J.P. 摩根-美股-保险行业-2021年寿险业展望：L-T基本面不佳，但业绩改善和估值低迷是利好-2021.1.5-102页

North America Equity Research
05 January 2021
Life Insurance 2021 Outlook

L-T Fundamentals Poor, but Improving Results and
Depressed Valuations Positives
In our view, life insurance stocks present attractive risk-reward. Our Life Insurance
outlook for long-term business fundamentals remains downbeat, and we feel Jimmy S. Bhullar, CFA AC
that the sector’s mixed near-term results, depressed interest rates, and poor (1-212) 622-6397
earnings quality merit a discount valuation. Still, we expect life insurers’ jimmy.s.bhullar@jpmorgan.com
results to improve through 2021. Also, sentiment on the group remains Bloomberg JPMA BHULLAR <GO>
negative and despite their recovery in the second half of 2020, valuation levels Pablo S. Singzon
are depressed. The COVID-19 pandemic and uncertainty about credit trends (1-212) 622-2295
are the main factors keeping us from being more bullish. pablo.s.singzon@jpmorgan.com
Keith Cornelius
 Adjusting EPS estimates; consensus 2021 numbers seem too low. Our (1-212) 622-9517
estimates reflect the strong equity market in 4Q20 and a weaker USD, offset keith.cornelius@jpmorgan.com
by incremental COVID-19 claims and less accretion from share buybacks J.P. Morgan Securities LLC
due to the uptick in insurers’ stock prices. Also, we expect variable
investment income to be robust in 4Q20 and 1Q21. Except for GL and Life Insurance 2021 Outlook
VOYA, our 2021 EPS forecasts are above consensus, which we believe is
not fully adjusted for the strong market. Meanwhile, our 4Q20 numbers for Key Positives:
most companies are below consensus levels, which do not seem to fully Healthy balance sheets
reflect incremental COVID-19 claims. Strong market to lift N-T results
Negative investor sentiment
 Our long-term outlook remains downbeat, but we expect life insurers’
results to improve through 2021. COVID-19 claims should continue to
Key Negatives:
pressure earnings over the next few quarters, but we expect the combination
Poor ROEs
of healthy fee-based earnings, strong variable investment income, and a Low interest rates to drive charges
pickup in share repurchases to lift EPS as 2021 progresses. Meanwhile, Weak organic growth
weak sales/flows are likely to constrain top-line growth over time, while low
interest rates should suppress spread margins and drive balance sheet 2021 Estimate Changes:
charges. As a result, despite an expected improvement in results in 2021, we Increasing EPS: AFL, AIG, BHF,
project life insurers to generate ROEs barely above their cost of equity. EQH, MET, PFG, PRU
 The life sector is unlikely to thrive, but we believe that most companies
Reducing EPS: GL, LNC, RGA,
are well-positioned to weather economic weakness. In our view, life
UNM, VOYA
insurers’ results will be marked by poor ROEs, sluggish growth, and
recurring charges in the long term. Nevertheless, insurers’ capital/liquidity No Change: None
levels are heathier and investment portfolios are less aggressive than
entering the 2008 recession. As such, we view the group’s valuation (life Best Trade Ideas:
stocks trade at 1.1x BV ex. AOCI; 7.9x 2021E EPS) relative to its history Favorite stocks: GL and MET
and to the broader equity market as too punitive. High beta long: LNC
Top pair: long LNC, short BHF
 GL and MET are our top picks. Our bullish view of GL reflects its
superior long-term return profile, healthy business trends, and below-
average exposure to rates and the market. MET’s business mix has become Please visit our Bloomberg page on
less volatile over time and its results have been better than peers’ recently, JPMA Bhullar <GO
but the stock has performed roughly in-line. While MET is not immune to
the current environment, its diversified business mix should preclude
outsized impacts on its growth and margins. Furthermore, its capital position
is strong and the company has considerable flexibility for share buybacks.
See page 99 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com
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Jimmy S. Bhullar, CFA North America Equity Research
(1-212) 622-6397 05 January 2021
jimmy.s.bhullar@jpmorgan.com
Table of Contents
Fundamentals Lackluster; Valuations Attractive...................4
Adjusting EPS Estimates.........................................................5
Major Industry Themes ............................................................8
Key Topics of Focus in 2021 .................................................27
Valuations Recovered, but Still Attractive ...........................36
AFLAC, Inc. .............................................................................40
American International Group ...............................................44
Brighthouse Financial............................................................48
Equitable Holdings Inc...........................................................52
Globe Life Inc..........................................................................56
Lincoln National......................................................................60
MetLife, Inc..............................................................................63
Principal Financial Group ......................................................67
Prudential Financial ...............................................................72
Reinsurance Group of America.............................................76
Unum Group............................................................................80
Voya Financial, Inc. ................................................................84
Equity Ratings and Price Targets

Mkt Cap Rating Price Target
Company Ticker ($ mn) Price ($) Cur Prev Cur End Prev End
Date Date
AFLAC, Inc. AFL US 31,287.94 44.47 N n/c 51.00 Dec-21 50.00 n/c
American International Group AIG US 32,612.60 37.86 N n/c 39.00 Dec-21 n/c n/c
Brighthouse Financial BHF US 3,300.41 36.21 UW n/c 37.00 Dec-21 36.00 n/c
Equitable Holdings Inc EQH US 11,379.87 25.59 N n/c 21.00 Dec-21 n/c n/c
Globe Life Inc GL US 10,064.43 94.96 OW n/c 99.00 Dec-21 n/c n/c
Lincoln National LNC US 9,722.44 50.31 OW n/c 65.00 Dec-21 n/c n/c
MetLife, Inc. MET US 42,517.92 46.95 OW n/c 58.00 Dec-21 59.00 n/c
Principal Financial Group PFG US 13,617.94 49.61 N n/c 55.00 Dec-21 54.00 n/c
Prudential Financial PRU US 31,188.96 78.07 OW n/c 91.00 Dec-21 93.00 n/c
Reinsurance Group of America RGA US 7,873.90 115.90 N n/c 122.00 Dec-21 120.00 n/c
Unum Group UNM US 4,670.13 22.94 N n/c 24.00 Dec-21 n/c n/c
Voya Financial, Inc. VOYA US 7,410.06 58.81 N n/c 57.00 Dec-21 n/c n/c
Source: Company data, Bloomberg Finance L.P., J.P. Morgan estimates. n/c = no change. All prices as of 31 Dec 20.
2
(1-212) 622-6397 05 January 2021
J.P. Morgan Life Insurance Coverage

01/04/21 12/31/21 2020 2021 P/BV: JPM Estim ates Street Estim ates NTM NTM 9/30/20 BV/ Share: Annual Dividend Shares Mkt. Cap.
Ticker Com pany Nam e Price Target P/E P/E Total Ex. AOCI 4Q-20 2020 2021 4Q-20 2020 2021 EPS ROE Total Ex. AOCI Per Share Yield (MM) ($, m il.)
Overweight
GL Globe Lif e $92.40 $99 13.7 12.6 1.19 1.73 1.59 6.73 7.33 1.76 6.89 7.58 6.89 12.9% $77.60 $53.54 $0.75 0.8% 106.0 $9,793
LNC Lincoln National $48.82 $65 10.6 5.1 0.44 0.69 2.10 4.62 9.62 2.02 4.56 9.53 6.03 8.5% $111.54 $71.12 $1.68 3.4% 193.2 $9,432
MET MetLife, Inc. $46.08 $58 8.0 7.1 0.60 0.79 1.62 5.75 6.49 1.47 5.62 6.22 6.50 11.1% $76.20 $58.49 $1.84 4.0% 905.6 $41,730
PRU Prudential Financial $76.40 $91 7.8 6.2 0.46 0.84 2.43 9.82 12.35 2.49 9.85 11.58 11.57 12.8% $165.75 $90.65 $4.40 5.8% 399.5 $30,522
Neutral
AFL AFLAC, Inc. $43.19 $51 8.8 8.7 0.94 1.24 1.04 4.92 4.97 1.05 4.91 4.86 4.97 14.2% $46.16 $34.91 $1.12 2.6% 703.6 $30,387
AIG American International Group $37.13 $39 14.1 8.0 0.50 0.61 1.06 2.64 4.63 0.89 2.48 4.35 4.20 6.9% $73.86 $61.12 $1.28 3.4% 861.4 $31,984
EQH Equitable Holdings, Inc. $24.72 $21 5.5 4.6 0.69 0.93 1.19 4.51 5.36 1.20 4.56 5.24 5.28 19.8% $36.05 $26.63 $0.68 2.8% 449.4 $11,110
PFG Principal Financial $48.31 $55 9.6 7.1 0.85 0.95 1.57 5.03 6.79 1.39 4.85 6.06 5.70 11.3% $57.02 $50.65 $2.24 4.6% 274.5 $13,261
RGA Reinsurance Group $111.75 $122 16.4 9.2 0.57 0.85 0.50 6.82 12.20 2.05 8.28 12.14 9.28 7.1% $194.50 $131.37 $2.80 2.5% 67.9 $7,592
UNM Unum Group $22.09 $24 4.4 4.2 0.41 0.43 1.21 4.99 5.21 1.21 5.00 5.14 5.00 9.8% $53.50 $51.15 $1.14 5.2% 203.6 $4,498
VOYA Voya Financial, Inc. $58.07 $57 20.7 10.4 0.81 1.60 1.50 2.80 5.61 1.39 2.96 5.80 4.27 11.8% $71.79 $36.21 $0.60 1.0% 126.0 $7,317
Underweight
BHF Brighthouse Financial $35.22 $37 (15.8) 2.9 0.18 0.27 2.78 (2.23) 12.21 2.65 (0.32) 11.45 1.25 0.9% $191.58 $132.55 $0.00 0.0% 91.2 $3,211
Source: Bloomberg, Company reports, and J.P. Morgan estimates.

Notes: All EPS estimates exclude realized gains/losses.
Street estimates refer to Bloomberg consensus forecasts. P/E is based on J.P. Morgan estimates.
NTM ROE refers to next-twelve-month earnings divided by current BV/Share.
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(1-212) 622-6397 05 January 2021
Fundamentals Lackluster; Valuations Attractive

The J.P. Morgan Life Insurance Our long-term outlook for the sector remains downbeat but we expect life
Index was down 8% in 2020 versus insurers’ results to improve through 2021. Although valuations are less
a 16% increase in the S&P 500
Index and a 4% decline in the S&P
compelling following the group’s recovery in the second half of 2020, they still seem
Financials Index. In 2019, the life relatively attractive. On a positive note, insurers’ healthy balance sheets should allow
index rose 27% versus a 29% them to weather the current economic downturn while continuing to deploy capital
increase in the S&P 500 Index and towards share buybacks and dividends. In addition, pricing in most product lines
a 29% increase in the S&P remains rational and the strong equity market in 2020 bodes well for fee-based
Financials Index.
earnings and variable investment income in the next few quarters. Conversely, near-
term results are likely to be pressured by COVID-related claims. Moreover, low
interest rates present a headwind for spread-based margins in various products and
are likely to drive additional balance sheet charges this year. We expect sales and net
flows to improve from depressed levels in 2020, helped partly by easier comps, but
remain weak overall. Furthermore, we are wary of deterioration in credit trends in
case of sustained economic weakness. Following are our highest conviction trading
ideas for the next 6-12 months.
Best Trade Ideas:  Top longs: GL and MET. In our view, GL is the premium franchise in the life
Top Picks: GL and MET insurance sector and is well-positioned in the current environment because of its
superior ROE, strong free cash flow, and below-average EPS sensitivity to
High-Beta Long: LNC
interest rates or the equity market. Also, GL has limited EPS sensitivity to a
Pair Trade: Long LNC, Short BHF potential COVID-driven slowdown in sales due to the high persistency of its in-
force book and its direct-to-consumer channel, which has actually benefited from
greater consumer awareness of the need for insurance protection. While investor
concerns about the company’s high exposure to BBB securities are valid, we
consider GL’s overall portfolio to be more conservative than peers’ given its
lower exposure to high-yield securities, alternatives, structured investments, and
commercial mortgage loans. Moreover, GL’s low asset leverage and strong free
cash flow should enable it to replenish capital over a relatively short period in
case of credit defaults/downgrades. Also, Globe’s business is less sensitive to a
potential downgrade of its debt ratings because of its captive distribution and
middle-income target market. Meanwhile, our bullish stance on MET reflects a
positive outlook for operating trends, the company’s de-risked business mix, high
capital flexibility, and attractive valuation. MET is not immune to COVID-related
headwinds, but its diverse business mix and ample flexibility for share buybacks
should limit the impact on its results.
 Top high-beta long: LNC. We consider LNC the best stock for investors who
anticipate continued equity market strength, higher interest rates, and/or relatively
stable credit trends in 2021. Although LNC’s earnings and liability profile are
highly sensitive to the equity market and interest rates, we feel that its in-force
VA book is higher quality than many peers’ and its valuation is more attractive
given its better earnings quality (LNC’s P/E multiple is close to those of BHF and
EQH on operating EPS, but is significantly lower on net EPS).
 Most compelling 3- to 6-month pair trade: Long LNC, Short BHF. Both LNC
and BHF trade at depressed valuations and are expected to perform well if macro
conditions improve. However, we believe that LNC has considerably less
downside risk if the environment worsens. Our outlook for operating trends and
free cash flow at LNC is more upbeat than for BHF, and we believe that the latter
has more tail risk in its business.
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(1-212) 622-6397 05 January 2021
Adjusting EPS Estimates

Our updated models reflect the strong equity market in 4Q20 and a weaker
USD, offset by less accretion from buybacks due to higher stock prices. In
addition, our estimates incorporate healthy variable investment income in 4Q20 and
1Q21 as well as incremental COVID-19 claims to reflect the most recent data from
the CDC. Overall, our 2021 EPS estimates for a majority of our coverage companies
are increasing, largely due to the benefit of the strong equity market. For 4Q20,
however, the majority of our estimates are declining because of the incremental
COVID-19 deaths in the quarter (130k vs. our previous assumption of 50k).
Table 1: Summary of EPS Estimate Changes

Per share amounts
4Q20 4Q20 2021 2021 2022 2022
(Old) (New) (Old) (New) (Old) (New) Reasons for Change
AFL 1.07 1.04 4.94 4.97 5.15 5.19 higher buybacks, stronger yen, and increase in Japan margins, offset by lower US margins
AIG 1.09 1.06 4.61 4.63 5.05 4.95 healthy equity market offset by lower buyback assumption and less accretion due to higher stock price
BHF 2.92 2.78 12.20 12.21 13.19 13.06 healthy equity market offset by less buyback accretion and higher financing costs
EQH 1.24 1.19 5.24 5.36 6.00 5.97 strong equity market offset by less buyback accretion due to a higher stock price
GL 1.72 1.59 7.43 7.33 8.03 7.96 impact from incremental COVID-19 claims and a higher share buyback price
LNC 2.35 2.10 9.84 9.62 10.90 10.31 healthy equity market, offset by COVID claims, less buybacks and lower accretion given higher stock price
MET 1.61 1.62 6.37 6.49 6.97 7.15 healthy equity market, weak USD, and incremental stock buybacks offset by sale of P&C business
PFG 1.53 1.57 6.44 6.79 6.93 7.22 equity market appreciation and weak USD, offset by less accretion from buybacks given higher stock price
PRU 2.52 2.43 12.19 12.35 13.99 13.87 strong equity market offset by less buyback accretion due to a higher stock price
RGA 1.84 0.50 12.89 12.20 13.87 14.14 healthy equity market and weak USD, more than offset by COVID-19 claims
UNM 1.29 1.21 5.33 5.21 5.73 5.55 weak USD offset by less buybacks, COVID-19 claims, and less accretion given higher stock price
VOYA 1.50 1.50 5.70 5.61 7.14 6.80 healthy equity market and accelerated repurchases offset by less accretion given higher stock price
Note: the “New” column is blank for periods with no change in estimates. AIG estimates were updated on 1/4/2021 as part of the P&C 2021 Preview.
Source: J.P. Morgan estimates.
Table 2: EPS Sensitivity to Macro Factors

% impact of a 10% increase in the S&P 500 Index/100 bps increase in interest rates to normalized 2021E EPS (excludes DAC and reserve adjustments)
AFL AIG AMP BHF CNO EQH GL HIG LNC MET PFG PRU RGA UNM VOYA
10% change in the equity market NM 2.1% 7.4% 6.4% NM 8.1% NM 0.8% 5.6% 0.9% 5.2% 2.8% 0.9% NM 5.6%
100 bps changes in interest rates 1.2% 2.6% 0.9% 2.5% 3.0% 1.0% 1.7% 2.1% 2.5% 1.7% 1.3% 2.0% 1.6% 2.2% 2.5%
Source: Company reports and J.P. Morgan estimates. NM implies not meaningful.
Note: The numbers above are not adjusted for AIG’s sale of Fortitude Re.
Following are the major changes to our earnings models:
 Healthy equity market performance to boost fee income: The S&P 500 Index
rose 11.7% in 4Q20, well above our +1.7% assumption. On an average daily
balance basis, which drives fee income, the market was up 7.1%, also better than
our +2.2% assumption. Overall, we expect the strong equity market in 4Q20 to
drive higher earnings for equity-sensitive businesses (variable annuities, asset
management, defined contribution plans, etc.), especially in 1Q21 and beyond.
Among our coverage companies, earnings for BHF, LNC, PFG, and VOYA are
the most sensitive to equity market trends.
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(1-212) 622-6397 05 January 2021
 Alternative investment income to be robust in 4Q20 and 1Q21: Most life

insurers report private equity returns on a one-quarter lag and hedge fund returns
on a one-month lag (PRU and AIG report hedge fund income on a concurrent
basis). Given equity market trends over the past two quarters (+8% in 3Q20 and
+12% in 4Q20), we expect variable investment income, which is driven mostly
by private equity for our coverage companies, to be healthy in both 4Q20 and
1Q21. Among our companies, the results for AIG, ATH, BHF, LNC, MET, PRU,
and VOYA are impacted the most by alternative investment performance.
 Low interest rates to pressure earnings: In the fourth quarter of 2020, 5- and
10-year treasury yields increased 11 and 24 bps, respectively, while credit
spreads in most asset classes where insurers invest declined 35-55 bps. As such,
we estimate that new money yields in life insurers’ portfolios ended 4Q20
roughly 20-30 bps lower than at the end of 3Q20, implying a 100-120 bps decline
in 2020. While the impact of lower rates is modest in the near term, it will
compound over time, with insurers that have above-average exposure to floating-
rate assets seeing a more immediate effect. Overall, we believe insurers that are
more reliant on spread-based earnings or have long-duration liabilities (UNM
closed block) are more exposed to prolonged low interest rates.
 Foreign currency to boost results: In 4Q20, the US$ weakened against all
foreign currencies to which life insurers are exposed (Canadian $, Euro, Mexican
peso, Chilean peso, UK pound, and Japanese yen). Consequently, we expect
insurers with overseas earnings (AFL, MET, PFG, PRU, RGA, UNM) to benefit.
AFL has the largest yen exposures among U.S.-based life insurers. About 70% its
income is from Japan and it does not hedge EPS for foreign exchange (every 10
¥/$ change affects annual EPS by about $0.15). Meanwhile, PRU hedges its yen-
based income using a 3-year rolling program and is hedged for 2021 at a ¥/$ rate
of 103 versus 104 in 2020. As a result, currency should be a slight tailwind for
PRU in 2021 (5% of PRU’s international earnings are yen-based).
 COVID-19 claims to weigh on underwriting results: Our revised models
reflect higher than previously assumed deaths related to COVID-19 for both
4Q20 and 1Q21. The earnings sensitivities to COVID-19 claims initially
provided by almost all insurers have been conservative in hindsight, with both
2Q20 and 3Q20 underwriting results coming in better than expected overall.
Favorable utilization in morbidity-type products (dental, A&H) due to the
COVID-driven lockdown have also surprised to the upside, particularly in 2Q20.
Our updated models reflect the most recent and lower COVID-19 sensitivities
provided by companies, but higher than assumed deaths (130k in 4Q20 versus
50k assumed previously; incremental 50k deaths assumed in 1Q21 versus none
previously) are an offset. Furthermore, although loss trends in certain products
such as personal auto and A&H could remain favorable, they are likely to
moderate from their level in recent quarters. Outside the U.S., the mortality
impact of COVID-19 will depend on the insurers’ specific geographic exposures.
For instance, per capita mortality in the UK (RGA’s 2nd-largest mortality
exposure) is worse than the US, but other countries such as Canada (RGA’s 3rd-
largest mortality exposure) and Japan (a major market for PRU) have experienced
lower fatality rates.
 Increase in stock prices to reduce accretion from share buybacks: Life
insurance stocks rose roughly 26% in 4Q20, which should reduce accretion from
share buybacks compared to our previous assumptions. We also lowered share
repurchase assumptions for some of our companies (AIG, LNC, UNM) and
increased (AFL, MET) or accelerated the pace of buybacks (VOYA) for others.
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(1-212) 622-6397 05 January 2021
 Company-specific factors: PFG – favorable encaje returns in Principal

International; AIG – lower 4Q20 P&C earnings due to a higher cat load; BHF –
higher financing costs from issuance of preferred equity; MET – divestiture of
P&C business; AFL – lower margins in the U.S. business due to investments.
Table 3: Exposure to International Markets

% of normalized 2021E earnings
U.S. 29.6% 86.8% 93.5% 100.0% 100.0% 94.7% 97.0% 98.7% 100.0% 62.9% 79.6% 56.2% 55.8% 92.6% 100.0%
Japan 70.4% 4.1% 18.3% 1.3% 37.7% 3.4%

Asia ex. Japan 2.8% 0.5% 4.5% 0.4% 4.8% 4.8% 4.0% 10.1%
Europe 3.6% 6.0% 0.8% 0.8% 4.3% 1.1% 0.2% 16.1% 7.4%
Latin America 0.4% 9.2% 13.3% 1.8% 1.1%

Other International 0.6% 0.5% 0.2% 2.0%
Total For eign 70.4% 13.2% 6.5% 5.3% 3.0% 1.3% 37.1% 20.4% 43.8% 44.2% 7.4%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Company reports and J.P. Morgan estimates.
JPM versus Consensus

Our 2021 EPS forecasts for our coverage companies are above consensus except
for GL and VOYA. For 4Q20, we are higher than consensus on AIG, BHF, LNC,
MET, PFG, and VOYA and lower on AFL, EQH, GL, PRU, RGA, and UNM. In our
opinion, 2021 consensus numbers have yet to be fully adjusted for the strong equity
market in 4Q20, which should boost fee income and help variable investment income
in 1Q21. As such, we project consensus 2021 forecasts to move higher over time.
Meanwhile, for most companies where we are below consensus, we believe that
Street numbers do not fully reflect incremental claims from elevated COVID-19
deaths in 4Q20 and 1Q21.
Table 4: J.P. Morgan versus Consensus EPS Estimates

% Dif. refers to difference in JPM estimates and consensus projections (as of 12/29/2020)
4Q20E 4Q20E % 2021E 2021E % 2022E 2022E %
Company JPM Cons. Diff. JPM Cons. Diff. JPM Cons. Diff.
AFL 1.04 1.05 -0.8% 4.97 4.86 2.4% 5.19 5.12 1.4%
AIG 1.06 0.89 18.7% 4.63 4.36 6.3% 4.95 5.00 -1.0%
BHF 2.78 2.65 5.0% 12.21 11.45 6.6% 13.06 13.09 -0.2%
EQH 1.19 1.20 -0.6% 5.36 5.23 2.5% 5.97 5.93 0.7%
GL 1.59 1.76 -9.6% 7.33 7.58 -3.3% 7.96 8.19 -2.8%
LNC 2.10 2.02 4.2% 9.62 9.54 0.9% 10.31 10.72 -3.8%
MET 1.62 1.47 10.3% 6.49 6.21 4.5% 7.15 6.70 6.7%
PFG 1.57 1.39 12.9% 6.79 6.06 12.0% 7.22 6.59 9.5%
PRU 2.43 2.50 -2.6% 12.35 11.58 6.6% 13.87 12.85 8.0%
RGA 0.50 2.05 -75.6% 12.20 12.14 0.5% 14.14 13.69 3.3%
UNM 1.21 1.21 -0.3% 5.21 5.14 1.3% 5.55 5.45 1.9%
VOYA 1.50 1.40 7.4% 5.61 5.82 -3.5% 6.80 6.93 -1.9%
Source: Bloomberg Finance L.P. and J.P. Morgan estimates.
7
(1-212) 622-6397 05 January 2021
Major Industry Themes

Our fundamental outlook for the life insurance sector remains downbeat. On a
positive note, insurers’ balance sheets and capital levels remain healthy and we
believe that the sector is better positioned to weather an economic downturn than it
was entering the 2008 recession. Other than AFL and EQH, most major life insurers
suspended share repurchases in early 2020, but many have already resumed buybacks
and we expect more to do so in 2021. Also, pricing in most product lines is rational
and we expect the trend to sustain as companies are emphasizing margins over top-
line growth. The equity market recovery is a major positive as well, and bodes well
for results in the near term. On the other hand, we project ROEs for life insurers to
stay lackluster and close to their cost of equity. Low interest rates are a notable
negative, and are likely to pressure margins as well as drive balance sheet charges
over time. Also, sales and net flows in most products were sluggish even prior to the
onset of COVID-19, and are likely to stay poor in the near term (although comps get
easier in mid-2021). Elevated COVID-related claims present another headwind for
near-term results. Lastly, we are wary of potential deterioration in credit trends,
which could limit capital flexibility.
Balance Sheets Better Positioned to Weather a Downturn

Life insurers remain highly exposed to macro deterioration, but their liquidity
and capital levels should help withstand stress better than in the last recession.
Barring a severe downturn in credit and overall macro trends (close to the 2008
recession), we do not foresee dividend reductions and/or further equity raises (RGA
was the only major firm to raise equity in 2020). With the exception of AFL and
EQH, most life insurers suspended share buybacks in early 2020. However, a number
have already resumed (ATH, BHF, GL, LNC, and MET), and we expect others to do
so in 2021. Although the life insurance sector faces several long-term headwinds,
improved capital and liquidity levels position the group better to cope with a
downturn than heading into 2008.
Table 5: Historical RBC Ratios for Life Insurance Sector

%
RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio RBC Ratio
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19
AEL 426% 347% 337% 339% 346% 332% 344% 372% 336% 342% 378% 360% 372%
AFL 574% 476% 480% 554% 492% 633% 788% 944% 930% 892% 828% 560% 541%
FG 317% 305% 312% 350% 371% 406% 423% 388% 401% 412% 501% 447% 452%
GL 278% 329% 357% 424% 338% 348% 342% 328% 317% 321% 315% 326% 319%
LNC 416% 462% 450% 491% 505% 488% 501% 541% 487% 489% 489% 452% 439%
MET 475% 393% 419% 458% 450% 449% 429% 394% 505% 422% 388% 366% 365%
PFG 370% 389% 426% 420% 448% 415% 438% 422% 430% 424% 443% 416% 410%
PRU 325% 298% 589% 548% 494% 455% 457% 502% 486% 527% 529% 417% 426%
RGA 551% 463% 259% 265% 272% 272% 285% 274% 243% 242% 236% 233% 245%
UNM 344% 331% 383% 396% 403% 394% 403% 405% 397% 403% 386% 370% 366%
VOYA 345% 381% 414% 436% 499% 539% 516% 540% 487% 508% 483% 478% 490%
Median 370% 381% 414% 424% 448% 415% 429% 405% 430% 422% 443% 416% 410%
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Most life insurers’ RBC ratios are more conservative than entering the 2008 financial
crisis. RBC ratios for most companies are higher than at the end of 2007, even
without adjusting for the negative impact of tax reform (which lowered RBCs by
close to 100 points due to a reduction in DTAs and an increase in required capital).
Moreover, life insurers are less reliant on short-term capital and funding sources than
in the past. In addition, insurers’ have more conservative investment portfolio
allocations and overall liability profiles (i.e. more extensive hedging of variable
annuity guarantees). The table below summarizes statutory capital levels, our
estimates of excess capital, and our buyback assumptions for our coverage firms.
Table 6: Share Repurchases to Increase in 2021 after Slowing in 2020

$ in millions, excess capital numbers refers to JPM estimates of deployable excess capital
RBC Ratio Excess Capital 2020E 2021E 2022E Buybacks/ Buybacks/ Buybacks/
12/31/19 ($mil., 12/31/20) Buybacks Buybacks Buybacks Equity '20 Equity '21 Equity '22
AFL 541% 1,000 1,437.0 1,600.0 1,616.0 6.4% 6.5% 6.3%

AIG 351% NM 500.0 400.0 2,000.0 0.8% 0.8% 3.7%
BHF 552% NM 466.0 200.0 200.0 3.7% 1.9% 1.8%
EQH 499% 1,000 470.0 1,017.5 907.5 3.9% 9.0% 7.9%
GL 319% NM 347.0 350.0 358.8 6.6% 6.3% 6.1%
LNC 439% NM 275.0 600.0 615.0 2.0% 4.3% 4.0%
MET 365% NM 965.0 4,000.0 2,200.0 1.9% 7.5% 4.2%
PFG 410% 500 217.8 400.0 420.0 1.6% 2.8% 2.8%
PRU 426% 1,000 500.0 3,500.0 2,100.0 1.3% 9.6% 5.9%
RGA 245% NM 153.0 200.0 210.0 1.8% 2.2% 2.3%
UNM 366% NM - - 300.0 0.0% 0.0% 2.7%
VOYA 490% 1,000 526.0 1,280.0 500.0 9.6% 28.5% 10.3%
Source: Company reports, SNL, and J.P. Morgan estimates.
Note: NM refers to not meaningful. Excess capital estimates for AIG, LNC, HIG, and VOYA are adjusted for recent M&A.
Our models project insurers to spend 7% of their capital on share repurchases in

2021, up from 3% in 2020 and 5% in 2019. AFL and EQH are the only major life
insurers that did not suspend buybacks in 1H20. ATH, BHF, GL, LNC, MET, and
VOYA have already resumed repurchases, and we expect PFG and PRU to follow
suit in 1Q21. AEL, which has historically not engaged in share buybacks, began
repurchasing stock in 4Q20 as well. On the other hand, we do not anticipate any
buybacks for AIG, RGA, and UNM in the near term. In 2020, VOYA, GL, and AFL
were the most proactive with buybacks (as a percentage of equity), and we expect
VOYA, GL, and EQH to be the most active in the next two years. Insurers’ ability,
and desire, to pursue buybacks is highly dependent on their capital positions, liability
profile, and credit quality of investment portfolios. While many insurers remain
hesitant to aggressively pursue buybacks given an uncertain macro environment, we
expect continued increases in dividends barring a 2008-type recession and significant
deterioration in credit conditions.
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Table 7: Dividends as a % of Operating Income

$ in millions and %
2021E Oper. 2021E Dividends 2022E Oper. 2022E Dividends
Income Dividends % of Income Income Dividends % of Income
AFL 3,401.6 883.9 26.0% 3,384.8 884.1 26.1%

AIG 4,051.4 1,163.9 28.7% 4,199.7 1,172.9 27.9%
BHF 1,057.0 - 0.0% 1,066.4 - 0.0%
EQH 2,258.4 295.3 13.1% 2,292.8 274.2 12.0%
GL 755.3 79.4 10.5% 784.1 80.4 10.2%
LNC 1,825.1 318.0 17.4% 1,855.9 324.8 17.5%
MET 5,619.1 1,610.7 28.7% 5,783.4 1,562.3 27.0%
PFG 1,870.7 646.8 34.6% 1,952.4 662.3 33.9%
PRU 4,700.3 1,743.3 37.1% 4,874.1 1,664.4 34.1%
RGA 826.6 192.3 23.3% 930.5 202.8 21.8%
UNM 1,067.8 239.6 22.4% 1,108.6 231.9 20.9%
VOYA 683.8 66.8 9.8% 748.3 69.0 9.2%
Average 21.0% 20.1%

Median 22.9% 21.4%
Our excess capital estimates are below numbers reported by most insurers. We
believe that most management teams overstate excess capital by assuming
unrealistically low capital thresholds at operating entities (RBC), using insufficient
holding company liquidity buffers, and including subsidiary capital that is not readily
accessible in their calculations. Also, insurers’ RBC ratios are artificially inflated by
captive reinsurance deals and other permitted practices that do not receive
commensurate capital credit from rating agencies. RBC ratios fell due to tax reform
and will likely fall further with pending changes in C1 capital charges (related to
investment portfolios). The drop in statutory DTA carrying values (part of the
numerator for the RBC ratio) due to tax reform was factored into year-end 2017
RBCs, while NAIC factor changes to adjust for the lower corporate tax rate (mostly
Please see our recent report
“Insurance Election affecting the denominator of RBC) were reflected in year-end 2018 ratios. The likely
Implications” from 9/22/20, which C1 capital charge increases being proposed by the NAIC could further pressure RBC
discusses the potential impacts of ratios. Despite the projected drop in RBC ratios due to NAIC changes, we do not
tax reform following the election. forecast a significant impact on life insurers’ financial strength ratings. Most rating
agencies use proprietary models to analyze investment portfolios and should
therefore not materially adjust ratings following C1 changes. Agencies reduced
capital thresholds to reflect the impact of tax changes and therefore did not make
major adjustments in ratings following reform. Still, lower RBC ratios make life
insurers more susceptible to deteriorating credit conditions and could constrain
capital flexibility in case of significant ratings migration (downgrades of investment
grade bonds to below-investment grade) or a material uptick in credit defaults.
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Pricing & Competition in Most Products to Stay Disciplined

Competition in most life industry products has been rational and we expect the
trend to endure given insurers’ focus on margins and risk over growth. In our
view, returns on business sold over the past few years will exceed those on older
vintages issued under more competitive market conditions. In the VA market, most
competitors have raised prices and reduced guarantee levels to compensate for the
impact of low interest rates, increased hedging costs, and more conservative capital
management. We expect the continued low interest rate environment to drive further
adjustments in terms/conditions. In addition to reducing guarantee levels, insurers
have capped equity market exposure, imposed stricter asset allocation limits, and
limited sales volumes to help mitigate risk. Long-term competitive dynamics in the
VA market have improved as well. In contrast with previous cycles, insurers have
refrained from aggressive pricing and guarantees despite the strong equity market in
the past few years. We ascribe this to reduced capacity in the VA market, companies’
focus on margins and risk management over sales, and the increasing popularity of
alternative products (such as index/buffer annuities). Additionally, we expect pricing
in the individual life (term and universal life) and group insurance markets to stay
disciplined. Over the past few years, low interest rates and increased financing costs
for XXX and AXXX reserves have caused insurers to re-price individual life
policies. We were concerned about an uptick in competition in the group business
given strong underwriting margins (especially in group disability), but insurers have
been relatively disciplined thus far, as most management teams seem to be stressing
margins and returns over market share. We expect competition in the life reinsurance
market to remain rational as well given high concentration of market share and
favorable competitive trends. The DC/401(k) market is the one major market
where we expect ongoing high competition on fees. The DC business is attractive
to insurers given its low capital intensity, fee-based income, and lack of tail risk.
Aside from insurers, other financial services firms such as asset managers and
brokers are focused on the DC market, in part to better position themselves for IRA
rollovers. Aside from a large number of competitors, DC fees and margins are being
pressured by secular trends such as greater fee disclosure, increased use of unbundled
services, open architecture platforms, and a shift from active to lower-priced, passive
investment allocations. Also, we remain wary of a potential uptick in competition
in the index and traditional fixed annuity businesses, although trends in the
market have been disciplined thus far. In recent years, historical VA competitors as
well as insurers backed by PE firms have entered the indexed and traditional fixed
annuity markets. Our key concern is that new entrants value the business for its
ability to generate investable funds, as these firms may sacrifice margins for the sake
of asset growth. While encouraged by rational competition, we are concerned that the
current low interest rate environment will make it challenging for companies to price
products that provide attractive consumer value and generate reasonable returns,
especially in product lines such as annuities and individual life.
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Low Interest Rates a Major Concern

New money yields declined through 2020 and, contrary to popular opinion, the
environment deteriorated further in 4Q20. In the fourth quarter, 5- and 10-year
treasury yields increased 8 and 24 bps, respectively, but credit spreads in most asset
classes where insurers invest compressed by a greater magnitude. As a result, we
estimate that new money yields in life insurers’ portfolios ended 4Q20 roughly 20-
30 bps lower than at the end of 3Q20, implying a 100-120 bps decline for full year
2020. Based on our estimates, interest rates would have to increase by 170-190 bps
to fully offset the drag on most life insurers’ portfolio yields, which should continue
to decline for the foreseeable future. This, in turn bodes poorly for margins as well as
sales in spread-based products. Furthermore, even after the latest round of actuarial
assumption reviews, interest rates implied by the market are significantly lower than
discount rate assumptions embedded in life insurers’ balance sheets (DAC and
reserves), suggesting a high likelihood of additional charges in 2021 and beyond.
Table 8: New Money Yields Declined in 4Q20

Refers to spreads on major asset classes in life insurers’ investment portfolios versus Treasury Yields
Spread vs. U.S. Treasuries (bps) Estimated Yield (bps)
9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020
A Corporates (7-10 yr) 104.09 81.80 229.18 131.99 118.38 83.39 265.59 262.30 282.68 179.49 166.88 147.89
Quarterly change 1 (22) 147 (97) (14) (35) (25) (3) 20 (103) (13) (19)
BBB Corporates (7-10 yr) 160.21 132.31 354.46 207.42 183.42 129.05 321.71 312.81 407.96 254.92 231.92 193.55
U.S. High Yield 475.32 424.19 949.38 722.37 602.69 443.58 630.32 593.19 986.38 751.37 630.69 479.58
5 Year Agency CMO 80.00 75.00 150.00 95.00 80.00 80.00 235.00 244.00 187.00 124.00 108.00 116.00
Quarterly change 0 (5) 75 (55) (15) 0 (21) 9 (57) (63) (16) 8
Distressed Euro Credits 49.48 76.92 95.90 68.74 45.39 18.30

Quarterly change (63) 27 19 (27) (23) (27)
U.S. Treasury yields (%)

9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020
2 Year Treasury 1.63 1.58 0.23 0.16 0.13 0.13

5 Year Treasury 1.55 1.69 0.37 0.29 0.28 0.36
10 Year Treasury 1.68 1.92 0.70 0.66 0.69 0.93
Source: DataQuery and J.P. Morgan estimates.
Note: Distressed Euro credits refer to the average of 10-year government bond yields for Greece, Ireland, Italy, Portugal, and Spain.
In our opinion, low interest rates will hurt margins and sales of spread-based
products such as fixed annuities, universal life, and institutional policies. We expect
the current low level of interest rates to make it challenging for life insurers to sell
products that provide sufficient customer value and generate acceptable returns
(especially general account products with a guaranteed cash value feature). Recent
statements from several companies (including LNC and PRU) seem to support this
view, with management teams shifting their product offerings from guaranteed to
unit-linked products. Another measure that life insurers have pursued to limit the
impact of low rates is shifting investment allocations to lower-quality or less liquid
assets such as privates or alternatives. While this has helped mitigate the pressure
from low interest rates, it has increased risk in portfolios as well.
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We expect strong variable investment to support life insurers’ investment

income and reported spreads in 4Q20, but core spreads (ex. alternatives) should
compress. Insurers typically report private equity returns on a 1-quarter lag and
hedge fund returns on a 1-month lag (PRU and AIG report hedge fund returns on a
concurrent basis), and most companies are more exposed to private equity than hedge
funds. The equity market, which tends to be highly correlated with alternative asset
returns, was strong in 3Q20 (+8%) and 4Q20 (+12%), implying healthy results in
4Q20 and 1Q21. The market was healthy as well on a 1-month lag also (up 3% from
August 2020 to November 2020), which bodes well for hedge fund returns in 4Q20.
Table 9: New Money Rates Have Declined Over Time . . . Table 10: . . . And Pressured Portfolio Yields
New money yields in % Portfolio yields in %
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 2015 2016 2017 2018 2019
AEL 4.7% 3.8% 3.3% 3.7% 3.5% 4.6% 3.6% AEL 4.7% 4.6% 4.3% 4.5% 4.6%
AFL 3.6% 3.9% 4.0% 4.4% 4.0% 3.8% 3.7% AFL 3.0% 3.1% 2.8% 2.8% 2.6%
CNO 4.4% 4.6% 4.7% 4.1% 4.5% 4.5% 4.1% AIG 4.1% 4.3% 4.4% 4.0% 4.5%
GL 4.9% 5.0% 4.1% 4.1% 3.8% 4.4% 3.2% ATH 4.0% 4.4% 4.4% 5.0% 4.9%
HIG 4.1% 3.5% 3.1% 3.1% 2.9% 2.7% 2.1% BHF 3.8% 3.8% 3.7% 3.9% 3.9%
LNC 4.4% 4.2% 3.7% 3.6% CNO 4.9% 4.8% 4.9% 5.1% 4.7%
MET 4.0% 4.0% 3.7% 3.5% 3.6% 3.4% 2.8% EQH 6.8% 3.5% 4.1% 3.7% 4.7%
PFG 3.9% 3.2% 3.2% GL 5.5% 5.5% 5.4% 5.3% 5.2%
PRU 3.7% 3.7% HIG 4.1% 4.2% 3.9% 3.9% 4.0%
RGA 3.8% 3.7% 4.2% 3.6% 2.5% LNC 4.6% 4.6% 4.6% 4.5% 4.1%
MET 4.0% 3.9% 3.5% 3.9% 3.9%
Median 4.4% 4.0% 3.7% 3.7% 3.8% 3.8% 3.2% PFG 4.6% 4.6% 4.5% 4.4% 4.5%
Source: Company reports and J.P. Morgan estimates. PRU 2.9% 3.0% 3.0% 2.9% 3.5%
Note: Only a limited number of companies disclose new money yields.
RGA 4.3% 4.3% 4.5% 4.0% 4.2%
UNM 4.9% 4.9% 4.7% 4.7% 4.6%
VOYA 4.0% 4.1% 4.6% 4.5% 4.4%
Mean 4.2% 4.3% 4.4% 4.2% 4.5%

The earnings headwind from low rates should compound over time. Based on
our estimates, a 100 bps change in rates impacts life insurers’ EPS by 2-3% in the
first year, compounding in future periods. Our earnings projections assume that
interest rates follow the forward curve and credit spreads remain consistent with the
12/31/20 level. Among major life insurers, BHF and LNC are the most sensitive to
interest rates given their exposure spread-based liabilities. Meanwhile, UNM has
high exposure to rates given its long-term care exposure.
Table 11: EPS Impact of Changes in Interest Rates Modest Initially, but Grows over Time
Refers to 1 year EPS impact of a 100 bps rise in new money rates (excludes DAC and reserve adjustments) as a % of 2021E EPS
AEL AFL AIG AMP ATH BHF CNO EQH GL HIG LNC MET PFG PRU RGA UNM VOYA
3.4% 1.2% 2.6% 0.9% 7.8% 2.5% 3.0% 1.0% 1.7% 2.1% 2.5% 1.7% 1.3% 2.0% 1.6% 2.2% 2.0%
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Life insurers can mitigate low yields to some extent by cutting crediting rates,
but the flexibility for additional reductions is limited as a significant proportion of
insurers’ fixed annuity, UL, and stable value blocks have reached guaranteed
minimum rates. Aside from crediting rate cuts, several firms (LNC, VOYA) have
modified or are considering changes to other non-guaranteed elements (e.g., cost of
insurance, expense charges, etc.) to mitigate margin deterioration.
Table 12: Insurers Have Less Flexibility to Reduce Crediting Rates

% of blocks already at contractual minimum crediting rates at 9/30/20 or most recent disclosure
Universal
Annuities Retirement Life Total
AEL 19.2% 19.2%

AIG 59.2% 78.6% 65.2% 66.9%
ATH 27.2% 27.2%
BHF 92.1% 53.1% 77.6%
LNC 35.4% 79.1% 89.2% 69.6%
MET 17.9% 77.5% 67.4% 52.1%
VOYA 80.1%
Note: MetLife includes balances for group benefits, retirement and income solutions, Asia, and MetLife Holding. Figure reported for
BHF under retirement corresponds to the run-off segment (funding agreements and COLI).
A key risk not reflected in our and consensus EPS and BV forecasts is the
potential for balance sheet charges due to sustained low rates. Life insurers have
consistently incurred interest rate driven charges over time, and we expect additional
charges in the next few years, particularly for long-duration liabilities such as LTC,
VAs, and UL. As shown in the following table, interest rate assumptions embedded
in reserve and DAC balances remain very optimistic compared to current market
levels, and annual adjustments by insurers to lower them have only been gradual.
With the passage of new GAAP accounting standards (effective January 2023), we
believe that balance sheet charges will be accelerated as life insurers would be
required to mark their liabilities to the ‘A’ yield. Overall, we believe that statutory
and GAAP reserve charges would hurt investor and rating agency perception of the
life insurance sector. However, statutory charges would have a greater economic
impact as they would directly affect cash flow and could constrain capital flexibility.
This, in turn, would likely weigh on sentiment and hurt valuation multiples.
The following tables show interest rate assumptions utilized by insurers in

determining FAS 97 type balance sheet items (deferred acquisition costs, universal
life death benefits, etc.), which are subject to periodic assumption unlocking. The 10-
year U.S. Treasury yield is only partially representative of insurers’ actual interest
rate assumptions as a company-specific (and undisclosed) credit spread has to be
added to arrive at the final interest rate level assumed by each firm. Also, the slope of
the grading curve to the ultimate rate varies across companies. Overall, most firms
are assuming a 10-year yield grading to roughly 2-3% in 10 years. This compares to
the roughly 2% 10-year forward rate as of 12/31/20.
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Table 13: FAS 97 Assumptions Table 14: Implied 10-Year Yields at Various Durations Assuming an Even Grading Period
% and grading period in years %, assumes a 90 bps starting point at 12/31/20
10 Year Grading Duration AEL AIG ATH BHF EQH LNC MET PFG PRU
US Treas. Period
0 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
AEL 1.90% 8 1 1.03% 1.09% 1.12% 1.11% 1.04% 1.20% 1.05% 1.24% 1.14%
AIG 2.80% 10 3 1.28% 1.47% 1.56% 1.53% 1.31% 1.80% 1.36% 1.91% 1.61%
ATH 2.65% 8 4 1.40% 1.66% 1.78% 1.74% 1.44% 2.10% 1.52% 2.24% 1.84%
BHF 3.00% 10
5 1.53% 1.85% 1.99% 1.95% 1.58% 2.40% 1.67% 2.58% 2.08%
EQH 2.25% 10
6 1.65% 2.04% 2.21% 2.16% 1.71% 2.70% 1.83% 2.91% 2.31%
LNC 3.00% 7
7 1.78% 2.23% 2.43% 2.37% 1.85% 3.00% 1.98% 3.25% 2.55%
MET 2.75% 12
8 1.90% 2.42% 2.65% 2.58% 1.98% 3.00% 2.13% 3.25% 2.78%
PFG 3.25% 7
9 1.90% 2.61% 2.65% 2.79% 2.12% 3.00% 2.29% 3.25% 3.02%
PRU 3.25% 10
VOYA 2.00% 10 10 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.44% 3.25% 3.25%
11 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.60% 3.25% 3.25%
Source: Company reports.
12 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
13 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
14 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
15 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
16 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
17 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
18 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
19 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
20 1.90% 2.80% 2.65% 3.00% 2.25% 3.00% 2.75% 3.25% 3.25%
The tables below show the interest rate assumptions embedded in insurers’ reserves
for FAS 60 type products (such as whole life) where assumptions are only unlocked
in case of a premium deficiency. For insurers such as AFL and GL, strong
underwriting margins are effectively subsidizing modest or even negative spread
margins in parts of their businesses.
Table 15: LTC Interest Rate Assumptions Table 16: Discount Rate Assumptions for FAS 60 Products
Discount Rate Assumptions
Company I nterest Rate Assumptions
AFL 2019: 5.26% discount rate for U.S., 3.20% discount rate for Japan
AMP ~5.9%
GNW 10 Year UST 4.7% + 120 bps GL 2019: 5.65% discount rate
MET 10 Year UST 3.75% in 8 years
MFC 3.2% + credit spread UNM For LTC: 30-year new money yields of 5.25% from 2019 to 2021,
PRU ~5.36% grading up to 6.25% in the next 4 years
UNM 10 Year UST 3.25% in 7 years
For LT disability: current interest reserve margin ~70 bps
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ROEs Poor and Unlikely to Improve Materially

Please see our Life Insurance Our models forecast life insurers to generate ROEs close to their cost of equity
Earnings Quality report published capital and we do not foresee a major improvement in the next few years. We
on 5/15/18 for a detailed analysis
of earnings quality for the sector
project the life insurance sector to generate a 11-12% ROE in the next few years,
and our coverage companies. down from 12-13% in 2018 and 2019, but up from 11% in 2017, partially due to the
benefit of tax reform, which lifted GAAP ROEs by roughly 100 bps. Among our
coverage companies, we expect VOYA and EQH to generate the most ROE
improvement in the next few years. Conversely, we project ROEs for AFL and UNM
to fall. Longer term, we expect the sector to report operating ROEs in the 11-12%
range (equivalent to 10-11% prior to tax reform benefit), and we do not anticipate a
reversion to the pre-crisis range of 13%+ given the following factors:
 More conservative capital management: The relatively aggressive approach

life insurers took with capital management prior to the 2008 financial crisis
boosted returns, but forced many to raise equity in the downturn. Following the
financial crisis, firms reduced balance sheet risk and have been operating with
higher subsidiary RBC levels and holding company buffers, in part to meet the
increasingly more conservative capital requirements at rating agencies, a trend we
foresee continuing. Also, captive and other off-balance-sheet arrangements that
boosted returns in the past have become less prevalent in recent years.
 Weak margins on legacy blocks: Disciplined pricing should help boost margins
on new business, but poor returns on in-force blocks remain a challenge for many
companies. Legacy LTC blocks are a drag on results for UNM, MET, and PRU,
and we expect them to drive further balance sheet charges over time. BHF and
MET have large run-off life and annuity blocks as well, while EQH, LNC, and
PRU have low-return legacy individual life policies. We expect returns on legacy
blocks to continue to be pressured by a combination of underpricing, overly
generous guarantees, lower investment yields, and higher reserve financing costs.
 Low interest rates: The drop in interest rates over the past few years presents a
significant drag on insurers’ overall profitability. New money yields in life
insurers’ portfolios are well below rates on maturing investments, which implies
an ongoing headwind for portfolio yields and investment income. In terms of
products, lower rates are pressuring returns in long-term care, individual life,
annuities, and stable value blocks, particularly for policies sold a few years ago.
Based on our estimates, rates would have to rise 170-190 bps (and more if credit
spreads decline to 1/1/20 levels) for spread compression in most companies to
fully abate. Besides hurting earnings, low interest rates pose the risk of additional
reserve and DAC charges in long-duration products such as LTC, variable
annuities, and individual life.
In our view, life insurers’ economic returns are significantly lower than those
reported on an “operating EPS” basis. Most life companies are very aggressive in
their use of non-GAAP adjustments and “below-the-line” items, which inflate
operating income and ROE, the most common metrics tracked by investors. Over the
past decade, net EPS for the life insurance sector has averaged roughly 74% of
operating EPS, considerably worse than that for other financial services subsectors
such as P&C insurers, banks, and asset managers. Furthermore, operating ROEs have
benefitted from significant charges that have reduced book values (the denominator
for the ROE calculation). Hence, book value growth for the life insurance sector has
consistently lagged levels suggested by companies’ operating ROEs, and we expect
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the trend to continue. While most life insurers’ generate operating ROEs that are
higher than their cost of equity, ROEs on net EPS are actually slightly below.
Table 17: ROEs Declined in 2020 But Are Expected to Improve in 2021 Table 18: ROEs Versus Cost of Capital
ROEs = Operating EPS / Average Equity ex. AOCI 2021 ROE estimate minus Cost of Equity
Cost of ROE - Cost
2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Beta Equity of Equity
AFL 17.6% 16.0% 16.2% 14.6% 15.3% 15.0% 15.0% 13.4% 12.9% AFL 1.4 8.4% 5.0%
AIG 8.2% 0.0% 0.6% 4.0% 2.1% 8.1% 4.8% 8.6% 8.5% AIG 1.6 9.7% -1.2%
BHF NA NA 4.4% 7.4% 6.9% 4.5% -1.6% 9.8% 9.6% BHF 2.0 11.8% -1.9%
EQH NA 13.1% 13.6% 16.4% 14.9% 17.3% 15.6% 18.0% 18.0% EQH 1.6 9.9% 8.0%
GL 14.9% 14.5% 14.4% 14.0% 14.6% 14.6% 13.5% 13.3% 12.9% GL 1.2 7.7% 5.5%
LNC 12.8% 10.8% 11.9% 12.9% 13.0% 9.6% 6.8% 12.1% 11.0% LNC 2.2 12.9% -0.8%
MET 11.4% 6.5% 6.5% 7.7% 11.3% 11.7% 9.9% 10.3% 10.4% MET 1.5 9.0% 1.3%
PFG 14.0% 12.6% 12.5% 12.6% 12.3% 11.7% 9.9% 12.1% 12.2% PFG 1.6 9.7% 2.5%
PRU 16.4% 12.9% 12.9% 12.9% 12.9% 11.9% 10.2% 12.3% 12.9% PRU 1.5 9.2% 3.1%
RGA 12.3% 10.4% 11.0% 10.6% 10.0% 10.2% 6.3% 9.3% 9.4% RGA 1.7 10.1% -0.8%
UNM 10.6% 10.4% 10.3% 10.5% 12.0% 11.7% 10.1% 9.8% 9.4% UNM 1.8 10.6% -0.8%
VOYA 6.9% 6.3% 5.6% 7.3% 11.7% 14.2% 11.5% 18.3% 20.0% VOYA 1.4 8.9% 9.4%
Avg. 13.3% 10.9% 9.8% 11.4% 12.1% 12.6% 9.3% 12.3% 12.3% Avg. 1.6 9.8% 2.4%
Median 12.5% 11.5% 11.4% 12.7% 12.4% 11.8% 10.0% 12.1% 11.6% Source: Bloomberg and J.P. Morgan estimates.
Source: Company reports and J.P. Morgan estimates. Note: Cost of equity computed at 12/30/20 using risk-free
Note: Estimates for 2012 and beyond reflect adoption of new DAC rules (ASU 2010-26). ROEs for AIG & VOYA are ex. AOCI and DTA. rate of 0.94% (10-year Treasury yield) and equity market
risk premium of 5.5%. Adjusted betas from Bloomberg.
Investment Portfolios Sound, but Credit Trends a Concern

Insurers have incurred very modest credit losses and ratings downgrades thus
far, but potential deterioration in credit presents a key risk for the sector. Life
insurers’ portfolios are generally well-diversified across various fixed income asset
classes/sector exposures and are largely concentrated in high-grade securities.
However, new money allocations have become riskier over time, partly to offset the
impact of low interest rates, with companies increasing portfolio durations and
adding exposure to lower-rated securities (BBB bonds, BIG securities), structured
(ABS, CMBS, RMBS), and/or less liquid assets (private placements, commercial
mortgages, and private equity). More notably, we believe that risk in the broader
credit market has grown over time, making it more vulnerable to negative shocks (i.e.
lower oil prices and/or an economic recession from COVID-19 related disruption). In
our view, this increased risk is evident in an uptick in corporate leverage, increased
issuance of lower-grade securities, a deterioration in underwriting standards, and
grade-inflation on the part of rating agencies.
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Table 19: Investment Portfolio Allocation Summary

Data as of 12/31/19
AEL AFL AI G ATH BHF CNO EQH GL LNC MET PFG PRU RGA UNM VOYA
Investment Portfolio Breakdown

Corporate Debt 48.7% 36.4% 38.2% 46.9% 35.2% 53.8% 49.3% 82.8% 56.4% 28.2% 37.1% 33.0% 40.4% 58.1% 50.8%
U.S. Gov't and Agency Securities 1.4% 0.2% 2.2% 0.0% 7.5% 0.8% 15.6% 2.2% 0.4% 8.6% 1.7% 6.7% 3.2% 2.5% 2.5%
Non-U.S. Gov't Securities 0.4% 42.2% 4.4% 0.3% 1.8% 0.4% 0.5% 0.1% 0.3% 13.7% 1.1% 22.4% 13.4% 1.8% 1.2%
State and Municipal Securities 7.8% 1.9% 4.5% 1.6% 4.1% 8.6% 0.7% 8.6% 4.3% 2.7% 7.6% 2.1% 1.7% 6.0% 2.3%
Public Utility Debt 7.6% 6.7% 5.7% 0.0% 6.3% 0.0% 0.0% 0.0% 11.3% 2.8% 4.2% 5.4% 5.8% 13.8% 0.0%
CMBS 10.0% 0.0% 4.3% 2.3% 5.8% 7.6% 0.0% 0.0% 0.8% 2.1% 4.9% 2.0% 2.8% 0.1% 6.2%
RMBS 2.7% 0.0% 9.8% 7.1% 9.2% 4.0% 0.2% 0.0% 2.7% 5.8% 7.6% 0.6% 3.5% 2.4% 9.0%
Other ABS 10.7% 0.3% 6.6% 16.1% 2.0% 11.4% 0.9% 1.1% 4.4% 3.0% 7.3% 4.2% 4.4% 0.1% 3.5%
Total Fixed Income Securities 89.2% 87.9% 75.7% 74.3% 72.0% 86.6% 67.1% 94.9% 80.6% 66.8% 71.6% 76.5% 75.2% 85.0% 75.5%
Cash & Equivalents 4.0% 3.5% 0.8% 4.1% 2.9% 2.2% 4.5% 0.4% 1.9% 3.4% 2.5% 3.0% 2.1% 0.2% 2.2%
Other Short-term Investments 0.0% 0.5% 4.0% 1.0% 2.0% 0.3% 1.1% 0.2% 0.0% 0.8% 0.0% 1.1% 0.1% 2.3% 2.5%
Mortgage Loans 6.0% 1.2% 13.2% 14.4% 16.0% 6.0% 12.2% 0.7% 12.0% 16.4% 16.7% 11.7% 8.4% 4.3% 11.9%
Equities 0.0% 0.6% 0.2% 0.3% 0.1% 0.2% 0.0% 0.0% 0.1% 0.3% 1.9% 1.7% 0.5% 0.1% 0.3%
Real Estate Investments 0.0% 0.0% 2.5% 0.0% 0.4% 0.0% 0.0% 0.0% 0.0% 2.2% 1.7% 0.3% 0.0% 0.4% 0.0%
Partnership Investments 0.0% 0.4% 2.6% 4.2% 2.0% 2.2% 1.4% 0.9% 1.3% 1.7% 1.8% 2.1% 1.7% 0.7% 5.0%
Policy Loans 0.0% 0.2% 0.6% 0.4% 1.3% 0.5% 3.8% 2.9% 1.8% 2.0% 0.8% 2.2% 1.9% 6.8% 1.3%
Securities Not Classified Above 0.9% 5.7% 0.4% 1.4% 3.3% 2.1% 9.9% 0.0% 2.3% 6.4% 2.9% 1.4% 10.1% 0.3% 1.2%
Total Investment Securities 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Fixed Income Securities by Rating

AAA/AA/A 59.4% 75.2% 56.8% 37.6% 65.8% 50.1% 68.2% 41.8% 53.0% 70.1% 65.4% 76.8% 65.1% 45.1% 51.2%
BBB 38.5% 22.1% 31.0% 38.6% 30.2% 40.4% 29.8% 54.8% 39.6% 24.7% 25.5% 18.2% 30.3% 48.2% 42.9%
Below-Investment-Grade 2.1% 2.7% 11.7% 9.7% 4.0% 9.5% 2.0% 3.4% 3.2% 4.8% 3.7% 5.0% 4.5% 6.7% 5.9%
Securities Not Rated 0.0% 0.0% 0.6% 14.1% 0.0% 0.0% 0.0% 0.0% 4.3% 0.4% 5.4% 0.0% 0.0% 0.0% 0.0%
Total Fixed Income Securities 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Other Portfolio Metrics

Portfolio Duration (years) 8.1 12.1 6.5 9.5 8.8 8.6 7.9 10.8 10.0 6.8 6.7 10.4 7.7 7.9 6.0
Portfolio Leverage (T. Fixed Income / T. Equity) 11.3 4.2 3.9 6.2 4.4 4.6 4.9 2.6 5.6 5.2 4.8 5.6 4.4 4.8 4.7
Portfolio Leverage (T. Investments / T. Equity) 12.7 4.8 5.2 8.5 6.1 5.6 7.3 2.7 6.9 7.8 6.8 8.5 5.9 5.6 6.2
Total Portfolio ($ billions) 57.8 138.1 340.7 103.9 98.7 26.2 98.8 19.9 136.3 490.4 98.9 539.2 68.0 55.8 58.0
Total Equity ($ billions) 4.6 29.0 65.7 12.2 16.2 4.7 13.5 7.3 19.7 62.8 14.6 63.1 11.6 10.0 9.4
Source: SNL, Company reports, and J.P. Morgan estimates.
Life insurers operate with naturally high asset leverage (investments are over 6x
equity), so even modest defaults (which reduce capital) or downgrades (which
increase required capital as capital charges for lower-rated bonds are higher than
those for investment grade securities) can have a major negative impact on capital
ratios. As such, life insurance stocks typically perform poorly as credit deteriorates,
and we believe that investors concerned about a downturn in credit trends should
avoid being over-exposed to the life insurance sector. Among our coverage
companies, we feel that AIG and BHF are the most susceptible to worsening
credit conditions. On a positive note, life insurers are rarely forced sellers of assets
because of the sticky nature of their liabilities, and so wider credit spreads are not
necessarily problematic (and actually result in higher new money yields) as long as
they are not accompanied by more downgrades or defaults. Consequently, life
insurance companies usually weather credit downturns better than other credit-
exposed sectors such as banks, and dips in stocks due to credit worries often present
good buying opportunities. We assess credit risk for life insurance companies based
on the following three primary metrics:
 Exposure to risky investments: In our opinion, AIG and ATH are the most
exposed to high-risk investments because of their above-average holdings of
below-investment grade bonds, BBB bonds, non-rated securities, and esoteric
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assets such as CLOs and alternatives. On the other hand, EQH and AFL seem to
be among the most conservative in their portfolio allocations. In the current
environment, life insurers with above-average exposure to higher-risk sectors or
industries such as energy, retail, and travel/entertainment bear watching as well.
Among our coverage companies, GL, UNM, and VOYA have the highest
allocations to energy investments. However, given limited disclosure, it is
difficult to arrive at a more refined view of companies’ energy exposure (certain
segments in the energy sector, such as refining, are less risky than others like
E&P). Overall, about 5% of life insurers’ portfolios are allocated to energy assets.
 Asset leverage: Asset leverage (investments/equity) is another key risk factor as
a high ratio amplifies the impact of credit losses on equity even if overall
investment allocations are more conservative. Annuity-focused companies (i.e.
AEL and ATH) naturally have high asset leverage because of their business mix,
while GL, AFL, and AIG appear insulated.
 Capital flexibility to absorb credit losses: Among our companies, we believe
that BHF and UNM have the lowest ability to withstand credit losses given their
capital and cash flow generation.
The tables below show changes in portfolio allocations over time, along with NAIC
capital charges for securities in various ratings categories. Capital charges are being
revised, and a new version with more refined categories could be released by the
NAIC in 2021 or next year, with potential implementation by year-end 2022.
Table 20: Investment Portfolios Sound Overall, but Risk Has Risen Table 21: NAIC Capital Charges
Using year-end data Charges increase for low-quality assets
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NAIC Ratings Agency Capital Charge
Category Equivalent (life insurers)
Duration
1 AAA, A, A 0.4%
Median 6.6 7.2 7.5 7.7 7.7 7.5 7.3 7.3 7.4 7.7 7.3 7.9 2 BBB 1.3%
Average 6.5 7.1 7.2 7.4 7.7 7.5 7.5 7.6 7.7 8.0 7.8 8.2 3 BB 4.6%
4 B 10.0%
BBB 5 CCC 23.0%
Median 22.2% 24.5% 24.4% 26.2% 30.2% 31.9% 30.5% 30.6% 30.8% 32.7% 35.3% 31.0% 6 Near default, Equity 30.0%
Average 25.8% 27.9% 28.9% 30.2% 33.4% 33.6% 32.9% 32.8% 33.0% 33.1% 34.4% 33.8% Source: NAIC and J.P. Morgan.
Below-investment-grade
Median 4.9% 6.4% 6.9% 5.3% 6.0% 6.2% 5.7% 5.1% 4.9% 4.6% 4.5% 4.5%
Average 5.0% 6.7% 6.6% 6.0% 6.4% 6.9% 7.0% 6.5% 6.5% 6.4% 5.8% 5.3%
Commercial mortgage loans

Median 9.4% 7.6% 7.2% 7.1% 6.8% 7.5% 7.2% 8.0% 8.2% 8.3% 9.3% 11.7%
Average 9.1% 8.0% 7.2% 6.9% 6.7% 7.3% 7.3% 7.6% 8.1% 8.2% 9.4% 9.6%
Note: Data includes AEL, AFL, AIG, AMP, AIG, ATH, BHF, CNO, EQH, FG, GL, GNW, HIG, LNC, MET, PFG, PRU, RGA, UNM, and VOYA.
Insurers’ commercial mortgage loan books have held up well through credit
downturns in the past, but could incur more losses in the current environment.
Commercial mortgage loans (CMLs) are among the largest asset classes in life
insurers’ portfolios (12% of total investments), and PFG, MET, BHF, AIG, and EQH
have the highest exposures. In our opinion, commercial mortgage lending is a core
competency for life insurers and the industry has historically been disciplined in
originating loans. Compared with banks and other lenders, life insurers’ commercial
mortgage loan books tend to have lower loan-to-values (typically close to 50% or
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better), are smaller in size, are more focused on owner-occupied properties, and are
less exposed to construction-only loans. As a result, life insurers’ experience with
CMLs during the 2008 recession was considerably better than that of most banks and
other lenders. Although we envision a similar trend in the current downturn, losses
could be higher than in the past given challenges facing several segments of the
market, including retail, hospitality, and office real estate.
Organic Growth in Most Product Lines to Be Lackluster

We forecast sales and net flows in most life insurance industry products to
recover from 2020 levels, but remain weak overall. Organic growth in most life
insurance industry products was modest to begin with and has been pressured further
by the COVID-19 pandemic in 2020. Prior to the outbreak of the virus, sales and
flows were already being suppressed by a combination of increased prices, less
generous terms/conditions, and low interest rates. However, COVID-19 has
presented even more challenges, especially for retail products that entail face-to-face
interaction (annuities and individual life) given the reluctance of prospective clients
to meet agents. Additionally, the weak economy continues to be a headwind for
growth in the institutional retirement (401k, 403b plans) and in group benefits
markets. We expect social distancing to continue to weigh on sales volumes through
the first half of 2021, and its impact is unlikely to abate until business and social
activity returns to normal, potentially after the availability of vaccines. Meanwhile,
growth in the retirement and group benefit market is highly dependent on labor
market conditions. On a positive note, sales comps ease in 2Q21 and 3Q21. Also, net
flows, and therefore fees and revenues in annuities and retirement plans, while weak,
should hold up better than sales due to improved persistency. We expect retention
rates in the retirement and group benefits businesses to remain favorable in the near
term as well as clients are less willing to switch providers in the current environment.
Our models project total annuity sales to increase 3% in 2021 (VA sales -1%, fixed
annuity sales +6%) following a 10% decline in 2020. Annuity deposits have steadily
declined over time, led by lower demand for variable annuities, which generated
sales of $84 billion in 2020, down from $154 billion in 2011. In the life insurance
market, we expect sales in the individual life (low-single-digit increase) and life
reinsurance (low- to mid-single-digit increase) markets to recover from 2021 but to
remain lackluster overall. Meanwhile, we forecast flows in the DC/401(k) market to
be pressured by lower employee deferrals and employer matching contributions, as
well as a modest increase in withdrawals. In the PRT market, volumes are likely to
be suppressed by plan sponsors’ reluctance to accept higher prices for deals given the
drop in interest rates. Outside the U.S., we project sales/flows in life insurers’
businesses to be weak through the first half of 2021. In our view, sales in AFL’s,
MET’s and PRU’s Japan businesses will continue to be hurt by COVID-19 and
shelter-in-place policies in the near term, although to a lesser extent than in recent
quarters, and should begin to rebound in the second half of the year assuming a
return to a more normal economic and social environment . Also, we anticipate weak
flows in the Chilean pension market (MET, PFG, PRU) and in Brazil (PFG).
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Table 22: Sales and Flows to Recover in 2021, But Still Lackluster Overall
All amounts in $ millions; sales measurement units vary by product
2014 2015 2016 2017 2018 2019 2020E 2021E
Variable Annuity Sales 135,856.6 128,160.7 100,723.4 90,587.6 91,178.4 91,372.9 84,276.7 83,434.0
% change -3.8% -5.7% -21.4% -10.1% 0.7% 0.2% -7.8% -1.0%
Index Annuity Sales 46,878.7 53,081.7 58,235.3 53,992.8 68,485.1 73,252.1 57,889.8 61,942.1
% change 21.3% 13.2% 9.7% -7.3% 26.8% 7.0% -21.0% 7.0%
Traditional Fixed Annuity Sales 44,650.3 45,308.2 49,777.1 43,852.2 56,537.7 56,228.6 57,100.0 59,384.0
% change 13.2% 1.5% 9.9% -11.9% 28.9% -0.5% 1.5% 4.0%
Total Fixed Annuity Sales 91,529.0 98,390.0 108,012.3 97,845.1 125,022.8 129,480.7 114,989.8 121,326.1
% change 17.2% 7.5% 9.8% -9.4% 27.8% 3.6% -11.2% 5.5%
Total Individual Life Annualized Premiums 13,150.0 14,000.0 14,100.0 14,220.0 14,255.6 14,968.3 14,669.0 14,889.0
% change 0.8% 6.5% 0.7% 0.9% 0.2% 5.0% -2.0% 1.5%
Group Life Sales 27,975.9 30,720.1 31,334.5 32,431.2 33,079.8 34,072.2 32,027.9 32,988.7
% change 4.9% 9.8% 2.0% 3.5% 2.0% 3.0% -6.0% 3.0%
Total Group Disability Sales 2,435.8 2,484.5 2,608.7 2,739.1 2,766.5 2,877.2 2,733.3 2,788.0
% change 2.0% 2.0% 5.0% 5.0% 1.0% 4.0% -5.0% 2.0%
Individual Long-Term Care New Premiums 316.8 263.0 228.8 176.2 158.5 145.9 131.3 124.7
% change -22.0% -17.0% -13.0% -23.0% -10.0% -8.0% -10.0% -5.0%
Life Reinsurance New Business Assumed 870,797.0 542,615.0 564,319.6 581,249.2 598,686.7 613,653.8 595,244.2 613,101.5
% change -19.4% -37.7% 4.0% 3.0% 3.0% 2.5% -3.0% 3.0%
Source: A.M. Best, VARDS, Tillinghast, Limra, Munich Re, Wink, and J.P. Morgan estimates.
M&A Likely to Entail Bolt-Ons Not Transformational Deals

In our opinion, M&A activity is more likely to be focused on blocks or bolt-on
transactions, not whole-company deals. Most of the deals in recent years have
been block deals or business line focused transactions (Venerable/EQH VA block,
Apollo/Jackson National fixed annuity block, Resolution Life/VOYA individual life,
PFG/Wells retirement, New York Life/Cigna group benefits, Apollo/VOYA CBVA,
investor group/Talcott, LNC/Liberty Mutual group benefits, HIG/Aetna group
benefits, Empower/Mass Mutual retirement, AIG/Validus, HIG/Navigators). Life
insurers have also pursued deals to enhance their distribution, geographic reach, or
product capabilities (MET/Versant Health, PRU/Assurance IQ, AFL/Argus,
UNM/Starmount, MET/PetFirst and Versant). In contrast, whole company
transactions have been less common (FNF/FGL, Oceanwide/Genworth which is still
pending). In our opinion, ongoing economic uncertainty could discourage M&A in
the near term. However, in the long run we believe that insurers will remain
motivated to divest tail-risk heavy legacy liabilities (such as LTC or old VA blocks
with guarantees) and acquire properties that enhance their core franchises.
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We believe that large domestic life insurers will be more interested in buying
U.S. group benefits or retirement businesses or foreign properties. We think that
U.S. insurers with foreign operations are more likely to pursue deals that expand
their overseas businesses, especially in Asia and Latin America. Although the U.S.
group benefits and retirement businesses remain attractive targets, we expect M&A
activity to be limited as there are more buyers than sellers in these markets.
Meanwhile, alternative asset managers continue to be highly interested in deals
involving asset-rich businesses, especially fixed and index annuities. With respect to
inbound interest into the U.S., we feel that it is more likely to originate from Asia
than from Europe, particularly from Japanese insurers looking to grow their presence
in the U.S. and reduce their dependence on their home market. Overall, Japanese
insurers have tended to target higher-quality firms and shown a willingness to pay
hefty premiums (30-50%), which we attribute to their excess capital, low funding
costs, and ability to use more favorable U.S. GAAP accounting for acquisitions. In
contrast, Chinese acquirers in the U.S. have typically focused on deals for deep-value
properties that have entailed greater regulatory scrutiny (China Oceanwide’s
acquisition of GNW has been delayed multiple times due to pending regulatory
approvals; Anbang’s proposed acquisition of FGL was not approved). As such, we
think these factors are likely to discourage U.S. insurers from entertaining offers
from Chinese firms. European and Canadian insurers (e.g., ING Groep, Pru UK,
Aviva, and Manulife, etc.) were active acquirers of U.S. assets in the past, but have
been deemphasizing their U.S. businesses in recent years, and would appear more
likely to sell than buy properties in the near term.
Life insurers are likely to continue to shed non-core businesses. In December

2020, MET agreed to sell its P&C operations to Zurich. Voya has sold its variable
annuity and individual life blocks, while EQH has reinsured part of its variable
annuity block to Venerable. UNM is also open to third-party solutions for its long-
term-care block, although we feel that a transaction is unlikely in the near term. In
late June 2019, MetLife reached an agreement to sell its Hong Kong business to
FWD Group and news reports have indicated that the company is seeking to sell its
European operations and US P&C business as well. In the U.S., MET continues to
explore third-party solutions for its run-off block, MetLife Holdings, though we
believe a wholesale deal for the block is unlikely. Prudential U.S. has sold its
businesses in Taiwan and Korea, and in early March 2020, Pru UK announced that it
plans to list its U.S. subsidiary, Jackson National.
In our view, likely potential buyers include EQH (wealth management and group),
MET (group benefits and international), and PFG (international, retirement, and asset
management). On the other hand, VOYA is a likely acquisition candidate, although
we feel that a deal is probably not as imminent as most investors believe given the
company’s size, its large DTA (which will be difficult for a buyer to utilize
completely), and high valuation relative to most potential acquirers.
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Table 23: Major Life Insurance M&A Transactions

Date Announced Acquirer Target Price ($ mil.) P/E P / BV
12/11/20 Zurich Financial/Farmers MetLife - P&C Business 3,940.0 15.8 1.80

9/17/20 MetLife Inc. Versant Health 1,675.0 18.6 NA
9/8/20 Great-West Lifeco Inc. Mass Mutual retirement services 3,350.0 12.2 NA
7/8/20 KKR & Co. Inc. Global Atlantic Financial Group Ltd. 4,400.0 7.0 1.00
2/7/20 Fidelity National Financial FGL Holdings 2,700.0 7.9 1.17
12/18/19 New York Life Cigna – Group Life 6,300.0 15.8 NA
12/18/19 Resolution Life Voya – Individual Life Business 1,250.0 9.0 0.58
11/25/19 Carlyle and T&D Holdings AIG – Legacy Business 2,300.0 14.3 0.45
1/9/18 Lincoln National Liberty Mutual Group Insurance 1,446.0 14.2 NA
12/4/17 Atlas Merchant & Global Atlantic Voya – CBVA and fixed annuities 1,100.0 NA 0.24
12/4/17 Apollo and investor group Hartford – Talcott 2,500.0 10.8 0.39
10/23/17 Hartford Aetna Group Business 1,450.0 16.1 NA
5/24/17 CF Corp Fidelity & Guaranty 1,834.6 11.7 1.13
10/23/16 China Oceanwide (pending) Genworth (pending) 2,705.8 6.2 0.18
9/29/15 Nassau Reins. Group Phoenix 217.0 NA 1.09
9/9/15 Sun Life AIZ's Employee Benefits Business 940.0 20.3 1.71
8/11/15 Sumitomo Life Symetra Financial 3,716.3 18.4 1.17
7/23/15 Meiji Yasuda Stancorp Financial 4,863.3 19.3 2.17
9/3/14 Manulife Financial Corp. Standard Life 4,000.0 19.5 1.90
6/3/14 Da-ichi Life Protective Life 5,708.0 14.4 1.29
3/21/14 Canada Pension Plan Wilton Re 1,800.0 NA 1.29
4/10/13 Protective Life MONY Life Insurance Company 1,056.0 7.6 NA
12/21/12 Athene Holdings Aviva USA / AmerUs 1,800.0 7.9 0.31
12/17/12 Guggenheim Partners Sun Life U.S. Annuity Business 1,350.0 10.1 0.62
12/21/11 Tokio Marine Holdings Delphi Financial Group 2,476.2 11.2 1.41
9/29/10 Prudential Financial Star & Edison (bought from AIG) 4,200.0 7.2 NA
3/7/10 MetLife Inc. ALICO (bought from AIG) 15,545.1 9.9 1.16
8/13/07 AEGON N.V. Merrill Lynch Life Insurance 1,301.0 NA NA
7/12/06 Aviva Plc AmerUs Group 2,740.1 17.6 1.77
10/10/05 Lincoln National Corp. Jefferson-Pilot Corp. 7,556.3 13.2 1.84
1/31/05 MetLife Inc. Travelers Life & Annuity 11,500.0 13.3 1.33
4/3/01 American Intl. Group American General Corp. 23,400.0 22.3 2.71
Source: SNL Financial and J.P. Morgan estimates. Note: China Oceanwide's acquisition of GNW has not closed.
Regulatory Conditions Favorable, but Taxes and DOL Risks

In our view, the regulatory environment facing life insurers is favorable, but the
prospect of higher corporate taxes and a new DOL fiduciary standard are risks.
Over the past few years, life insurers have benefited from a number of favorable
regulatory developments, including a court order to vacate the DOL fiduciary rule
and the removal of larger insurers’ SIFI designation. The delayed application of new
accounting rules from 2022 to 2023 was another positive. On the other hand, tax
reform passed in 2017 was largely neutral as a lower corporate tax rate was mostly
offset by revenue-generating provisions in the tax law that applied specifically to the
life insurance industry. With the incoming Democratic administration, potential
changes in the tax code and sales standards are the primary threats to the life sector.
Following are our views on the key regulatory issues facing life insurers:
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Please see our September 22,  Tax reform: Potential tax changes under the incoming Democrat administration
2020 report entitled “Insurance could hurt the financial position of life insurers. Tax reform in 2017 was not
Election Update” for a detailed
materially beneficial to life insurers as the increase in GAAP earnings from a
discussion of implications of
potential changes in taxation on the
lower corporate tax rate was more optical than economic. While GAAP taxes
insurance sector. dropped, cash taxes did not change materially due to revenue-generating
provisions or “pay-fors” (such as limits on the deductibility of reserves and DAC)
that applied specifically to insurers. Hence, a higher corporate tax rate under a
Democrat administration without any offsetting adjustments in pay-fors
would hurt the economic position of insurers. Another impact of 2017 tax
reform was to depress RBC ratios, through both reductions in the numerator
(mainly through a lower statutory DTA) and an increase in the denominator (due
to lower after-tax factors used in the computation). Rating agencies did not take
any actions in response to lower RBC ratios, and we do not anticipate changes in
insurers’ credit ratings if credit ratios rise due to an increase in the tax rate.
For further detail on our views on  Updated accounting standards for long-duration contracts (ASU 2018-12):
changing accounting standards, The FASB released new accounting standards for long-duration life insurance
please see our report entitled “Life
Insurance Accounting Update,”
contracts in August 2018. While changes were scheduled to go into effect on
published on February 25, 2019. January 1, 2021, implementation was initially pushed back to 1/1/22. In early
2020, the effective date was pushed back further to 1/1/23. The new rules propose
changes in the liability measurement for FAS 60 products, mandate reporting of
market-related risk in VAs on a fair value basis, simplify DAC amortization, and
require greater disclosure of assumptions. On FAS 60 liability measurement, the
new standards require insurers to mark liabilities to market using actual market
inputs, in contrast to the current approach where assumptions are “locked in” at
issue and are updated only when a loss recognition event occurs (e.g., future
profits cannot fully amortize DAC). Moreover, the rules require a uniform
interest rate to discount liabilities (interpreted as ‘A’-rated fixed income
instrument), with the impact of any interest rate changes to be reflected in AOCI.
In our view, the changes will have a negative financial impact on most
insurers, but we believe that they are positive for investors. We expect the
adoption of the new standards to reduce book values for most insurers (in the
20% range on average). Furthermore, the accounting change is likely to increase
volatility in insurers’ earnings. Nonetheless, we feel that the proposal is
beneficial for investors as it will make insurers’ balance sheets more reflective of
reality, increase the consistency of assumptions across companies, and improve
transparency on assumption disclosures. These factors, in turn, should reduce
(although not eliminate) investor skepticism of insurers’ book value. Also, greater
consistency of accounting for assets (which are marked to market) and liabilities
(which are not marked to market) will make total book value a more useful and
less volatile metric in valuing life insurance stocks versus book value ex. AOCI.
 CARES Act: The Coronavirus Aid, Relief, and Economic Security (CARES) Act
was signed into law on March 27, 2020. There are a number of provisions in the
law that relate to defined contribution/401(k) plans, including (1) the suspension
of required minimum distributions, (2) the waiver of early withdrawal penalties
(10% before age 59 ½) for qualified COVID-19 related distributions (up to
$100,000), (3) a 3-year deferral on taxes due for early withdrawals, and (4) an
increase in allowable loan amounts from $50,000 to $100,000. As expected, these
provisions drove an uptick in withdrawals, and although not mandated by the law
explicitly, defined contribution providers reduced or waived transaction fees to
allow plan participants to avail of these benefits. Voya, for example, announced
in early April that it was waiving processing fees for loans and hardship or
COVID-related withdrawals. The CARES Act will expire at year-end 2020 and it
is unclear if any follow-up stimulus packages will have the same provisions.
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Table 24: VA Capital Targets  Variable annuity reserving and capital standards: The updated framework for
Refers to current VA capitalization variable annuity capital and reserves, which the NAIC approved on August 7,
Capitalization Level 2018, has been effective since January, 1, 2020. In our view, the ultimate
impact of the new standards will be negative overall but vary across
AIG no disclosure companies. The new rules require macro assumptions to be more closely aligned
BHF $2 to $3 billion >CTE 95
with current market levels and reduce management discretion in setting
EQH CTE 98
LNC max of CTE 98 or % of assets
assumptions for policyholder behavior. In addition, the required CTE level of
PRU CTE 97 98% is more conservative than most insurers’ previous practice. The positive
Source: Company reports.
impacts of the new standard include better alignment of accounting for hedge
assets and VA liabilities, thereby reducing balance sheet volatility and
diminishing the need for captives. Furthermore, statutory capital for variable
annuity blocks should benefit from higher admissibility thresholds for previously
inadmissible assets such as hedge derivatives. From the point of view of
investors, we expect the updated VA standard to be favorable as it would better
match macro assumptions with actual market levels and improve comparability
across various companies. Insurers with variable annuity books domiciled in
New York face an even stricter standard with Regulation 213, which was
enacted in February 2020. Regulation 213 requires insurers to carry statutory
reserves equal to the maximum of the NAIC requirements and New York’s own
formula, potentially increasing capital requirements under certain macro
scenarios and/or VA exposures. Among our companies, those with the largest
variable annuity exposure in New York are EQH, MET, and AIG (LNC has a
small NY block as well, but BHF does not have much exposure to the state).
 Changes in C1 RBC charges: The NAIC intends to revise charges for C1 risk
(related to investment portfolios) in insurers’ RBC ratios, but the actual revisions
and implementation timeline remain open-ended (we are now assuming an
effective date of 2022 or later). Compared to the current system, the proposed
factors will generally raise required capital for more highly rated investments
(NAIC 1 and 2) and reduce required capital for the upper tiers of BB, B, and CCC
securities (NAIC 3, 4, and 5). Capital charges for real estate-linked investment
such as commercial mortgage loans and CMBS could decline. Overall, we expect
the proposed factors to increase required capital and reduce RBC ratios since
most insurers are invested in AA/A/BBB-rated securities, with the greatest
impact on companies with high asset leverage. However, even with the expected
decline in RBC ratios, we do not foresee major changes in insurers’ financial
strength ratings as most rating agencies use proprietary models to assess asset
portfolios.
 SECURE Act: The Setting Every Community Up for Retirement Enhancement
Act (SECURE Act) was signed into law in December 2019. The SECURE Act
has several provisions that are beneficial to DC administrators (AIG, EQH, LNC,
PFG, PRU, VOYA) such as financial incentives for small businesses to establish
plans, allowing “open” multi-employer plans, and raising default payroll
contributions from 10% to 15%. In addition, the SECURE Act establishes a safe
harbor provision to offer lifetime income products such as annuities inside DC
plans, a potential positive for annuity companies such as LNC and PRU.
 DOL fiduciary rule: The DOL fiduciary rule was vacated by court order in June
2018, thereby ending its partial implementation that had begun in 2017 and
spurring a rebound in index and variable annuity sales. Other regulatory agencies
such as the SEC and the NAIC have since released their own sales standards,
with the SEC releasing its Best Interest Standard for brokers in June 2019 and the
NAIC promulgating its suitability standard for annuity sales in February 2020
(the NAIC standard provides a safe harbor for brokers that sell registered
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annuities and comply with the SEC rule). The SEC and NAIC sales standards are
significantly less burdensome than the DOL’s 2016 fiduciary rule, and the DOL
itself has re-drafted its own original rule to make it more consistent with the “best
interest” approach of the SEC. The DOL rule has been submitted to the Office of
Management and Budget (OBM) for final review, after which it will be published
in the Federal Register before becoming effective in 60 days. However, given the
overlap of its effectivity date with the beginning of the next administration, it will
likely be subject to review and could be revised. In our view, while changes in
the current DOL rule are not imminent, there is a risk that the new
Democratic administration could try to make sales standards stricter.
Another concern is the consistency of sales standards that are ultimately
implemented by state insurance regulators (New York has introduced its own
sales standards that are stricter than the SEC standard; California is
contemplating a similar rule). Among major life insurers, those most exposed to
stricter standards include annuity-focused companies that rely on independent
agent distribution as well as EQH, LNC, and BHF (due to their exposure to VAs).
Others likely to be affected are PFG (small case 401k provider, with focus on
proprietary funds), AMP (due to its reliance on proprietary distribution), and PRI
(drop in commissions).
 Captive reinsurance and principle-based reserving: Regulators, including the
SEC, Federal Insurance Office, and the NY insurance commissioner, have called
for greater oversight of insurance captives in recent years. Partly in response to
this scrutiny, the NAIC introduced new guidelines for captives with the objective
of standardizing industry practice, increasing disclosure, and reducing the
mismatch between statutory and “economic” frameworks. The result of this
initiative was AG48, a rule promulgated in December 2014 that covers
XXX/AXXX captive arrangements (prospectively applied beginning 2015). For
the industry, an important benefit of AG48 is that it permits most companies to
carry lower reserves than previously given the standard’s reliance on a more
economic capital framework. Separate from AG48, the industry has been moving
towards principle-based reserving (PBR), which became effective on 1/1/17 (on a
prospective basis with a three-year phase-in option). PBR eliminates the need for
excess statutory reserves (in the context of term insurance and ULSG) beyond
what is required economically, further reducing the utility of captives. In
response to these regulatory developments, several insurers have modified their
captive structures, including MET (VA captive on-shored and consolidated in
November 2014), UNM (LTC captive on-shored in December 2013), VOYA
(VA captive on-shored in December 2013), PRU (VA captive consolidated in
April 2016), and GNW (Bermuda LTC captive on-shored in October 2016).
EQH, which is regulated by the New York insurance office, also merged its VA
captive with its main operating subsidiary before its IPO in 2018. LNC is an
outlier as it has a VA captive domiciled in Barbados which the company intends
to maintain. Overall, we expect greater regulatory scrutiny, more stringent
collateral standards, and ongoing efforts to harmonize statutory and economic
frameworks to further discourage insurers from using captives.
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Key Topics of Focus in 2021

In our view, life insurers will report lackluster, but improved results in the next
few quarters. High COVID-related mortality claims represent a notable negative,
but the robust equity market should more than offset the impact on many insurers’
results. Besides lifting fee income in equity-sensitive products (VA, DC plans, asset
management), the strong equity market bodes well for alternative investment income
in 4Q20 and 1Q21. This, in turn, should mask the impact of declining interest rates
on spread income. Our models project core spreads in interest-rate sensitive products
(fixed annuities, institutional spread products such as GICS and PRT) to continue to
decline, but reported spreads should be robust in the near term. Meanwhile, we
forecast sales and net flows in most products to remain weak. Top-line growth in
group products (group life, disability, dental/vision, and group retirement) is
especially vulnerable to the labor market, and high unemployment could drive an
uptick in disability claims as well. Also, consistent with the trend in recent years, we
expect most life insurers to incur balance sheet charges as part of their annual
actuarial reviews in mid-2021. Following are our views on the major topics we
expect investors to focus on in analyzing life insurers’ results in 4Q20 and in 2021.
Liquidity, Capital, and Credit Trends

Please refer to Pages 10-16 for a Credit losses and ratings downgrades were modest in 2020, but credit remains a
detailed discussion of insurers’ key for the sector. After widening considerably during the market sell-off in late
capital positions and investment
portfolios.
1Q20, credit spreads returned to more normal, albeit still slightly elevated, levels.
While bond downgrades (which would increase required capital and pressure RBC
ratios) and defaults (which would reduce capital) have increased slightly, their
impact has been considerably less than feared by investors or envisioned by insurers
in their stress testing. Still, the economy is fragile, and credit is one of our key
concerns, especially given the inherent high asset leverage in the life insurance
business model (assets are over 6x equity on average). Among our coverage
companies, we expect life insurers with above-average asset leverage, those with
riskier allocations, or limited balance sheet flexibility to withstand losses (AEL, AIG,
ATH, BHF, and UNM) to be more exposed to potential deterioration in credit trends.
On a positive note, we believe that most companies are managing through the
downturn in a significantly better capital and liquidity position than was the case
during the 2008 crisis. Moreover, many life insurers were able to take advantage of
favorable market windows in 2020 to issue debt and bolster their liquidity positions
(RGA raised equity). Nevertheless, higher credit losses and rating agency
downgrades could hurt capital flexibility in the near term. The proportion of BBB
assets in life insurers’ portfolios has increased from 26% at the end of 2011 to 31%
by year-end 2019, which exposes companies to the risk of “fallen angel” downgrades
(capital charges for below-investment-grade bonds are 4%+ versus roughly 1% for
investment grade assets).
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Share Repurchases and Dividends

Our outlook for share buybacks and dividends remains upbeat. Most insurers
suspended buybacks in early 2020. Some resumed in the second half, and we expect
many others to resume in early 2021. Our models project life insurers to increase
dividends. AFL, BHF, and EQH did not suspend buybacks in 2020, while ATH, GL,
and MET resumed in 3Q20. LNC and VOYA resumed activity in 4Q20, and we
forecast PFG and PRU to reinstate buybacks in 1Q21. Healthy capital levels was one
of the positives for the sector heading into the COVID-19 downturn, especially
compared with prior to the 2008 financial crisis. As such, even though most life
insurers stopped buybacks, we believe that this was done out of an abundance of
caution, not because of some impending risk of capital impairment, which made the
quick resumption of repurchases more feasible. Our models project life insurers to
spend roughly 7% of equity (ex. AOCI) on buybacks in 2021 versus 3% in 2020 and
5% in 2019. VOYA, EQH, and GL are expected to be the most active with buybacks
in 2021 and 2022. Conversely, we do not expect AIG and UNM to buy back stock in
the near term. Companies continued to raise dividends through 2020, and we expect
them to increase dividends at a high-single-digit pace in 2021.
Spreads/Margins in Interest-Sensitive Products

We expect life insurers’ reported spreads to be strong in 4Q20, helped by robust
alternative investment income, but core spreads should decline through 2021.
Given the significant pullback of interest rates in 2020, the gap between life insurers’
new money yields and maturing investments has widened further, implying
continued pressure on portfolio yields. Meanwhile, on the liability side, insurers have
less flexibility to reduce crediting rates. Although life insurers continue to offset
spread compression by increasing product prices and shifting asset allocations to
higher-risk and liquid securities, these actions are only likely to be partial offsets.
Given the strong equity market in 3Q20 and 4Q20, we expect alternative
investment income to be healthy in 4Q20 and 1Q21. Most companies report
private equity returns on a 1-quarter lag and hedge fund income on a 1-month lag
(PRU and AIG report hedge fund income on a concurrent basis), and allocations to
private equity are significantly higher than those to hedge funds. Among our
coverage companies, AIG and ATH have the highest exposure to alternatives.
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Table 25: Insurers’ Alternative Investment Exposure

$ in millions as of 9/30/20
As a % of Total Investments
Private Hedge Total Total Private Hedge Total
Others Others
Equity Funds Alternatives Investments Equity Funds Alternatives
AIG 5,900.0 2,200.0 8,010.0 16,110.0 359,595.0 1.6% 0.6% 2.2% 4.5%
ATH 3,353.0 1,011.0 2,084.0 6,448.0 152,481.0 2.2% 0.7% 1.4% 4.2%
BHF 2,514.8 47.2 2,562.0 114,518.0 2.2% 0.0% 2.2%
EQH 1,113.1 173.2 13.7 1,300.0 114,462.0 1.0% 0.2% 1.1%
HIG 894.0 546.0 428.0 1,868.0 54,951.0 1.6% 1.0% 0.8% 3.4%
LNC 1,611.3 219.7 1,831.0 152,110.0 1.1% 0.1% 1.2%
MET 7,973.0 627.0 8,600.0 530,650.0 1.5% 0.1% 1.6%
PRU 5,818.0 4,298.0 5,604.0 15,720.0 561,711.0 1.0% 0.8% 1.0% 2.8%
RGA 1,249.0 1,249.0 73,411.0 1.7% 1.7%
UNM 688.6 688.6 58,467.3 1.2% 0.0% 1.2%
VOYA 823.9 298.5 71.6 1,194.0 57,133.0 1.4% 0.5% 0.1% 2.1%
Life Insurance Mortality Margins

Our models forecast mortality claims to be elevated in 4Q20 and 1Q21 before
improving through the rest of the year. Johns Hopkins places COVID-19 deaths in
the U.S. at 346k at 12/31/20 (compared to 207k at 9/30/20). Meanwhile, CDC data
on all-cause mortality suggests that total deaths through 11/14/2020 (46 out of 52
weeks in 2020) were about 413k above the average of comparable time periods in
2015-2019, with most of the excess deaths occurring in the second quarter. On a
positive note, the impact of COVID-19 mortality on insurers’ results has been more
modest than our initial expectations and preliminary company guidance, partly due to
a higher concentration of deaths in the uninsured population (seniors and individuals
with pre-existing conditions). Most insurers reduced their earnings sensitivity to
COVID-19 mortality with 2Q20 results due to the skew in COVID-related deaths as
well as greater precision in modeling their exposures. In 3Q20, guidance from
companies on COVID-19 mortality was largely unchanged.
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Table 26: Updated Earnings Sensitivities to COVID-19 Claims

Company Initial Guidance 2Q20 Result Updated Guidance 3Q20 Result Updated Guidance
AFL US: 300-500 bps drag on 2020 US: 2% drag on 3Q20 benefit ratio ex. COVID, lower benefit utilization US: $23 million incurred claims
benefit ratio; 6.4 million cases from COVID (0.5% on 2020); overall to normalize; YTD COVID claims "initiative early in the third quarter to
1.5 million hospitalizations, results healthy due to offset from better than stress case, but no remind policyholders of their wellness
150k deaths; ST disability rate 75% by lower benefit utilization overall updated outlook provided benefits, which drove increased utilization
Japan: 50-100 bps drag on 2020 Japan: no measurable none provided Japan:JPY550 million incurred claims
benefit ratio; 1.2 million cases claims impact given modest "no measurable claims impact"
and hospitalization rate of 100% COVID spread in Japan
BHF $70 million after-tax for $25 million pre-tax for none provided $14 million pre-tax for "clearly, that initial guidance does not apply
100,000 U.S. deaths 120,000 U.S. deaths And we're not providing an update"
EQH $100-130 million after-tax for $60 million after-tax for $30-60 million after-tax for "lower than expected excess claims" $30-60 million after-tax for
100,000 U.S. deaths 120,000 U.S. deaths 100,000 U.S. deaths 100,000 U.S. deaths
GL $25 million pre-tax for $22 million pre-tax for $2 million pre-tax $18 million pre-tax in life $2 million pre-tax
80,000 U.S. deaths 120,000 U.S. deaths for every 10k deaths (life: , DTC $10m, LNL $4m) for every 10k deaths
LNC $90 mil. after-tax ($80 mil. in $135 mil. after-tax at mid-point $100 mil. after-tax ($80 mil. in $101 mil. after-tax, +$28m covid related $10 mil. after-tax
individual, $10 mil. in group) for 120,000 U.S. deaths individual, $20 mil. in group) $95m mortality, $6m disability for 10,000 U.S. deaths
for 100,000 U.S. deaths for 100,000 U.S. deaths $25m in group
MET Modest underwriting impact from U.S. life claims (individual and group) Underwriting impact to remain modest overall largely offsetting impacts we expect COVID-19 related claims
COVID-19 due to business mix offsets mostly offset by favorable dental utilization Lat Am claims to pick up, but U.S. life 3% impact to mortality in group life will remain elevated.
and low P&C claims claims to moderate from 2Q20; also, $70 million in life in latam
longevity to provide an offset
PRU $200 mil. pre-tax for 100k $85 million pre-tax in U.S. insurance $70 mil. pre-tax for 100k U.S. deaths <$85 million pre-tax in U.S. insurance $70 mil. pre-tax for 100k U.S. deaths
U.S. deaths ($140 mil.) and 40k but more than offset by longevity no longevity beneffits noted
Japan deaths ($60 mil.) gains in the U.K.
PFG $20 million after-tax for $10 million after-tax in mortality $10 million after-tax for $2. million claims in life $10 million after-tax for
100,000 U.S. deaths claims, more than offset by 100,000 U.S. deaths -$3 million after-tax net impact from covid 100,000 U.S. deaths
longevity and favorable morbidity
RGA $400-500 million pre-tax for $300 milllion in claims, $240 mil. of $200-300 million pre-tax for $140 milllion in claims, $100 mil. of $200-300 million pre-tax for
1.4 mil. global deaths (100k in US) which in the U.S.; $60 mil. of claims 1.4 mil. global deaths (100k in US); which in the U.S.; $40 mil. of claims 1.4 mil. global deaths (100k in US);
ex. US largely offset by favorable morbidity lonegvity to provide a partial offset (10% ) ex. US and $30 million longevity offset lonegvity to provide a partial offset (10% )
VOYA $25-45 million pre-tax for $8 million pre-tax in COVID-19 $10-20 million pre-tax for $9 million pre-tax in COVID-19 $1-2 million pre-tax for
100,000 U.S. deaths (employee claims (employee benefits business) 100,000 U.S. deaths (employee claims (employee benefits business) 10,000 U.S. deaths (employee
benefits business only) benefits business only) benefits business only)
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Excess mortality data could understate COVID-19 related fatalities in 4Q20 due to
the recent spike in deaths and reporting lags. Aside from the expected uptick in
COVID-19 deaths in the near term, there are other mortality-related dynamics
that have yet to play out. On a positive note, the dynamic of “pulled-forward”
claims from the next few years (as a majority of deaths have involved older
individuals and those with pre-existing conditions) could help mortality results in late
2021 and in 2022. However, even with potentially higher margins in the next few
years, economically this is more than offset by insurers effectively forfeiting
potential premiums and investment income. Conversely, even though vaccines
should prevent widespread infections in the future, the long-term impact of COVID-
19 on mortality remains to be seen, especially for those who were infected but
recovered. Similarly, there is uncertainty about the long-term side-effects of a
vaccine. Finally, it is possible the COVID virus strain becomes part of the regular
annual flu season and drives higher than historical flu-related deaths in the future,
which would imply insurers’ current mortality blocks (underwritten before the onset
of COVID-19) are underpriced. While companies could adjust their underwriting
practices for new business, this would imply weaker margins in in-force blocks.
Figure 1: Excess Mortality Spiked in 2Q20, Declined in 3Q20, But Is Rising Again
Number of weekly deaths (2020 data through week 46)
100,000
80,000
Number of Deaths
60,000
40,000
20,000
-
1 5 9 13 17 21 25 29 33 37 41 45 49
Weeks in Year (1-52)
2015 2016 2017 2018 2019 2020
Source: CDC and J.P. Morgan estimates.
In 3Q20, individual life margins were weak because of COVID-19 claims, though
not as poor as in 2Q20. Margins were better than assumed for most companies (AIG,
BHF, GL, MET, PRU, RGA) due to conservatism in guidance as well as favorable
offsets (particularly in the case of RGA). In contrast, individual life claims at EQH,
LNC, and PFG were slightly worse than expected, even after accounting for the
impact of COVID-19. Group life loss ratios were also elevated due to the impact of
COVID (HIG, LNC, MET, PFG, PRU, UNM, VOYA). In our view, investors will
focus most on individual life margins at RGA, followed by GL, LNC, and PRU.
At RGA, traditional U.S. results were already weaker than expected through most of
2019 and 1Q20 before the onset of COVID-19, a trend that management attributed to
normal variability in claims (driven by large claims), not a systemic uptick in
mortality. Our view of RGA’s mortality experience is broadly consistent with
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management’s interpretation, and so we expect claims experience to normalize (and

possibly be better than expected) over time, excluding the impact of COVID-19 in
the next few quarters. Our model projects a benefits ratio of 106.4% in 4Q20, 100.8%
in 1Q21, and 92.8% in 2021 compared to 91.6% in 4Q19, 99.6% in 1Q20, and 102.1%
in 2020. For GL, we are assuming that direct response margins improve to close to
16% in 2021 compared to 14% in 2020. This is below the historical level of 23%+
and margins in recent years (roughly 18%), but slightly better than trough margins in
2017, which marked the end of a period of margin compression that began in 2014.
Direct response margins started deteriorating in late 2014 because of high claims on
policies issued in 2011-2014 that were underwritten using prescription drug
information. Management had incorrectly assumed that policies underwritten using
such data would result in lower claims and better margins, but actual claims for such
policies have been consistent with the rest of the block. At LNC, we expect
individual life margins to be more volatile than historically because of mortality risk
recaptured in late 2015 that increased retained face amounts by 5%. In addition,
spread compression and higher funding costs are likely to keep life insurance
margins below their historical levels. At PRU, individual life margins have been poor
for the past several years, which we attribute to underpricing in its legacy book as
well as the block acquired from Hartford. PRU also incurred sizeable balance sheet
charges in 2Q17 and 2Q19 that have had a permanent negative impact on future
income in the individual life segment. Most recently in 2Q20, Prudential reported
another charge in the individual life business.
Table 27: Historical Individual Life Benefits Ratios Table 28: Historical Group Life Benefits Ratios
Total benefits/revenues Benefits/premiums
3Q19 3Q20 4Q19 1Q20 2Q20 3Q20 3Q19 3Q20 4Q19 1Q20 2Q20 3Q20
GL 71.2% 74.7% 72.0% 72.5% 75.9% 74.7% HIG 80.8% 87.5% 78.1% 74.6% 85.9% 87.5%
LNC 85.1% 84.5% 71.1% 72.8% 89.0% 84.5% LNC 70.5% 91.9% 65.7% 79.4% 82.6% 91.9%
MET 67.5% 60.2% 55.5% 51.0% 59.1% 60.2% MET 87.0% 89.6% 85.4% 87.9% 95.9% 89.6%
PFG 65.5% 98.7% 68.8% 69.1% 76.6% 98.7% PFG 61.0% 68.6% 57.1% 64.6% 70.0% 68.6%
PRU 71.4% 70.2% 71.9% 75.8% 79.4% 70.2% PRU 84.7% 93.9% 85.5% 88.4% 93.4% 93.9%
RGA 77.9% 84.8% 82.0% 90.0% 96.4% 84.8% UNM 72.0% 83.5% 71.7% 70.6% 81.8% 83.5%
VOYA 84.2%
Avg. 76.0% 85.8% 73.9% 77.6% 84.9% 85.8%
Avg. 74.7% 78.8% 70.2% 71.8% 63.5% 78.8% Source: Company reports and J.P. Morgan estimates.
Group Disability Underwriting Margins

Our outlook for group disability margins is incrementally cautious and ongoing
stress in the labor market could drive an uptick in loss ratios in 2021. Group
disability margins for most insurers (HIG, LNC, MET, PFG, PRU, UNM) have been
strong over the past several years, but we believe that they could deteriorate,
especially if economic conditions remain challenging. Margins in the group disability
business tend to expand in healthy labor markets and contract during and subsequent
to economic downturns, partly due to slower claims recoveries as employees use it as
a form of income support. Consequently, we believe that the negative impact on
group disability margins is likely to be more pronounced in industries that are
directly exposed to the COVID-19 related economic slowdown or in the smaller case
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market where businesses are more likely to experience financial stress. In 2020, the
uptick in disability claims reported by insurers has been mostly confined to the short-
term line (shorter elimination and benefit periods) and not long-term disability,
which represents the majority of group disability coverage. A major positive for
insurers in the group disability business is the ability to re-price contracts (most
contracts carry price guarantees for 1-3 years), which several insurers including HIG,
LNC, and PRU did in the years following the last economic recession to counteract
higher claims. Among our coverage companies, UNM’s disability margins have been
the most stable, and we attribute the trend to disciplined pricing and lower exposure
to cyclical industries. Meanwhile, margins in other lines like supplemental
products, dental, and vision will depend on benefit utilization, which in turn will
be driven by consumer behavior and virus-related shutdowns. In 3Q20, dental
claims trends were mixed as some insurers (PFG, UNM) saw utilization spike due to
pent-up demand while others (LNC, MET) experienced a more gradual uptick in
utilization. For 4Q20 (typically a low season) we believe that dental utilization could
be elevated due to catch-up demand, while utilization is likely to be lower in 1Q21 if
COVID cases remain elevated. Among our companies, MET has the highest
exposure to the dental business, followed by PFG, UNM, and LNC. Following its
acquisition of Versant, MET will also be the largest provider of vision coverage
among our companies. MET’s dental results should be better than most other
insurers’, as unlike most peers, the company established an unearned premium
reserve in 2Q that will smooth its income in the fourth quarter (similar to 3Q20).
Table 29: Disability Margins Have Been Healthy, but Could Compress if the Economic Slowdown Sustains
Reported benefits ratio (benefits/premiums)
2017 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20
HIG 76.5% 74.9% 74.3% 75.9% 67.5% 73.1% 69.6% 72.9% 64.4% 62.0% 67.3% 74.6% 85.9% 87.5%
LNC 67.9% 61.9% 76.4% 75.8% 79.6% 75.4% 75.4% 74.9% 76.4% 80.5% 76.8% 78.3% 78.7% 78.9%
MET 65.0% 64.6% 61.8% 56.8% 61.9% 61.3% 61.6% 64.1% 59.0% 60.1% 61.2% 60.4% 61.5% 60.7%
PFG 64.0% 64.0% 63.4% 63.9% 62.8% 63.3% 65.7% 59.7% 62.8% 57.4% 61.3% 61.3% 55.6% 61.5%
PRU 78.9% 79.0% 71.6% 78.9% 81.5% 77.7% 74.6% 74.5% 79.4% 82.2% 77.7% 76.0% 75.7% 73.5%
UNM 76.5% 75.6% 76.2% 76.3% 76.2% 76.1% 74.7% 74.7% 74.2% 74.0% 74.4% 73.2% 72.8% 74.1%
Avg. 71.5% 70.0% 70.6% 71.3% 71.6% 71.1% 70.3% 70.1% 69.4% 69.4% 69.8% 70.6% 71.7% 72.7%
Source: Company reports and J.P. Morgan estimates. Note: MET’s disability benefits ratio for 3Q12 and beyond is estimated based on overall group benefits results.
Risk Profile of Variable Annuity Blocks & Hedge Performance

We expect net amounts at risk in variable annuity blocks to improve from
9/30/20 levels, driven by the strong equity market. Net amount at risk (NAR) has
limitations as an analytic tool, but it can serve as a directional and comparative
measure of risk in variable annuity books. In recent years, living benefit NARs
reported by insurers have improved on both an absolute basis and as a proportion of
assets, as the benefit of the strong market has offset the impact of lower rates. This,
in turn, has reduced risk in VA books. It has also contributed to increased willingness
at third-parties to take on legacy VA blocks, enabling HIG and VOYA to dispose of
their blocks and EQH to reinsure a part of its block. Additionally, the increased
proportion of more rationally priced and lower-risk newer policies has enhanced the
quality of the VA books. Insurers have implemented various actions to reduce risk,
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including more stringent terms and conditions on newer policies and customer
buyouts of older blocks. While we remain wary of tail risk in VA blocks,
especially in the event of a sustained weak market, hedge programs performed
better than expected in 2020. EQH’s and BHF’s hedges generated a large gain in
1Q20, which mostly reversed in the second and third quarters. LNC reported
significant hedge breakage in the first quarter and modest hedge breakage in the
second quarter as well, but results were better than feared nonetheless and the
company reported a modest hedge gain in 3Q20.
Longer term, we remain concerned about companies with outsized exposure to the
VA product, including BHF, EQH, and LNC. Still, these insurers’ VA books have
less exposure to risky vintages and are more rationally priced than the VOYA and
HIG blocks. Nonetheless, variable annuities with guarantees constitute a significantly
larger proportion of their earnings and capital than peers’ and present significant risk.
Given the size of their blocks, even modest hedge breakage could have an outsized
impact on their results. While AIG, MET, and PRU have large VA blocks as well,
their liability profile and earnings are more diversified overall.
Table 30: Net Amount at Risk as a Percentage of Assets Still Elevated Compared to Past Years
$ in millions
Living Benefit Net Amount at Risk VA Assets Living Benefit NAR as % of AUM
9/30/18 9/30/19 9/30/20 9/30/18 9/30/19 9/30/20 9/30/18 9/30/19 9/30/20
AIG 259.7 342.8 411.6 116,853.0 112,725.0 115,882.0 0.2% 0.3% 0.4%
BHF 5,651.0 9,185.0 101,594.0 100,471.0 5.6% 9.1%
AMP 225.0 383.0 402.0 79,444.0 77,452.0 79,846.0 0.3% 0.5% 0.5%
EQH 9,980.0 13,403.0 103,979.0 107,831.0 9.6% 12.4%
LNC 451.0 853.0 1,200.0 119,430.0 118,424.0 127,585.0 0.4% 0.7% 0.9%
MET 658.0 713.0 63,419.0 61,244.0 1.0% 1.2%
PRU 4,391.0 5,212.0 5,922.0 162,369.0 160,130.0 158,646.0 2.7% 3.3% 3.7%
Average 0.9% 3.0% 4.0%

Margins and Sales/Flows in International Divisions

Our models project life insurers to generate relatively strong margins, but weak
sales in their international businesses. Our coverage companies with the highest
exposure to international markets include: AFL (70% of earnings), PRU (44%), RGA
(44%), and MET (37%). AFL, PRU, and MET have significant operations in Asia
(primarily Japan), while PFG (and to a lesser extent MET and PRU) are active in
Latin America. Overall, we forecast insurers’ international businesses to report
healthy margins and growth over time, aided by favorable competitive dynamics and
positive demographic trends (ex. Japan). However, in the near term, growth will
likely be lackluster, marked by sales weakness in Japan in both US$ products (MET
and PRU) and third-sector policies (AFL). Sales in the near term in Latin America
and Asia ex. Japan are likely to be suppressed by COVID-related disruption and the
ensuing economic weakness, but results should improve as 2021 progresses, helped
by easier comps and a gradual return to a more normal environment following a
vaccine. Foreign exchange trends were favorable in 4Q20 compared to 3Q20,
with the US$ weakening versus most currencies to which our coverage companies
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(1-212) 622-6397 05 January 2021
are exposed. Compared to 4Q19, the Euro (+7.7%), the UK pound (+2.6%), the
Japanese yen (+4.1%), and the Canadian dollar (+1.3%) appreciated against the US
dollar, while the Chilean peso (-0.7%), the Mexican peso (-6.4%) and the Brazilian
real (-23.8%) depreciated. Changes in the yen are the most impactful for AFL, which
does not hedge its earnings for forex (it hedges capital repatriated to the U.S.,
currency risk in its investment portfolio, and its equity ownership in the Japan
business). In contrast, PRU and MET have hedged most of their yen-exposed
earnings over the next few years. Therefore, the impact of foreign exchange
movements will affect their results over time, not immediately. PRU hedges its yen
exposure (about 3% of total company earnings) on a three-year rolling period, and at
9/30/20 was 100% hedged for 2021 at 103 ¥/$ compared to 104 ¥/$ in 2020. For
2022, more than 60% of PRU’s Japan earnings are hedged. AIG, PFG, RGA, and
UNM do not hedge earnings for changes in exchange rates.
Our models project sales/flows in Japan and LatAm to be weak near-term, and
results are more likely to miss our forecasts than beat given ongoing COVID-19
related disruption. We expect AFL’s Japan third-sector sales to drop 16% in 4Q20
and decline 36% in 2020 due to COVID-related disruption as well as lower volumes
from the Japan Post (almost a quarter of AFL’s Japan sales previously). However,
sales are expected to rebound in 2021, growing roughly 37%, as comps ease and
business activity returns to more normal levels, assuming the COVID-19 vaccine is
successful in curtailing cases and deaths. At MET, we expect Asia sales to be
lackluster as well near-term, marked by lower volumes in Japan (as well as Asia ex.
Japan). Over the past few years, MET’s Japan sales had been hurt by a shift in its
product portfolio from yen-denominated to foreign-currency products beginning in
early 2016 (-6% in 2019, +13% in 2018, -9% in 2017, -6% in 2016, and -2% in
2015). However, results should improve as 2021 progresses. Similarly, we project
PRU’s Japan sales to be poor in 4Q20, primarily due to price hikes enacted on US$-
denominated products sold in Japan in August 2020, but pick up in 2021. In Latin
America, flows in the Chilean pension market (MET, PFG, PRU) and in Brazil
(PFG) have dropped in recent years following greater scrutiny of AFP providers in
Chile and economic uncertainty in Brazil. COVID-19 infections in Latin America
have been significant, particularly in Brazil and Chile, and the ensuing disruption
will likely continue to suppress insurers’ sales in the near term. As in other markets,
we expect sales in Latin America to improve through 2021 given easy comps and an
assumed return to normalcy following a vaccine.
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Table 31: Life Insurers’ Exposure to International Markets

% of normalized 2021E earnings
U.S. 29.6% 86.8% 93.5% 100.0% 100.0% 94.7% 97.0% 98.7% 100.0% 62.9% 79.6% 56.2% 55.8% 92.6% 100.0%
Japan 70.4% 4.1% 18.3% 1.3% 37.7% 3.4%

Asia ex. Japan 2.8% 0.5% 4.5% 0.4% 4.8% 4.8% 4.0% 10.1%
Europe 3.6% 6.0% 0.8% 0.8% 4.3% 1.1% 0.2% 16.1% 7.4%
Latin America 0.4% 9.2% 13.3% 1.8% 1.1%

Other International 0.6% 0.5% 0.2% 2.0%
Total Foreign 70.4% 13.2% 6.5% 5.3% 3.0% 1.3% 37.1% 20.4% 43.8% 44.2% 7.4%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Valuations Recovered, but Still Attractive

Life insurance valuation multiples are no longer overly depressed, but still seem
compelling and, barring credit deterioration, present attractive upside potential.
We believe that the group’s lackluster business trends, depressed interest rates, and a
potential uptick in credit losses/downgrades merit a low valuation. Still, current
levels seem attractive overall given the robust recovery in the equity market and the
Fed’s support of the credit market. Life insurance stocks are trading at 0.9x BV ex.
AOCI (median; average is 1.2x due to a few outliers) and 7.6x 2021E EPS (median;
average is 7.9x), above recent trough levels of 0.7x BV and 5.2x EPS in March 2020,
but below 1.3x and 9.1x, respectively, at the beginning of 2020.
A key driver of life insurance stocks’ low multiples is the group’s poor earnings
quality and overstated book values. As a result, we believe life insurance stocks
are not as cheap as they appear at first glance and deserve to trade at a discount to
other financials. Our models forecast life insurers to generate operating ROEs of 11-
12% and modest EPS growth in the next few years. However, companies’ economic
returns are lower than suggested by these metrics. Operating EPS for most life
insurers does not reflect significant ongoing costs (many insurers show hedging
costs, pension plan outlays, and integration charges, etc., in net EPS, but not
operating). Additionally, life insurers incur sizeable “one-time” charges on a
consistent basis. Over the past decade, net EPS for the sector has averaged about
74% of operating EPS and BV growth has been lower than the trend implied by
operating ROEs. Meanwhile, operating ROEs for the group are only modestly above
their cost of equity while ROEs on net income are roughly in-line. From a balance
sheet perspective, we believe that most companies’ book values are overstated given
optimistic interest rate assumptions embedded in their DAC and reserve balances as
well as exposures to under-reserved liabilities (such as LTC).
Despite their poor earnings quality, life stocks seem attractive on several
metrics, including versus historically, the broader market, and other financials.
The sector is trading below its historical P/E and P/BV multiples, is trading at a
larger discount versus the overall market than in the past, and is trading at a greater
than average discount versus most other financials sub-sectors.
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Figure 2: Life Stocks Still Below Their Average P/BV ex. AOCI . . . Figure 3: . . . And Well Below Historical P/E Levels
Based on book values ex. AOCI, as of 12/31/2020 Based on one year forward calendar year earnings, as of 12/31/2020
2.0 16.0
14.0
1.6
Average = 1.2 12.0 Average = 9.8
1.2
10.0
8.0
0.8
6.0
0.4
4.0
- 2.0
12/31/04 7/31/08 2/29/12 9/30/15 4/30/19 12/31/98 12/31/03 12/31/08 12/31/13 12/31/18
Actual P/BV ex. AOCI Average P/BV ex. AOCI Actual P/E Average P/E
Source: Bloomberg and J.P. Morgan. Source: Bloomberg and J.P. Morgan.
Life stocks are trading at a larger discount to the market and P&C firms than
historically, and roughly the same discount to banks (on P/BV). On a P/BV basis,
the life insurance sector is trading at a 38% discount to P&C insurers, a 13%
discount to large-cap banks, and a 21% discount to small/mid-cap banks versus
historical discounts of 19%, 14%, and 23%, respectively. On a P/E basis, the life
sector is trading at a wider discount than in the past to P&C insurers (35% currently
versus 15% historically), the overall market (60% versus 35%), and large-cap banks
(32% versus 26%). Compared to small/mid-cap banks, the P/E discount of the life
insurance sector has narrowed slightly (35% versus 36%).
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Figure 4: Historical P/BV for Select Financial Stocks Table 32: Life Ins. Discount Has Widened vs. P&C, Narrowed vs. Banks
Based on total book values, data as of 12/31/2020 Valuation as of 12/31/2020, L-T Average from 2004 onwards
2.40 Price / Book Value Price / Earnings
Large Cap Banks Current L-T Average Current L-T Average
Small-Mid Cap Banks
1.90
Life Insurers
Life insurers 0.9 1.1 8.7 9.3
P&C Insurers
1.40 P&C insurers 1.4 1.4 13.4 11.0

Large cap banks 1.0 1.3 12.8 12.7
0.90 Small-mid cap banks 1.1 1.4 13.4 14.5
Asset managers 13.7 13.2
0.40
Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Apr-20
S&P 500 Index 21.5 14.4
Source: Company reports and J.P. Morgan estimates. Note: JPM Life Insurance Index for life insurers, KBW Bank Index for large banks, Nasdaq Bank
Index for small/mid-cap banks, and S&P 500 subsector indices for P&C insurers and asset
managers.
On a relative basis, life insurance stocks look more attractive than the overall market
as they trade at a roughly 60% discount to the S&P 500 Index on P/E, greater than
the 40% level historically. We believe part of the discount is justified by the life
sector’s worse earnings quality compared with that of other industries. Also, all else
being equal, we feel that the discount should be slightly higher than in the past.
While tax reform enhanced operating EPS for our coverage companies by over 10%,
it had a marginal benefit to cash flows due to the negative impact of pay-fors. In
contrast, other sectors experienced a greater benefit to their earnings and cash flow.
Finally, in the current environment, balance sheet concerns (which affect life
insurance stock prices meaningfully) dominate any potential earnings headwinds.
Figure 5: Life Insurance – Historical P/E vs. S&P 500 P/E

Data through 12/31/2020
90.0%
80.0%
70.0%
60.0%
50.0% Average = 60%
40.0%
30.0%
20.0%
10.0%
0.0%
12/31/98 12/31/03 12/31/08 12/31/13 12/31/18
Actual JPM Life P/E vs. S&P 500 P/E Average
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On average, our year-end 2021 price targets imply approximately 21% upside for our
Overweight-rated stocks, 5% upside for Neutral-rated stocks, and 5% upside for our
Underweight-rated stocks through the end of 2021.
We derive our price targets using a weighted average of:
 Price to book value ex. AOCI (50% weight);

 Price to total book value (25% weight);
 P/E (25% weight).
For AIG and VOYA, we use the above approach in valuing their businesses and then
add our estimated fair value of their deferred tax assets. Also, we corroborate our
targets for diversified insurers such as AIG with a sum-of-the-parts analysis.
We view P/BV ex. AOCI (accumulated other comprehensive income), which

excludes unrealized gains and losses in a company’s investment portfolio, as the
most appropriate metric for valuing life insurers. Unrealized gains/losses are
generated primarily by interest rate moves and are typically not monetized as insurers
hold most investments to maturity. Moreover, unrealized gains/losses are more
optical than economic in nature as insurers mark-to-market their assets, but not their
liabilities. Still, during times of credit market stress, as may be the case if the current
economic slowdown persists, we place more emphasis on total book values (which
include mark-to-market losses). When credit trends deteriorate, unrealized losses are
driven more by a higher probability of defaults, not normal fluctuations in interest
rates. As such, we assign a higher weight to total book values in deriving our price
targets. Although sector-dedicated investors focus on BV ex. AOCI in valuing life
insurers, most generalists rely on total book values, especially when comparing life
companies with other financial services firms such as P&C insurers and banks.
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AFLAC, Inc.
Neutral
AFLAC, Inc. (AFL;AFL US)
Company Data Year-end Dec ($) FY18A FY19A FY20E FY20E FY21E FY21E FY22E FY22E
Shares O/S (mn) 704 (Prev) (Curr) (Prev) (Curr) (Prev) (Curr)
52-week range ($) 53.46-23.07 Operating income ($ mn) 4,472 4,591 4,579 4,535 4,428 4,428 4,402 4,407
Market cap ($ mn) 31,287.94 Adj. PBT ($ mn) 3,981 4,444 3,888 3,844 4,139 4,138 4,113 4,117
Exchange rate 1.00 Adj. net income ($ mn) 3,224 3,311 3,716 3,528 3,147 3,402 3,127 3,385
Free float(%) 92.6% ROE 13.5% 12.6% 12.0% 11.5% 9.4% 10.3% 9.0% 9.9%
3M - Avg daily vol (mn) 3.83 Adj. EPS ($) 4.16 4.44 4.95 4.92 4.94 4.97 5.15 5.19
3M - Avg daily val ($ 156.8 BBG EPS ($) 4.09 4.43 - 4.91 - 4.86 - 5.12
mn) Reported EPS ($) 3.77 4.43 6.28 6.32 4.76 4.81 4.96 5.01
Volatility (90 Day) 34 DPS ($) 1.04 1.09 1.12 1.17 1.18 1.34 1.24 1.40
Index S&P 500 Dividend yield 2.3% 2.5% 2.5% 2.6% 2.7% 3.0% 2.8% 3.2%
BBG BUY|HOLD|SELL 2|7|3 Adj. P/E 10.7 10.0 9.0 9.0 9.0 8.9 8.6 8.6
Source: Company data, Bloomberg Finance L.P., J.P. Morgan estimates.
Defensively Positioned Overall, but Weak Sales a Concern

We view AFL as a strong franchise and project it to report robust margins and
returns, but are Neutral due to concerns about weak sales and modest growth.
AFL’s leading Japan franchise, significant scale, and high policy persistency should
help it generate a strong ROE over time. Also, the U.S. supplemental market presents
significant long-term growth potential, particularly given the increasing prevalence
of high-deductible medical plans. Furthermore, AFL’s below-average EPS sensitivity
to the equity market and interest rates, along with elevated capital flexibility and
conservative investment portfolio, position it defensively if macro conditions worsen.
On a cautious note, we are concerned about near-term weakness in sales in both the
Japan and U.S. businesses, primarily due to COVID-related disruption. In addition,
we are wary of sluggish revenue growth for the next few years given the mature
nature of the Japan business, which generates close to three-fourths of total company
earnings, and project Aflac’s EPS growth to be driven primarily by share buybacks
and margin expansion. We could get more constructive on AFL if there is better
visibility into a recovery in sales, and would get incrementally cautious if the stock’s
valuation multiple expands materially.
2021 Outlook
Adjusting EPS Estimates We are lowering our 4Q20 EPS estimate from $1.07 to $1.04 but increasing our
4Q20E: from $1.07 to $1.04 2021 forecast from $4.94 to $4.97. In addition, our 2022 earnings projection is
being increased from $5.15 to $5.19. Our updated model reflects a revision to the
2021E: from $4.94 to $4.97
impact of COVID-19 on policy usage (+$0.02 impact to 4Q20, +$0.01 impact to
2022E: from $5.15 to $5.19 2021), a stronger yen (+$0.02 impact to 4Q20, +$0.07 impact to 2021), and adjusted
margins in Japan (-$0.03 impact to 4Q20, +$0.08 impact to 2021), partially offset by
weaker margins in the US (-$0.03 impact to 4Q20, -$0.13 impact to 2021). We
expect AFL to report relatively strong margins but weak sales in both the Japan and
U.S. businesses as COVID headwinds persist. The main drivers of performance and
areas of focus will be management commentary surrounding sales expectations via
the Japan Post, investment portfolio trends, and the pace of share repurchases. We
expect the following to be the key areas of investor focus for AFL:
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(1-212) 622-6397 05 January 2021
 Japan and U.S. margins: Our model projects the Japan business to report pretax
margins of 18.1% in 4Q20 and 20.8% in 2021 compared to 19.8% in 4Q19 and
20.5% in 2020. In our view, Japan margins will continue to expand over time, but
at a slower pace than in the past given elevated investment spending and more
moderate improvement in hospitalization trends. In the U.S., our model forecasts
pretax margins of 14.3% in 4Q20 and 17.6% in 2021 versus 16.8% in 4Q19 and
20.0% in 2020. We think U.S. margins in the near term are more likely to beat
our forecasts than miss as they benefit from lower utilization due to COVID-19.
 Japan sales: We remain downbeat on Japan sales and forecast a decline of 15%
in 4Q20 and 35% in 2020, followed by 36% growth in 2021 off easy comps and a
gradual return to normalcy post-pandemic. Overall, we feel that Japan sales are
more likely to fall short of our forecasts than beat. Beside COVID-19, results in
the near term should continue to be pressured by modest production through the
Post (which accounted for close to a quarter of AFL’s Japan sales previously).
The pandemic and social distancing are making it challenging for agents to be
proactive in marketing and scheduling meetings. While agents are attempting to
reach customers via email and over the phone, we expect sales to remain weak
until businesses in Japan reopen and employees return to work on a more
permanent basis. A robust sales recovery in 2021 is predicated on a successful
reopening of the economy once COVID-19 is under control as well as a ramp up
at the Post. The Post continues to sell Aflac’s cancer policies (a few competitors
such as Nippon have voluntarily suspended sales through the channel), but new
business volumes through post offices should stay modest in the near term as
recent scrutiny of sales practices makes post office personnel less aggressive in
pushing insurance products.
 U.S. sales: Our model forecasts U.S. sales to fall 13% in 4Q20 and 26% in 2020,
but grow 10% in 2021, helped by easy comps and an eventual return to normalcy
post-pandemic. We expect sales in the near term to continue to be held back by
COVID-related disruption, which should affect production in the agency channel
more so than via brokers. Unlike sales via agents, the brokerage channel does not
entail a high level of face-to-face interaction. AFL’s U.S. sales have become
increasingly concentrated in the fourth quarter (close to a third of annual sales)
due to the ongoing distribution shift towards brokers, which account for almost a
third of annual new business and book most of their volumes in the open
enrollment season in the fourth quarter. Therefore, fourth quarter sales are more
critical to full year performance than in the past and results in the quarter are less
exposed to COVID-related disruption. A sales recovery in 2021 is predicated on a
gradual return to normal business activity following a successful reopening of the
economy once COVID-19 is under control. Aside from sales weakness, the
ensuing economic fallout from COVID-19 presents a headwind for persistency in
the U.S. business, especially given AFL’s small business focus. Management is
trying to enhance persistency by encouraging policyholders to be more proactive
in utilizing policy benefits, expanding its product suite for large accounts and
offering new digital tools to small business clients. On a positive note, our long-
term outlook for U.S. sales is positive, and we expect the increasing prevalence of
high-deductible medical plans and the low penetration of supplemental products
to drive strong growth in the market over time. Aflac has a dominant market
position (over one-third market share) and could lose share as more life and
health insurers focus on the market. However, we expect the company to remain
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a market leader given its superior brand, greater scale, and broader distribution
platform than most peers’.
 Japan new money yields and hedge costs: We expect net investment income in
Japan to decrease slightly in 2021. Japan investment income should continue to
benefit from higher allocations to US$ securities and should benefit from lower
hedge costs. The new money yield is likely to fluctuate on a quarterly basis
depending on the timing of investments, but we expect it to be above the portfolio
yield. AFL is less susceptible to the recent uptick in hedging costs as it has
already locked in most of its hedges for 2021. Management has been internalizing
a portion of its hedging activities (offsetting the yen exposure in the Japan
division by increasing US$ exposure at holdco), which should generate a 10-25%
reduction in hedging expenses over time. AFL’s strategy of investing Japan cash
flows in US$-denominated securities and hedging back to yen has evolved over
time, and the company has a higher allocation to unhedged US$ securities than in
the past. Management’s current approach to US$ investments in Japan is to leave
60-70% of the portfolio (roughly $34 billion total) unhedged, allocate 5-10% to
high-grade fixed income securities hedged using forwards (3-5 years), and 25-
30% to lower-rated, floating-rate securities hedged with short-duration forwards.
 Commentary on capital deployment: AFL has significant liquidity at the
holding company and excess capital in its insurance subsidiaries, which can be
released over time. The company ended 3Q20 with a Japan SMR of 957% and a
U.S. RBC ratio of around 600%, levels well above those required for its ratings.
Also, AFL has $5.6 billion of liquidity at the holding company level, multiples of
its annual holdco needs. This, along with robust cash flow generation, provides
ample flexibility for share repurchases and dividend hikes. AFL and EQH were
the only major life insurers to not suspend buybacks due to the pandemic. Our
model assumes buybacks of $400 million in 4Q20 and $1.6 billion in 2021.
Investment Thesis, Valuation and Risks

AFLAC, Inc. (Neutral; Price Target: $51.00)
Investment Thesis
We reiterate our Neutral rating on AFL. Our long-term outlook for AFL is upbeat. In
our view, Aflac’s strong franchise, high policy persistency, and significant scale in
Japan are key strengths that will help it earn a mid-teens ROE, well above peer
levels. In addition, we believe that AFL has significant growth potential in the U.S.
supplemental products market, which seems underpenetrated. Also, AFL’s business
mix and strong free cash flow position it defensively if macro conditions deteriorate.
On a cautious note, we projects sales in the U.S. and Japan to be weak in the near
term and are concerned about sluggish revenue growth in the long run.
Valuation
We are raising our December 2021 price target from $50 to $51 to reflect an
increase in our EPS and book value estimates. AFL trades at 8.7x our 2021 EPS
forecast and 1.2x BV ex. AOCI versus the sector multiples of 7.9x and 1.1x,
respectively. In our view, AFL should trade below its historical P/E multiple of 13x
given its slower expected EPS growth. Regardless, we believe that AFL’s strong
franchise, superior returns, high EPS visibility, and lower EPS sensitivity to rates and
equity markets should command a premium to peers. Our price target is based on
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blended multiples of 10.0x our 2022 EPS projection (50% weight) and 1.3x our
12/31/21 book value ex. AOCI forecast (50% weight).
Risks to Rating and Price Target

In our opinion, the key upside risks to our price target and Neutral rating are:
 A severe U.S. recession or a drop in the US$ against the Japanese ¥. AFL’s
results are less sensitive than peers’ to macro conditions in the U.S., including the
equity market and interest rates. Additionally, given AFL’s Japan exposure, a
weaker US$ would boost reported earnings and lift sentiment on the stock. We
estimate that each 1¥ move versus the US$ would impact the company’s annual
EPS by $0.01-0.02.
 A faster than expected recovery in Japan Post sales. Distraction from mis-
selling issues presents a headwind for sales through the Japan Post (25% of
AFL’s Japan sales). If the Japan Post’s review is finalized and sales activities
normalize, there could be upside to our sales estimates. Similarly, new sales
agreements with the Post could also drive upside to our longer-term sales
projection. While the benefit to EPS and book value would be modest, at least for
the next several years, a meaningful increase in sales would likely lead investors
to reassess AFL’s growth potential and boost the stock’s valuation.
Conversely, AFL could underperform the sector for the following reasons:
 Potential negative developments related to the Japan Post. On December 27,

2019, the FSA placed a 3-month suspension on sales of Japan Post Insurance Co.
insurance products (mostly life insurance) via post offices. The FSA order does
not apply to AFL’s cancer sales. Still, the disclosure of additional issues or a
suspension in sales of AFL’s products at the Post would place downward pressure
on AFL’s Japan new business volumes. While sales weakness would not
materially impact near-term earnings, it would likely hurt sentiment on the stock.
Also, continued poor sales would pressure earned premiums and earnings.
 JGB rates remain low for a prolonged period or hedging costs increase.
AFL’s continued allocation of yen-denominated premiums to US$ investments
(hedged back to yen) will increase its derivatives exposure, making it more
susceptible to breakage and fluctuations in hedge costs. Additionally, low JGB
yields are a headwind for both earnings and hedging costs.
 Possible changes to the U.S. healthcare system affect the attractiveness of
supplemental products. Uncertainty around the healthcare market could make
small business owners defer adding new benefit options, which would drive
downside to expectations on U.S. sales and harm investor sentiment on the stock.
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American International Group

Neutral
American International Group (AIG;AIG US)
Company Data Year-end Dec ($) FY18A FY19A FY20E FY21E FY22E
Shares O/S (mn) 861 Operating income ($ mn) 1,409 5,478 3,098 5,267 5,462
52-week range ($) 56.42-16.07 Adj. PBT ($ mn) 257 5,287 (5,779) 4,301 4,746
Market cap ($ mn) 32,612.60 Adj. net income ($ mn) 1,064 4,084 2,304 4,051 4,200
Exchange rate 1.00 Combined ratio 35.7% 34.4% 33.5% 33.3% 33.3%
Free float(%) 99.9% Adj. EPS ($) 1.17 4.59 2.64 4.63 4.95
3M - Avg daily vol (mn) 5.72 BBG EPS ($) 2.24 4.58 2.48 4.36 5.00
3M - Avg daily val ($ 198.7 Reported EPS ($) (0.01) 3.74 (5.93) 3.76 4.29
mn) DPS ($) 1.28 1.28 1.28 1.36 1.44
Volatility (90 Day) 39 Dividend yield 3.4% 3.4% 3.4% 3.6% 3.8%
Index S&P 500 Adj. P/E 32.4 8.2 14.4 8.2 7.6
BBG BUY|HOLD|SELL 9|10|0 Source: Company data, Bloomberg Finance L.P., J.P Morgan estimates
Valuation Compelling, but Fundamental Outlook Downbeat

AIG’s valuation is attractive, but we remain Neutral given its lackluster
business trends, above-average portfolio risk, and limited capital flexibility. In
our view, potential ROE expansion, firmer P&C prices, and a gradual improvement
in P&C margins are major positives. Also, AIG’s DTA is a valuable asset that should
allow capital to build at a faster pace than implied by after-tax earnings. On the other
hand, we expect life & retirement division results to be marked by weak margins,
spread compression, and net outflows. In the P&C business, margins should improve,
but are likely to remain modest overall, and we project growth to remain under
pressure due to lower volumes in the U.S. personal lines business (travel insurance).
Meanwhile, we expect the company’s elevated leverage ratio to limit capital
flexibility and project its AIG 200 restructuring program to weigh on cash flow, net
income, and book value growth. Valuation is attractive, but less so than it appears at
first glance after reflecting below-the-line items (which inflate operating EPS) and
accounting for the DTA (which is carried on the balance sheet at an undiscounted
value of $9 per share, but we estimate is worth $5 per share in terms of present value
of future tax savings). Regardless, investor sentiment is less upbeat than a year ago,
and AIG was one of the worst performing stocks in the insurance sector last year. As
such, we feel that the risk-reward in the stock is attractive.
2021 Outlook
No changes to EPS estimates We updated our EPS estimates as part of the P&C 2021 Preview published on
1/4/2021. Our 4Q20 EPS estimate was lowered from $1.09 to $1.06 while our 2021
forecast was raised from $4.61 to $4.63. We reduced our 2022 earnings projection
from $5.05 to $4.95. Our model reflects the positive impact of the equity market
(+$0.01 in 4Q20 and +$0.06 in 2021) and healthy variable investment income
(+$0.03 in each of 4Q20 and 1Q21), offset by a higher cat loss assumption (-$0.05 in
4Q20), COVID-19 mortality claims (-$0.02 in 4Q20 and -$0.01 in 1Q21), and less
accretion from share buybacks due to a lower dollar amount and a higher assumed
stock price (-$0.08 in 2021 and -$0.15 in 2022). In our opinion, AIG’s 2021 P&C
results will be marked by modest premium growth (due in part to weakness in the
U.S. personal lines business) and year-on-year improvement in the combined ratio. In
the life and retirement business, we expect ongoing spread compression, outflows,
and COVID-19 claims, especially in the 1H21. On a positive note, alternative
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investment income is likely to be healthy in 4Q20 and 1Q21, helped by the lag effect
of the strong equity market. Besides reported results, we expect investors to focus on
management commentary regarding the P&C market (pricing, reserve development,
and potential BI claims), capital (particularly the resumption of buybacks), and the
AIG 200 program. We consider the following the major metrics on which to evaluate
the company’s operating performance:
 P&C margins and reserve development: We project P&C combined ratios of

93.0% in 4Q20 and 93.4% in 2021 (ex. cats and prior year development)
compared to 95.8% in 4Q19 and 94.3% in 2020. Including cats and PYD, we are
assuming combined ratios of 99.1% in 4Q20 and 98.1% in 2021 versus 99.8% in
4Q19 and 103.4% in 2020. Besides reported margins, we expect investors to
focus on management commentary regarding COVID-related losses and potential
exposure to business insurance claims. AIG’s P&C margins should improve over
time, helped by a better pricing environment and a more rational approach to
underwriting (lower net retentions) and reinsurance (coverage of additional risks
and geographies). Furthermore, the 2018 acquisition of Validus bodes well for
margins longer-term as the acquired business had a lower combined ratio than
stand-alone AIG. Still, given AIG’s history and the challenging tort environment,
we remain concerned about additional adverse reserve development over time.
 Life & retirement spreads and flows: In our view, life & retirement results will
be marked by spread compression, negative flows, and sluggish revenue growth.
Although AIG has leading market positions in several life & retirement business
lines, its historical competitive advantages such as superior ratings and
dominance of select channels (e.g., banks) have eroded since the financial crisis.
Management has reduced crediting rates to offset pressure on spreads, but it will
have less flexibility for further reductions as a greater share of its liabilities
reaches minimum guarantees and competition in channels such as banks picks up.
 Alternative investment income: We forecast healthy variable investment
income in both 4Q20 and early 2021, helped by the lag effect of the strong equity
market. Our model assumes alternative investment income of +$262 million in
4Q20 and +$841 million in 2021 versus +$255 million in 4Q19 and
+$607 million in 2020. AIG reports private equity income on a one-quarter lag
and hedge fund returns on a concurrent basis, but allocations to PE are
significantly higher than hedge funds.
 Results in non-core business: Following the sale of Fortitude Re (leaving AIG
with a 3.5% stake) to Carlyle in June 2020, AIG has exited substantially all of its
legacy life and P&C insurance businesses. Similarly, its exposure to legacy
investments (global capital markets and direct investment book) has declined
materially, from $6 billion at 12/31/2016 to about $1 billion. Earnings from the
legacy investment portfolio should decline over time as assets mature or are sold
off, but results will fluctuate as positions are marked to market. For 4Q20 and
2021, we project earnings legacy earnings of $25 million and $68 million.
 Updates on capital and share buybacks: Our model assumes no share
repurchases in 4Q20 and $400 million in 2021 (none in 1Q21 to 3Q21,
$400 million in 4Q21). AIG executed a $500 million accelerated repurchase plan
in 1Q20 but stopped buybacks shortly thereafter to preserve capital and reduce
debt (target leverage of 25%). At 9/30/20, AIG’s leverage ratio was 29.1%.
Management has indicated that it is willing to keep the leverage ratio above 25%
in the near term. Nevertheless, we believe that AIG’s elevated leverage could
delay a resumption of share buybacks to beyond 2021.
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American International Group (Neutral; Price Target: $39.00)
Investment Thesis
AIG’s valuation is compelling, but our Neutral rating reflects concerns about its
weak operating trends, above-average investment portfolio risk, and limited capital
flexibility. Potential ROE expansion and gradual improvement in P&C margins are
notable positives. Also, AIG’s DTA is a valuable asset that should allow capital to
build at a faster pace than implied by after-tax earnings. On the other hand, we
expect life & retirement results to be marked by lackluster margins, spread
compression, and outflows. Furthermore, AIG’s elevated leverage ratio is likely to
limit capital flexibility, while its AIG 200 restructuring program should suppress
cash flow, net income, and book value growth. Although the stock is cheap, it is not
as compelling as it appears at first glance given AIG’s significant below-the-line
items (which inflate operating EPS) and accounting for the DTA (which is carried on
the balance sheet at an undiscounted value of $9 per share, but we estimate is worth
$5 per share in terms of present value of future tax savings). Still, investor sentiment
has gotten more cautious and AIG significantly underperformed most peers in 2020.
Hence, the risk-reward in the stock seems positively skewed.
Valuation
We are maintaining our December 2021 price target of $39. In our view, the most
appropriate method to value AIG is to analyze the operating businesses separately
from the DTA (which we estimate to be worth $5 per share post tax reform). Based
on AIG’s current stock price, our estimated fair value for the DTA suggests that the
rest of the company is being valued at approximately $32 per share (7x 2021E EPS
and 0.6x BV ex. AOCI and the DTA). While this is much lower than median
multiples for the life and P&C sectors, we feel that a discount is justified given
AIG’s sub-par ROE. Our $39 price target is derived using multiples of 0.6x projected
12/31/21 BV ex. AOCI and DTA (50% weight), 0.5x total BV ex. DTA (25%
weight), and 6.9x our 2022 EPS estimate (25% weight). This yields a fair value for
the business of $34. To this, we add $5 for the DTA. We corroborate our price target
with a sum-of-the-parts analysis, which suggests a valuation range of $37 to $40 for
AIG using comparable trading multiples.

In our opinion, AIG could outperform the sector or exceed our price target if:
 P&C margins improve at a faster pace than expected. P&C margins should
improve as AIG re-prices cases, pulls back from certain product lines, and uses
more reinsurance. If AIG is able to remediate the P&C book at a faster pace or
the pricing environment improves, there could be upside to our forecasts. A 1%
change in the combined ratio affects EPS by about $0.22.
 Life & retirement results improve. Although AIG’s P&C underwriting margins
have begun to recover, results in life & retirement remain lackluster. If flows and
margins in the business begin to improve, investor sentiment could become more
positive.
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Conversely, we believe that AIG would underperform the group if:
 P&C margins improve at a slower than assumed pace. Management expects

the general insurance business to generate underwriting profits, driven by cost
reductions, re-pricing/reinsurance initiatives, and premium growth (particularly in
U.S. commercial). If AIG’s results suggest that this goal is not attainable, there
could be downside risk to EPS estimates and investor sentiment on the stock.
 The P&C business reports adverse reserve development. Management is
confident in the adequacy of P&C reserves, but AIG has a history of adverse
reserve development, especially in its longer-tail lines. Recurring unfavorable
development, either on the legacy business or due to adverse business
interruption court judgements, would pressure results as well as hurt investor
sentiment on the stock.
 AIG announces a large acquisition. Management has expressed interest in
acquisitions, and the announcement of a sizable transaction would likely drive
reductions in EPS and ROE forecasts to the extent that capital is diverted from
potential share repurchases. AIG spent $5.6 billion on its most recent deal,
Validus, which closed in July 2018.
 Regulatory scrutiny of 403(b) business increases. Regulators such as the SEC
and state attorneys general are investigating sales practices in the 403(b) market,
the focus of AIG’s group retirement business (13% of earnings). An unfavorable
outcome from the investigations could result in fines or potentially disruptive
changes in current sales and/or business practices.
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Brighthouse Financial
Underweight
Brighthouse Financial, Inc. (BHF;BHF US)
52-week range ($) 48.25-12.05 Operating income ($ mn) 1,030 670 (289) (302) 1,349 1,403 1,362 1,409
Market cap ($ mn) 3,300.41 Adj. PBT ($ mn) 1,030 670 (289) (302) 1,349 1,403 1,362 1,409
Exchange rate 1.00 Adj. net income ($ mn) 892 599 (197) (215) 1,099 1,057 1,119 1,066
Free float(%) 99.6% ROE 6.2% 4.0% (1.2%) (1.4%) 6.2% 6.5% 6.1% 6.4%
3M - Avg daily vol (mn) 0.83 Adj. EPS ($) 7.44 5.31 (2.39) (2.23) 12.20 12.21 13.19 13.06
3M - Avg daily val ($ 27.8 BBG EPS ($) 7.63 5.03 - (0.32) - 11.45 - 13.09
mn) Reported EPS ($) 7.21 (6.75) 0.63 (15.51) 6.31 5.26 7.21 6.85
BBG BUY|HOLD|SELL 1|8|4 Adj. P/E 4.9 6.8 NM NM 3.0 3.0 2.7 2.8
Cautious View Reflects Poor Operating Trends & Tail Risk

We expect Brighthouse’s weak operating trends, limited cash flow generation,
and high tail risk to drive underperformance. Management’s focus on increasing
sales of higher-return products and proactive expense management are notable
positives. Still, our model forecasts BHF’s ROE to stay depressed (8-9% on
operating EPS and 5-6% on net EPS), driven by low returns on legacy policies,
spread compression, establishment expenses, and the funding requirement of variable
annuity reserves. Also, the company’s net flows are likely to remain negative for the
foreseeable future and its sales are more prone to disruption from COVID-19 because
of its retail focus. Meanwhile, Brighthouse’s large variable annuity block exposes it
to tail risk and makes its results highly sensitive to macro conditions, while its
significant hedging costs (in net EPS, not operating EPS or ROE) are likely to
pressure free cash flow and book value growth. Although BHF’s valuation is
depressed, it is less compelling than it appears at first glance when adjusted for the
company’s poor earnings quality (net EPS is close to half of operating), elevated cost
of equity, and lackluster business trends.
2021 Outlook
Adjusting EPS Estimates We are lowering our 4Q20 EPS estimate from $2.92 to $2.78, but are increasing
4Q20E: from $2.92 to $2.78 our 2021 forecast from $12.20 to $12.21. In addition, our 2022 earnings projection
is being reduced from $13.19 to $13.06. Our model is updated for the strong equity
2021E: from $12.20 to $12.21
market in 4Q20 (+$0.05 in 4Q20 and +$0.40 in 2021) and healthy variable
2022E: from $13.19 to $13.06 investment income (+$0.05 in 1Q21), factors which are more than offset by COVID-
19 claims (-$0.19 in 4Q20 and -$0.11 in 1Q21), incremental interest expense (-$0.15
in 2021), and less accretion from share buybacks due to a higher stock price (-$0.17
in 2021 and -$0.44 in 2022). Overall, we expect BHF’s 2021 results to be marked by
higher sales but negative flows and ongoing spread compression. Also, despite
meaningful excess capital generated by BHF’s previous hedging strategy, we remain
cautious on its ability to generate capital on an ongoing basis given the volatile
profile of its variable annuity block. With respect to 4Q20, we expect BHF to report
a loss from its VA hedges given the strong equity market, similar to 2Q20 and 3Q20.
However, as BHF reports the impact of hedging in net EPS, the loss will hurt book
value, but not affect operating earnings. Besides business trends, we expect investors
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to focus on the performance of BHF’s hedging strategy, as well management

commentary regarding the potential to divest underperforming blocks, capital
generation, and risk in the investment portfolio. In our view, the following will be the
key areas of focus with BHF’s 2021 results:
 Sales and flows: We expect BHF’s sales growth to remain healthy (due in part to
a modest starting base), but lapses and benefit utilization on the in-force block are
likely to suppress overall net flows for the foreseeable future. In the annuity
business, we forecast fixed annuity flows of +$575 million in 4Q20 and
+$2.1 billion in 2021 and index/variable annuity flows of -$727 million in 4Q20
and -$3.3 billion in 2021. In the active UL block, we are modelling modest
inflows of +$25 million in 4Q20 and +$114 million in 2021. In our view, BHF’s
efforts to enhance distribution and launch new products bode well for its fixed
annuity, index annuity, and life insurance sales over time. Among its various
products, we expect Shield Level Selector (a buffer annuity), Index Horizon (an
index annuity sold through Mass Mutual), and fixed annuities to be the largest
drivers of sales. BHF also launched a hybrid life insurance product in February
2019, which management projects to generate $250 million of sales by 2021.
 Annuity margins: Our model assumes annuity margins of 26.1% (pretax) in
4Q20 and 2021 compared to 28.1% in 4Q19 and 30.4% in 2020. We expect
annuity margins to improve modestly over time as cost reduction efforts offset
the drag from lower AUM (due to outflows). Still, the profitability of the annuity
business is likely to remain lackluster overall, especially after reflecting hedging
costs, which the company reflects below-the-line instead of in operating EPS.
 Expense management: Cost reductions have been a major driver of BHF’s
earnings improvement in recent years, but we expect them to have a smaller
impact going forward. More specifically, BHF forecasts total corporate expenses
to decline by $25 million in 2021, a slower pace of improvement than
$150 million improvement in 2020. Although BHF’s “establishment costs” (IT
and branding) are projected to decrease from $125-135 million in 2020 to $55-65
million in 2021, they appear in net income, not operating income, and therefore
do not affect our operating EPS projections. Also, overall establishment costs are
on pace to exceed the company’s initial budget. Following 3Q19 results,
management raised its expectation for establishment costs from $175-200 million
pretax for 2019-2021 to $295-325 million due to a delay in exiting TSA
arrangements with MET and additional tech spending.
 VA hedging plan performance: BHF updated its hedging strategy in early 2020
to more closely follow movements of its underlying variable annuity liability
instead of focusing on protecting against downside risk. Specifically, BHF
reduced its unhedged/first loss position from $2 billion to $500 million and began
using futures (which provide more symmetrical offsets to the liability) instead of
out-of-the money options (which hedge against downside scenarios and provide
upside in strong markets). The latter strategy had generated about $1 billion of
excess capital for BHF over the past couple of years because of the healthy equity
market. Management had previously said that it would dividend this amount,
along with about $250 million of earnings from the variable annuity subsidiary,
to the holding company. Year-to-date through the third quarter, Brighthouse up-
streamed $800 million of its planned $1.2 billion dividend for 2020, with plans
for an additional $510 million in 4Q20 ($450 million from BLIC and $60 million
from NELICO).
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 Update on capital: Our model assumes $90 million of share buybacks in 4Q20
and $200 million in 2021. Combined with capital deployment in 2018 and 2019,
this implies total share buybacks of $1.2 billion from 2018 to 2021, below
management’s target of $1.5 billion, but still fairly high considering the current
environment. A large proportion of the buybacks in 2020 (expected to be roughly
$466 million) are being funded by the one-time dividend of $1 billion, and so we
expect repurchases to decline in future periods as funding is more dependent on
run-rate capital generation (management has indicated that run-rate capital
generation is about $300 million a year). Overall, we remain cautious on BHF’s
ability to generate capital consistently given the macro sensitivity of its variable
annuity book, even with the benefit of hedges that it has in place. Furthermore,
we expect free cash flow to be hurt by hedging expenses and establishment costs
which management does not reflect in operating ROE (hedging costs are not
included in operating EPS; establishment costs are included in operating EPS but
are backed out when computing ROE). We estimate that BHF’s hedging costs are
roughly $400 million per year, about 40% of operating income (excluded from
operating income but included in net income). BHF’s RBC at 9/30/20 was in the
525-545% range, above its target of 400-450%.

Brighthouse Financial, Inc. (Underweight; Price Target: $37.00)
Investment Thesis
We are Underweight on BHF given its lackluster operating trends, limited capital
generation, and high tail risk. Although sales should grow at a healthy pace, overall
net flows are expected to remain lackluster because of outflows from legacy blocks.
Meanwhile, despite its updated hedging program, we believe that BHF’s sizable
variable annuity block makes its more sensitive to the macro environment compared
to peers. Brighthouse’s valuation seems very attractive at first glance, but it is less
compelling when adjusted for its poor earnings quality (net EPS is 50-60% of
operating EPS) and its high cost of equity.
Valuation
We are increasing our December 2021 price target from $36 to $37 to reflect our
updated EPS and book value estimates. BHF trades at 0.3x BV ex. AOCI and 2.9x
our 2021E EPS versus the group averages of 1.1x and 7.9x, respectively. Although
valuation appears attractive on operating EPS, it is not as compelling when adjusted
for hedging costs and other “below the line” items. On a net EPS basis, BHF’s ROE
is expected to be in the 4-5% range and its P/E multiple is close to 7x our 2021
forecast. We derive our price target for BHF using blended multiples of 0.3x our
12/31/21 book value ex. AOCI forecast (50% weight), 0.2x 12/31/21 projected total
BV (25% weight), and 4.0x 2022E EPS (25% weight), which we feel are appropriate
given its ROE and growth potential.

In our view, BHF could outperform our rating and exceed our price target if:
 BHF completes its $1.5 billion buyback plan earlier than expected. This
would drive upside to our EPS and BV forecasts, as well as lift sentiment on the
stock. If the macro environment is better than assumed in BHF’s base case or if
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the impact of new variable annuity reserving guidelines is manageable,

management could also accelerate its share repurchase plans.
 The equity market appreciates significantly. The equity market drives about
58% of BHF’s earnings, higher than most peers’. We estimate that a 10% rise in
the equity market will lift earnings by 6% compared to the sector average of 4%.
 Interest rates increase. About 38% of BHF’s earnings are driven by interest
rates, and we estimate that a 100 bps change in rates impacts annual EPS by
about 2%. Rising interest rates would also benefit BHF’s revenues, reduce
hedging costs, and decrease the likelihood of balance sheet charges.
 New product and distribution initiatives gain more traction than anticipated.
Brighthouse lost two key distributors (MET Private Client and Fidelity) before
being spun off from MET. As a result, the company’s flows have remained
negative despite its success in growing index and buffer annuity sales. If BHF’s
new product and distribution initiatives gain traction, there could be upside to our
forecasts for sales and net flows.
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Equitable Holdings Inc

Neutral
Equitable Holdings Inc (EQH;EQH US)
Free float(%) 99.8% ROE 15.8% 18.0% 14.2% 14.4% 13.3% 14.3% 26.6% 28.8%
mn) Reported EPS ($) 3.27 (3.51) 2.02 0.57 3.23 3.38 3.72 3.80
Index RUSSELL Dividend yield 1.0% 2.3% 2.6% 2.6% 2.8% 2.8% 2.9% 2.9%
2000 Adj. P/E 6.6 5.3 5.6 5.7 4.9 4.8 4.3 4.3
BBG BUY|HOLD|SELL 9|1|0 Source: Company data, Bloomberg Finance L.P., J.P. Morgan estimates.
Buybacks a Plus; VA Exposure & Relative Valuation Concerns

EQH’s conservative portfolio and strong capital position are key positives, but
we are Neutral due to its sizable exposure to VAs and its relative valuation. EQH
earns most of its income from less capital intensive and fee-based products, which
should help it generate an above-average ROE in the long run. In addition, EQH’s
conservative investment portfolio, along with its ability and intention to continue
repurchasing shares, are positives in the current environment. On a negative note,
despite the annuity reinsurance transaction with Venerable, EQH remains highly
exposed to variable annuities, and its life insurance business is likely to generate poor
margins. Although the Venerable deal reduces tail risk, lowers hedging costs, and
releases capital, it is dilutive to EPS. Moreover, we are concerned about regulatory
scrutiny of the retirement/403(b) business and EQH’s lower earnings quality (net
EPS equal to about 60% of operating). Valuation seems overly depressed at first
glance, but we feel that it is fair given the company’s poor earnings quality.
2021 Outlook
Adjusting EPS Estimates We are reducing our 4Q20 operating EPS estimate from $1.24 to $1.19 and
4Q20E: from $1.24 to $1.19 raising our 2021 earnings projection from $5.24 to $5.36. For 2022, we are
lowering our EPS forecast from $6.00 to $5.97. Our revised model reflects the
2021E: from $5.24 to $5.36
positive impact of the strong equity market in 4Q20 (+$0.03 in 4Q20, +$0.23 in
2022E: from $6.00 to $5.97 2021) and healthy variable investment income (+$0.02 in 1Q21), offset by COVID-
related life claims (-$0.08 in 4Q20 and -$0.05 in 1Q21) and less accretion from share
buybacks due to a higher stock price (-$0.09 in 2021 and -$0.27 in 2022). In our
opinion, EQH’s 2021 results will be mixed, marked by improving flows in the
individual retirement (less drag on flows after the VA reinsurance deal closes) and
asset management (withdrawals of legacy AXA mandates should subside)
businesses, but weaker flows in group retirement. Meanwhile, we expect margins
across most of EQH’s businesses to benefit from the healthy equity market. In
addition to reported results, we expect investors to focus on management
commentary regarding the Venerable variable annuity deal, capital, and Equitable’s
investment portfolio. In our opinion, investors will analyze EQH’s 2021 performance
based on the following key factors:
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 Individual retirement (annuity) margins and flows: The individual retirement

business has reported outflows since 2017, but we expect flows to turn modestly
positive following the close of the Venerable deal (assumed in 2Q21) as the drag
from outflows in the legacy variable annuity block dissipates and results benefit
from inflows from newer products. Our model projects individual annuity sales of
$1.9 billion in 4Q20 (-16.7% from 4Q19) and $7.6 billion in 2021 (+3.7% from
2020), and outflows of -$340 million in 4Q20 and -$700 million in 2021 (inflows
are expected to be roughly +$353 million in 2H21 following the close of the
Venerable variable annuity deal). Meanwhile, on margins, we are assuming a
pretax ROA of 181 bps in 4Q20 and 192 bps in 2021 compared to 178 bps in
4Q19 and 172 bps in 2020. Mechanically, the Venerable deal will improve the
profitability of the individual retirement business (as measured by ROA) as it will
reduce assets by roughly 25% and earnings by only about 10%. In our view,
EQH’s VA block is more conservative compared to most peers’ given its target
capitalization and management’s de-risking initiatives.
 Group retirement results: We forecast group retirement sales of $804 million in
4Q20 (-20.7% from 4Q19) and $3.3 billion in 2021 (+2.7% from 2020), and
break-even flows in 4Q20 and inflows of +$125 million in 2021. Longer term, we
expect EQH’s group retirement sales to grow at a low- to mid-single-digit pace
and net flows to be 1% of AUM, helped by stable recurring deposits, increasing
penetration of the K-12 market, and higher client contributions. Pretax ROAs are
expected to be 143 bps in 4Q20 and 139 bps in 2021 compared to 145 bps in
4Q19 and 143 bps in 2020. The K-12 (teachers’) market has fared better than the
broader economy during the COVID-19 pandemic. Still, we are concerned that
stretched state budgets and limited federal government assistance could
eventually result in higher unemployment in the K-12 market. Additionally, we
are concerned about secular headwinds pressuring the DC market, including
assets shifting to individual retirement accounts (as more baby boomers retire),
fee pressure, and greater regulatory scrutiny of VAs sold in 403(b) plans.
 Investment margins and flows: Our model projects investment management
sales of $31.9 billion in 4Q20 (+18.0% from 4Q19) and $127.0 billion in 2021
(+1.9% from 2020) and inflows of +$0.7 billion in 4Q20 and +$5.6 billion in
2021. Similar to the past few quarters, we expect flows in 4Q20 to be negatively
impacted by AXA’s redemption of its legacy mandates with AB (roughly
$3 billion with no expected redemptions in succeeding quarters). Meanwhile, we
are assuming adjusted operating margins of 29.3% in 4Q20 and 30.3% in 2021
compared to 32.3% in 4Q19 and 28.7% in 2020. Overall, we have a positive
outlook for the investment management business as we expect growth to be
driven by AB’s equity and multi-asset strategies and margins to expand on the
back of management initiatives to reduce costs and to grow in higher-fee asset
classes (active equities and alternatives).
 Protection solutions margins: We maintain a cautious outlook for EQH’s
protection business, which is the company’s lowest return segment with about
25% of capital but less than 10% of earnings. Our model assumes a benefit ratio
of 77.8% in 4Q20 (reflecting the continuing impact of COVID-19 claims) and
69.7% in 2021 compared with 59.1% in 4Q19 and 77.5% 2020. Pretax margins
are expected to be 1.1% in 4Q20 and 7.5% in 2021 versus 18.4% in 4Q19 and
3.2% in 2020. Management’s strategy to improve returns in the protection
solutions business involves organic growth (largely through the group insurance
segment) as well as in-force actions, but we do not anticipate a meaningful
improvement for the foreseeable future. In addition, potential sales or reinsurance
transactions are likely to be dilutive to earnings and equity. Most recently, in
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December 2019, Equitable agreed to sell certain blocks of run-off business (with
statutory reserves of roughly $1 billion) to Heritage Life.
 Update on capital and share buybacks: We believe that EQH’s consistent cash
flow generation and strong financial position will allow it to spend more capital
on share buybacks and dividends than most other life insurers. Management’s
stated goal is to maintain deployable cash flow at 50-60% of operating earnings
over time. In addition, released capital from the Venerable deal should
temporarily boost deployment in 2021 and 2022. Our model assumes share
buybacks of $140 million in 4Q20 and $1.0 billion in 2021 (roughly $300 million
of which is from the Venerable deal, with an additional $200 million assumed for
2022). In addition, we are projecting dividends of almost $300 million in 2021.
Unlike most of its peers that suspended repurchases, EQH maintained its share
buyback program through 2020.

Equitable Holdings Inc (Neutral; Price Target: $21.00)
Investment Thesis
In our view, EQH’s conservative investment portfolio and strong capital position are
notable positives. However, the company’s legacy VA block is a source of tail risk,
even after reflecting the Venerable deal, and poor life insurance margins present a
headwind for overall returns. Moreover, regulatory scrutiny of the retirement/403(b)
business is a potential overhang. While valuation seems very attractive at first glance,
it is less compelling when adjusted for EQH’s significant below-the-line items (net
EPS equal roughly 60% of operating) and slower book value growth.
Valuation
We are maintaining our December 2021 price target of $21. EQH trades at 0.9x
book value ex. AOCI and 4.6x 2021E EPS versus the life group at 1.1x and 7.9x,
respectively. Our price target is based on blended multiples of 0.7x our 12/31/21 BV
ex. AOCI forecast (50% weight), 0.5x our 12/31/21 total BV forecast (25% weight),
and 4.0x our 2022 EPS projection (25% weight), which we feel are appropriate given
the company’s ROE and growth potential. This compares with our group multiples of
0.9x book value ex. AOCI and 7.0x EPS.

We feel that EQH could outperform our rating and exceed our price target if:
 EQH announces additional transactions selling its legacy life and/or VA

liabilities. Life insurance is EQH’s lowest-return business and a drag on
profitability. For this reason, we think that investors would react positively to
third-party solutions (such as reinsurance) even if they are dilutive to earnings
and equity. Most recently in October 2020, EQH announced the reinsurance of a
part of its VA block with living guarantees to Venerable. This follows the
December 2019 agreement to sell certain blocks of run-off business (with
statutory reserves of about $1 billion) to Heritage Life.
 The equity market is strong. EQH derives a significant proportion of its
earnings from equity sensitivity businesses such as variable annuities, asset
management, and retirement. Based on our calculations, a 10% move in the
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market would affect annual EPS by almost 8%, well above levels for most peers.
A strong market would lift AUM and fee income and potentially drive upward
revisions in EPS forecasts.
In our view, the following are key downside risks to our rating and price target:
 The equity market pulls back and/or interest rates stay low. The equity
market and interest rates drive 92% and 6% of EQH’s earnings, respectively. We
estimate that a 10% change in the equity market would affect EQH’s earnings by
8% versus 4% for the sector. Meanwhile, each 100 bps change in rates impacts
EQH’s annual EPS by about $0.04 (1% of earnings) versus 2% for the group.
 Regulatory scrutiny of 403(b) business intensifies. Regulators such as the SEC
and state attorneys general are investigating sales practices in the 403(b) market,
the focus of EQH’s group retirement business (17% of earnings). An unfavorable
outcome from the investigations could result in fines or potentially disruptive
changes in current sales and/or business practices.
 Management actions are unable to offset the increased capital requirements
for variable annuities in New York. New York’s regulation for VA capital
(Regulation 213) is stricter compared to the NAIC’s and would likely hurt EQH’s
cash flow generation if management is unable to fully offset its impact with
actions such as requesting exemptive relief or using reinsurance. Lower free cash
flow generation, in turn, would weigh on EQH’s ability to deploy capital towards
share buybacks and dividends, thereby hurting investor sentiment.
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Globe Life Inc

Overweight
Globe Life Inc (GL;GL US)
Market cap ($ mn) 10,064.43 Adj. PBT ($ mn) 885 941 912 900 941 944 965 980
Exchange rate 1.00 Adj. net income ($ mn) 707 752 732 722 752 755 772 784
Free float(%) 91.6% ROE 12.1% 11.8% 10.4% 10.3% 10.8% 10.9% 10.6% 10.8%
mn) Reported EPS ($) 6.09 6.83 6.56 6.44 7.22 7.12 7.81 7.74
2000 Adj. P/E 15.5 14.1 13.9 14.1 12.8 13.0 11.8 11.9
BBG BUY|HOLD|SELL 2|4|2 Source: Company data, Bloomberg Finance L.P., J.P. Morgan estimates.
Healthy Business Trends; Defensive Business Profile

Our Overweight rating on GL (formerly TMK) reflects its superior franchise,
strong business trends, and defensive risk profile. We expect Globe Life’s niche
market focus and low-cost distribution platform to help it generate a mid-teens ROE
and high-single-digit EPS growth over time. Also, we consider GL’s financial results
and business model significantly less susceptible to COVID-19 and the ensuing
disruption than most life insurers’. In addition, the company’s business mix positions
it defensively if the equity market drops or if interest rates stay low for an extended
period. While Globe’s high BBB exposure poses a risk, we believe that its overall
portfolio is more conservative than most peers’ given its below-average allocations
to other high-risk investments (structured securities, real estate, equities, etc.) and
lower asset leverage. Additionally, GL’s strong free cash flow should enable it to
replenish capital depleted by potential investment downgrades and/or defaults
relatively quickly. Although the stock’s valuation is not as depressed as most other
life insurers’, we believe that it is reasonable considering the company’s superior
ROE and business fundamentals. Ongoing momentum in sales and recruiting present
positive catalysts and could drive further expansion in the stock’s valuation multiple.
2021 Outlook
We are lowering our 4Q20 EPS estimate from $1.72 to $1.59 and our 2021
Lowering EPS Estimates
forecast from $7.43 to $7.33. In addition, our 2022 earnings projection is being
4Q20E: from $1.72 to $1.59 reduced from $8.03 to $7.96. The major driver of the change to 4Q20 and 2021
2021E: from $7.43 to $7.33 forecasts is an increase in our assumption for COVID-19 claims reflecting 130,000
US deaths in 4Q20 and an assumption of 50,000 in 1Q21 (-$0.12 further impact to
2022E: from $8.03 to $7.96
4Q20, -$0.07 further impact to 1Q21). Our updated model also reflects a higher
assumed price for share buybacks. We are incorporating COVID-19 claims of
roughly $26 million pre-tax in 4Q20 and $10 million in 1Q21, largely in the life
business. Besides reported results, we expect investors to focus on management
commentary regarding capital, the investment portfolio, and share repurchases. In
our opinion, the key drivers of GL’s performance in 2021 will be:
 Direct response life insurance margins: Our model projects margins of 12.5%
in 4Q20 and 15.9% in 2021 compared to 18.7% in 4Q19 and 14.2% in 2020 as
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near-term results are pressured by COVID-related claims, which should moderate

through the year. Although direct response margins have been poor in recent
years, we expect them to improve over time. Margins in the business dropped
from 23.8% in 2014 to 15.6% in 2017, before recovering slightly to 17.8% in
2018 and 18.3% in 2019. The main driver of the drop was business issued in
2011-2014, which was underwritten using prescription drug data. Management
expected the use of the data to result in lower claims, but actual mortality
experience in those policies has been fairly consistent with the rest of the book. In
recent years, management has repriced new policies and pulled back from certain
market segments, which has helped revive results. Improvement in margins
should help earnings as well as lift sentiment on GL.
 Life and health margins ex. direct response: We project underwriting margins
of 28.8% in 4Q20 and 31.6% in 2021 in the life business (ex. direct response)
compared to 32.7% in 4Q19 and 30.7% in 2020 as results continue to be
suppressed by elevated COVID-related mortality in the near term, with an
expectation that claims will moderate as the year progresses. Excluding direct
response, margins in the company’s life business have been relatively stable in
the long run, and we expect the trend to persist. Meanwhile, we forecast health
insurance claims to be stable with recent levels and our model projects
underwriting margins of 23.1% in 4Q20 and 22.7% in 2021 compared to 22.2%
in 4Q19 and 23.9% in 2020.
 Life and health sales: Our model forecasts life insurance sales to be strong in
near term, but results are likely to vary by distribution channel. GL’s life sales
increased 21% in 3Q20, marked by robust direct response results (up almost
50%) and agency businesses (up more than 13%). We expect near-term sales in
the direct response channel to benefit from higher response rates as the pandemic
has increased awareness of the need for life insurance. Sales at American Income
(AIL) should be strong as well, partly due to the lag effect of the increase in the
agent count, while Liberty National (LNL) sales should be relatively flat in the
near term given tough comps. Disruption related to COVID-19 suppressed sales
at both AIL and LNL early on in the pandemic, but results recovered in 3Q20,
helped by the re-opening of states, higher consumer awareness of life insurance,
agents adapting their sales practices to a virtual environment, and a strong
recruiting pipeline (the last due partly to a weak labor market), all of which bode
well for results in 2021. Conversely, sales in the health business are likely to be
modest in the near term, but results should fluctuate on a quarterly basis
depending on the timing of large cases. Reimbursement rates on medical
supplement (GL’s key health product) continue to compare unfavorably with
Med Advantage plans (which the company does not sell), which should suppress
overall new business volumes in the health division.
 Agent count and recruiting trends: Recruiting and agent count trends are
leading indicators of sales results. We maintain a positive overall outlook for
growth in GL’s agent count, and foresee mid-single-digit growth in 2021 for
Liberty National and high-single-digit growth at American Income and Family
Heritage. The uncertain and weak labor market bodes well for recruiting and
retaining agents, leading indicators of sales. Although COVID-19 and social
distancing pressured GL’s sales early in the pandemic, the company’s agents
have adapted well to a virtual selling environment.
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 Commentary on capital and buybacks: GL suspended repurchases following

1Q20 results, but resumed activity in 3Q20. Our model assumes buybacks of
$90 million in 4Q20 and $350 million in 2021. While Globe Life does not have
significant excess capital on its balance sheet, the company generates strong cash
flow from its operations, a majority of which is likely to be used for buybacks.
Investors remain wary of impacts to GL’s capital base given a potential uptick in
bond defaults and/or downgrades (roughly 55% of GL’s portfolio is in BBB
securities, well above the sector average of 35%) as well as possible changes in
RBC factors (C1 risk). A pickup in corporate bond downgrades or defaults would
hurt the RBC ratio and pressure capital flexibility. GL is targeting an RBC ratio
of 300-320% (versus 325% historically), below peer levels given its more
defensive business mix. On a positive note, the company should be able to shore
up capital using its considerable borrowing capacity (debt-to-cap ratio of 24% at
9/30/20 versus the company’s long-term threshold of 30%, implying roughly
$550 million of additional debt capacity).

Globe Life Inc (Overweight; Price Target: $99.00)
Investment Thesis
Our bullish stance on Globe Life reflects its superior ROE, healthy business trends,
and defensive risk profile. Our outlook for business fundamentals is positive and we
believe that GL’s below-average EPS sensitivity to the equity market and interest
rates, low-risk liability profile, and strong free cash flow position it defensively if
macro conditions deteriorate. While GL’s low RBC ratio and above-average
exposure to BBB bonds are concerns, we feel that the company’s business mix and
steady free cash flow will help it weather worsening credit trends better than most
peers. In our opinion, ongoing momentum in sales and recruiting are potential
positive catalysts for the stock and could drive an expansion in the stock’s valuation
multiple.
Valuation
We are maintaining our December 2021 price target of $99. GL currently trades
at 1.7x book value (ex. AOCI) and 12.6x 2021E EPS, well above the group multiples
of 1.1x and 7.9x, respectively. Overall, we believe that Globe deserves a premium
valuation due to its superior ROE and steady EPS growth. Our price target is based
on blended multiples of 1.7x our projected 12/31/21 BV ex. AOCI (50% weight),
1.4x forecast 12/31/21 total BV (25% weight), and 12.0x our 2022 EPS estimate
(25% weight). This compares to our assumed group multiples of 0.9x BV ex. AOCI,
0.7x total BV, and 7.0x 2022E EPS.

In our view, GL could underperform the life group and miss our price target if:
 Corporate credit defaults or bond downgrades rise. GL has above-average

exposure to BBB securities (55% vs. the sector at 35%). Higher credit defaults or
downgrades would hurt GL’s statutory income and RBC ratio, potentially
reducing capital flexibility and limit flexibility for share repurchases.
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 COVID-19 mortality increases significantly. GL’s COVID-19 claims have

been relatively modest thus far, but given the company’s life insurance focus, it is
susceptible to a major increase in deaths, which would pressure its earnings and
hurt sentiment on the stock.
 The equity market rises significantly or interest rates increase steadily.
Globe Life’s results are less sensitive to the equity market and interest rates than
most peers’. As such, the stock is likely to underperform the sector if the macro
environment is unusually favorable.
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Lincoln National
Overweight
Lincoln National (LNC;LNC US)
Market cap ($ mn) 9,722.44 Adj. PBT ($ mn) 2,214 1,535 834 1,024 1,849 2,162 2,106 2,201
Exchange rate 1.00 Adj. net income ($ mn) 1,862 1,351 766 899 1,522 1,817 1,742 1,848
Free float(%) 94.0% ROE 11.8% 7.9% 3.7% 4.3% 6.8% 8.0% 7.4% 7.7%
mn) Reported EPS ($) 7.47 4.35 3.32 3.54 8.43 8.50 10.19 9.72
Macro Exposure a Concern, but Risk-Reward Attractive

LNC’s significant exposure to VAs and individual life is a negative, but we
believe this is overly discounted in valuation and the risk-reward is attractive. In
our view, LNC’s superior product development capabilities and broad distribution
will help deliver healthy organic growth over time. Concerns about the company’s
elevated sensitivity to the equity market and interest rates, as well as its sizable
variable annuity book are valid. However, we believe that investors do not fully
appreciate the higher quality of its in-force book compared with most peers’.
Additionally, despite the recent recovery, the stock trades at sizable discounts to the
sector on both P/BV and P/E despite a roughly in-line ROE and growth profile.
2021 Outlook
Reducing EPS Estimates We are lowering our 4Q20 EPS estimate from $2.35 to $2.10 and decreasing our
4Q20E: from $2.35 to $2.10 2021 forecast from $9.84 to $9.62. In addition, our 2022 earnings projection is
being reduced from $10.90 to $10.31. Our updated model reflects a revision in our
2021E: from $9.84 to $9.62
assumption for COVID-19 claims (-$0.38 impact to 4Q20, -$0.27 impact to 1Q21).
2022E: from $10.90 to $10.31 We assume a COVID impact of roughly $130 million in 4Q20 ($105 million in
individual life, $25 million in group) and $50 million in 1Q21 ($40 million in
individual life, $10 million in group), pre-tax, reflecting roughly 130,000 US deaths
in 4Q20 and an assumed 50,000 deaths in 1Q21. We are also assuming a lower
amount of buybacks and at a higher price than previously assumed (-$0.01 impact to
4Q20, -$0.36 impact to 2021). These adjustments are partially offset by a benefit
from the strong equity market (roughly +$0.05 in 4Q20 and +$0.36 in 2021). Our
model also assumes elevated alternative investment income 4Q20 and 1Q21. In our
view, LNC will produce mixed results in 2021, marked by negative net flows in
fixed annuities, positive net flows in VAs and improving margins in group benefits
and individual life as the year progresses. Besides reported results, we expect
investors to focus on management commentary on the impacts of the current macro
environment on capital and hedge plan performance as well as the likely pace of
buybacks (LNC resumed buybacks in 4Q20). In our opinion, the primary drivers of
Lincoln’s performance in 2021 will be:
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 Variable annuity hedge program performance: Ongoing concerns about the

risk of charges and capital pressure due to LNC’s high exposure to variable
annuity living benefits is one of the key drivers of the stock’s discounted
valuation. The company reported hedge breakage of $496 million in 1Q20 and
$71 million in 2Q20, but a gain of $12 million in 3Q20. Improved hedge plan
performance would ease (although not eliminate) fears about tail risk and help
 Spread margins: Interest-rate sensitive products (fixed annuities, UL, stable
value) account for over 40% of LNC’s earnings, more than for most peers, and
we expect core spreads in these products to continue declining. Based on our
calculations, the company’s new money yield would have to rise by over 100 bps
for spread compression to fully abate. Management has limited flexibility to
offset the impact of low interest rates through crediting rate reductions. At
12/31/19 (the most recent data), roughly 35% of Lincoln’s fixed annuity assets,
79% of retirement account values, and 89% of UL account values were at
contractual minimums. While we expect core spreads to continue to compress
due to low rates, reported spreads should be robust in 4Q20 and 1Q21, helped by
strong alternative investment income (like most peers, LNC reports private equity
returns on a 1-quarter lag).
 Individual life margins: Our model projects the individual life business to report
a pretax margin of 5.4% in 4Q20 and 7.8% in 2021 compared with 12.1% in
4Q19 and -1.9% in 2020 as near-term results continue to be suppressed by
COVID-related claims, which should moderate as the year progresses, assuming
a vaccine reduces COVID-19 infections and deaths. Consistent with other life
insurers, margins in LNC’s individual life business have declined over time, and
we expect them to remain below historical levels (+15% prior to 2014) for the
foreseeable future. We attribute the drop in margins to a number of factors,
including underpricing of legacy policies, low interest rates, and higher
reinsurance costs. Given performance in recent years, we believe life margins are
more likely to fall short of our expectations than exceed, which could drive
reductions in EPS forecasts and hurt sentiment on the stock. Social distancing and
COVID-related disruption should also pressure sales in the near term, with an
expected improvement due to a return to normalcy as the year progresses.
 Annuity and retirement sales/flows: We forecast annuity sales to be down 31%
in 4Q20 but up 13% in 2021, primarily driven by weakness in fixed annuities,
improving in 2021. Meanwhile, our model forecasts net flows of -$159 million in
4Q20 and +$355 million in 2021, down from +$729 million in 4Q19 but
improving off of +$144 million in 2020 due to weak sales from COVID-19
related disruption, which should have bottomed in 2H20 and begin to recover in
2021. Annuity sales should be helped by recent product enhancements (buffer
and index annuities), distribution expansion (IMOs and Allstate), and LNC’s
reinsurance relationship with ATH covering index annuities (effective August 1,
2017). In the retirement business, we project sales to be up 1% in 4Q20 and up
4% in 2021. Retirement flows are projected to be positive in 4Q20 and 2021
(+$138 million in 4Q20 and +$310 million in 2021), due to continued sales
momentum, partially offset by high withdrawal rates. LNC’s retirement flows
have been positive every quarter since 1Q16, with the exception of 1Q19 and
2Q20 (both of which had large case terminations) and our outlook for the
business remains relatively upbeat.
 Group insurance margins: In our view, near-term results in the group insurance
business will be pressured by COVID-related group life claims, a weak labor
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market, and elevated disability claims, partially offset by a benefit from slightly
lower utilization of dental policies related to social distancing. Our model
projects group insurance after-tax margins of 3.6% in 4Q20 and 4.2% in 2021
compared to 4.7% in 4Q19 and 2.7% in 2020.
 Capital and share repurchases: LNC suspended share repurchases in 1Q20 but
resumed buybacks in 4Q20. Our model projects buybacks of $50 million in
4Q20, consistent with management’s guidance, and $600 million in 2021. Any
indication of a faster than assumed pace of buybacks likely would boost investor

Lincoln National (Overweight; Price Target: $65.00)
Investment Thesis
Our positive stance on LNC reflects its superior product development and
distribution capabilities, healthy cash flow generation, and attractive valuation. On a
cautious note, we are concerned about the company’s high exposure to equity and
interest rate sensitive products, which should pressure earnings and capital in the
current environment. Also, our outlook for the company’s individual life business is
cautious. Although Lincoln’s above-average exposure to variable annuities is a
negative, we consider the quality of its book better than most peers’. Valuation is
compelling as well, as the stock trades at sizable discounts to the life insurance sector
on both P/BV and P/E despite similar ROE and growth profiles, which we attribute
to concerns about the company’s business mix.
Valuation
We are maintaining our December 2021 price target of $65. LNC trades at 0.7x
book value ex. AOCI and 5.1x 2021E EPS versus the life group at 1.1x and 7.9x,
respectively. Our price target is based on blended multiples of 0.8x our 12/31/21E
BV ex. AOCI forecast (50% weight), 0.5x our 12/31/21 total BV forecast (25%
weight), and 6.0x our 2022 EPS projection (25% weight), which we feel are
appropriate given the company’s ROE and growth potential. This compares with our
group multiples of 0.9x BV ex. AOCI and 7.0x EPS.

In our view, LNC could underperform the life sector and fail to reach our target if:
 Interest rates stay depressed. If interest rates stay low for an extended period,
the company could incur additional balance sheet charges, which would restrain
capital flexibility and hurt investor sentiment on the stock.
 The equity market pulls back sharply. LNC’s business mix has more
sensitivity to the equity market than peers’ and a poor market would pressure
results in the company’s variable annuity and retirement businesses. A declining
market could also drive additional breakage in the variable annuity hedging
program and pressure capital.
 Individual life margins deteriorate from current levels. Low interest rates,
higher reinsurance costs, and the recapture of a low-margin reinsurance contract
have pressured margins in LNC’s individual life business. A further drop in
margins could drive reductions in EPS forecasts.
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MetLife, Inc.
Overweight
MetLife, Inc. (MET;MET US)
Free float(%) 77.4% ROE 10.4% 10.3% 7.9% 7.9% 7.9% 8.1% 8.0% 8.2%
mn) Reported EPS ($) 4.91 6.06 6.98 6.99 5.69 5.86 6.25 6.41
Healthy Fundamentals, De-Risked Mix, Depressed Valuation

We expect MET’s healthy operating trends, de-risked business mix, and
depressed valuation to drive outperformance. Lackluster returns in MetLife
Holdings, low interest rates, and mixed results in the international business are
concerns. In addition, growth in the group insurance business could slow if labor
market conditions deteriorate. Nonetheless, we expect MET’s results to hold up
better than most peers’ in the current environment due to its below-average exposure
to COVID-19 claims, significant capital flexibility, and ongoing strong margins in
the dental and personal lines businesses. Our long-term outlook for MetLife remains
constructive as well given its leading group benefits franchise, which is further
bolstered by recent acquisitions (pet insurance and vision insurance), as well as the
growth potential in its international business (Latin America and Asia). Meanwhile,
the gradual runoff of MetLife Holdings should improve the company’s ROE and
reduce its tail risk over time. In the near term, the sale of the P&C business should
free significant capital, part of which is likely to be deployed towards share
repurchases. Valuation is compelling as well as the stock trades at discounts to the
life insurance sector on both P/BV and P/E despite MetLife’s roughly in-line ROE
and long-term EPS growth potential.
2021 Outlook
Increasing EPS Estimates We are raising our 4Q20 EPS estimate from $1.61 to $1.62 and our 2021
4Q20E: from $1.61 to $1.62 projection from $6.37 to $6.49. In addition, we are increasing our 2022 earnings
forecast from $6.97 to $7.15. Our updated model reflects the impact of the strong
2021E: from $6.37 to $6.49
equity market in 4Q20 (+$0.04 in 2021), healthy variable investment income (+$0.02
2022E: from $6.97 to $7.15 in 1Q21), and the weaker USD (+$0.12 in 2021 and +$0.14 in 2022), partly offset by
COVID-19 claims. We also adjusted our forecasts for the expected sale of the P&C
business (-$0.21 in 2021), which should be offset by an increase in share buybacks in
2021 (+$0.17 in 2021 and +$0.34 in 2022). However, MET’s higher stock price is a
drag on EPS accretion from share repurchases compared with our previous
assumption (-$0.14 in 2021 and -$0.11 in 2022). Overall, our outlook for MET’s
2021 results is relatively upbeat. We expect sales in the international business to
improve as the year progresses and expect the acquisition of Versant to lift top-line
growth in the group insurance business. Conversely, the sluggish economy presents a
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headwind. On margins, we expect a modest impact from COVID-19 claims, but

remain wary of ongoing spread compression given low rates. Besides reported
results, we expect investors to focus on commentary regarding capital and the
investment portfolio. In our opinion, following are the most relevant metrics in order
to analyze MetLife’s results:
 Margins and sales in the international business: We expect international sales

to improve sequentially but remain lackluster overall in the next few quarters due
to COVID-19 related disruption. Results should improve by mid-2021, helped in
part by easy comparisons, especially if a vaccine is successful in curtailing
COVID-19 infections and deaths. Our model projects Asia revenues to decline
0.9% (-2.4% ex. currency) in 4Q20 and to grow +0.8% (-1.6% ex. currency) in
2021. Pretax margins are assumed to be 16.0% and 16.8%, respectively,
compared to 15.4% in 4Q19 and 16.4% in 2020. In Latin America, we forecast
revenues to decline -12.7% (-8.7% ex. currency) in 4Q20 and to grow +14.9%
(+5.7% ex. currency) in 2021. Our estimates for pretax margins are 10.0% in
4Q20 (depressed due to COVID-19 claims) and 19.1% in 2021 compared to
16.9% in 4Q19 and 11.9% in 2020. Finally, for EMEA, we expect revenue
growth of +2.2% (+2.7% ex. currency) in 4Q20 and +5.8% (+2.6% ex. currency)
in 2021. Our model assumes pretax margins of 13.3% and 13.9%, respectively,
compared to 9.6% in 4Q19 and 13.7% in 2020. Despite near-term headwinds, our
long-term outlook for the Asia and Latin American businesses is positive. In
contrast, we remain cautious on MET’s EMEA operation given its lack of scale.
Media reports have alluded to MET potentially selling its EMEA business (MET
is selling its Russian unit, but this deal is not material). Still, this seems less likely
in the near term given potentially lower bids in the current macro environment.
Assuming a reasonable price, we would expect a sale to be viewed positively by
investors, especially if management uses capital for buybacks.
 Margins and sales in the U.S. business: In our opinion, the sluggish economy
presents a headwind for growth in the U.S. group benefits business. However, we
expect revenues in 4Q20 (PFO growth of +10.9%) to benefit from the release of
unearned dental premium reserves set up in 2Q20, while revenues in 2021 should
be lifted by the acquisition of Versant in 4Q20 (PFO growth of +16.6% due in
part to incremental Versant premiums of $1.3 billion). With respect to margins,
our model assumes benefit ratios of 77.8% in 4Q20 and 77.7% in 2021 versus
76.0% in 4Q19 and 77.4% in 2020. This reflects continued elevated COVID-19
claims in the group life block, partly offset by the release of unearned dental
premiums over the next few quarters. In the P&C business, we are expecting
revenues to decline -1.6% in 4Q20 and the combined ratio to come in at 92.6%.
Similar to the trend in recent quarters, we believe that P&C margins will continue
to benefit from favorable auto loss frequency (auto is close to 2/3 of the P&C
book), albeit not to the same extent as in 2Q20 and 3Q20. Beginning 1Q21, the
P&C business will be reported as a discontinued operation pending its sale to
Zurich, which is expected to close in 2Q21. Among MET’s U.S. businesses, we
are most cautious on the retirement and income solutions division due to its
sensitivity to interest rates. We project the business to generate outflows of -
$1.7 billion in 4Q20 and -$11.2 billion in 2021 off an AUM base of $216 billion.
 Overall spreads: We forecast core spreads to continue to decline, but reported
spreads in the near term should be boosted by strong alternative investment
income. MET’s results are less sensitive to interest rates after the separation of
BHF, but spread compression remains a headwind for several of its businesses,
especially for retirement and income solutions and MetLife Holdings. MetLife’s
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new money yield is well below its portfolio yield, which should continue to
decline, and the company has limited flexibility to cut crediting rates on in-force
blocks. At 9/30/20, 52% of fixed annuity, UL, and stable value blocks (including
Asia) were at guaranteed minimums. On a positive note, the healthy equity
market bodes well for variable investment income and reported spreads in 4Q20
and 1Q20 (MET reports private equity returns on a 1-quarter lag). Furthermore,
despite the overall decline in interest rates, the steeper yield curve will lift spread
margins in the retirement and income solutions business.
 Commentary on capital deployment: Our model assumes share buybacks of
$385 million in 4Q20 and $4.0 billion in 2021, with the latter reflecting proceeds
from the sale of the P&C business to Zurich Financial/Farmers’ Group for
$4 billion (expected to close in 2Q21). On an ongoing basis (excluding the impact
of M&A), MET foresees free cash flow generation to be 40-60% of operating
earnings in 2020 and 2021, down from 65-75% in 2019, mainly because of low
interest rates and potentially higher credit losses. Still, MET has built up
meaningful excess capital over the past several quarters (partly due to the
suspension of buybacks in early 2020), and at 9/30/20 had $6.8 billion of holdco
cash (pro forma for the refinancing of preferred stock) versus a target level of $3-
4 billion. Management plans to use part of this cash to fund its acquisition of the
vision insurer Versant Health for $1.7 billion, which closed at the end of 4Q20.

MetLife, Inc. (Overweight; Price Target: $58.00)
Investment Thesis
Our positive outlook for MET reflects its healthy operating trends, de-risked business
mix, and attractive valuation. Poor returns at MetLife Holdings, low interest rates, a
decline in near-term free cash flow, and mixed results in the international business
are concerns. In addition, the group insurance business is exposed to deterioration in
the labor market. Still, our long-term outlook for MetLife is positive given its leading
group benefits franchise as well as the healthy growth potential of the international
business (particularly in Latin America and Asia). From a business mix standpoint,
the separation of BHF has improved MET’s ROE, reduced tail risk, and boosted cash
flow. This, in turn, should provide management more flexibility to maintain a high
dividend and deploy capital towards buybacks. The potential sale of the P&C
business could provide significant cash for buybacks in the near term as well.
Furthermore, valuation appears attractive, as MET trades at a discount to the life
sector on both P/BV and P/E, which we feel is unwarranted.
Valuation
We are modestly reducing our December 2021 price target from $59 to $58 to
reflect our updated EPS and book value estimates. MET is trading at 7.1x our 2021
EPS estimate and 0.8x BV ex. AOCI versus the sector multiples of 7.9x and 1.1x,
respectively. Our 12/31/21 price target is based on blended multiples of 0.9x our
12/31/21 book value ex. AOCI forecast (50% weight), 0.7x our 12/31/21 total BV
projection (25% weight), and 8.0x our 2022 EPS estimate (25% weight), which we
feel are appropriate given the company’s ROE and growth potential. This compares
with our assumed group multiples of 0.9x BV ex. AOCI and 7.0x earnings.
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In our opinion, the main risks to our rating and price target are the following:
 Group insurance results deteriorate. In the past few years, MET’s group
insurance business has benefited from strong organic growth, the healthy
economy, and favorable claims experience. While we expect margins and
earnings in the business to normalize, a greater than expected pullback is likely to
hurt investor sentiment on the stock, especially if it coincides with a recession or
increased competition in the market.
 International results weaken. The international business (about 35% of
MetLife’s earnings) is widely seen as a major driver of MET’s growth, so poor
performance in the division is likely to hurt the stock. Unfavorable macro trends
and sovereign risk, including fiscal policy and pension reform, are also risks to
the international business.
 Interest rates stay depressed for a prolonged period. Even after the separation
of Brighthouse, MET has above-average exposure to interest rates in MetLife
Holdings and its retirement and income solutions business. Ongoing low interest
rates will hurt sales and margins, pressure free cash flow in the short-term, and
drive balance sheet charges over time.
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Principal Financial Group

Neutral
Principal Financial Group (PFG;PFG US)
Free float(%) 99.5% ROE 13.2% 12.1% 9.3% 9.3% 11.4% 12.0% 11.4% 11.9%
mn) Reported EPS ($) 5.35 4.96 4.73 4.77 5.89 6.25 6.55 6.84
Strong ROE a Plus, but Fee Pressure and LatAm Concerns

We view PFG’s superior ROE and lower tail risk favorably, but are Neutral due
to concerns about fee pressure in the DC business and weak trends in LatAm. In
addition, PFG’s core customer base of small business seems more vulnerable than
larger companies in the current economic environment. Overall, PFG’s focus on
capital light businesses (retirement and asset management) should help it generate an
above-average ROE with less balance sheet risk than most life insurers. On the other
hand, we expect intense competition, elevated tech spending, and various negative
secular trends (including fee pressure and a shift to passive funds) to continue to
suppress margins. Furthermore, while the acquisition of the Wells Fargo DC
platform added scale, it has been dilutive to EPS given lower margins in the acquired
block and the negative impact of lower short-term interest rates. Meanwhile, weak
macro trends in Latin America present a headwind for the international division.
Longer term, we are constructive on the growth potential of PFG’s asset management
and international businesses. Additionally, we expect the U.S. insurance and the
spread retirement businesses to generate healthy margins in the long run. In sum, we
view Principal as a high-quality franchise with a lower-risk business mix than most
of its life insurance peers. As such, we could become more upbeat on PFG if our
outlook for DC margins/flows or trends in the international business improves or if
the stock underperforms the sector.
2021 Outlook
Raising EPS Estimates We are raising our 4Q20 EPS estimate from $1.53 to $1.57 and our 2021
4Q20E: from $1.53 to $1.57 forecast from $6.44 to $6.79. Our 2022 earnings projection is increasing as well,
from $6.93 to $7.22. Our model is updated for the positive impact of the equity
2021E: from $6.44 to $6.79
market (+$0.03 in 4Q20 and +$0.20 in 2021), better than expected encaje
2022E: from $6.93 to $7.22 performance (+$0.04 in 4Q20), healthy variable investment income (+$0.05 in
1Q21), and a weaker US dollar (+$0.01 in 4Q20 and +$0.12 in 2021). Partly
offsetting these items are COVID-19 claims (-$0.04 in 4Q20 and -$0.02 in 1Q21)
and less accretion from share buybacks due to a higher stock price (-$0.01 in 2021
and -$0.06 in 2022). Overall, we expect PFG’s 2021 results to be mixed, marked by
improving flows in the fee retirement business, roughly stable flows in spread
retirement and PGI, and more modest growth in the international business. In the
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U.S. insurance business, we believe that sales will remain lackluster over the next
few quarters before improving in the second half of 2021. From a profitability
standpoint, the strong equity market bodes well for PFG’s overall fee-based margins,
and we expect results in the U.S. insurance business, which have been negatively
impacted by various COVID-related effects in 2020, to normalize in 2021. However,
we expect low interest rates to make it more challenging for PFG to meet its margin
target for the fee retirement business. Aside from operating results, we expect
investors to focus on commentary regarding the Wells block integration, capital
deployment, and PFG’s investment portfolio. We expect investors to focus on the
following key metrics in assessing PFG’s 2021 results:
 Fee retirement (DC) margins: We project pretax returns on net revenue of

25.8% in 4Q20 and 26.8% in 2021 compared to 22.4% in 4Q19 and 23.7% in
2020. Although management has reiterated its 28-32% margin target for the
business by 2022 (including the full run rate impact of the Wells acquisition), we
believe that achieving this goal will be challenging given the drag from low
interest rates on excess reserves (IOER), ongoing fee compression, and
technology spending. Despite management initiatives to mitigate margin
compression, including re-pricing cases and being more selective with new
blocks, we do not believe that these actions will fully offset the elevated
competition and negative secular trends affecting the retirement industry. These
include: the growing popularity of unbundled services (separate record keeping
and management), a mix shift to larger plans and ESOP assets (which have lower
margins), more transparent fee disclosure, and the greater use of index funds
(over proprietary funds). On a positive note, PFG stands to benefit from the
SECURE Act, which incentivizes small employers to establish retirement plans,
thereby expanding the small case DC/401(k) market.
 Fee retirement sales and net flows: Our model forecasts deposits to decline
6.1% in 4Q20 and to grow +13.3% in 2021, driving flows of -$645 million and
+$1.8 billion, respectively, compared to +$1.0 billion in 4Q19 and +$355 million
in 2020. In the near term, we expect DC deposits to be pressured by lackluster
employment and wage trends, especially given PFG’s small case focus. Although
growth is likely to improve further as 2021 progresses, assuming a successful
vaccine curtails COVID-19 cases and deaths, our long-term outlook remains
cautious given elevated competition in the DC market and the shift of assets from
401(k) plans into IRAs as more baby boomers retire.
 Spread retirement margins and flows: PFG’s spread businesses consists of
individual fixed annuity, pension closeout, and investment only/stable value
products. In the near term, we expect growth in the business to be held back by
the low interest rate environment. Longer term, however, we see growth picking
up, driven largely by pension risk transfer volumes. The passage of the SECURE
Act is another positive as it would allow companies such as PFG to sell annuities
in DC plans. For 4Q20, we are forecasting deposits of $2.2 billion and net flows
of +$445 million compared to $3.0 billion and $1.6 billion in 4Q19. In 2021, we
are projecting sales of $8.6 billion and net flows of +$1.3 billion compared to
$8.1 billion and +$1.4 billion in 2020. Turning to margins, we are assuming a
pretax return on net revenue of 72.2% in 4Q20 and 72.3% in 2021 compared to
65.1% in 4Q19 and 75.9% in 2020. Net revenues are expected to grow 11.6% in
4Q20 and 3.4% in 2021.
 PGI sales/flows and margins: We forecast asset management deposits to be flat
in 4Q20 (at around $21.2 billion) and to grow +0.9% in 2021 (to $95.1 billion).
Flows are expected to be +$122 million in 4Q20 and +$2.1 billion in 2021 versus
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+$2.7 billion in 4Q19 and +$2.5 billion in 2020. Meanwhile, our model projects
adjusted revenues to decline -10.1% in 4Q20 (due to elevated performance fees in
4Q19) and to grow +10.8% in 2021. We assume margins of 37.5% in 4Q20 and
37.9% in 2021 compared to 36.5% in 4Q19 and 36.4% in 2020.
 Principal International sales/flows: Our long-term outlook for Principal
International (PI) is upbeat, and we believe that the business is well-positioned to
benefit from favorable long-term demographic trends in its major markets (Latin
America and Asia). Nearer term, however, potential economic disruption in Latin
America related to COVID-19 is a concern. Furthermore, while not imminent, the
potential for adverse outcomes for pension reform in Chile and Brazil is a risk.
Cuprum, which is PFG’s retirement provider in Chile, accounts for about 50% of
Principal International’s earnings. We project PI to report net flows of
+$555 million and a margin of 38.8% in 4Q20 and net flows of +$1.5 billion and
a margin of 39.2% in 2021. This compares to +$1.2 billion and 32.4% in 4Q19
and +$3.6 billion and 32.6% in 2020. In our view, PI flows will remain under
pressure due to the adverse economic impact of COVID-19 on Latin America
(including the potential for a second round of hardship withdrawals in Chile),
which is where most of PFG’s international business resides. Overall, we view
PGI and PI as major drivers of the stock’s valuation. Still, given PFG’s subpar
scale and lower returns in these businesses, we think that valuation comparisons
with other overseas-focused insurers or larger asset managers are not justified.
 U.S. insurance margins and premium growth: We expect premiums and fees
in the individual life business to grow +5.0% in 4Q20 and +3.9% in 2021, and are
assuming pre-tax margins of 13.5% and 16.2%, respectively, compared to 16.5%
in 4Q19 and -4.7% in 2020. In the group benefits segment, we project premiums
and fees to grow +3.0% in 4Q20 and +4.5% in 2021, and margins of 14.1% and
14.6%, respectively, compared to 16.5% in 4Q19 and 14.0% in 2020. Overall, we
expect margins in the individual life business to be pressured by ongoing
COVID-19 claims, while earnings in the group benefits segment should moderate
as dental utilization normalizes.
 Commentary on capital deployment: PFG suspended share buybacks in 1Q20.
A resumption in early 2021 would be a positive catalyst, while the lack of
repurchase activity for a few more quarters could drive reductions in EPS
forecasts and hurt sentiment on the stock. Our model assumes no share buybacks
in 4Q20, $400 million in 2021, and $420 million in 2022. We are assuming
dividends of $647 million in 2021. Management expects to deploy $800 million
to $1 billion of capital in 2020, lower than historically, to absorb the negative
impact of potential credit losses and rating downgrades. Although management
has yet to provide guidance for 2021, we expect its total deployment to increase
next year (planned deployment was $1.0-1.4 billion for 2019 and $1.2-1.7 billion
in 2020 before being reduced because of COVID-19).

Principal Financial Group (Neutral; Price Target: $55.00)
Investment Thesis
In our view, PFG’s superior ROE, strong cash flow, and limited tail risk are key
positives, but fee compression in the retirement and asset management businesses
and challenging trends in Latin America are major concerns. Also, PFG’s core
customer base of small businesses seems more vulnerable than larger companies in
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the current economic environment. We expect margins in the retirement and asset
management businesses to compress over time given elevated competition,
technology spending, and various secular trends, including the shift to passive funds.
Furthermore, while the acquisition of the Wells Fargo DC business adds scale, it has
been dilutive initially because of lower margins in the acquired block and the
negative impact of lower short-term interest rates. Longer term, we are constructive
on the growth prospects of the asset management and international businesses. In
addition, we forecast the U.S. insurance and spread retirement businesses to generate
healthy margins. Overall, we consider PFG a high-quality franchise with a lower-risk
business mix than most peers. As such, we could become more constructive if our
outlook for flows and margins in the DC business or trends in Latin America
improves or if the stock underperforms.
Valuation
We are increasing our December 2021 price target slightly from $54 to $55 to
reflect our updated EPS and book value estimates. PFG trades at 1.0x BV ex. AOCI
and 7.1x 2021E EPS versus the group averages of 1.1x and 7.9x. Our price target is
based on a blended multiple of 1.0x our 12/31/21 BV ex. AOCI forecast (50%
weight), 0.9x our total 12/31/21 BV forecast (25% weight), and 8.0x our 2022 EPS
estimate (25% weight), which we feel is appropriate given the company’s ROE and
growth potential. This compares to our group multiples of 0.7x total BV, 0.9x BV ex.
AOCI, and 7.0x 2022E EPS.

In our opinion, PFG could outperform the life group or exceed our price target if:
 Margins in the FSA business stabilize or begin to improve. Lower fee income
and higher technology spending would have resulted in lower FSA margins if not
for the strong equity market in recent years. If margins stabilize or show
improvement in a more normal equity market environment, particularly as PFG
goes through the integration of the Wells’ retirement unit, there could be upside
to our EPS and ROE estimates and sentiment on the stock could turn positive.
 Sales and net flows recover. PFG’s net flows grew at a strong pace after the
financial crisis but have slowed since (particularly in fee retirement and PGI). We
expect a reversal in the current trend to boost investor sentiment.
 Management prioritizes share buybacks over other forms of capital
deployment. PFG intends to deploy $800 million to $1 billion of capital in 2020.
There could be upside to our EPS estimates if management allocates more capital
toward buybacks instead of M&A, dividends, or debt repayment. This would also
lift sentiment on PFG.
 Macro trends in Latin America improve. PFG earns 13% of its income from
Latin America (primarily Brazil, Chile, and Mexico). Although core business
trends in the region should remain healthy longer-term, reported results could be
even stronger if exchange rates and equity market conditions improve.
On the other hand, PFG could lag the life group or fall short of our price target if:
 Margins in the fee retirement and PGI businesses decline. Market competition
and the cost of technology/distribution investments could hurt PFG’s margins
despite a favorable equity market and scale efficiencies from the Wells Fargo
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acquisition. In our opinion, a lack of improvement or a deterioration in PFG’s

return profile could hurt its historical trading premium.
 Fee pressure in PFG’s international markets increases, either due to more
regulation or greater competition. Most of PFG’s international markets have
attractive long-term growth potential but are not exposed to the same degree of
fee pressure and competition as the U.S. If these markets develop like the U.S.,
part of the benefit from growth will likely be offset by margin compression.
 The equity market pulls back. Although a weak equity market is not a risk for
Principal’s balance sheet or capital, a sustained downturn would have a negative
impact on its assets under management, flows, and earnings. In such an
environment, we would expect its stock to lag less macro-sensitive peers.
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Prudential Financial
Overweight
Prudential Financial, Inc. (PRU;PRU US)
Free float(%) 99.8% ROE 9.7% 8.6% 6.1% 6.0% 6.9% 7.1% 7.2% 7.3%
mn) Reported EPS ($) 9.47 10.09 (0.88) (0.97) 10.77 10.95 12.40 12.32
Long-Term Outlook Upbeat, Near-Term Results to Be Mixed

In our view, PRU’s near-term results will be mixed, but our long-term outlook
is upbeat and the stock’s valuation seems overly depressed. We project low
interest rates to hurt earnings in the individual life, Gibraltar, and individual annuity
businesses. In addition, we expect PRU’s wellness initiatives and the Assurance IQ
deal to be earnings headwinds, while the LTC block poses the risk of recurring
charges. Despite these factors, our long-term outlook for PRU is positive and we
forecast the company to generate an above-average ROE, helped by its superior
Japan franchise and relatively capital-light U.S. business. Furthermore, PRU has
ample financial flexibility to maintain its dividend, one of the highest in the life
group. Valuation is attractive as well as PRU’s stock trades at sizable discounts on
both P/BV and P/E. In our view, management’s efforts to reduce the market
sensitivity of its business mix will improve PRU’s valuation multiples over time.
2021 Outlook
We are reducing our 4Q20 EPS estimate from $2.52 to $2.43 and increasing our
Adjusting EPS Estimates 2021 forecast from $12.19 to $12.35. Meanwhile, we are lowering our 2022
projection from $13.99 to $13.87. Our updated estimates reflect the benefit of the
4Q20E: from $2.52 to $2.43
strong equity market (+$0.03 in 4Q20 and +$0.26 in 2021) and healthy variable
2021E: from $12.19 to $12.35 investment income (+$0.10 in 1Q21), partly offset by incremental COVID-19 claims
2022E: from $13.99 to $13.87 (-$0.12 in 4Q20 and -$0.07 in 1Q21) and less accretion from share buybacks due to a
higher stock price (-$0.12 in 2021 and -$0.40 in 2022). With respect to foreign
currency, the yen was up 2% from last quarter but should have a very modest impact
on 2022 earnings given PRU’s hedging program and the small share of yen-based
earnings in the international business (roughly 5%). PRU hedges its yen-based
earnings using a three-year rolling program and has hedged 2020 income at ¥/$ 104
compared to the 2019 rate of 105. For 2021, PRU has locked in a yen exchange rate
of 103, which again should serve as a slight tailwind to EPS in 2021. In our view,
PRU’s 2021 results will be mixed, marked by outflows in the annuity business and
inflows in the institutional retirement and asset management segments. The healthy
equity market is a positive for earnings in PRU’s fee-driven segments (annuity, asset
management), but we expect low interest rates and wellness initiatives costs to
pressure margins in several businesses such as individual life, group insurance,
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Gibraltar, and Life Planner. Besides reported results, we believe that investors will
focus on management commentary on PRU’s financial wellness initiatives (including
expense savings), investment portfolio, and capital deployment. We expect investors
to focus on the following key metrics in analyzing PRU’s 2021 results:
 Margins and sales in the Japan business: In the life planner business, our
model projects pretax margins of 14.1% in 4Q20 and 2021 compared to 13.4% in
4Q19 and 13.8% in 2020. In Gibraltar, we are assuming pretax margins of 12.0%
in 4Q20 and 13.1% in 2021 versus 14.3% in 4Q19 and 12.4% in 2020. Our
margin assumptions reflect seasonally higher expenses in 4Q20 as well as a
modest impact from COVID-19 related costs. Meanwhile, we forecast Japan sales
to be poor in 4Q20 and early 2021 due to price hikes on US$ policies in August,
which pulled new business volumes forward into 3Q20 (Japan sales rose 42% in
3Q), as well as a potential headwind due to COVID-19 and social distancing. For
2021, we project sales to grow at a mid- to high-single-digit pace, due in part to
easy comparisons versus 2020. Longer term, we foresee sales increasing at a low-
to mid-single-digit rate.
 Deposits and flows in the annuity, retirement, and asset management
businesses: PRU plans to stop selling variable annuities with living benefit
guarantees at the end of 2020, and despite strong growth in newer products such
as FlexGuard, a buffered annuity, we expect overall annuity sales to be weak as a
result (down -45.1% in 4Q20 and -23.8% in 2021). Lower sales, along with
withdrawals on in-force policies, are likely to drive outflows for the foreseeable
future (-$2.0 billion in 4Q20 and -$8.1 billion in 2021 versus -$1.9 billion in
4Q19 and -$6.6 billion in 2020). In the retirement unit, we are assuming
institutional flows of -$1.0 billion in 4Q20 and +$1.3 billion in 2021 (off a
$235 billion AUM base), and full service flows of +$0.4 billion in 4Q20 and
+$1.1 billion in 2021 (off a $285 billion AUM base). This compares to net flows
of +$4.3 billion in 4Q19 and flat flows in 2020 for the institutional business, and
-$0.3 billion and +$4.4 billion for the full service segment. Institutional and full
service sales are forecasted to be $3.7 billion (-57.0% y/y) and $9.0 billion
(+8.0% y/y) in 4Q20 and $20.3 billion (+13.6% y/y) and $36.6 billion in 2021
(-3.9% y/y). Over the long run, we expect the institutional business to benefit
from PRU’s leading position in the growing PRT market. In asset management,
we expect flows to be healthy, especially in the institutional business where PRU
has strong fixed income and real estate platforms. Our model assumes deposits of
$38.9 billion in 4Q20 (+8.1% y/y) and $155.9 billion in 2020 (-3.1% y/y). Net
flows are expected to be +$4.1 billion in 4Q20 and +$14.5 billion in 2021
compared to +$2.1 billion in 4Q19 and +$18.2 billion in 2020. While quarterly
results will fluctuate with capital markets, we expect PRU’s asset management
business to grow at a healthy pace over time.
 Margins in the U.S. individual and group insurance segments: We maintain a
cautious outlook for PRU’s individual life business, and project the segment to
generate pretax margins of -0.3% in 4Q20 and 2.5% in 2021 compared to 3.6% in
4Q19 and 0.2% in 2020. Although reported margins were pressured by COVID-
19 claims in 2020, they were well below historical levels of 10%+ even
excluding the impact of the virus due to a combination of underpricing, adverse
mortality, and lower than assumed lapses. Over the past several years, the
individual life business has incurred reserve charges ($653 million in 2017 and
$208 million in 2019) that have resulted in a permanent reduction in run-rate
earnings ($40 million annually in 2017 and $100 million annually in 2019). Our
outlook for PRU’s group insurance business is more constructive, but we feel that
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the economic impact of COVID-19, along with a potential increase in claims,

could hurt results in the near term. Our model assumes benefit ratios of 79.0% in
4Q20 and 2021 for the group disability business, and 94.5% in 4Q20 and 89.1%
in 2021 for group life. This compares to 82.2% in 4Q19 and 76.1% in 2020 for
group disability and 85.5% and 92.6% for group life. On a consolidated basis,
this implies loss ratios of 91.1% in 4Q20 and 86.8% in 2021 versus 84.8% in
4Q19 and 89.0% in 2020. By premiums, PRU’s disability business, where
margins are susceptible to high unemployment, is less than half the group life
business, where claims are not related to economic trends.
 Capital deployment: PRU suspended share repurchases in 1Q20 and the
resumption of buybacks in early 2021 could be a positive catalyst, while the lack
of activity for a few more quarters would drive reductions in EPS forecasts and
hurt sentiment on the stock. Our model assumes no share repurchases in 4Q20
and $3.5 billion in 2021, funded in part by proceeds from the sale of the Korea
business. On an ongoing basis, we expect PRU to generate free cash flow equal to
about 65% of operating earnings, which implies $3.0 billion of deployable capital
in 2021 ($1.3 billion after dividends). As such, we believe that PRU can support
dividend payments without materially depleting capital.

Prudential Financial, Inc. (Overweight; Price Target: $91.00)
Investment Thesis
Lackluster operating results are a near-term concern, but our long-term outlook for PRU is
constructive and we maintain our Overweight rating. In our view, low interest rates will
hold back earnings in PRU’s individual life, Gibraltar, and individual annuity businesses.
PRU’s wellness initiatives and the Assurance IQ deal are headwinds for near-term earnings
as well, and the potential for additional LTC charges is a risk not reflected in consensus
estimates. Despite these concerns, our long-term outlook for PRU is positive as we expect it
to generate an above-average ROE driven by its superior Japan franchise and relatively
capital-light U.S. business. Moreover, PRU has ample financial flexibility to maintain its
dividend, one of the highest in the life sector. Valuation seems attractive too, as the stock
trades at discounts to the sector on both P/BV and P/E. We expect management’s actions to
reduce the market sensitivity of its business mix to help narrow the stock’s valuation gap
with the life insurance sector over time.
Valuation
We are reducing our December 2021 price target from $93 to $91 to reflect our updated
EPS and book value estimates. PRU trades at 0.8x book value (ex. AOCI) and 6.2x 2021E
EPS relative to the group multiples of 1.1x and 7.9x, respectively. Our price target is
derived using blended multiples of 0.9x our year-end 2021 forecast book value ex. AOCI
(50% weight), 0.5x our year-end 2021 total BV forecast (25% weight), and 7.0x our 2022
EPS estimate (25% weight), which we feel are appropriate given the company’s ROE and
growth potential. These compare to our assumed multiples for the life insurance sector of
0.9x BV (ex. AOCI) and 7.0x 2022E EPS.
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In our opinion, the primary risks to our Overweight rating and price target are:
 Accretion targets on Assurance IQ acquisition are achieved later than expected.

PRU expects Assurance IQ to generate roughly $130 million of earnings in 2020 and
$200 million in 2021 (before amortization costs) on revenues of $0.7 billion and $1.0
billion. If these earnings accrue at a slower than expected pace, there could be downside
to consensus EPS estimates.
 Wellness-related costs exceed guidance, or margin benefits are realized later than
expected. PRU has guided to $700 million of wellness initiative expenses to generate
$500 million of run-rate cost savings by year-end 2022 and $750 million by year-end
2023 ($140 million by year-end 2020). If costs are higher than assumed or the
realization of margin benefits is delayed, there could be downside to EPS estimates.
 Sales growth in the international division slows. Japan sales growth, especially in
Gibraltar, was weak in 2019, but we expect future comps to ease and sales to recover
from the COVID-19 driven slowdown in 2Q20. In our view, sustained weakness in
international sales would hurt sentiment on the stock.
 The equity market pulls back sharply. We estimate that a 10% decline in the equity
market would hurt PRU’s EPS by about 3% compared to the sector average of 4%.
Besides pressuring earnings, a weak market could also increase tail risk in the
company’s variable annuity business.
 A stronger US$ hurts earnings. PRU’s earnings are exposed to a weaker yen (38% of
earnings from Japan, of which 15% is yen-based). However, since the company uses a
three-year rolling hedge, the impact of a weaker yen is reflected in results over time, not
immediately.
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Reinsurance Group of America

Neutral
Reinsurance Group of America (RGA;RGA US)
52-week range ($) 164.68-55.39 Operating income ($ mn) 1,154 1,235 841 722 1,276 1,217 1,313 1,344
Market cap ($ mn) 7,873.90 Adj. PBT ($ mn) 1,018 1,099 691 572 1,132 1,074 1,178 1,208
Free float(%) 99.5% ROE 8.8% 8.5% 4.3% 3.6% 6.4% 6.2% 6.5% 6.7%
mn) Reported EPS ($) 11.00 13.60 5.95 4.55 11.88 11.19 12.82 13.09
2000 Adj. P/E 9.6 8.7 14.1 17.0 9.0 9.5 8.4 8.2
BBG BUY|HOLD|SELL 4|5|1 Source: Company data, Bloomberg, J.P. Morgan estimates.
L-T Fundamentals Healthy, but COVID Mortality Key Risk

RGA’s leadership position in the life reinsurance market is a notable positive,
but we remain Neutral due to its exposure to COVID-19 deaths. We forecast
RGA to deliver a 9-10% ROE and steady high-single-digit EPS growth in the long
run, with considerable volatility on a quarterly basis depending on mortality trends.
On a positive note, we expect pricing in the U.S. life reinsurance market to stay
disciplined given favorable competitive dynamics and high concentration of share.
Meanwhile, the international business (roughly 40% of total earnings) should grow at
a healthy pace helped by expanding primary markets in developing economies (i.e.
Southeast Asia), higher reinsurance penetration in developed markets (Japan and
South Korea), and block transactions in Europe. However, near-term results should
be weak as margins are suppressed by elevated COVID-related claims, especially in
the U.S. Also, we believe that RGA will (or should) operate with a greater capital
cushion to avoid additional raises during times of stress. Unlike most life insurance
stocks, RGA is trading well below pre-pandemic levels, but part of this is justified by
dilution from the June equity raise and we believe that valuation is fair.
2021 Outlook
Adjusting EPS Estimates
We are lowering our 4Q20 EPS estimate from $1.84 to $0.50 and decreasing our
2021 forecast from $12.89 to $12.20. In addition, our 2022 earnings projection is
4Q20E: from $1.84 to $0.50 being increased from $13.87 to $14.14. Our updated model reflects a revision in our
2021E: from $12.89 to $12.20 assumption for COVID-19 claims (-$1.44 impact to 4Q20, -$1.10 impact to 1Q21).
2022E: from $13.87 to $14.14
We are estimating a COVID-19 impact of roughly $250 million in 4Q20 and roughly
$100 million in 1Q20, reflecting roughly 130,000 US deaths in 4Q20 and an assumed
50,000 in 1Q21. Our model’s COVID-19 impact reflects roughly a half-way point
between RGA’s guided sensitivity and the company’s reported impacts in 2Q20 and
3Q20, which have been better than our expectation and the company’s guidance. Our
model also reflects appreciation in CAD, GBP/EUR and in AUD/Asian currencies
(+$0.08 impact to 4Q20, +$0.34 impact to 2021). We are also incorporating a benefit
from the strong equity market (roughly +$0.01 in 4Q20 and +$0.09 in 2021). The
company’s exposure to COVID-related mortality is higher than most peers’, and we
expect its earnings and capital flexibility to be pressured if COVID-19 deaths remain
elevated. Based on RGA’s guidance, its exposure to incremental COVID-19 claims
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is in the $200-300 million pretax range for 100,000 deaths in the U.S. and 1.4 million
globally (most of this relates to the U.S.). Longevity and morbidity are partial offsets
to mortality claims, but a majority of the company’s exposure is to mortality. Aside
from operating results, we expect investors to focus on management commentary
regarding any insight on mortality/morbidity from COVID-19, block transactions,
and potential buybacks. In our view, the following will be the major drivers of
RGA’s performance in 2021:
 Traditional U.S. margins: Our model projects the traditional U.S./Latin

America business to report a benefits ratio of 100.4% in 4Q20 and 92.8% in 2021
compared to 91.6% in 4Q19 and 102.1% in 2020. The company should continue
to incur significant claims related to COVID-19 in 4Q20 and early 2021 given the
number of deaths in the quarter (roughly 130,000 in 4Q20). Our model assumes
roughly 130,000 U.S. deaths from COVID-19 in 4Q and 50,000 deaths in 1Q21
(both reported and unreported). U.S. daily infections and deaths have been rising
since mid-September. On a positive note, longer-term, we expect gradual
expansion in RGA’s U.S. margins as the underperforming 1999-2004 individual
life book runs off and as results benefit from the lag effect of a repriced group
insurance block. Also, we believe that a significant proportion of the deaths
related to COVID-19 represent claims that are pulled forward by a few years
(since most deaths have involved older individuals and those with pre-existing
conditions), implying potentially strong margins for 1-2 years once COVID-19
deaths abate. On a cautious note, an aging block (and ensuing high-ticket claims)
should increase volatility in RGA’s quarterly margins.
 Canada margins and revenues: We expect the Canada business to report a
pretax margin of 10.0% in 4Q20 and 10.9% in 2021 versus 9.5% in 4Q19 and
11.4% in 2020. In our opinion, pricing in the Canadian life reinsurance market
will remain disciplined given favorable competitive dynamics and high
concentration of market share. Assuming the current exchange rate, currency
should have a positive impact in the next few quarters.
 Asia and Europe revenues and margins: Growth in RGA’s Asia business
should be tepid over time, benefitting from expanding primary markets in
developing economies (Southeast Asia) and increasing reinsurance penetration in
developed markets (Japan and South Korea) over time. However, near-term
premiums are likely to be pressured by lower sales at primary insurers due to
COVID-related disruption. We are reflecting limited impact from COVID-19
claims in 4Q20 and 2021 in Asia due to relatively modest deaths and the expected
longevity offset outside the US. Our model forecasts premiums to rise 4.4%
(-2.4% decline ex. currency) in 4Q20 and +9.5% (roughly +1.5% ex. currency) in
2021 in Asia. Our long-term outlook for the Europe business is relatively
constructive as well, and we expect results in the division to benefit as stricter
capital rules (Solvency II, Basel III) and restructuring initiatives at several
insurers increase demand for reinsurance. We expect premium growth in Europe
to be 9.4% (6.4% ex. currency) in 4Q20 and 4.4% (roughly -2.4% ex. currency)
in 2021, and pretax margins of 7.1% and 6.9%, respectively.
 U.S./Latin America top-line growth: Our model forecasts traditional U.S./Latin
America premiums to grow 2.5% in 4Q20 and 3.5% 2021. Barring possible block
transactions, we anticipate low-single-digit premium growth over the next few
years, given primary market weakness and low cession rates. Despite the slight
increase in cession rates to the high 20% range in recent years, they remain well
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below historical levels (peak of 60% in the late 1990s) as primary insurers appear
more inclined to retain mortality risk. Lower sales at primary companies due to
COVID-19 related disruption present an additional headwind for near-term
growth. On a positive note, a handful of insurers (AIG, GNW, MET, VOYA,
etc.) are restructuring their life businesses and may use reinsurance to offload
under-performing blocks. Sizable transactions could drive upside to our top-line
growth and earnings estimates.
 Australia results: Margins in RGA’s Australia business improved in recent
years, with break-even and modest profitability in 2020, but results were weak in
2019 and will likely remain volatile in the near term. Longer term, we expect the
runoff of the Australia block to help margins in RGA’s Asia division (Australia is
included in the Asia division). The business reported break-even to modest profits
in 3Q20, 2Q20, and 1Q20, but losses every quarter in 2019 and 3 of 4 in 2018.
This follows more substantial losses from reserve charges in the disability book
in previous years ($274 million charge in 2Q13, $28 million in 3Q12, and
$24 million in 4Q11). The charges stem from delayed claims on total and
permanent disability policies, partly due to proactive efforts by lawyers to
identify potential claimants and pursue lawsuits. A fall back into losses and
overall weak results in Australia could drive reductions in EPS forecasts and hurt
 Update on capital and share repurchases: In our view, investors will keenly
focus on management commentary on liquidity and capital under various
COVID-related scenarios and the status of the economic picture given market
optimism of a strong rebound in 2021 and positive vaccine developments. RGA
suspended buybacks in 1Q20 and the company raised roughly $575 million of
equity in early June to better cope with COVID-19 claims and potential
investment portfolio losses. We believe that raising equity on a significantly
dilutive basis primarily out of an abundance of caution reflects poor capital
management, especially considering the $153 million of share buybacks in 1Q20
(at $142/share). Additionally, the structure of the deal could have been adjusted
to minimize equity dilution had RGA pursued at least a partial debt raise or
hybrid/preferred offering, or cut the dividend. We do not expect a resumption of
share buybacks in the first half of 2021, with activity thereafter depending on
macro conditions. Over time, the recent disruption could present opportunities for
block transactions. In 2Q19, RGA closed a $2.9 billion annuity reinsurance
contract with Horace Mann ($2.2 billion of fixed annuities and $700 million of
VAs). Given RGA’s strong track record with acquisitions, we expect the stock to
react positively to any major deal announcements.

Reinsurance Group of America (Neutral; Price Target: $122.00)
Investment Thesis
Our long-term fundamental outlook for RGA is constructive, and we believe that the
company’s business mix and investment portfolio position it relatively defensively
should macro conditions deteriorate. In our view, rational pricing in the U.S. life
reinsurance market, strong growth potential in foreign markets, and a robust deal
pipeline are notable positives in the long run. However, we remain concerned about
potential downside risk in EPS estimates due to ongoing high COVID-19 deaths.
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Additionally, valuation is not that attractive, especially on a relative basis, following

the stock’s recent recovery.
Valuation
We are raising our December 2021 price target from $120 to $122 to reflect our
updated EPS and book value estimates. Our price target is derived using blended
multiples of 0.9x our 12/31/21 BV ex. AOCI forecast (50% weight), 0.6x our
12/31/21 total BV projection (25% weight), and 8.0x (10.0x previously) our 2022E
EPS (25% weight), which we feel are appropriate given the company’s ROE and
growth potential. RGA trades at 0.9x BV ex. AOCI and 9.2x 2021E EPS. This
compares to group averages of 1.1x and 7.9x, respectively.

We believe that RGA could outperform the sector and exceed our price target if:
 The company announces sizable block deals. The deal environment is active
and RGA is well-positioned to participate given its capital flexibility and
Langhorne Re joint venture with RNR. Given RGA’s strong track record, we
expect deals to boost investor sentiment and drive upside to EPS estimates.
 The macro environment deteriorates further. RGA’s business mix is less
exposed to interest rates and the equity market. Therefore, the stock would likely
outperform peers if macro trends worsen, outside of COVID-19 mortality.
On the other hand, RGA could underperform and fall short of our price target if:
 COVID-19 deaths in the U.S. or globally continue to rise. Additional cases of

COVID-19 or increased deaths from the virus present a key risk to our earnings
forecasts and could constrain the company’s capital flexibility.
 Claims in the old-age U.S. mortality block worsen. RGA has a block of old-
age policies issued in 1999-2004 that has underperformed since 2015. More
recently, RGA has experienced under-performance in its group insurance
business. A deterioration in claims trends in these blocks, a slower than expected
runoff, or an inability to obtain necessary price hikes on group policies could
drive downside to EPS estimates and hurt sentiment on the stock.
 Margins in Australia deteriorate. RGA’s Australia business has had periods of
elevated claims, especially in the disability block, and the company has incurred
charges in the past. Further weakness in results could heighten fears of additional
charges and reduce investor confidence in the company’s book value.
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Unum Group
Neutral
Unum Group (UNM;UNM US)
Free float(%) 90.1% ROE 12.6% 12.3% 10.2% 9.7% 9.6% 9.4% 9.3% 9.2%
mn) Reported EPS ($) 2.38 5.24 4.49 3.79 5.07 4.94 5.46 5.28
LTC Charges and Poor Labor Market Trends Concerns

UNM’s valuation is depressed, but we remain Neutral due to concerns about
LTC charges, marginal free cash flow, and exposure to a weak labor market. In
our view, UNM will generate a roughly 10% operating ROE and mid-single-digit
EPS growth, but limited free cash flow in the next few years as a majority of its stat
income is absorbed by infusions into its Maine subsidiary (which houses most of its
LTC exposure). Also, we are wary of additional reserve charges in the LTC block
over time. Results in the company’s ongoing business have been strong in recent
years, but are vulnerable to the weak labor market, which should suppress premiums
in the group benefits business and margins in the disability line. On a positive note,
sentiment on UNM seems very negative. Additionally, LTC results in the next few
quarters should be helped by elevated COVID-19 related mortality. Therefore, the
risk-reward in the stock appears positively skewed in the short term.
2021 Outlook
Lowering EPS Estimates We are lowering our 4Q20 EPS estimate from $1.29 to $1.21 and our 2021
4Q20E: from $1.29 to $1.21 forecast from $5.33 to $5.21. In addition, our 2022 earnings projection is being
reduced from $5.73 to $5.55. Our updated model primarily reflects the negative
2021E: from $5.33 to $5.21
impact of COVID-related claims in U.S. Group Protection (-$0.09 in 4Q20, -$0.08 in
2022E: from $5.73 to $5.55 2021). Our model also reflects an elimination of buybacks in 2021, with a
resumption in 2022 (roughly -$0.10 impact in 2021). We also incorporate
appreciation in the British Pound (+$0.01 impact to 4Q20, +$0.02 impact to 2021).
Also, our model assumes elevated alternative investment income in the fourth quarter
and an adjustment to UNM’s tax rate. We forecast UNM to report mixed results in its
U.S. business as COVID-related disruption and the weaker economy continue to
pressure top-line growth. Aside from reported results, investors are likely to focus on
potential cash flow and the LTC block, particularly given the low interest rate
environment. In our opinion, the following will be the key drivers of UNM’s
performance in 2021:
 U.S. group disability margins: Our model forecasts the group disability
business to report a benefits ratio of 74.4% in 4Q20 and 75.0% in 2021,
compared with 74.0% in 4Q19 and 73.6% in 2020. Disability margins had been
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better than expected in 1H20, but the trend reversed in 3Q20 and the benefits
ratio could rise further if economic conditions deteriorate. This, in turn, would
drive potential reductions in EPS estimates. Based on our calculations, a 100 bps
change in the U.S. group disability benefits ratio would affect annual EPS by
approximately $0.10 (or roughly 2%).
 Closed block margins: We forecast the closed block to generate earnings of
$43 million in 4Q20 and $94 million in 2021 versus $46 million in 4Q19 and
$180 million in 2020. Overall, we feel that closed block earnings are more likely
to exceed our assumptions than miss, especially if COVID-19 mortality remains
high (as this reduces long-term care claims). The closed block represents
approximately 40% of UNM’s equity but is a significantly smaller contributor to
earnings (roughly 10%). Therefore, we expect it to continue to be a major drag on
overall ROE for the foreseeable future. Nearly 60% of closed block premiums are
from long-term care policies, with the remaining 40% being generated by
individual disability. Management has agreed to reinsure a significant proportion
of the individual disability block and is interested in decreasing its exposure to
the LTC block as well, but we do not expect a transaction in the near future given
the lack of third-party appetite for LTC risk and the current economic climate.
Concurrent with 1Q20 results, UNM announced that the Maine insurance
regulator asked the company to contribute $2.1 billion of capital to its LTC
subsidiary over a 7-year period. Previously, UNM incurred a $751 million GAAP
LTC charge in 3Q18, primarily due to updated claim assumptions and, to a lesser
extent, revised interest rate assumptions. The company adjusted claims incidence
and termination rate assumptions as well. UNM’s LTC reserves currently assume
a new money investment yield of 5.5% for 2019-2021, grading up to an ultimate
rate of 6.25% in the next four years. Management conducts detailed reviews of its
LTC reserves annually (in 4Q), but typically makes material adjustments to its
assumptions every 3-4 years. We maintain a cautious long-term stance on the
LTC business and expect additional charges over time given deteriorating
industry-wide claims trends and optimistic assumptions embedded in UNM’s
reserves. Following the reserve update, management expects the LTC interest-
adjusted loss ratio to be in the 85-90% range. The ratio was 67% in 3Q20 and
86.7% in 4Q19. A major uptick in the ratio (to a level over 90%) would heighten
investor concerns about another charge and hurt sentiment on the stock. The
company anticipates incurring an after-tax charge of $110-130 million in 4Q20,
which it plans to reflect below the line in net EPS, but not operating EPS. We
expect earnings in the closed block division to decline at a mid-single-digit pace
over time, with charges every 3-4 years.
 Unum International top-line growth and margins: Our outlook for the
international division is cautious given poor economic trends in England, UNM’s
primary market outside the U.S. Elevated claims, and the negative impact of
Brexit on the British business (which accounts for almost 90% of Unum
International earnings), should hurt results. Our model projects premiums at
Unum International to be up 3.5% in 4Q20 and grow 2.4% in 2021, as the
contribution from the acquired Poland business moderates to more normal levels
as it enters its third year of integration (the deal closed in October 2018), and
COVID-19 continues to disrupt near-term sales practices, partially offset by
strength in the British Pound. Similar to the U.S., elevated unemployment due to
COVID-19 presents a risk to international premiums and margins. Beginning in
4Q18, UNM consolidated the reporting of its acquired Polish business,
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Pramerica, with Unum UK under the Unum International division. We expect the
acquired business to account for roughly 9% of Unum International. Foreign
exchange had been a headwind prior to 3Q20, and should be positive again in
4Q20. Assuming the current $/£ rate of 1.37 holds, foreign exchange will be a
tailwind for 2021. Excluding the impact of exchange rates, we forecast
international division premiums to decline at a low-single-digit pace in 2021.
 U.S. sales results: The weak economy and COVID-related disruption are likely
to suppress U.S. sales in the near term. Sales in 2021 will depend primarily on the
path of the economy, and results are highly susceptible to a recession. On a
positive note, sales weakness should not have a commensurate impact on
premiums given a likely improvement in persistency as employers are reluctant to
switch providers in the current environment.
 Commentary on capital and share repurchases: Concurrent with 1Q20 results,
UNM suspended buybacks and our model projects no buybacks in 4Q20 or in
2021. Longer term, we believe UNM can generate annual cash flow of roughly
$700 million ($500 million after dividends), the majority of which is likely to be
injected into the Maine subsidiary. Besides limiting capital flexibility, the
company’s minimal free cash flow makes it highly susceptible to a material
uptick in investment defaults and/or bond downgrades. Conversely, a resumption
of buybacks would lift EPS estimates as well as boost sentiment on the stock.

Unum Group (Neutral; Price Target: $24.00)
Investment Thesis
We maintain our Neutral rating. In our opinion, UNM has a superior U.S. group
benefits franchise and we expect the company to generate a roughly 10% ROE and
mid-single-digit EPS growth over time. On a negative note, we are concerned about
weakness in near-term results given rising unemployment, which should pressure
revenues and margins, especially in the disability business. Additionally, we remain
wary of potential reserve charges in the LTC book over time, UNM’s limited free
cash flow, and the company’s above-average exposure to lower rated bonds. As such,
despite UNM’s depressed valuation, we are not recommending the stock.
Valuation
We are maintaining our December 2021 at $24. UNM trades at 0.4x book value
(ex. AOCI) and 4.2x our 2021 EPS estimate, lower than the group multiples of 1.1x
BV ex. AOCI and 7.9x earnings, respectively. Our price target is based on multiples
of 0.5x 12/31/21E BV ex. AOCI (50% weight), 0.4x 12/31/21E total BV (25%
weight), and 5.0x our 2022E EPS (25% weight), which we feel are appropriate given
UNM’s ROE and growth potential. These compare to our group multiples of 0.9x
BV (ex. AOCI) and 7.0x 2022E earnings, which reflect our expectation of long-term
returns (10-12%) and EPS growth (about 10%) for the sector.

In our opinion, UNM could outperform the life group and exceed our price target if:
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 Interest rates rise. Higher rates would help earnings and, more notably, reduce
the magnitude of potential long-term care reserve charges, which would lift
 COVID-19 causes an additional uptick in mortality. Higher mortality,
especially in the senior population, while tragic, would ease the strain on LTC
reserves and help UNM’s margins in the short term.
Meanwhile, the key downside risks to our rating and price target are:
 An increase in the LTC benefits ratio. If the benefits ratio increases towards the
higher-end of management’s 85-90% expectation and remains elevated for
multiple quarters, investors may have concerns about additional reserve charges
in the near term. This, in turn, would hurt sentiment on the stock.
 An uptick in credit defaults or downgrades. UNM’s exposure to lower rated
bonds is greater than most peers’. As a result, an increase in bond defaults or
downgrades given the current macro environment would pressure the company’s
capital ratios and reduce capital flexibility.
 Sustained high unemployment. Higher unemployment in the U.S. (U.S.
accounts for roughly 93% of UNM’s earnings) or Europe (7% of income) would
suppress top-line growth in the group benefits business as well as pressure
margins in the disability product line.
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Voya Financial, Inc.

Neutral
Voya Financial, Inc. (VOYA;VOYA US)
52-week range ($) 63.81-29.75 Operating income ($ mn) 986 981 639 641 984 1,007 1,061 1,085
Market cap ($ mn) 7,410.06 Adj. PBT ($ mn) 1,039 712 86 89 753 776 832 855
Free float(%) 99.4% ROE 7.6% 7.9% 4.1% 4.1% 7.2% 7.4% 7.7% 7.9%
mn) Reported EPS ($) 5.20 (2.59) (3.80) (3.78) 14.47 14.00 6.41 6.12
Risk Profile Better, but Fundamentals Mixed & Valuation Full

A lower risk profile and strong capital position are positives, but our Neutral
rating reflects a mixed outlook for business trends and the stock’s valuation.
Following the sale of the individual life segment (expected to close in 1Q21), Voya’s
operations will be concentrated mainly in capital-light businesses (retirement and
asset management), which entail below-average balance sheet risk compared with
traditional life insurance industry product lines. In addition, Voya has ample
financial flexibility for capital deployment and its sizeable deferred tax assets should
minimize cash taxes for the foreseeable future. On the other hand, we expect Voya’s
overall organic growth to be held back by the sluggish economy, and project its
margins to be lackluster, especially in the retirement and asset management
businesses. Moreover, we feel that depressed insurance company valuations reduce
the likelihood of Voya being acquired, a major reason for bullish investor sentiment
on the stock historically. Voya’s rampant use of below-the-line adjustments and poor
earnings quality are concerns as well. Nevertheless, our overall outlook for VOYA is
relatively constructive and a pullback could make us more positive on the stock.
2021 Outlook
Reducing EPS Estimates Our 4Q20 EPS estimate of $1.50 is unchanged but we are reducing our 2021
4Q20E: unchanged at $1.50 forecast from $5.70 to $5.61. Also, our 2022 projection is declining from $7.14 to
$6.80. Our model is updated for the positive impact of the equity market (+$0.02 in
2021E: from $5.70 to $5.61
4Q20, +$0.17 in 2021), healthy variable investment income (+$0.06 in each of 4Q20
2022E: from $7.14 to $6.80 and 1Q21), and the recently announced $150 million accelerated share repurchase
(+$0.02 in each of 4Q20 and 1Q21). All of these items, however, are more than
offset by incremental COVID-19 claims (-$0.07 in 4Q20 and -$0.06 in 1Q21) and
less accretion from share repurchases due to a higher stock price (-$0.28 in 2021 and
-$0.52 in 2022). In our view, Voya’s 2021 results will be mixed, marked by a stable
flows in the full service business but a slowdown in the record keeping and asset
management segments. With respect to margins, we expect the healthy equity market
to boost earnings in fee-based businesses, and the headwind from COVID-19 claims
in the employee benefits business to normalize. Besides reported results, we expect
investors to focus on the pace of capital deployment and updates on the investment
portfolio. In our opinion, following are the key metrics to assess Voya’s 2021 results:
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 Retirement/DC net flows and margins: Our model forecasts retirement deposits
of $10.8 billion in 4Q20 and $47.6 billion in 2021 versus $33.7 billion in 4Q19
and $73.7 billion in 2020. Net flows are forecasted to be -$3.1 billion in 4Q20
due to a large tax-exempt withdrawal (versus +$12.6 billion in 4Q19) and
+$1.8 billion in 2021 (versus +$30.8 billion in 2020). While the economic
slowdown from COVID-19 is a near-term headwind for deposit growth (lower
contributions, less employer matching, a reduction in sales), part of the impact is
likely to be offset by better persistency as employers are less willing to switch
retirement providers in the current environment. In the full service business, we
are projecting deposits to grow +3.9% in 4Q20 and to be flat in 2021, and
outflows of -$2.4 billion in 4Q20 and inflows of +$1.7 billion in 2021 (versus
+$266 million in 4Q19 and +$1.5 billion in 2020). In stable value, we are
assuming flows of +$417 million in 4Q20 and +$511 million in 2021 compared
to flat flows in 4Q19 and +$3.9 billion in 2020. Meanwhile, our outlook for
margins is cautious. Retirement earnings have trailed AUM and AUA growth for
some time, which we attribute to elevated competition and adverse trends in the
401(k) market, including unbundling of services, increased fee disclosure, and
greater indexing of investments. In our view, these trends are secular in nature,
and we expect them to pressure margins for Voya and peers for the foreseeable
future. The low interest rate environment is another headwind for margins, and is
likely to hurt spread-based earnings (about 23% of full service retirement assets
are spread-based). Overall, our model projects the pretax ROA in Voya’s
retirement business to stay close to roughly 12 bps, with potential for further
downside over time. In the past few years, management had amended minimum
guaranteed interest rates in its client contracts, which resulted in DAC charges
but reduced future amortization, boosting future earnings. Adjusting for this
impact, the division’s margins would have declined.
 Asset management sales/flows and margins: We project third-party deposits of
$6.2 billion in 4Q20 and $45.4 billion in 2021 (including $20 billion of assets
transferred from Voya’s general account to institutional AUM as part of the
individual life sale) compared to deposits of $5.4 billion in 4Q19 and
$32.3 billion in 2020. Third-party net flows are expected to be +$249 million in
4Q20 (versus +$782 million in 4Q19) and +$22.8 billion in 2021 (versus
+$11.0 billion in 2020). In our opinion, Voya’s third-party asset management
business is well-positioned to grow, helped by its strong fixed income investment
platform. In contrast, we expect Voya’s affiliated flows to be poor (-$271 million
in 4Q20 and -$442 million in 2021 vs. -$108 million in 4Q19 and -$202 million
in 2020). Margins in the asset management business compressed from 28% to
25% following the loss of assets from the CBVA sale in 2Q18 ($18 billion of
AUM). Our model assumes margins of 27-28% in the next few years, below
VOYA’s long-term target of 30-32% (including invested capital).
 Employee benefits results: Our outlook for Voya’s employee benefits business
remains upbeat, and we project the division to generate healthy margins and top-
line growth over time. While COVID-19 related group life claims could hurt
earnings in the near term, their impact has been less than expected thus far. Our
model assumes benefit ratios of 75.0% in 4Q20 and 78.2% in 2021 in the medical
stop loss business versus 77.2% in 4Q19 and 76.5% in 2020. In group life, we are
assuming benefit ratios of 85.8% in 4Q20 and 79.6% in 2021 compared to 72.0%
in 4Q19 and 82.7% in 2020. Voya prices group business (including voluntary) on
a 71-74% aggregate loss ratio, and raised stop loss prices following poor
experience in recent years.
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 Commentary on capital deployment: We are assuming $120 million of share

buybacks in 4Q20 (reflecting the partial settlement of the $150 million
accelerated share repurchase announced on December 24) and $1.3 billion in
2021 (including $800 million related to proceeds from the individual life sale,
expected to close in 1Q21). Like most of its peers, Voya suspended share
repurchases in late March due to the uncertain economic environment. Most
investors were expecting activity to resume in early 4Q20, but this was pushed
back due to a delay in the closing of the individual life sale. There could be
downside to EPS forecasts and investor sentiment on VOYA could turn negative
if the pace of buybacks is gradual.

Voya Financial, Inc. (Neutral; Price Target: $57.00)
Investment Thesis
We consider Voya’s de-risked business mix and strong capital position notable
positives, but expect its near-term operating results to be lackluster. Overall, Voya’s
focus on capital-light product lines such as retirement and asset management makes
its balance sheet less susceptible to tail risk than its life insurance peers’. Also, Voya
has financial flexibility for capital deployment and its sizeable deferred tax asset
should limit its cash taxes for the foreseeable future. On the other hand, we forecast
organic growth to be held back by the sluggish economy and expect margins to be
lackluster, particularly in the retirement and asset management businesses. Low
insurance company valuations also make the acquisition of Voya less likely, a major
reason for many investors’ bullish views on the stock. Moreover, we are concerned
about the company’s poor earnings quality and rampant use of below-the-line items
to derive operating EPS. Regardless, our overall view of Voya is upbeat and we
could get more positive on the stock if it underperforms peers.
Valuation
We are maintaining our December 2021 price target of $57. VOYA trades at 1.6x
BV ex. AOCI and 10.4x 2021E EPS versus the sector multiples of 1.1x and 7.9x,
respectively. In our opinion, the appropriate way to value the stock is to analyze the
operating businesses separately from the DTA, which we estimate is worth roughly
$9 per share (accounting for the individual life sale). Excluding the estimated fair
value of the DTA from VOYA’s current stock price implies that the company is
being valued at roughly $44 per share (1.9x BV ex. AOCI and DTA). Our $57 price
target is derived by using a multiple of 1.5x our 12/31/21 book value ex. AOCI and
DTA estimate (50% weight), 0.6x our 12/31/21 projected total book value ex. DTA
(25%), and 7.1x our 2022 EPS forecast (25% weight), which we feel are appropriate
given the company’s ROE and growth potential. This methodology yields a $48 per
share value. To this, we add $9 related to the DTA resulting in a $57 price target.

In our view, the following are the key upside risks to our rating and price target:
 Asset management margins improve faster than expected. We expect asset

management margins to remain flat, which is less bullish than Voya’s expected
improvement following the loss of CBVA assets. If Voya is able to expand asset
management margins, there could be upside to our EPS estimates.
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 Lower DTA valuation allowance boosts GAAP book value. At 12/31/19, Voya
had a $388 million valuation allowance against its DTA, which it could release
over time given its consistent earnings. Life insurance stocks such as AIG and
CNO have reacted favorably in the past to similar releases even if they only boost
reported equity (making multiples seem cheaper), not economic value.
 Voya is added to the S&P 500 Index or a higher dividend attracts a wider
investor base. There is no set timeline for additions to the S&P 500, but Voya
already meets the liquidity and size thresholds for inclusion (market cap of about
$7.4 billion at 12/30/20). Buying activity related to Voya’s addition to the index
could provide a near-term lift to the stock price.
Conversely, the stock could underperform the sector if:
 The pace of share repurchases is slower than assumed. The company’s

significant flexibility for share buybacks is one of the key reasons for investors’
positive view of the company. A slow pace of buybacks would pressure EPS
forecasts as well as hurt sentiment on VOYA.
 The economic slowdown or elevated unemployment pressures results in the
company’s retirement business. Close to 60% of Voya’s earnings are produced
by the retirement business. If the economic slowdown sustains, organic growth in
the business could slow if employee 401(k) contributions and employer matches
decline. This, in turn, would likely lead to reductions in earnings estimates and
depress investor sentiment on the stock.
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AFLAC, Inc.: Summary of Financials

Income Statement - Annual FY18A FY19A FY20E FY21E FY22E Income Statement - Quarterly 1Q20A 2Q20A 3Q20A 4Q20E
Premiums - Life 18,677 18,781 18,711 18,695 18,252 Premiums - Life 4,681A 4,665A 4,624A 4,741
Fee income - - - - - Fee income - - - -
Net investment income 3,242 3,392 3,476 3,480 3,490 Net investment income 872A 853A 874A 877
Other income 70 84 157 154 164 Other income 40A 41A 37A 39
Total revenues - life 21,989 22,257 22,343 22,329 21,906 Total revenues - life 5,593A 5,559A 5,535A 5,656
a
Benefits & losses (11,999) (11,947) (11,920) (11,934) (11,621) Benefits & losses (2,939)A (2,899)A (2,986)A (3,096)
Interest credited - - - - - Interest credited - - - -
Amortization of acquisition costs (net) (1,245) (1,282) (1,238) (1,256) (1,244) Amortization of acquisition costs (net) (333)A (289)A (292)A (324)
G&A Expense (4,112) (4,299) (4,504) (4,546) (4,470) G&A Expense (1,077)A (1,054)A (1,140)A (1,233)
Total expenses (17,517) (17,666) (17,808) (17,901) (17,499) Total expenses (4,378)A (4,282)A (4,453)A (4,695)
a.
Life Operating Income 4,472 4,591 4,535 4,428 4,407 Life Operating Income 1,215A 1,277A 1,082A 961
Net Interest (119) (132) (164) (176) (176) Net Interest (33)A (43)A (44)A (44)
Adj. PBT 3,981 4,444 3,844 4,138 4,117 Adj. PBT 734A 1,068A 1,154A 888
Income taxes (1,129) (1,148) (842) (850) (846) Income taxes (301)A (315)A (43)A (183)
Adj. Net Income 3,224 3,311 3,528 3,402 3,385 Adj. Net Income 881A 919A 995A 733
a
Shares outstanding 775 746 717 684 652 Shares outstanding 728A 720A 714A 705
a
Adj. EPS 4.16 4.44 4.92 4.97 5.19 Adj. EPS 1.21A 1.28A 1.39A 1.04
Reported EPS 3.77 4.43 6.32 4.81 5.01 Reported EPS 0.78A 1.12A 3.44A 1.00
DPS Reported 1.04 1.09 1.17 1.34 1.40 DPS Reported 0.28A 0.28A 0.28A 0.33
.
Balance Sheet and Capital Data FY18A FY19A FY20E FY21E FY22E Ratio Analysis FY18A FY19A FY20E FY21E FY22E
Cash & Cash Equivalents 122,910 133,410 142,796 145,987 149,256 Return on equity (ROE) 13.5% 12.6% 11.5% 10.3% 9.9%
Investments - - - - - Return on equity (ex. AOCI) 15.5% 15.2% 15.0% 13.6% 13.0%
o/w Equity investments - - - - - ROA 2.4% 2.3% 2.3% 2.1% 2.1%
o/w Fixed income investments - - - - - BVPS 31.06 39.84 46.96 50.81 54.89
Total investments & Cash 122,910 133,410 142,796 145,987 149,256 BVPS (ex. AOCI) 28.22 30.74 35.51 38.62 41.92
Premiums receivable 902 920 975 1,018 1,063 Dividend payout ratio 27.6% 24.6% 18.5% 27.8% 28.0%
Reinsurance recoverables - - - - -
Net Fixed Assets - - - - - Total revenue growth - - - - -
Net Goodwill - - - - - Total expense growth - - - - -
Net Intangibles - - - - - Adj. PBT growth (0.9%) 11.6% (13.5%) 7.7% (0.5%)
Other long term assets - - - EPS y/y Growth 22.3% 6.6% 11.0% 1.0% 4.3%
Total Assets 137,442 148,468 158,967 162,744 166,622 BVPS (ex. AOCI) growth 8.3% 9.0% 15.5% 8.7% 8.6%
a Tax rate 28.4% 25.8% 21.9% 20.5% 20.6%
LT policyholder liabilities - - - - -
Reinsurance Premium Payable 86,949 90,865 97,501 99,849 102,269 Adj. P/E (x) 10.7 10.0 9.0 8.9 8.6
Debt - - - - - P/BV (x) 1.4 1.1 0.9 0.9 0.8
Other liabilities 19,264 22,738 24,861 26,036 27,292 Dividend Yield 2.3% 2.5% 2.6% 3.0% 3.2%
Total Liabilities 111,306 117,850 126,966 130,631 134,450
a
Shareholders' equity 23,462 28,959 32,604 33,599 34,584
Shareholders' equity ex. AOCI 21,311 22,344 24,658 25,540 26,411
Capital for share repurchases 1,302 1,627 1,437 1,600 1,616
Capital for dividends 785 792 812 884 884
a
Note: $ in millions (except per-share data).Fiscal year ends Dec
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Brighthouse Financial: Summary of Financials

Premiums - Life 900 882 766 758 740 Premiums - Life 198A 193A 184A 191
Fee income 3,571 3,316 3,246 3,409 3,401 Fee income 821A 763A 815A 847
Net investment income 3,352 3,585 3,519 3,783 3,886 Net investment income 920A 656A 1,001A 942
a
Benefits & losses (2,921) (3,403) (4,345) (2,818) (2,742) Benefits & losses (912)A (675)A (2,021)A (737)
Interest credited (1,078) (1,062) (1,097) (1,174) (1,236) Interest credited (259)A (276)A (279)A (283)
Amortization of acquisition costs (net) (616) (535) (568) (637) (652) Amortization of acquisition costs (net) (99)A (157)A (158)A (154)
G&A Expense - - - - - G&A Expense - - - -
a.
Life Operating Income 1,030 670 (302) 1,403 1,409 Life Operating Income 253A 21A (902)A 326
Net Interest - - - - - Net Interest - - - -
Adj. PBT 1,030 670 (302) 1,403 1,409 Adj. PBT 253A 21A (902)A 326
Income taxes (138) (45) 136 (260) (261) Income taxes (33)A (3)A 232A (60)
Adj. Net Income 892 599 (215) 1,057 1,066 Adj. Net Income 211A 11A (689)A 252
a
a
Adj. EPS 7.44 5.31 (2.23) 12.21 13.06 Adj. EPS 2.01A 0.11A (7.43)A 2.78
Reported EPS 7.21 (6.75) (15.51) 5.26 6.85 Reported EPS 47.10A (21.07)A (32.49)A (15.87)
.
Cash & Cash Equivalents - - - - - Return on equity (ROE) 6.2% 4.0% (1.4%) 6.5% 6.4%
Investments - - - - - Return on equity (ex. AOCI) 6.7% 4.6% (1.9%) 9.9% 9.7%
o/w Equity investments - - - - - ROA - - - - -
Total investments & Cash - - - - - BVPS (ex. AOCI) 116.58 118.08 119.25 129.63 142.28
Premiums receivable - - - - - Dividend payout ratio 0.0% 0.0% 0.0% 0.0% 0.0%
Net Fixed Assets - - - - - Total revenue growth (1.5%) (0.7%) (3.0%) 5.1% 1.0%
Net Goodwill - - - - - Total expense growth 6.6% 4.2% 9.7% (15.8%) 1.1%
Net Intangibles - - - - - Adj. PBT growth (35.5%) (35.0%) (145.1%) (564.2%) 0.4%
Other long term assets - - - EPS y/y Growth (3.2%) (28.5%) (142.0%) (647.0%) 7.0%
Total Assets - - - - - BVPS (ex. AOCI) growth 8.8% 1.3% 1.0% 8.7% 9.8%
a Tax rate 13.4% 6.7% (44.9%) 18.5% 18.5%
Reinsurance Premium Payable - - - - - Adj. P/E (x) 4.9 6.8 NM 3.0 2.8
Debt - - - - - P/BV (x) 0.3 0.2 0.2 0.2 0.2
Other liabilities - - - - - Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0%
Total Liabilities - - - - -
a
Capital for share repurchases 105 442 466 200 200
Capital for dividends - - - - -
a
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Equitable Holdings Inc: Summary of Financials

Premiums - Life - - - - - Premiums - Life - - - -

Fee income 8,604 8,563 8,446 8,842 8,804 Fee income 2,158A 1,992A 2,062A 2,235
Net investment income 2,627 3,096 3,305 2,956 2,952 Net investment income 1,208A 492A 796A 809
Other income 1,148 1,229 1,180 1,196 1,210 Other income 299A 283A 300A 298
a
Benefits & losses (2,904) (2,813) (3,302) (2,666) (2,482) Benefits & losses (1,181)A (547)A (754)A (820)
G&A Expense (3,121) (3,119) (3,028) (3,161) (3,189) G&A Expense (787)A (718)A (732)A (791)
a.
Life Operating Income 2,966 3,245 2,885 3,253 3,315 Life Operating Income 710A 643A 772A 760
Adj. PBT 2,639 2,976 2,609 2,936 2,982 Adj. PBT 648A 575A 699A 687
Income taxes (473) (579) (523) (614) (627) Income taxes (133)A (116)A (131)A (143)
a
a
Reported EPS 3.27 (3.51) 0.57 3.38 3.80 Reported EPS 11.64A (8.97)A (1.77)A (0.71)
.
Cash & Cash Equivalents - - - - - Return on equity (ROE) 15.8% 18.0% 14.4% 14.3% 28.8%
Premiums receivable - - - - - Dividend payout ratio 8.0% NM 116.8% 21.0% 19.6%
Net Goodwill - - - - - Total expense growth 4.9% 2.4% 4.2% (3.0%) (0.9%)
Net Intangibles - - - - - Adj. PBT growth (10.7%) 12.8% (12.3%) 12.5% 1.6%
Other long term assets - - - EPS y/y Growth 3.3% 24.7% (7.1%) 18.8% 11.3%
Total Assets - - - - - BVPS (ex. AOCI) growth 19.1% (10.9%) 0.5% 10.7% 11.4%
a Tax rate 17.9% 19.5% 20.0% 20.9% 21.0%
Reinsurance Premium Payable - - - - - Adj. P/E (x) 6.6 5.3 5.7 4.8 4.3
Debt - - - - - P/BV (x) 1.0 0.9 0.7 0.6 0.6
a
Capital for share repurchases 649 1,350 470 1,018 908
a
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Globe Life Inc: Summary of Financials

Premiums - Life 3,422 3,595 3,808 3,995 4,175 Premiums - Life 930A 954A 962A 963
Net investment income 883 910 926 947 972 Net investment income 229A 232A 231A 234
a
Benefits & losses (1,509) (1,562) (1,744) (1,790) (1,858) Benefits & losses (404)A (445)A (442)A (453)
Interest credited (547) (569) (595) (623) (652) Interest credited (145)A (148)A (150)A (152)
G&A Expense (235) (251) (263) (278) (291) G&A Expense (66)A (64)A (66)A (67)
Total expenses (3,305) (3,458) (3,723) (3,884) (4,049) Total expenses (897)A (937)A (932)A (957)
a.
Adj. PBT 885 941 900 944 980 Adj. PBT 236A 220A 234A 211
Adj. Net Income 707 752 722 755 784 Adj. Net Income 189A 177A 188A 169
a
a
.
Net Goodwill - - - - - Total expense growth - - - - -
Net Intangibles - - - - - Adj. PBT growth 3.9% 6.3% (4.4%) 4.9% 3.8%
a Tax rate 20.2% 20.1% 19.8% 20.0% 20.0%
Debt - - - - - P/BV (x) 2.0 1.4 1.5 1.3 1.2
a
a
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Lincoln National: Summary of Financials

Net investment income 4,861 5,029 5,239 5,070 5,041 Net investment income 1,333A 1,134A 1,423A 1,349
a
Amortization of acquisition costs (net) - - - - - Amortization of acquisition costs (net) - - - -
a.
Life Operating Income 2,488 1,819 1,292 2,426 2,465 Life Operating Income 626A 263A (146)A 549
Adj. PBT 2,214 1,535 1,024 2,162 2,201 Adj. PBT 558A 195A (212)A 483
Income taxes (334) (180) (95) (337) (345) Income taxes (93)A (8)A 79A (73)
Adj. Net Income 1,862 1,351 899 1,817 1,848 Adj. Net Income 442A 187A (138)A 408
a
a
Adj. EPS 8.48 6.68 4.62 9.62 10.31 Adj. EPS 2.24A 0.97A (0.71)A 2.10
Reported EPS 7.47 4.35 3.54 8.50 9.72 Reported EPS 0.15A (0.49)A 2.06A 1.83
.
Net Fixed Assets - - - - - Total revenue growth 12.9% 9.5% 0.2% 1.4% 2.7%
Net Goodwill - - - - - Total expense growth 14.9% 15.8% 3.3% (5.2%) 2.8%
Net Intangibles - - - - - Adj. PBT growth 1.7% (30.7%) (33.3%) 111.1% 1.8%
Other long term assets - - - EPS y/y Growth 8.9% (21.1%) (30.9%) 108.2% 7.2%
a Tax rate 15.1% 11.7% 9.3% 15.6% 15.7%
Debt - - - - - P/BV (x) 0.7 0.5 0.4 0.4 0.4
a
a
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MetLife, Inc.: Summary of Financials

a
Interest credited (4,693) (5,029) (4,765) (5,052) (5,069) Interest credited (1,218)A (1,161)A (1,149)A (1,237)
Amortization of acquisition costs (net) 547 584 (21) 131 163 Amortization of acquisition costs (net) 42A 111A (216)A 42
a.
Life Operating Income 7,753 7,559 7,640 8,334 8,584 Life Operating Income 2,017A 1,265A 2,275A 2,083
Net Interest (1,058) (955) (918) (942) (942) Net Interest (222)A (232)A (229)A (235)
Adj. PBT 6,695 6,604 6,721 7,393 7,642 Adj. PBT 1,795A 1,033A 2,046A 1,847
Income taxes (1,093) (659) (1,265) (1,570) (1,655) Income taxes (314)A (198)A (409)A (344)
Adj. Net Income 5,461 5,767 5,254 5,619 5,783 Adj. Net Income 1,449A 758A 1,578A 1,469
a
Shares outstanding 1,014 944 914 865 809 Shares outstanding 920A 913A 914A 909
a
.
Net Fixed Assets - - - - - Total revenue growth 8.6% (1.7%) (7.4%) 1.8% 2.2%
Net Goodwill - - - - - Total expense growth 8.4% (1.8%) (8.4%) 0.8% 2.0%
Net Intangibles - - - - - Adj. PBT growth 10.6% (1.4%) 1.8% 10.0% 3.4%
a Tax rate 16.3% 10.0% 18.8% 21.2% 21.7%
Debt - - - - - P/BV (x) 0.9 0.7 0.6 0.6 0.5
a
Shareholders' equity 0 0 0 0 0
Capital for share repurchases 3,936 2,285 965 4,000 2,200
Capital for dividends 1,647 1,618 1,646 1,611 1,562
a
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Principal Financial Group: Summary of Financials

Net investment income 3,742 4,125 3,967 4,018 4,032 Net investment income 1,009A 984A 963A 1,011
Other income - - - - - Other income - - - -
a
Amortization of acquisition costs (net) 192 160 70 180 186 Amortization of acquisition costs (net) 12A 59A (44)A 44
a.
a
a
.
Net Fixed Assets - - - - - Total revenue growth 5.3% 13.6% (9.1%) 10.6% 3.7%
Net Goodwill - - - - - Total expense growth 5.4% 16.3% (8.8%) 7.7% 3.6%
a Tax rate 18.3% 16.9% 16.9% 17.0% 17.0%
Debt - - - - - P/BV (x) 1.2 0.9 0.9 0.8 0.8
a
a
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Prudential Financial: Summary of Financials

Other income 5,390 5,591 5,813 6,979 7,387 Other income 1,178A 1,269A 1,619A 1,747
a
Amortization of acquisition costs (net) 750 623 616 831 881 Amortization of acquisition costs (net) 160A (3)A 210A 249
a.
Life Operating Income 7,782 7,638 6,502 7,578 7,845 Life Operating Income 1,579A 1,328A 1,963A 1,632
Net Interest (1,414) (1,540) (1,554) (1,495) (1,537) Net Interest (387)A (397)A (400)A (370)
Adj. PBT 6,368 6,098 4,948 6,082 6,308 Adj. PBT 1,192A 931A 1,563A 1,262
Income taxes (1,349) (1,253) (992) (1,338) (1,388) Income taxes (253)A (189)A (272)A (278)
Adj. Net Income 4,982 4,804 3,909 4,700 4,874 Adj. Net Income 928A 733A 1,275A 973
a
a
Reported EPS 9.47 10.09 (0.97) 10.95 12.32 Reported EPS (0.71)A (6.10)A 3.70A 2.10
.
Premiums receivable - - - - - Dividend payout ratio 38.0% 39.7% NM 42.4% 39.5%
Net Goodwill - - - - - Total expense growth 9.2% 0.5% (7.5%) (0.3%) 2.7%
Total Assets - - - - - BVPS (ex. AOCI) growth 6.6% 8.0% (6.4%) 7.5% 7.5%
a Tax rate 21.2% 20.5% 20.0% 22.0% 22.0%
Debt - - - - - P/BV (x) 0.7 0.5 0.5 0.4 0.4
a
Capital for share repurchases 1,500 2,500 500 3,500 2,100
Capital for dividends 1,539 1,640 1,754 1,743 1,664
a
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Reinsurance Group of America: Summary of Financials

a
G&A Expense (816) (897) (839) (952) (998) G&A Expense (201)A (192)A (215)A (231)
a.
Life Operating Income 1,154 1,235 722 1,217 1,344 Life Operating Income 150A 143A 347A 82
Adj. PBT 1,018 1,099 572 1,074 1,208 Adj. PBT 118A 109A 301A 44
a
a
Reported EPS 11.00 13.60 4.55 11.19 13.09 Reported EPS (1.40)A 2.48A 3.13A 0.25
.
Net Fixed Assets - - - - - Total revenue growth 5.9% 8.7% 1.8% 5.9% 4.6%
Net Goodwill - - - - - Total expense growth 8.0% 10.7% 5.8% 1.4% 3.9%
Total Assets - - - - - BVPS (ex. AOCI) growth 6.8% 8.6% (3.1%) 6.6% 7.4%
a Tax rate 22.5% 22.4% 21.5% 23.0% 23.0%
Debt - - - - - P/BV (x) 0.9 0.6 0.6 0.6 0.5
a
a
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Unum Group: Summary of Financials

a
Interest credited - - - - - Interest credited - - - -
Amortization of acquisition costs (net) 103 49 (2) 79 83 Amortization of acquisition costs (net) (14)A 9A (15)A 18
G&A Expense (2,843) (2,925) (2,950) (3,026) (3,103) G&A Expense (748)A (736)A (714)A (753)
a.
a
a
.
Net Goodwill - - - - - Total expense growth 4.0% 3.6% 1.0% 0.2% 1.7%
a Tax rate 19.3% 20.4% 21.4% 21.0% 21.0%
Debt - - - - - P/BV (x) 0.6 0.5 0.4 0.4 0.4
a
Shareholders' equity 0 0 0 0 0
a
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Voya Financial, Inc.: Summary of Financials

Premiums - Life 2,151 2,194 2,006 2,111 2,207 Premiums - Life 502A 506A 494A 504
Fee income 2,836 2,488 1,551 1,669 1,733 Fee income 388A 361A 390A 412
a
Benefits & losses - - - - - Benefits & losses - - - -
G&A Expense - - - - - G&A Expense - - - -
a.
Life Operating Income 986 981 641 1,007 1,085 Life Operating Income 191A 66A 98A 286
Adj. PBT 1,039 712 89 776 855 Adj. PBT 58A (43)A (131)A 205
Income taxes (27) 51 (65) (132) (145) Income taxes (8)A (10)A (10)A (37)
a
a
Reported EPS 5.20 (2.59) (3.78) 14.00 6.12 Reported EPS (0.71)A (2.36)A (1.31)A 0.57
.
Premiums receivable - - - - - Dividend payout ratio 0.8% NM NM 4.6% 11.4%
Net Goodwill - - - - - Total expense growth (6.0%) (8.3%) (25.9%) (2.2%) 2.0%
Net Intangibles - - - - - Adj. PBT growth (149.4%) (31.5%) (87.6%) 776.3% 10.2%
Total Assets - - - - - BVPS (ex. AOCI) growth 14.0% (14.4%) (12.1%) 28.1% 8.2%
a Tax rate 2.6% 7.2% 73.2% 17.0% 17.0%
Debt - - - - - P/BV (x) 1.1 0.9 0.8 0.7 0.6
a
Capital for share repurchases 1,125 1,096 526 1,280 500
a
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J.P. 摩根-美股-保险行业-2021年寿险业展望：L-T基本面不佳，但业绩改善和估值低迷是利好-2021.1.5-102页

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J.P. 摩根-美股-保险行业-2021年寿险业展望：L-T基本面不佳，但业绩改善和估值低迷是利好-2021.1.5-102页

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North America Equity Research

Life Insurance 2021 Outlook

See page 99 for analyst certification and important disclosures.

Equity Ratings and Price Targets

J.P. Morgan Life Insurance Coverage

Source: Bloomberg, Company reports, and J.P. Morgan estimates.

Fundamentals Lackluster; Valuations Attractive

Adjusting EPS Estimates

Table 1: Summary of EPS Estimate Changes

Table 2: EPS Sensitivity to Macro Factors

Following are the major changes to our earnings models:

 Alternative investment income to be robust in 4Q20 and 1Q21: Most life

 Company-specific factors: PFG – favorable encaje returns in Principal

Table 3: Exposure to International Markets

Japan 70.4% 4.1% 18.3% 1.3% 37.7% 3.4%

Latin America 0.4% 9.2% 13.3% 1.8% 1.1%

Source: Company reports and J.P. Morgan estimates.

JPM versus Consensus

Table 4: J.P. Morgan versus Consensus EPS Estimates

Major Industry Themes

Balance Sheets Better Positioned to Weather a Downturn

Table 5: Historical RBC Ratios for Life Insurance Sector

Table 6: Share Repurchases to Increase in 2021 after Slowing in 2020

AFL 541% 1,000 1,437.0 1,600.0 1,616.0 6.4% 6.5% 6.3%

Our models project insurers to spend 7% of their capital on share repurchases in

Table 7: Dividends as a % of Operating Income

AFL 3,401.6 883.9 26.0% 3,384.8 884.1 26.1%

Average 21.0% 20.1%

Pricing & Competition in Most Products to Stay Disciplined

Low Interest Rates a Major Concern

Table 8: New Money Yields Declined in 4Q20

Distressed Euro Credits 49.48 76.92 95.90 68.74 45.39 18.30

U.S. Treasury yields (%)

2 Year Treasury 1.63 1.58 0.23 0.16 0.13 0.13

We expect strong variable investment to support life insurers’ investment

Mean 4.2% 4.3% 4.4% 4.2% 4.5%

Table 12: Insurers Have Less Flexibility to Reduce Crediting Rates

AEL 19.2% 19.2%

The following tables show interest rate assumptions utilized by insurers in

Source: Company reports and J.P. Morgan estimates.

ROEs Poor and Unlikely to Improve Materially

 More conservative capital management: The relatively aggressive approach

Investment Portfolios Sound, but Credit Trends a Concern

Table 19: Investment Portfolio Allocation Summary

Investment Portfolio Breakdown

Fixed Income Securities by Rating

Other Portfolio Metrics

Commercial mortgage loans

Organic Growth in Most Product Lines to Be Lackluster

2014 2015 2016 2017 2018 2019 2020E 2021E

M&A Likely to Entail Bolt-Ons Not Transformational Deals

Life insurers are likely to continue to shed non-core businesses. In December

Table 23: Major Life Insurance M&A Transactions

12/11/20 Zurich Financial/Farmers MetLife - P&C Business 3,940.0 15.8 1.80

Regulatory Conditions Favorable, but Taxes and DOL Risks

Key Topics of Focus in 2021

Liquidity, Capital, and Credit Trends

Share Repurchases and Dividends

Spreads/Margins in Interest-Sensitive Products

Table 25: Insurers’ Alternative Investment Exposure

Life Insurance Mortality Margins

Table 26: Updated Earnings Sensitivities to COVID-19 Claims

Source: CDC and J.P. Morgan estimates.

management’s interpretation, and so we expect claims experience to normalize (and