Metlife Inc (MET), Prudential Financial Inc (PRU): Rate Rebound Could Boost These 4 Life Insurance Players

The company has implemented an effective asset-liability management, which has helped it keep annuity base spreads stable for at least the past three years, in contrast with the trend of declining yields on 10-Year Treasury bonds. The company expects to see improvement in operating income this year, which is projected to a range of $1.30 per share to $1.50 per share, higher than the 2012 adjusted operating income per share of $1.34. Deferred annuities have been performing well due to “higher investment income from prepayment-related activity and account value growth.” Especially robust have been sales of fixed indexed annuities, which hit a new record in the previous quarter. Individual life insurance could see improvement in the coming quarters. Among its positive developments is also the initiation, in early February, of stock repurchase authorization for up to 10 million shares.

However, the company has been facing some challenges. Its adjusted operating income in the first quarter dropped nearly 14%, a sequential improvement compared to the previous quarter but down from the record-high adjusted operating income in the same quarter the year earlier. A low interest rate environment and higher medical stop-loss claims represent challenges. Its return on equity has also been declining over the past few years, and it stood at 5.6% in the twelve months ended March 31, 2013, down two percentage points from the metric in the comparable period a year earlier. Even though this stock looks like a deep value trading at 50% of its book value, it warrants a deeper evaluation of its value potential.

Final thoughts

Life insurance companies are some of the highest-potential financial sector players that can benefit from a recovering economy, and if interest rates eventually recover—like all rational market participants, we’re betting they do by 2015—there could be some opportunities in this space. When narrowing these stocks down by growth and income potential, we see that MetLife, Prudential Financial, Protective Life Corp. (NYSE:PL) and Symetra Financial Corporation (NYSE:SYA) represent the top of the heap, so to speak, and we’ll be watching them closely. The learn more about other strategies employed by Insider Monkey readers, continue researching here.

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