Does U.K. Bond Volatility Matter to U.S. Life and Annuity Issuers?

What You Need to Know

UnitedHealth Group kicks off the third-quarter earnings releases today.
This quarter’s reports could offer insight into how well efforts to strengthen life insurers’ defenses against market volatility have worked.

Publicly traded life and annuity issuers may be about to give investors hints about whether all of that commotion in bond markets in the United Kingdom will have any effect on their investment portfolios.

U.K. Prime Minister Liz Truss started weeks of extra volatility in world financial markets by calling for new tax cuts and energy bill subsidies.

The Bank of England has been buying significant amounts of U.K. government bonds this week because of concerns about liquidity pressure on pensions’ investment funds, the “prospect of self-reinforcing ‘fire sale’ dynamics,” and the risk that dysfunction in the U.K. government bond market could lead to hurt credit conditions for U.K. households and businesses.

U.S. life insurers, rating analysts and regulators have not said much about whether all of that volatility in the United Kingdom could have any big direct or indirect effect on U.S. life and annuity issuers.

UnitedHealth Group, a health insurer, is posting its earnings for the third quarter of the year, which ended Sept. 30, today.

Principal Financial is on track to be the first life and annuity issuer to post third-quarter results. When it goes over the numbers with securities analysts, that might give the analysts a chance to ask about the impact of the U.K. turmoil.

Many more life and issuers will post results and hold analyst calls starting Nov. 1.

What It Means

This quarter could be a chance for securities analysts, investment advisors and your clients to see how well efforts to strengthen life insurers’ defenses against market volatility have worked.

Michael Cook, an investment analyst at Penn Mutual Asset Management, has predicted that this will be a difficult earnings release season for many companies of all kinds.

“I expect to see more companies miss consensus [earnings] estimates,” Cook wrote earlier this week. “It will be especially difficult for those companies at the lower end of the ratings spectrum, where there is more exposure to bank debt, greater earnings volatility, and where liquidity is weakest.”

Quarterly Earnings

Most U.S. life insurers are owned either by the policyholders or by a small group of shareholders. Those insurers file quarterly and annual reports with state insurance regulators.