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Life Insurers May Have Solid Second Quarter: Analysts

Stocks in this article: MET PRU AIG HIG PFG AFL

NEW YORK ( TheStreet)-- Analysts expect life insurers to report solid second quarter results after most insurance companies reported stronger than expected earnings for the first quarter.

Life insurers are seeing the benefits from a five percent increase in the S&P 500, stable interest rates and sales volumes that are steadily increasing, said UBS (UBS) analyst Andrew Kligerman.

In the first quarter life insurers saw benefits in both the annuity space and international operations, especially those insurers who recently acquired international operations in Japan such as MetLife (MET) and Prudential (PRU), said Joel Levine an analyst at Moody's (MCO) .

MetLife reported a net profit of $830 million compared with a profit of $805 million in 2010. Sales from Alico were up $1.1 billion in the first quarter due, with 45 per cent of the sales in Japan, according to their first quarter earnings report.

Meanwhile, Prudential reported a net profit of $589 million compared to a 2010 profit of $536 million. The insurer reported that operating income increased by $72 million with an estimated contribution of $34 million from the operations of the Star and Edison businesses acquired from American International Group (AIG).

"Operating fundamentals were better overall and things have stabilized in the low interest rate environment, which shows that life insurers are going to have a healthy 2011 and 2012," said Sandler O'Neill analyst Edward Shields.

"I thought Prudential had a particularly robust quarter because of their sales growth in Asia," said Kligerman, who recommends Prudential's stock because they said they have $2.2 to $2.7 billion in immediately deployable capital, which could be used for dividends, share repurchases and even small acquisitions.

"The Hartford (HIG) also had a good quarter, and the stock rallied on the results because they are on track for a 12 percent ROE by 2012," said Kligerman, who has a, "buy" on the stock. He adds that the insurer has had better credit performance in its investment portfolio. The Hartford reported a first quarter net income of $511 million compared to $319 million in the first quarter of 2010.

Shields said Alfac (AFL) is his top, "buy" at the moment because he does not see Aflac sales as being hit dramatically by the earthquake and tsunami in Japan. The insurer reported net earnings of $395 million compared to $636 million in 2010. Aflac's results included a total of $37 million in claims related to the earthquake and tsunami that struck Japan on March 11.

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