Morgan Stanley Global
Insurance Monthly: Issue #23
August saw a reversal of the July rise in share
prices across all insurance sub-sectors, with US
Life underperforming peers, but retaining its
outperformance YTD – helped by favourable macro
conditions and rising yields.
European insurers’ results were mixed with few
surprises – for most names, we saw a decline in book
value driven by the uptick in yields, which resulted in volatile
net income figures, given the impact from hedge losses and
unrealized losses on bond portfolios. In the reinsurance
sub-sector, we believe that rising yields will benefit the
more asset levered names (we prefer Munich Re, Swiss
Re). However, in our view, reinsurance pricing, especially
US cat, will fall in 1/1 renewals.
In US Life, Nigel Dally believes that the fundamental
outlook continues to strengthen, reflecting stronger
macro conditions, favourable operating leverage, and
robust capital management. 2Q results continued to show
strength, where RoEs have now moved back to just over
12% - just shy of the 13% peak achieved in 2007.
Higher interest rates also drove declines in US P&C
carrier portfolio values, with an average decline of 2%.
However, operating RoEs benefitted from better
underwriting and accretive capital management, and our
US P&C analyst Greg Locraft now expects P&C carriers to
deliver an average 11% Op ROE in 2013.
In Asia, the Chinese regulator has officially announced
the pricing deregulation for traditional life products –
meaning that life insurers can now set their own interest
rate assumptions in the pricing of non-participating
products (albeit with a limit). Furthermore, the cap on life
product commission rates was removed, and the regulator
guided that future policies will be particularly focused on
growing the P&C sector.
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Insurance Monthly: Issue #23
August saw a reversal of the July rise in share
prices across all insurance sub-sectors, with US
Life underperforming peers, but retaining its
outperformance YTD – helped by favourable macro
conditions and rising yields.
European insurers’ results were mixed with few
surprises – for most names, we saw a decline in book
value driven by the uptick in yields, which resulted in volatile
net income figures, given the impact from hedge losses and
unrealized losses on bond portfolios. In the reinsurance
sub-sector, we believe that rising yields will benefit the
more asset levered names (we prefer Munich Re, Swiss
Re). However, in our view, reinsurance pricing, especially
US cat, will fall in 1/1 renewals.
In US Life, Nigel Dally believes that the fundamental
outlook continues to strengthen, reflecting stronger
macro conditions, favourable operating leverage, and
robust capital management. 2Q results continued to show
strength, where RoEs have now moved back to just over
12% - just shy of the 13% peak achieved in 2007.
Higher interest rates also drove declines in US P&C
carrier portfolio values, with an average decline of 2%.
However, operating RoEs benefitted from better
underwriting and accretive capital management, and our
US P&C analyst Greg Locraft now expects P&C carriers to
deliver an average 11% Op ROE in 2013.
In Asia, the Chinese regulator has officially announced
the pricing deregulation for traditional life products –
meaning that life insurers can now set their own interest
rate assumptions in the pricing of non-participating
products (albeit with a limit). Furthermore, the cap on life
product commission rates was removed, and the regulator
guided that future policies will be particularly focused on
growing the P&C sector.
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