This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Life Insurers Bet the House in Interest Rate Casino: Street Whispers

NEW YORK ( TheStreet) -- Prudential Financial (PRU - Get Report), Metlife Inc. (MET - Get Report) and Lincoln National Corp. (LNC - Get Report) are all up sharply since reporting second quarter earnings next week, having so far survived the extended low interest rate environment better than most investors had predicted.

Extended periods of low interest rates are a problem for life insurers since they invest the premiums they receive in fixed income instruments. As bond yields stay low for extended periods, insurers must reinvest maturing or called high coupon securities into lower yielding ones, reducing investment income.

MetLife, Lincoln National and Pru all outperformed expectations, however. MetLife and Lincoln also provided improved guidance for how they will perform in the low environment, even though rates have gone even lower since they provided their earlier guidance.

Both Lincoln and MetLife attributed their success to a hedging program, which sounds great, until you consider that hedges don't always work. Just ask JPMorgan Chase (JPM - Get Report) which has attributed its roughly $6 billion in trading losses over the past two quarters to hedging-related mistakes.

MetLife Chairman President and CEO Steve Kandarian attributed the success of MetLife's hedges to a "forward-looking call in 2004 to start buying low rate protection when the 10-year treasury was trading above 4%. We are reaping the benefits today and we will continue to do so for a number of years to come."

But presumably Kandarian has known about this decision for eight years, so why wasn't it baked into his earlier, more pessimistic guidance? MetLife and other life insurers have been able to raise prices on their products to offset some of the hit from low rates, but directional market bets are playing an important role in their success.

That should give pause to anyone looking to buy life insurance stocks on the theory that fears over low interest rates have been overstated.

-- Written by Dan Freed in New York.

Follow this writer on Twitter.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JPM $61.56 -1.60%
MET $43.90 -2.00%
LNC $42.21 -2.20%
PRU $76.30 -1.50%
AAPL $94.25 -0.98%


Chart of I:DJI
DOW 17,667.29 -83.62 -0.47%
S&P 500 2,052.95 -10.42 -0.51%
NASDAQ 4,733.5580 -29.6660 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs