Investors need to look at those insurance companies that have catalysts ahead of them, because these events may boost ROE despite the low interest rate environment and choppy equity market, says Sean Dargan, a Vice President and Senior Analyst at Macquarie Group Limited.
“Both of these headwinds certainly impact some companies more than others. To a certain degree, low interest rates negatively impact all insurance companies, but some are impacted less than others,” he said. “And the equity market performance does not impact those companies that are not large sellers of variable annuities or investment-management-type products.”
Dargan recommends MetLife, Inc. (MET), which is currently trading around 65% to book value, and is expected to to earn about 11% ROE. He says MET has catalysts on the horizon due to uncertainty about the regulatory environment surrounding the company and its ability to engage in capital management.
“So I think there is a catalyst ahead for this company in that it’s going to complete the sale of its bank deposits to GE Capital, which should allow the company to relinquish its bank holding company charter,” said Dargan, “which in turn should allow the company to no longer be regulated as a bank holding company by the Fed, and allow the company to raise its dividend and start buying back its stock.”