By Myles Neligan
LONDON (Reuters UK) - Third-quarter results from Europe's big insurers are expected to show the sector has benefited from rebounding financial markets, while recessionary pressures continue to weigh on sales.
Analysts say a sustained rise in share prices and narrowing of corporate bond spreads over the summer should underpin insurers' investment performance, shoring up earnings and laying to rest earlier fears about the sector's capital strength.
Plummeting markets forced insurers to absorb hefty investment writedowns during last year's financial crisis, eroding capital reserves and pushing the Dow Jones index of European insurance stocks to an all-time low in March.
The index has more than doubled since then, reflecting a revival of investor confidence in the sector in line with the broader financial market recovery.
However, analysts say life insurance sales will mostly have declined again in the third quarter, albeit at a slower pace than in the first half of the year, as cash-strapped consumers continue to let their policies lapse or delay purchases.
ROCK BOTTOM
Insurers are also likely to guide towards a more moderate investment performance in the months ahead, as the one-off impact of the financial market rebound fades.
"Life sales will be fairly depressed, but not getting worse - we've probably hit the bottom," said ING analyst Kevin Ryan.
"Investment returns have picked up, but what you'll find people saying is it won't be sustained."
The reporting season kicks off on Wednesday with a sales update from the country's biggest insurer, Prudential (PRU), the company's first under new chief executive Tidjane Thiam.
Prudential will report a 2.3 percent drop in third-quarter sales to 653 million pounds, according to an average analyst forecast compiled by the company, with strong growth in the company's flagship Asian business expected to be offset by weakness domestically.
France's Axa (AXAF), which vies with Allianz (ALVG) of Germany for the title of Europe's biggest insurer, will on Thursday confirm the trend with a 1.6 percent drop in nine-month sales to 68.35 billion euros (61.94 billion pounds), according to a Reuters poll of ten analysts.
Britain's Standard Life (SL), also reporting on Thursday, will follow suit with a 14 percent drop in its nine-month sales to 10.6 billion pounds, according to an average forecast compiled by the company.
REINSURANCE RECOVERY
Swiss Re (RUKN), the world's second-biggest reinsurer and one of the few European players to report quarterly profit figures, is set to illustrate the benefits of stronger financial markets when it reports on November 3.
Analysts at Vontobel are looking for a net profit of 383 million Swiss francs (229 million pounds), compared with a loss of 231 million Swiss francs in the first half, when the group was hit by hefty writedowns.
Investors will be watching for further developments regarding Swiss Re's efforts to repay a costly capital injection it received last year from U.S. investor Warren Buffett.
Munich Re (MUVGn), which displaced its Swiss arch-rival as the world's biggest reinsurer last year, is set to report third quarter net income of 697 million euros on November 5, up from 7 million euros a year ago, according to JP Morgan analysts.
Allianz, reporting on November 9, is also expected to stage a strong recovery, with analysts predicting net third quarter income of 1.19 billion euros, according to Thomson Reuters
I/B/E/S.
That compares with a loss of 2 billion euros in the same period last year, when the insurer absorbed heavy writedowns from now-offloaded banking unit Dresdner.
U.S. IMPROVEMENT
Britain's Aviva (AV), whose shares lost a third of their value in a single day as worries over insurers' capital strength peaked in March, is expected to follow its domestic peers in posting weaker nine month sales when it reports on November 4.
Analysts at Nomura are looking for nine-month sales of 25 billion pounds, a decrease of 7 percent.
Italy's biggest insurer, Assicurazioni Generali (GASI), is set to report its own earnings recovery on November 5. Generali's third quarter net income is expected to climb to 496 million euros, matching the 500 million euros it reported in the first half, according to Thomson Reuters I/B/E/S.
The start of Europe's insurance earnings season also coincides with third quarter results from U.S. life insurers MetLife Inc and Lincoln.
Lincoln, reporting on Wednesday, is expected to post net income of $252 million, up from $212 million in the previous three months according to Thomson Reuters I/B/E/S.
MetLife, the biggest U.S. life insurer, is set to unveil third quarter net income of $696 million on Friday, down from $723 million in the previous three months.
(Additional reporting by Jason Rhodes in Zurich, Lilla Zuill in New York, Sudip Kar-Gupta in Paris and Nigel Tutt in Milan; editing by John Stonestreet)
