Life insurance firms may have unexpectedly benefited from mortality and morbidity underwriting in 4Q13, though it’s still early and not all companies have reported their earnings. “It appears mortality and disability underwriting results have been pretty solid,” says Sterne Agee analyst John M. Nadel. Although this is based on just three companies reporting (StanCorp Financial Group, Inc. (NYSE:SFG), Symetra Financial Corporation (NYSE:SYA), and Reinsurance Group of America Inc (NYSE:RGA)), the same underlying trends should have a similar impact on these companies’ peers.

life insurance Mortality

Mortality providing modest upside

StanCorp Financial Group, Inc. (NYSE:SFG) beat expectations based largely on mortality underwriting for group life insurance policies and on individual disability policies. The company’s management also expects group long-term disability claims to drop back to historical levels soon, which should help in future quarters. Reinsurance Group of America Inc (NYSE:RGA) reported similar upsides in line reinsurance business in the US, Canada, and Japan, and Symetra Financial Corporation (NYSE:SYA) had some small gains in individual life and income annuity segments.

Despite these positive surprises, Nadel rates Reinsurance Group of America Inc (NYSE:RGA as Neutral and both StanCorp Financial Group, Inc. (NYSE:SFG) and Symetra Financial Corporation (NYSE:SYA) as Underperform (price targets $73.68, $65.69, $18.39 respectively), so the size of the effect shouldn’t be overstated, but it does provide some additional upside to companies that are already Buy rated such as AFLAC Incorporated (NYSE:AFL) and Metlife Inc (NYSE:MET).

“We’re definitely getting the impression mortality and morbidity underwriting results are likely to provide some modest upside (more than just typical seasonal strength) for the group going into next week’s earnings onslaught,” Nadel writes.

Multiple expansion making buybacks less likely

With strong balance sheets and access to cheap financing, there has been a push for hefty buybacks in some sectors, but after a year of multiple expansion it’s not clear that buybacks are really the best use of a company’s capital.

“None of the three management teams was all that excited about chasing their stocks higher into the end of the year as buybacks cooled significantly or ceased altogether,” writes Nadel. “Management teams (generally) are going to be far more disciplined about buybacks given how multiples have expanded over the past year and instead will focus capital deployment efforts more on incremental dividend increases as well as a more focused pursuit of potential acquisitions.”

While buybacks are one way to return cash to shareholders (and often better than dividends for tax purposes), a move to more aggressive acquisitions isn’t necessarily a bad thing as it can also drive shareholder value.