J.P. 摩根-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寿险股不那么引人注目-2019.7.1-113页 (2).pdf

North America Equity Research01 July 2019Life Insurance 2Q19 OutlookDrop in Rates and Strong YTD Performance Make Life Stocks Less CompellingInsurance-LifeJimmy S.Bhullar,CFA AC(1-212)622-Bloomberg JPMA BHULLAR Pablo S.Singzon(1-212)622-J.P.Morgan Securities LLCSee page 111 for analyst certification and important disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.We are shifting our view on the life insurance sector from positive to neutral.Our outlook for business fundamentals is consistent with previously,but we feel 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.Reducing EPS estimates.We are cutting estimates for most life insurers to reflect the decline in new money yields and other 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 above 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 fee 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 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.Our models project the sector to generate a roughly 12%ROE on operating EPS and 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 about 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 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 that 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 forecasts.Life Insurance 2Q19 OutlookKey Positives:Capital flexibility for buybacksRational pricing in most productsKey Negatives:Downside risk to consensus EPSPoor ROEsLow rates&risk of charges in 3Q2019 Estimate Changes:Reducing EPS:AEL,AIG,ATH,BHF,FG,GNW,HIG,MET,PRU,RGA,TMK,UNMIncreasing EPS:AFL,EQH,LNC,PFG,VOYANo Change:NoneBest Trade Ideas:Defensive long:TMKHigh-beta long:LNCShort:BHFPair:long LNC,short BHFPlease visit our Bloomberg page onJPMA Bhullar 2North America Equity Research01 July 2019Jimmy S.Bhullar,CFA(1-212)622-Table of ContentsRisk-Reward in Life Stocks More Balanced.5Reducing EPS Estimates.6Major Industry Themes.10Key Topics of Focus with 2Q19 Results.26Valuations less Enticing After 1H Runup.31AFLAC,Inc.34American Equity Investment Life.38American International Group.42Athene Holding.46AXA Equitable.49Brighthouse Financial.52FGL Holdings.56Genworth Financial,Inc.60Hartford Financial Services.63Lincoln National.66MetLife,Inc.69Principal Financial Group.72Prudential Financial.76Reinsurance Group of America.79Torchmark Corp.83Unum Group.86Voya Financial,Inc.903North America Equity Research01 July 2019Jimmy S.Bhullar,CFA(1-212)622-Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateAFLAC,Inc.AFL US40,914.9554.81Nn/c57.00Dec-2052.00Dec-19American Equity Investment LifeAEL US2,465.7027.16Nn/c32.00Dec-2034.00Dec-19American International GroupAIG US46,137.5853.05Nn/c55.00Dec-2052.00Dec-19Athene HoldingATH US8,177.4342.13Nn/c61.00Dec-2058.00Dec-19AXA EquitableEQH US9,957.4820.28Nn/c27.00Dec-2024.00Dec-19Brighthouse FinancialBHF US4,069.8835.03UWn/c42.00Dec-2043.00Dec-19FGL HoldingsFG US1,788.638.23Nn/c11.00Dec-2010.00Dec-19Genworth Financial,Inc.GNW US1,867.243.71Nn/cn/cn/cHartford Financial ServicesHIG US20,226.5455.40Nn/c57.00Dec-2052.00Dec-19Lincoln NationalLNC US13,083.3564.45OWn/c92.00Dec-20n/cDec-19MetLife,Inc.MET US47,196.4349.67OWn/c61.00Dec-2057.00Dec-19Principal Financial GroupPFG US15,801.7656.80Nn/c60.00Dec-2064.00Dec-19Prudential FinancialPRU US42,207.90101.00OWn/c127.00Dec-20128.00Dec-19Reinsurance Group of AmericaRGA US9,800.93156.03Nn/c156.00Dec-20151.00Dec-19Torchmark CorpTMK US9,954.9088.44OWn/c95.00Dec-2090.00Dec-19Unum GroupUNM US7,122.3333.55Nn/c49.00Dec-2045.00Dec-19Voya Financial,Inc.VOYA US8,023.5754.25UWn/c53.00Dec-2052.00Dec-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 19.4North America Equity Research01 July 2019Jimmy S.Bhullar,CFA(1-212)622-J.P.Morgan Life Insurance CoverageSource:Bloomberg,company reports,and J.P.Morgan estimates.Notes:All EPS estimates exclude realized 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.06/28/1912/31/2020192020 P/BV:JPM Estimates Street EstimatesNTMNTM 3/31/19 BV/Share:Annual DividendSharesMkt.Cap.Ticker Company NamePriceTargetP/EP/ETotalEx.AOCI2Q-19201920202Q-1920192020EPSROETotalEx.AOCIPer ShareYield(MM)($,mil.)OverweightLNCLincoln National$64.45$927.06.40.800.942.309.2110.012.349.366.139.4013.6%$80.87$68.88$1.482.3%203.0$13,083METMetLife,Inc.$49.67$618.98.60.860.981.275.555.791.345.656.135.5010.8%$58.06$50.79$1.763.5%950.2$47,196PRUPrudential Financial$101.00$1278.17.50.741.083.1412.5113.433.2412.7013.8612.7613.6%$135.65$93.58$4.004.0%409.2$41,329TMKTorchmark Corp.$89.46$9513.512.81.651.971.646.637.001.656.687.146.7014.7%$54.13$45.45$0.690.8%111.6$9,988NeutralAELAmerican Equity Life$27.16$327.06.90.841.020.953.863.940.953.884.063.8514.4%$32.38$26.72$0.281.0%90.8$2,466AFLAFLAC,Inc.$54.81$5712.712.21.571.901.074.314.491.074.294.454.3615.1%$34.90$28.89$1.082.0%746.5$40,915AIGAmerican International Group$53.28$5511.211.00.770.801.074.754.841.134.905.134.366.5%$69.34$66.89$1.282.4%869.7$46,338ATHAthene Holding$43.06$616.35.60.820.891.866.797.721.837.138.267.1714.8%$52.28$48.49$0.000.0%194.1$8,358EQHAXA Equitable Holdings,Inc.$20.90$274.94.60.780.751.074.274.581.044.184.624.3615.7%$26.77$27.81$0.522.5%491.0$10,262FGFGL Holdings$8.40$116.05.01.371.180.321.391.670.331.431.741.4019.6%$6.15$7.15$0.040.5%217.3$1,826GNWGenworth Financial$3.713.83.90.140.180.250.970.950.281.011.130.984.7%$25.98$21.03$0.000.0%503.3$1,867HIGHartford Financial$55.72$5711.110.71.451.371.085.005.201.185.125.484.9512.1%$38.36$40.79$1.202.2%365.1$20,343PFGPrincipal Financial$57.92$6010.09.31.271.231.435.816.211.385.696.145.8812.5%$45.63$47.14$2.163.7%278.2$16,113RGAReinsurance Group$156.03$15612.011.11.011.233.4313.0414.003.3913.2614.2712.9510.2%$154.61$126.38$2.401.5%62.5$9,759UNMUnum Group$33.55$496.25.80.790.741.335.395.821.345.435.805.4912.2%$42.68$45.04$1.143.4%212.3$7,123UnderweightBHFBrighthouse Financial$36.69$424.23.80.280.322.248.769.562.258.9510.179.087.9%$129.66$115.28$0.000.0%116.2$4,263VOYAVoya Financial,Inc.$55.30$5310.49.50.941.211.405.315.801.445.526.365.5112.0%$59.09$45.81$0.040.1%148.0$8,1845North America Equity Research01 July 2019Jimmy S.Bhullar,CFA(1-212)622-Risk-Reward in Life Stocks More BalancedIn our opinion,the risk-reward in life insurance 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 significant drop in stock prices.In our view,life insurers willreport 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 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 our key investment ideas: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 positive 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 cash 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 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 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 valuation 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 flow,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 LNCs business is upbeat,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 asset 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 leverage(AEL,FG),or lack capital flexibility to absorb losses(BHF,GNW).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&P Financials Index.Best Trade Ideas:Defensive long:TMKHigh-beta long:LNCShort:BHFPair:long LNC,short BHF6North America Equity Research01 July 2019Jimmy S.Bhullar,CFA(1-212)622-Reducing EPS EstimatesWe are 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 lifted by strong private equity returns(reported on a 1-quarter lag),but this was already in our prior models.Table 1:Summary of EPS Estimate ChangesPer share amountsCompany2Q19(Old)2Q19(New)2019(Old)2019(New)2020(Old)2020(New)Reasons for ChangeAEL0.960.953.893.863.973.94lower interest ratesAFL1.074.294.314.454.49stronger yen,partly offset by impact of lower interest ratesAIG1.131.074.834.754.934.84lower interest rates,less accretion from buybacks,preferred dividends,and higher 2Q19 cat loadATH1.881.867.016.797.817.72lower interest rates,dilution from ACRA,and preferred dividends,partly offset by higher buybacksBHF2.272.248.828.769.709.56preferred dividends and lower interest rates,partly offset by healthy equity marketEQH1.031.074.194.274.534.58healthy equity market,partly offset by lower interest rates and less accretion from buybacksFG0.321.411.391.691.67lower interest ratesGNW0.260.250.980.970.970.95lower interest ratesHIG1.085.015.005.235.20lower interest rates and less accretion from share buybacks,partly offset by healthy equity marketLNC2.309.199.2110.0410.01healthy equity market,more than offset by lower interest rates and less accretion from buybacksMET1.281.275.575.555.855.79lower interest rates and less accretion from share buybacks,partly offset by healthy equity marketPFG1.401.435.765.816.186.21healthy equity market,partly offset by lower interest rates and less accretion from buybacksPRU3.253.1412.6812.5113.5913.43lower rates,less accretion from buybacks,and wellness costs,partly offset by healthy equity marketRGA3.473.4313.1913.0414.0814.00lower interest rates and stronger USD,partly offset by healthy equity marketTMK1.646.656.637.067.00lower interest rates and less accretion from share buybacksUNM1.341.335.425.395.855.82lower interest rates and weaker uk pound,partly offset by interest expe