Deutsche Bank Gives 2011 Life Insurance Industry Outlook

Deutsche Bank expect life insurers to focus more on how they can deploy capital and grow their businesses in 2011, as they are now done bolstering their capital positions. RBC ratios are at record levels, and managements are unlikely to let these ratios increase further, in our view. Investment impairments have declined meaningfully, and ratings outlooks have stabilized. We see four sources of growth: Share repurchases - most insurers are likely to use this as a way to grow EPS; M&A - activity could increase as companies now have some capital to spend and valuations are still at reasonable levels; Employment-related growth – Aflac, Principal, StanCorp, and Unum are most levered to this via group insurance or retirement plan businesses; and International – MetLife MET , Principal, and Prudential PRU are best positioned for growth outside of the US. Life insurers are likely to meet or beat 4Q'10 EPS expectations. This is driven by the 10% rise in the S&P 500 and stable credit market conditions. The increase in interest rates could cause reported book values per share to remain flat or decline, but we do not expect this to be a concern for investors this quarter. On page 5 we adjusted EPS estimates. MET closed Thursday at $46.38 PRU closed Thursday at $61.42