Sterne Agee analyst John Nadel delineates takeways from today’s Life Insurers 4Q13 earnings calls with Hartford Financial Services Group Inc (NYSE:HIG), Principal Financial Group Inc (NYSE:PFG) and Torchmark Corporation (NYSE:TMK).

Hartford Financial Life insurers

Hartford Financial Services Group Inc (NYSE:HIG), Principal Financial Group Inc (NYSE:PFG) and Torchmark Corporation (NYSE:TMK) all hosted conference calls today to discuss recent the life insurers results (and in the case of HIG, their 2014 outlook). We summarize some key takeaways herein.

Life Insurers: Hartford Financial Services – Key items included

  • Expecting annual dividends from operating companies of $1.2b in 2014/15 driven by P&C ($900m), Group Benefits ($100m), Mutual Funds ($70-80m) and Talcott ($150m in 2014 from Japan; higher perhaps in 2015 from both Japan and US operations).
  • Expecting Japan VA surrender rate of about 30% in 2014 – not expecting recent market weakness to detract – significant block of contracts reaching annuitization date in 2014 where account values are approximately 110% of guarantee levels – have seen blocks with such characteristics surrender at elevated pace.
  • MCV of VA blocks has increased $2.2b since 1Q13 before hedging. Hedge losses reduce the increase by about 80%. PV of future cash flows from VA blocks, net of hedge losses, estimated at $3.0b under Base Scenario and $1.8b under Stress Scenario.
  • Given reduction in size of VA blocks and other factors, Japan VA hedge costs down from 200bps in 2013 to 70bps in 2014. US down from 40bps to 30bps. Macro hedge outlay around $75m pre-tax.
  • 1Q14 Guidance of $0.94-$0.99, including $57m after-tax catastrophes. January catastrophe losses within budget.

Life insurers: Principal Financial – Key items included

  • Mgmt indicated recent emerging market concerns do not appear to be negatively impacting local operations. Stronger U.S. Dollar though could pressure translated results by several percentage points relative to recent levels.
  • Given strength of 4Q13 performance fees in PGI, now expect 2014 revenues to be flattish YoY; no change to margin target of 26-28%.
  • Could see pressure on 1Q14 FSA sales as fewer cases come to market owing to 2013 market strength. Likely to be offset by better retention of existing cases.
  • Overall 401k deferrals running at about 7.25% currently – mgmt believes over time this needs to improve to around 10% to “adequately” save for retirement. Points to long-term upside potential to recurring deposits in FSA. Company matching has recovered to roughly 80% of the pre-crisis level.

Life insurers: Torchmark – Key items included

  • Free cash flow generation, after interest expense and common dividends, expected to be $370-380m in 2014. Assuming consistent $50-60m Holding Co cushion, this suggests about $380m of buybacks for 2014.
  • American Income continuing to implement compensation changes to drive recruiting, retention and productivity. Expect Life sales up 3-6% in 2014 with back-half stronger than front-half.
  • Direct Response – should see Life sales up 5-9% in 2014.
  • Liberty – expect sales up 2-5% in 2014.
  • Family Heritage – should produce 2-7% growth in Health sales in ’14.