Earnings drop expected for U.S. life insurers in first quarter

According to analysis by S&P Global Market Intelligence, a significant number of the largest U.S.-listed life insurers are expected to see earnings fall both year-over-year and sequentially in the first quarter.

Profits are expected to fall

All but three of the life insurance companies included in this analysis are expected to record EPS declines from the fourth quarter of 2021. A majority are also expected to record declines from the first quarter of last year. EPS of the two largest life insurers by total assets, Prudential Financial Inc. and MetLife Inc., are expected to decline from both periods.

As 10-year Treasury rates rise above 2.75%, Keefe Bruyette & Woods analyst Ryan Krueger anticipates continued headwinds from new money rates lagging existing rollover yields, but the spread between the two has been considerably reduced.

Krueger estimated that ongoing EPS headwinds are likely to drop to 1% to 2% per year for many companies, with more nuanced cash flow impacts on inherited liabilities, such as variable annuities.

Slightly better revenue forecast

Half of the largest life insurers are expected to see revenue growth on a sequential basis, while revenue for seven is expected to increase year-over-year.

Among life insurers due to report this week, Aflac Inc. is expected to experience lower revenue on both sequential and annual bases, and Principal Financial Group Inc.’s revenue is expected to increase from the first quarter of 2021 but fall sequentially.

Piper Sandler analyst John Barnidge will seek comment on Aflac’s benefit ratio in the US and Japan, as well as color on US distribution, particularly in regards to new additions dental and vision insurance, group life and pet insurance.

Barnidge will monitor Principal Financial for insights into revenue growth versus expense growth and the impact of COVID-19.

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