Institutional and individual clients are being affected by the ongoing weak consumption levels and sluggish credit markets. Despite the re-pricing initiatives taken in April this year, management projects a 40%-60% decline in its WAYS life policy sales. This will severely impact the company’s financials.
Intense economic volatility is hitting AFLAC Incorporated (NYSE:AFL). The company’s investment portfolio holds 43% in Japanese government bonds, which have been adversely impacted by the historically low interest-rate environment. The fairly recent weakness of the yen has also translated in fewer dollars to be reported.
Unum Group (NYSE:UNM) provides disability and other insurance products in the U.S. and the U.K. It is the leading disability income writer.
The company delivered improvements in its first quarter, mostly driven by a $95 million share repurchase and great development of the Unum Group (NYSE:UNM) U.S. and Colonial Life segment. The closed block segment made a great recovery in the quarter as well, after a poor performance for several quarters. EPS reached $0.80, an increase of 9.6% year over year.
Unum Group (NYSE:UNM) is focusing on switching to a mix of businesses with higher growth and stable margins. Management set operating income per share to increase in the 0%-6% range this year.
Over the last five years, Unum Group (NYSE:UNM) has bought back $2.3 million worth of shares and expects to repurchase $500 million this year. This shows the company’s cash position and willingness to maintain the stock price. Plus, management approved a $0.13 per share dividend payment in April this year, a 23.8% increase year over year.
However, Unum Group (NYSE:UNM)’s investment portfolio is primarily made up of fixed income securities, which might find new demand in a context of higher interest rates, but more probable volatility due to the Fed’s decreased participation. The net result of these movements and its impact on Unum Group (NYSE:UNM) is still uncertain and should be monitored.
Conclusion
I believe Amerisafe, Inc. (NASDAQ:AMSF) is well-positioned to capitalize on the changing market dynamics. If workers’ compensation remains firm or even increases, the company should profit.
AFLAC Incorporated (NYSE:AFL) still shows weakness in sales, especially in Japan. Repatriation of funds and investment losses in the country, plus a lack of a strong tool to mitigate interest and currency risks make me remain cautious over buying this stock.
Unum maintains a solid capital position. Its adequate risk-based capital ratio, low leverage, and high levels of liquidity give the company confidence to maneuver the new interest rate context. However, no one escapes volatility.
Louie Grint has no position in any stocks mentioned. The Motley Fool recommends Aflac. Louie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article American Insurers and the New Interest Rate Scenario: How Will They Perform? originally appeared on Fool.com is written by Louie Grint.
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