease in the S&P 500 Index and a 15% drop in the S&

36、P Financials Index.·Best Long for investors positioned defensively: TMK. Our Overweight rating on TMK reflects its above-average ROE, steady free cash flow, and limited sensitivity to the equity market and interest rates. In addition, improving direct response margins and sales could provide po

37、sitive momentum to reported results. Although TMKs high exposure to BBB securities is a risk, we feel that its overall portfolio is more conservative than peers due to its marginal exposure to other high-risk asset classes (CLOs, alternatives, high-yield bonds), low asset leverage, and strong free c

38、ash flow. Overall, we expect business trends at TMK to be better than at other high-quality defensive firms such as AFL and RGA.Best Long for investors with a positive bias towards the equity market and rates: LNC. In our view, LNC offers the best risk-reward for investors who have a positive macro

39、outlook. While LNC is highly sensitive to both rates and the market, our outlook for business trends (margins, sales/flows) is more upbeat than for other macro-exposed insurers such as BHF, EQH, PFG, and VOYA.Best short for investors with a negative macro view: BHF. We expect the entire sector to be

40、 pressured by a weak market, low rates, and/or an uptick in credit losses. However, we feel that BHF is more susceptible than peers given its high-risk business mix (VAs comprise over half of capital and earnings) and poor business trends (subpar margins and negative flows in most products). BHFs va

41、luation seems compelling, but is not as attractive when considering its poor earnings quality. BHF trades at a sizable discount to the sector on operating (4x vs. 9x), but the discount is narrower on net EPS (8x vs. 12x). In our view, BHFs discount to BV is justified by its poor ROE, limited cash fl

42、ow, and high tail risk.Most compelling 3-6 month pair trade: Long LNC, Short BHF. Both would benefit from a strong market and higher rates (and vice versa). However, we feel that BHF has considerably more tail risk if macro conditions deteriorate. Also, our outlook for LNC's business is upbeat,

43、while we are cautious on BHFs results.Avoid insurers with high exposure to a downturn in credit: In our view, life insurers are better positioned to weather a credit downturn than in the previous crisis. Still, the group is highly likely to trade off if credit losses pick up. Life insurers high asse

44、t leverage (average portfolio is 7x equity) makes them sensitive to an uptick in credit downgrades (which increase required capital) or defaults (which reduce actual capital and cash flow). We recommend avoiding insurers that have high risk in portfolio allocations (ATH, FG, AIG), high asset leverag

45、e (AEL, FG), or lack capital flexibility to absorb losses (BHF, GNW).Best Trade Ideas:Defensive long: TMKHigh-bong: LNCShort: BHFPair: long LNC, short BHF····5Jimmy S. Bhullar, CFA (1-212) 622-6397jimmy.s.bhullarNorth America Equity Research01 July 2019Reducing EPS EstimatesWe ar

46、e reducing EPS estimates to reflect the recent decline in interest rates and other factors. Although the healthy equity market in 2Q19 is a positive, we expect lower interest rates and other company-specific factors to more than offset the benefit to results. Variable investment income should be lif

47、ted by strong private equityreturns (reported on a 1-quarter lag), but this was already in our prior ms.Table 1: Summary of EPS Estimate ChangesPer share amounts2Q19(Old)2Q19(New)2019(Old)2019(New)2020(Old)2020(New)CompanyReasons for ChangeAEL AFL AIG ATH BHF EQH FG GNW HIG LNC MET PFG PRU RGA TMK U

48、NM VOYA0.961.071.131.882.271.030.320.261.082.301.281.403.253.471.641.341.390.953.894.294.837.018.824.191.410.985.019.195.575.7612.6813.196.655.425.293.864.314.756.798.764.271.390.975.009.215.555.8112.5113.046.635.395.313.974.454.937.819.704.531.690.975.2310.045.856.1813.5914.087.065.855.853.944.494.

49、847.729.564.581.670.955.2010.015.796.2113.4314.007.005.825.80lower interest ratesstronger yen, partly offset by impact of lower interest rateslower interest rates, less accretion from buybacks, preferred dividends, and higher 2Q19 cat load lower interest rates, dilution from ACRA, and preferred divi

50、dends, partly offset by higher buybacks preferred dividends and lower interest rates, partly offset by healthy equity markethealthy equity market, partly offset by lower interest rates and less accretion from buybacks lower interest rateslower interest rateslower interest rates and less accretion fr

51、om share buybacks, partly offset by healthy equity market healthy equity market, more than offset by lower interest rates and less accretion from buybacks lower interest rates and less accretion from share buybacks, partly offset by healthy equity market healthy equity market, partly offset by lower

52、 interest rates and less accretion from buybackslower rates, less accretion from buybacks, and wellness costs, partly offset by healthy equity market lower interest rates and stronger USD, partly offset by healthy equity marketlower interest rates and less accretion from share buybackslower interest

53、 rates and weaker uk pound, partly offset by interest expense savings lower interest rates and financing costs, partly offset by healthy equity market1.071.862.241.070.251.271.433.143.431.331.40Source: J P. Morgan estimates.Note: the “New” column is blank for periods with no change in estimates.6Jim

54、my S. Bhullar, CFA (1-212) 622-6397jimmy.s.bhullarNorth America Equity Research01 July 2019Table 2: EPS Sensitivity to Macro Factors% impact of a 10% increase in the S&P 500 Index/100 bps increase in interest rates to normalized 2019 EPS (excludes DAC and reserve adjustments)Source: Company repo

55、rts and J.P. Morgan estimates. NM implies not meaningful.Following are the major changes to our earnins:·Healthy equity market to benefit AUM and fee income: The S&P 500 Index rose 3.8% in 2Q19, above our 1.7% assumption. Better than assumed performance bodes well for asset balances in equity-sensitive