J.P Morgan: Improving Business Trends To Drive Life Insurance

J.P Morgan JPM maintains a positive stance on the life insurance sector. Valuations are less enticing following strong performance in 2010, but overall fundamentals should continue to improve. It expects ROE expansion, upward revisions in EPS estimates, and a gradual recovery in sales/flows to drive further upside in life insurance stocks in 2011. ROE expansion will be a key catalyst for the sector. JPM expects healthier balance sheets and a less cautious stance by rating agencies to enable insurers to become more proactive in deploying capital towards share buybacks and dividend increases. In addition, returns should benefit from improving earnings given the strong equity market and the recent rise in interest rates. It's models project the life insurance sector to generate an ROE of 9.8% in 2010 and 10.4% in 2011. Aflac AFL and MetLife MET are the top picks. Among Neutral rated stocks, J.P Morgan sees the most upside potential in UNM and could get more positive on the stock if disability margins stabilize and sales recover. Aflac closed Monday at $57.54 MetLife closed Monday at $46.11