Life Insurers vs Health Insurers: Is It Safe?

NEW YORK (TheStreet) -- Investors pushed up UnitedHealth Group's(UNH Quote) stock more than 4% after the biggest U.S. insurer by sales beat analysts' earnings expectations on Tuesday. Third-quarter operating income rose from the previous three months and a year earlier. A sign of good things to come for all insurance stocks? Maybe.

Challenges lurk underneath the headline numbers. Medical expenses increased at a faster pace than premiums did. That upends health-insurance companies' business model. (It's interesting that profit margins are so slim, yet companies serve as the fall guy for the ills of our supposed health-care-cost crisis.)

Herein lies the divide among insurance companies. Life insurers are far more dependent on investment income than health insurers are. A look at stock prices bears that out.

The shares of UnitedHealth Group and rival Aetna(AET Quote) have risen 0.1% and 5.4% in the past three months, respectively. In comparison, life insurers Hartford Insurance Group(HIG Quote) and MetLife(MET Quote) have jumped 122% and 23%. Since the beginning of the year, UnitedHealth Group and Aetna have fallen, while Hartford and MetLife have risen.

Hartford and MetLife in September expressed confidence that reduced unrealized losses will produce improved results. That's close to the end of the quarter, so we must assume their chief executives knew the state of their companies' portfolios at the time.

What this suggests is that, although the expectations of continued losses may be disappearing, returns will be lower than they were in the past.

That's not bad news. It's simply another indication that the economy is bottoming and we shouldn't expect investment miracles. The Dow Jones Industrial Average may bounce around 10,000 for a while as investors struggle to discern the direction of the economy.