The nearly 50% decline in the price of crude oil over the last few months has a number of economic ramifications outside of the O&G sector. Given the giant tumble in crude oil prices over the last few weeks, recent Industry Reports from equity research firm Sterne Agee focuses on the exposure of major life insurance firms to investments in the energy sector.
SA analysts John A. Nadel and colleagues use statutory data from U.S. Life and P&C entities to investigate public corporate fixed income energy exposure of firms on their coverage list. The analysis does not include foreign entities, and focuses on public corporate exposures, but it provides investors with a general “idea of energy exposure and credit quality thereof for Life Insurers.”
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The report highlights that Unum Group, Lincoln National Corporation, and Symetra Financial Corporation have the most exposure to the energy sector as a percentage of GAAP equity (including AOCI), and that Prudential Financial Inc, Metlife Inc, and Hartford Financial Services Group Inc have the least exposure.
Details on Life Insurers exposure to energy sector
According to Nadel et al., the companies with the highest energy exposure as a percentage of GAAP equity include UNM at 60%, LNC at 55%, and SYA at 42%. Companies with the lowest exposure include PRU, MET, and HIG, each with roughly 13%.
As of 3Q14, on average, 8.3% of the fair value of our companies’ statutory entity fixed income exposure was energy related. UNM, TMK, and AMP have the highest percentage of public energy exposure at 15%, 14%, and 12% of total fixed income, respectively.
Nadel and colleagues also suggest that the oil refining and oilfield services sectors appear to be the most “at-risk” right now given the large decrease in oil prices. They note that LNC, SFG, UNM, AFL and AMP have the highest exposure to these energy sub-sectors as a percentage of GAAP equity, but the holdings only represent between 6.0 and 7.7% of equity.