巴克莱-美股-保险行业-美国寿险行业2019-2020展望：寿险行业由看好降级为中性-2019.1.9-63页.pdf

Equity Research 9 January 2019 CORE Barclays Capital Inc.and/or one of its affiliates 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.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 58.U.S.Insurance/Life 2019/2020 Outlook:Downgrade Life Sector to Neutral from Positive Life Insurance Stocks Likely Range-bound.We lower our rating on the Life Insurance sector to Neutral from Positive because we doubt valuations will improve in a volatile environment.For example,a sub-3%yield on 10-year US Treasuries,a flat yield curve,declining equity markets,long-term care insurance risks,and high beta are viewed as factors in the substantial de-rating of life insurer valuations.Although our industry ratings are now Neutral for both Life and P&C insurance,we prefer the P&C sector based on its lower beta and less exposure to a volatile macro environment.We lower our EPS estimates to reflect recent equity market volatility.We also reduce most of our life insurer price targets to reset the bar in a challenging macro environment.Is the Bad News Already Priced in?Many life stocks have already declined to five-year-low share prices and valuations.However,its difficult to find fundamental catalysts that would cause the life stocks to re-rate higher or boost estimates.We also doubt life insurer valuation multiples would expand as consensus EPS estimates could further decline.Looking ahead,it could be viewed as a negative signal if life insurers curtail share buybacks or limit dividend increases.Alternatively,if macro factors(rates,yield curve,equities)turn favorable and life stocks rally,we would likely view it as an opportunity to take profits.Another possibility,in our view,is that depressed life insurer valuations could result in financial buyers participating in industry consolidation.Tactical Opportunity:Upgrade AMP to OW.AMP is a strong company and brand at a low valuation,in our view.Even though AMP has high exposure to equity markets(and an elevated beta),we believe the company has proven it can control expenses to help offset the earnings impact.AMPs ROE profile is expected to be in the mid-30%range which reflects its capital-light profile.It has a strong track record of repurchasing shares and raising its dividend.We view AMPs long-term care insurance exposure as manageable.We also believe AMP could further boost ROE by becoming more focused on its core businesses.AMPs P/E is now 6.5x,its lowest valuation in many years.We Continue To See Value in PRU,UNM,LNC.Prudential has EPS power of$13 based on our estimates,and its current P/E of 6.5x still looks attractive.The company has delivered consistent results in its annuity,asset management,and international businesses.PRUs exit from Fed regulatory oversight could lead to increasing levels capital returned to shareholders.Unum should benefit from improving employment trends because growth in the US workforce should lead to increased demand for voluntary disability insurance.Legacy long-term care exposure is a concern,but we believe this is already discounted in UNMs valuation.UNM continues to deliver ongoing share buybacks and dividend increases,and is currently valued at 6x earnings.Lincoln has delivered solid results in its US-focused annuity and life insurance businesses along with accretive acquisitions.The company has a robust share buyback program and group insurance results are recovering.LNCs current valuation of 6x earnings has upside potential,in our view.UW-rated Life stocks are BHF and TMK.INDUSTRY UPDATE U.S.Insurance/Life NEUTRAL from Positive For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.U.S.Insurance/Life Jay Gelb,CFA+1 212 526 1561 BCI,US Sue Lee+1 212 526 8190 BCI,US Andrew Karp+1 212 526 9015 BCI,US Barclays|U.S.Insurance/Life 9 January 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 07-Jan-19 Old New%Chg Old New%Chg Old New%Chg U.S.Insurance/Life Pos Neu Ameriprise Financial(AMP)EW OW 111.24 165.00 135.00-18 14.84 14.64-1 17.00 15.75-7 Athene Holding Ltd.(ATH)EW EW 42.19 54.00 45.00-17 6.37 5.98-6 7.50 7.50-AXA Equitable Holdings Inc.(EQH)EW EW 17.40 23.00 18.00-22 3.92 3.86-2 4.15 4.00-4 Brighthouse Financial Inc.(BHF)UW UW 32.63 42.00 30.00-29 8.02 7.88-2 9.25 9.00-3 Lincoln National(LNC)OW OW 54.01 85.00 75.00-12 8.58 8.48-1 9.45 9.20-3 MetLife Inc.(MET)OW OW 42.55 57.00 52.00-9 5.39 5.34-1 5.65 5.50-3 Principal Financial Group(PFG)OW OW 45.63 68.00 58.00-15 5.72 5.72-5.85 5.75-2 Prudential Financial Inc.(PRU)OW OW 85.00 130.00 105.00-19 12.05 12.05-13.00 13.00-Torchmark Corp.(TMK)UW UW 77.96 82.00 68.00-17 6.14 6.14-6.60 6.60-Unum Group(UNM)OW OW 31.43 55.00 39.00-29 5.23 5.21 0 5.50 5.50-Voya Financial,Inc.(VOYA)EW EW 41.17 53.00 45.00-15 3.92 3.92-5.25 5.20-1 Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|U.S.Insurance/Life 9 January 2019 3 FIGURE 1 Barclays US Life Insurance Coverage Universe Industry View:Neutral Stock Rating Rationale PRU OW Prudential has a superior international,protection and asset management franchise,in our view.We anticipate PRU can deliver a solid 13%ROE through 2020,but it is currently valued in line with the life insurance sector at 6x 2019E EPS.This likely reflects concerns about its complex business and flat yield curve as well as industry-wide concerns about legacy long-term care(LTC)insurance exposure.The company is known for having among the strongest life insurance franchises in Japan which accounts for nearly half of its earnings.October 17,2018,the Feds Financial Stability Oversight Council(FSOC)rescinded its oversight of Prudential,which means the company is no longer Fed-regulated.The company targets a 19 ROE at the upper end of its near-to intermediate-term ROE objective of 12%-13%versus its over-the-cycle goal of 13%-14%.Separately,PRUs recent management transition to internal leaders including Charles Lowrey as CEO has been seamless,in our view,with no meaningful change in strategy.MET OW MetLife is a diversified,global life insurer with the advantages of economies of scale and a well-known brand.We see MET as being well prepared to benefit from its sizeable US operations,expense savings,its international businesses,and share buybacks.Following the spin-off of its Brighthouse unit,METs focus is on its US Group Insurance and International businesses.MET now targets an ROE(ex-AOCI other than FCTA)of 12%-14%,which we view as achievable including the benefit of expense savings.The company continues to expect free cash flow conversion to average 65%-75%of adjusted operating earnings in 2019/20,which it views as achievable even with a US 10-Year Treasury yield as low as 2%.We project annual buybacks of$3bn in 2019/2020.UNM OW Unum has a strong franchise in disability insurance and group benefits in the US with a smaller presence in the UK.UNM is differentiated from others in the life insurance industry because it has no exposure to variable annuities and minimal exposure to traditional rate-sensitive life insurance products.Unum has favorable leverage to an improving economy and employment market.We anticipate investors should ultimately gain confidence that Unum has addressed its long-term care(LTC)reserve issues,which we believe should result in UNM shares being re-valued upward.We anticipate the company could generate a solid 12%-13%ROE in 2019/2020.LNC OW Our view is constructive on LNCs annuity,retirement and life insurance businesses,which generate good returns with modest earnings growth.The recovery in group insurance earnings should be bolstered by LNCs acquisition of Liberty Mutuals group benefits business.Top-line growth and expense controls should drive margin expansion and earnings growth.Improving variable annuity sales are expected to eventually result in positive net flows.LNC has appeared confident in its ability to generate 8%-10%annual EPS growth even if equity market performance is muted or 10-yr US Treasury rates hover at 3%.We expect LNC to deliver a sustainable 13%ROE through 2020.LNC plans to return 50%-55%of operating earnings to shareholders(buybacks+dividends).We expect annual share repurchase of$675mn in 19 and$700mn in 20.PFG OW Principal has a strong platform in asset accumulation and asset management and is not as dependent as other insurers on traditional life insurance and annuity products.Principals long-term targets include 30-60 bps of annual ROE expansion,and 9%-12%annual operating earnings growth.PFG expects to eventually achieve an ROE(ex-AOCI other than FCTA)in the 16%-17%range.Accelerated digital and technology investments are expected to drive a 20%+IRR over time with earnings benefits expected to emerge in 2021 and beyond;two-thirds of the benefit is expected to drive enhanced revenue growth,with the balance driving expense efficiencies.PFG continues to expect free cash flow conversion to be 65%-70%of net income allocated to organic growth(30%-35%),shareholder dividends(currently near 40%target),and share buybacks as well as M&A(25%-30%).AMP OW Ameriprise has shifted its business mix away from traditional US life insurance products and variable annuities,and expanded its high-ROE Advice&Wealth and Asset Management businesses,which now account for three-quarters of operating earnings.Advice&Wealth segment trends are favorable.However,we expect large net outflows to persist in the Asset Management business.We also anticipate weak returns in the Protection and Annuity businesses.AMPs baseline plan is to return 90%-100%of annual operating earnings to shareholders in the form of dividends and share buybacks,although the company has consistently returned over 100%of annual earnings.Our outlook is for 90%of operating earnings to be returned to shareholders in 2019/20 including$1.5bn of annual share buybacks.AFL EW Aflac is a niche life insurer with an attractive business mix largely in Japan and a top-tier ROE.The company has a strong presence in the high-margin supplemental insurance market including a dominant presence in Japan and is the low-cost producer.Aflacs long-term guidance is for U.S.sales to increase by 3%-5%annually including in 2019.AFLs initial FY19 EPS guidance(ex-FX)is$4.10-$4.30 which implies normalized EPS growth of 3%in 2019 vs 2018.We project annual share repurchases and dividends of$1.5bn in 2019/20.Separately on December 13,2018,Aflac announced Japan Posts intention to purchase a 7%stake in the company.This transaction would make Japan Post the second largest shareholder of Aflac(just behind Vanguards 8.7%stake).Japan Post has agreed to cap its share ownership at 10%.The transaction would not dilutive to existing shareholders and is not expected to affect its 2019 share repurchase outlook.Source:Company Data,Barclays Research Note:Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight.Barclays|U.S.Insurance/Life 9 January 2019 4 FIGURE 2 Barclays US Life Insurance Coverage Universe Industry View:Neutral(continued)Stock Rating Rationale VOYA EW Voya Financial is a leading US life insurer and asset manager.Voya completed its exit from the large legacy annuity business which is expected to generate improved ROE,reduce market-related risks,and increase deployable cash flow.The companys earnings mix is now dependent on businesses with increased return profiles,reduced rate and equity risk,and lower capital requirements including Retirement,Investment Management,and Employee Benefits.Voya is targeting an ROE(ex-AOCI/DTA)in the 13%-15%range,which we view as achievable.The company expects 10%+annual EPS growth in 2019-21,including organic growth(+2%-7%),cost savings(+3%-5%),and capital deployment(+3%-5%).Voya expects to generate deployable cash flow of$1bn+over 5-6 years with potential upside from block reinsurance transactions perhaps in late-2019 or early-2020.We currently anticipate annual buybacks of$1bn in 2019/20.Voya is also targeting a 1%+dividend yield by mid-2019 with potential upside over time.ATH EW Athene has grown to$100bn of invested assets including its recent reinsurance deal with Voya which added approximately$19bn of fixed-and fixed-indexed annuities.ATH continues to build its asset base inorganically through pension risk transfers as well as block reinsurance.Our sense is the company will likely continue to be involved in ongoing restructuring in the life insurance and annuity industry.Athene also has core growth opportunities in the expanding fixed indexed annuity market.On December 10,2018,Athene announced a block reinsurance transaction with Lincoln Financial to assume around$7.7bn of statutory reserves consisting mostly of fixed indexed annuities(FIAs).We now estimate Athene has$1bn of excess capital to deploy in acquisitions or block transactions,which we would expect to be quickly accretive to EPS,as well as$2bn of debt capacity.Importantly,the company also announced an initial share repurchase authorization of up to$250mn.Our sense is share buybacks are likely to be opportunistically executed.Athene appears unlikely to initiate a quarterly dividend,in our view.EQH EW AXA Equitable is among the largest US-based provider of annuities,life insurance,and financial protection products.The company also owns 65%of publicly traded asset manager AllianceBernstein(AB).We believe EQHs valuation multiple could remain compressed similar to other life insurers due to challenging macro conditions(10-year US Treasury yield below 3%,flat yield curve,and volatile equity markets).The company targets an ROE in the mid-teens by 2020 as well as 5%-7%annual operating earnings growth in 2018-20.Based on company targets,it appears to imply operating EPS in excess of$4.50(before sizable anticipated hedging expenses)in 2020 although we think this could be a stretch.Of note,EQH estimate that a 10%change in the S&P 500 translates to a$150mn annual impact to non-GAAP operating earnings.A 50 bps change in the 10-year US Treasury yield translates to a$10mn impact.EQH expects total capital return(buybacks+dividends)in the range of 40%-60%of operating earnings.BHF UW Brighthouse Financial,which was spun off from MetLife,is a leading provider of US life insurance and annuity products.BHF intends to focus on life insurance and annuity products with less capita