Hartford forecast, positive analyst outlook on life insurers fail to life broader sector

Hartford forecast fails to lift insurers

BOSTON — Shares of several insurance companies gained in early trading after Hartford Financial Services Group on Tuesday sharply boosted its fourth-quarter earnings expectations.

But the gains faded later as the broader market fell.

Hartford Financial led the sector as its shares rose 95 cents, or 3.6 percent, to close at $27.12 Tuesday.

The stock had gained as much as 9 percent earlier after Hartford Financial estimated its fourth-quarter adjusted profit will be about twice what it projected earlier. The company, which plans to release final fourth-quarter results on Feb. 8, cited strong results from its insurance and financial businesses.

Hartford now estimates its core quarterly earnings, which exclude certain investment gains and losses, will land between $1.45 per share and $1.60 per share. The company previously forecast profit of 65 cents per share to 80 cents per share.

Barclays Capital analyst Eric Berg upgraded his view of the life insurance sector to “Positive” from “Neutral.” He also upgraded his stock ratings for Principal Financial Group Inc., Aflac Inc. and Prudential Financial Inc.

Berg cited a new study by Barclays Capital Life Insurance Research that found life insurers face smaller risks than he had expected from exposure to commercial mortgage-backed securities, the bundles of commercial mortgages sold to investors. Those investments have lost value as the commercial real estate market slumped.

Berg said the study “effectively resolves the one remaining concern we had about life insurers” — that they would face substantial losses from their large holdings of commercial mortgage-backed securities.

The study examined nearly 300,0000 commercial properties and compared their current market values with the amounts borrowers have outstanding on the underlying loans — considered a strong indicator of defaults. It showed life insurers “are well-positioned to sidestep many of the losses,” Berg wrote.

Berg said investor concerns about such losses have put pressure on shares of Principal Financial, which he upgraded to “Overweight” from “Equal Weight.” Berg’s analysis of the study indicates Principal Financial’s losses from commercial mortgage exposure will be “very modest and manageable,” he wrote.

Berg also raised his rating on Aflac to “Equal Weight” from “Underweight,” citing “upside potential” for the stock compared with rivals. He also boosted Prudential Financial to “Equal Weight” from “Underweight.”

Shares of Principal Financial fell 44 cents, or 1.7 percent, to close at $25.35, after rising more than 4 percent in opening trading. Shares of Aflac dipped 26 cents to $50.47, and Prudential Financial fell 44 cents, almost 1 percent, to close at $53.05.

Among other insurers, Lincoln National Corp. fell 46 cents, or 1.7 percent to close at $26.93 after posting a nearly 4 percent gain in early trading; MetLife Inc. dipped a penny to close at $38.51; and Genworth Financial Inc. fell 18 cents, or 1.4 percent, to close at $12.98.