Credit Suisse Reports Positive N-T Outlook for US Life Insurance; AIG Top Pick

In a report published Monday, Credit Suisse analyst Thomas Gallagher analyzed the 2014 U.S. Life Insurance sector forecast. Credit Suisse has a positive view the near-term (3-6 months) and a market weight or neutral view beyond the mid-point of 2014. Gallagher noted, “We believe 2013 was the year of multiple re-rating, driven by the favorable macroeconomic backdrop of a strong equity market and higher long term interest rates for the sector. While the group remains moderately cheap vs. other financials (vs. P&C insurance stocks in particular), we think we are in the late innings of this valuation convergence trade with perhaps another 10% or so left assuming macro conditions remain along a favorable path.” Credit Suisse commented that they do not expect life insurance stocks to sustain a premiums for four main reasons. These reasons include the negative sentiment around P&C insurers, the fact that P&C underwriting risk may not be greater than tail risk within life insurance products, the expectation that P&C models will look better with Federal insurance regulation, and the scrutiny around the regulatory arbitrage techniques for life insurers that could constrain future cash flow. Main changes to life insurance companies by Gallagher to the start of 2014 include reinstating coverage on American International Group, Inc. AIG with an Outperform rating and $59.00 price target. The Previous rating on AIG was Neutral. American International Group is Credit Suisse's top pick for 2014, replacing MetLife, Inc. MET. Other changes by Credit Suisse include downgrading shares of AFLAC Inc. AFL from Outperform to Neutral and Upgrading Protective Life Corporation PL from Underperform to Neutral.