Analyst Downgrades Life Insurers After Rally

BOSTON (AP) — A Morgan Stanley analyst on Wednesday cut his rating on life insurers, saying the sector remains fundamentally sound but is unlikely to extend a recent surge in stock prices.

Nigel Dally cut his rating of life insurers to "In-Line" from "Attractive."

"While we continue to expect solid fundamental improvement, upside is looking limited following the nearly 50 percent surge in stock prices of the life insurers over the past three months, as capital concerns were put to rest," Dally said in a research note. "From here, we expect appreciation to be more in-line with the broader market."

Dally also raised earnings estimates for most stocks in the sector, citing benefits from a recent broad rally in stock and bond prices as well as from recent cost-cutting by life insurers.

But Dally cut ratings on two insurer stocks, downgrading Unum Group to "Underweight" from "Equal-Weight" and Prudential Financial Inc. to "Equal-Weight" from "Overweight." Dally said he sees "limited upside potential" for Unum compared with other stocks in the sector as weak labor markets pressure the company's revenue growth. He said Prudential's stock may have reached close to its fair value after a 72 percent gain year-to-date. Prudential also faces potential headwinds from its exposure to the weak commercial real estate market, he said.