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Big Comeback for Life Insurance Stocks

February 15, 1993

NEW YORK (AP) _ While resurgent bank stocks have received much more attention, another financial-services industry - life insurance - has staged an equally dramatic comeback on Wall Street.

In just a couple of years’ time, the insurers have transformed their image with stock-market investors from a dowdy, down-at-the-heels industry plagued by bad investments in bonds and real estate to a business of considerable promise.

Over the 12-month period through the first week of February, the Dow Jones index of life insurance stocks racked up a gain of 42.34 percent.

That was a better showing than any of Dow Jones’ bank-stock indexes over the same period, and topped a 32.18 percent gain by property and casualty insurers benefiting from a much-ballyhooed improvement in the pricing outlook for products like fire and disaster insurance.

The life insurers’ gain ranked as the fifth best performance among 96 groups tracked by Dow Jones.

″After underperforming the market during the mid- to late-1980s, the life insurance stocks have been star performers thus far in the 1990s,″ says Margaret Alexandre, an analyst at Salomon Brothers, in a recently published report on the group.

″As a result of intensified scrutiny from rating agencies, regulators, consumer advocacy groups and the Securities and Exchange Commission, the industry today operates increasingly from a position of strength.″

Memories remain fresh of the woes that afflicted the industry at the start of the decade, as several leading industry names came to grief at the hands of real-estate and junk-bond investments gone sour.

″The life and health insurance industry is recovering its financial footing, despite continued difficulties with troubled real estate and mortgages,″ said Weiss Research of West Palm Beach, Fla., a firm that keeps tabs on the industry.

Weiss reports that a study covering over 1,200 life companies ″shows that most insurance companies have enjoyed healthy growth in assets and capital, while policy surrenders have slowed.″

At the same time, falling interest rates have bolstered the industry in a variety of ways - not the least by reducing the appeal of products ranging from bank certificates of deposit to money-market mutual funds that compete with life insurance for savers’ money.

Now, Ms. Alexandre observes, the prospect of possible tax increases has put life insurance and annuities, with their exemption from current taxes on the ″inside buildup″ of compounding earnings, in a favorable light.

″We expect life insurers will begin to recapture a percentage of the savings dollar lost during the past decade,″ she says.

Many life companies, with pension-fund management services and mutual-fund operations, are now significant participants in what has become a long-lasting boom in the business of investment management. ″Non-life operations are becoming a significant portion of corporate earnings,″ noted Steven Yeary, an analyst at the Value Line Investment Survey.

Most analysts temper their enthusiasm for all these trends with an acknowledgment that life insurers’ stock prices at present levels already take a large measure of the good news into account.

Adds Frederick Sandburg, industry analyst at Kemper Securities in Chicago, ″the foremost uncertainty for insurance companies is whether and when interest rates will rise.

″Based on expectations that a general economic recovery can go on for several quarters without putting undue upward pressure on inflation and interest rates,″ Sandburg says, ″we believe that rising interest rates will not be a near-term drag on insurance stocks’ price performance.″

Ms. Alexandre, for her part, says she believes prospects are good for both increased profits in the industry and higher price-earnings ratios on insurance stocks.

″Driven by demographic trends,″ she concludes, ″primary demand for most types of life, health, income protection and retirement savings products is expected to grow during the next several years.″

End Adv for Monday, Feb. 15

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