Insurance Sector Faces Challenging Y/Y Comparisons In 2Q

Goldman mentions, "We expect year-over-year earnings for non-life insurers to decline 10% and life EPS to fall 16% in 2Q2010 versus 2Q2009...We expect similar fundamental themes to emerge in 2Q as previous quarters: specifically, modest pressure on underlying underwriting margins, depressed reinvestment rates for investment income, weak alternative returns, and significant share repurchases." "Catastrophe losses in the quarter are likely to reflect the manageable oil rig property losses. In addition, the relatively high frequency of storm events should impact primary carriers and quota share participants more than excess of loss reinsurers, for the most part. Our favorite non-life stocks remain XL, PGR, and ACE," the analysts say. Goldman adds, "Year over year earnings for life insurers could be relatively flat excluding the many unusual items. Higher account balance should be offset by dilution from 2009 capital raises. However, the bigger driver to 2Q earnings will be any potential DAC and guaranteed benefit adjustments given the decline in equity markets (though the full impact might not be reflected until 3Q annual reviews). Quarterly results could also be impacted by hedge breakage. As a result of weaker equity markets, we expect to see negative EPS revisions post 2Q results. Our favorite life stock is UNM."