JPM_Life Insurance Overview_Jimmy Bhullar_Aug 2011

8/12/2019 JPM_Life Insurance Overview_Jimmy Bhullar_Aug 2011

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North America Equity Researc17 August 2011

J.P. Morgan Life InsuranceMacro Conditions Challenging, But Sector BetterPositioned than in 2008

Insurance -- Life

Jimmy S. Bhullar, CFAAC

(1-212) 622-6397

[email protected]

Erik J Bass, CFA

(1-212) 622-2295

[email protected]

Matthew Byrnes

(1-212) 622-0695

[email protected]

J.P. Morgan Securities LLC

See page 12 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 mhave a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making thinvestment decision.

Low interest rates, the weak equity market, and the sluggish economypresent headwinds for life insurance companies. However, we believeinsurers are better positioned to withstand a severe macro event than in2008 given healthier balance sheets and better risk management. Whilestocks could pull back further if equity and credit markets deteriorate, webelieve the risk-reward is attractive and see compelling long-term upside.

Macro trends are challenging, but underlying business trends are

improving. Margins are stabilizing, sales/flows across most products arepicking up, and companies are getting more proactive in deployingcapital. While the weak markets could challenge near-term results, weexpect returns to gradually improve over time.

Healthier balance sheets and improved risk management should

prevent a repeat of 2008. Life insurers are holding significantly morecapital today than prior to the 2008 crisis (average RBC ratio was 370%at 12/31/07 vs. 420% at 12/31/10). Also, companies have increasedholding company cash, reduced reliance on short-term funding, andmade hedging programs more robust (by hedging more variables and/oradding macro hedges). Investment portfolio risk appears manageable aswell, with insurers having reduced exposure to structured securities andmost companies having minimal European holdings. Hence, we believeequity raises are unlikely, even if markets return to 2008/2009 levels.

Estimates likely to move lower, but valuations still compelling. Our

models assume a 10-year Treasury yield of 3.5% and do not incorporatethe market drop in 3Q11. Thus, EPS estimates for most companies couldbe adjusted if markets remain near current levels. The group is currentlytrading at 0.8x BV ex. AOCI and 6.6x 2012E, and valuations seemattractive even when adjusted for potential estimate reductions.

Sustained low interest rates are a key fundamental risk. Decliningnew money yields are weighing on investment income and shouldpressure EPS growth in 2012. While prolonged low rates could alsoresult in DAC charges, we do not consider them a threat to stat capital.

In the current environment, we favor high-quality franchises with

strong balance sheets and limited earnings exposure to the markets.

RGA (rated Overweight) is our best idea as we expect sustained highreturns, strong operating trends, and limited exposure to the equitymarket and low interest rates to enable it to outperform the group.Among large cap stocks, we favor PRU. Also, we believe that TMK andUNM (both rated Neutral) are defensively positioned if markets remainvolatile. We expect turnaround companies or insurers with less capitalflexibility (GNW, PNX) to be the most pressured if recent trends sustain.

Sector Less Risky than in 2008Higher capital ratiosIncreased liquidityImproved risk managementLower exposure to RMBS, CMB

Key Headwinds

Low interest ratesWeak equity market

Sector PerformanceDown 19% YTD (S&P -3%)Down 20% in 3Q11 (S&P -10%)

ValuationsCurrent P/BV ex. AOCI:Current P/E (2012E):Trough P/BV: 0.4x (March 09)Trough P/E: 3x (March 09)

Please visit our Bloomberg page on

JPMA Bhullar


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North America Equity Research17 August 2011

Jimmy S. Bhullar, CFA(1-212) [email protected]

Table of Contents

Life Sector Less Vulnerable than in 2008...............................3How 2011 Differs from 2008.....................................................4

Life Insurers Are Significantly Better Capitalized....................................................4

Increased Liquidity, Less Short-Term Debt Reduce Risk..........................................4

Expanded Hedging Reduces Tail Risk ............. ............. .............. ............. ............. ...5

Investment Portfolio Risk Manageable.....................................................................6

Product Changes Positive, But Guarantees Still a Concern ............ ............. ............. .6

Low Interest Rates Key Challenge for Life Insurers ............. ............. ............. ..........7

Earnings Highly Susceptible to Market Volatility.....................................................8

Return to Trough Valuations Unwarranted ............................8

Defensive Stocks Should Outperform N-T .............................9

Index of TablesTable 1: Macro Conditions a Significant Headwind, But Industry Better Positionedthan in 2008............................................................................................................3

Table 2: RBC Ratios Have Steadily Increased Over the Past 3 Years.......... ............. .4

Table 3: Debt Levels Unchanged from '07 ............ ............. ............. ............. ............5

Table 4: Modest Near-Term Refinance Risk ............. ............. ............. .............. .......5

Table 5: Commercial Paper Use Reduced ............. ............. ............. ............. ............5

Table 6: Modest Portfolio Exposure to Distressed European Countries.............. .......6Table 7: Most Insurers Have Raised Fees for VA Living Benefits and ReducedGuarantees............ .............. ............. ............. ............. ............. .............. ............. .....7

Table 8: Low Interest Rates Will Pressure Investment Income and EPS Estimates....8

Table 9: EPS Sensitivity to Changes in Macro Conditions........................................8

Index of FiguresFigure 1: Life Insurance: Historical P/BV................................................................9

Figure 2: Life Insurance: Historical P/E...................................................................9


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Life Sector Less Vulnerable than in 2008

In our view, life insurers are better positioned to weather macro deterioration

than in 2008 given healthier balance sheets and improved risk management.

Most companies are holding significantly more capital and have increased holding

company liquidity. In addition, while overall debt levels have not changed materially,

insurers have extended maturities and are relying less on short-term financing (such

as commercial paper), reducing near-term refinance risk. A number of companies,

particularly those with more market-sensitive business mixes, have also added macro

hedges to protect capital during a tail event. Investment portfolio risk appears

manageable given reduced exposure to non-agency RMBS and lower-rated CMBS

and modest holdings of European debt. Sustained low interest rates are our key

concern, but this is more of a headwind for earnings than a threat to capital. In our

opinion, most life insurers will not need to raise equity, even if the market revisits

2008-2009 lows. Therefore, we believe a return to trough valuations (0.4x P/BV ex.AOCI in March 2009) is not justified, even if markets deteriorate further.

Table 1: Macro Conditions a Significant Headwind, But Industry Better Positioned than in 2008

12/31/2007 12/31/2010

Capital (RBC) Median: 370% Median: 420%

Leverage (Debt- o-Capital) 25.9% 25.1%

Liquidity (% of debt maturing in 3 years) 17.4% 10.3%

Investment Portfolio Risk

Commercial real estate Significant holdings of CMBS Mostly whole loans; reduced CMBS allocations

Residential real estate Sub-prime and Alt-A 2.4% of investments RMBS primarily agency-backed; minimal sub-prime

Product Risk Aggressive VA living benefit features VA prices higher, features less generous

Reliance on securitizations in UL and term UL prices higher, product designs more conservative

Hedging Limited VA hedging More extensive VA hedging

Limited overall tail-risk hedging Inc reased use of macro hedging to protect capital

Macro Factors:

Interest Rates ('A' 5-7 Yr. Corporate Yield) 5.71% 3.74% (8/15/11)

Equity Market Volatility (VIX Index) 22.5 32.9 (8/15/11)

U.S. Unemployment Rate 5.00% 9.1% (7/31/11)

Source: Bloomberg, DataQuery, company reports, and J.P. Morgan estimates.

Through 8/16/11, the J.P. Morgan

Life Insurance Index is down

18.8% year to date versus a 16.7%

decline in the S&P Financials Index

and a 3.1% decline in the S&P 500.


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How 2011 Differs from 2008

The following section highlights the key differences in how life insurers are

positioned for a crisis currently versus prior to 2008. While the group remains highly

sensitive to equity market returns, credit market conditions, and the level of interest

rates, we believe insurers are less vulnerable to a severe market event today than they

were three years ago.

Life Insurers Are Significantly Better Capitalized

Life insurers have steadily increased capital levels over the past few years and

have significantly more cushion today than they did heading into 2008. The

median risk-based capital (RBC) ratio for the group was 420% at 12/31/10 compared

to 370% at 12/31/07. In addition, most companies have increased cash and

investments at the holding company, which is not reflected in the RBC ratio. While

ratings agency RBC thresholds have increased as well, we believe most life insurersare amply capitalized and could withstand significant deterioration in the equity and

credit markets without needing to raise additional equity. Sustained market weakness

could curtail capital deployment for share buybacks and dividend increases, but we

do not anticipate equity raises.

Table 2: RBC Ratios Have Steadily Increased Over the Past 3 Years

RBC ratio at period end

RBC Ratio12/31/06

RBC Ratio12/31/07

RBC Ratio12/31/08

RBC Ratio12/31/09

RBC Ratio12/31/10

AFL 601% 574% 476% 480% 555%

AIZ 409% 322% 236% 279% 300%

CNO 315% 291% 252% 309% 332%

GNW 357% 296% 255% 426% 390%

HIG 374% 385% 450% 381% 435%

LNC 386% 416% 462% 450% 490%

MET 387% 475% 393% 419% 458%

PFG 326% 370% 389% 426% 420%

PL >400% 419% 340% 429% 455%

PNX 400% 376% 441% 223% 284%

PRU 314% 325% 298% 589% 530%

RGA 466% 551% 463% 259% 300%

SYA 320% 321% 245% 413% 480%

TMK 338% 278% 329% 357% 400%

UNM 300% 344% 331% 383% 398%

Median 366% 370% 340% 413% 420%

Source: SNL, company reports, and J.P. Morgan estimates.

Increased Liquidity, Less Short-Term Debt Reduce Risk

Following the 2008 credit crisis, most management teams have increased

holding company liquidity and reduced reliance on short-term financing.

Liquidity was a key concern pressuring many life stocks in 2008-2009 given

significant upcoming debt maturities and an inability to access the capital markets. In

our view, this is unlikely to re-emerge as an issue for the sector. While overall debt

levels are essentially unchanged (median debt-to-capital ratio of 25.9% at 12/31/07

compared to 25.1% currently), most companies have taken advantage of low interest

rates to prefinance upcoming maturities and secure long-term funding. In addition,


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Investment Portfolio Risk Manageable

We expect investment portfolio losses to be manageable, even in a double-dip

scenario for the economy. Overall portfolio allocations have not changedmeaningfully over the past few years, but underlying portfolio quality appears to

have improved. In general, companies are investing new money into higher-rated

bonds and have de-emphasized structured securities. RMBS was a big source of

losses over the past few years, but most insurers have sold or written off the majority

of their subprime and alt-A securities. Most remaining RMBS exposure is agency

backed. In commercial real estate, insurers have reduced exposure to CMBS while

continuing to underwrite mortgage loans (which performed much better than

expected through the financial crisis). Our biggest concerns currently include

European sovereign and financial services debt, but these represent very modest

allocations for most U.S. life insurers (with AFL and MET being notable

exceptions). In our view, the major risk for U.S. life insurers would be if the

problems in Europe led to significant deterioration in U.S. corporate credit

(especially in the financials sector).

Table 6: Modest Portfolio Exposure to Distressed European Countries

$ in millions, as of 6/30/11 or most recent disclosure

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

Product Changes Positive, But Guarantees Still a Concern

Life insurers have taken important steps to reduce product risk, but we still see

the proliferation of guarantee features as a risk, especially in a tail scenario.

Most insurers have raised variable annuity guarantee prices and made features less

generous. In addition, companies have increased prices on universal life policies and

tightened underwriting standards to limit exposure to premium financed and stranger-

owned policies. Companies have also raised rates on both new and in-force long-

AFL AIZ CNO GNW HIG LNC MET PFG PL PNX PRU RGA SYA TMK UNM

Sovereign Debt

Greece - - - - - 452.3 - - - - - - - -

Ireland - - - 4.0 - - 37.0 - - - - - - - -

Italy 310.0 - - 14.0 - 3.0 166.6 - - - 595.0 - - - -

Portugal - - - - - - 161.1 - - - - - - - -

Spain 737.0 - - 28.0 - - 116.9 - - - - - - - -

Total Sovereign Debt 1,047.0 - - 46.0 - 3.0 934.0 - - - 595.0 - - - -

Financial Institutions

Greece - - - 5.0 - - - - - - - - - - -

Ireland 525.0 - - 5.0 - - - 40.0 - - - - - - 5.1

Italy 186.0 - - 29.0 - - - 63.0 - - - - - - 4.0

Portugal 282.0 - - - - - - - - - - - 1.5 - -

Spain 531.0 - 52.7 214.0 20.0 62.0 2,000.0 478.0 - 5.0 400.0 - - - 86.9

Total Financial Institutions 1,524.0 - 52.7 253.0 20.0 62.0 2,000.0 581.0 - 5.0 400.0 - 1.5 - 96.0

Total exposure 2,571.0 0.0 52.7 299.0 20.0 65.0 2,934.0 581.0 0.0 5.0 995.0 0.0 1.5 0.0 96.0

as a % of investments 2.9% 0.0% 0.2% 0.4% 0.0% 0.1% 0.6% 0.9% 0.0% 0.0% 0.4% 0.0% 0.0% 0.0% 0.2%as a % of total equity 21.5% 0.0% 1.2% 2.1% 0.1% 0.5% 5.7% 5.9% 0.0% 0.4% 3.0% 0.0% 0.1% 0.0% 1.1%


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term care policies, but we expect older blocks to still be only marginally profitable.

While we view these initiatives positively, we remain concerned about insurers

exposure to guarantees as well as the potential for an uptick in product competitiononce equity market conditions improve (MET and HIG increased their VA guarantee

rates in 2Q11).

Table 7: Most Insurers Have Raised Fees for VA Living Benefits and Reduced Guarantees

GMWB rider fees as % of AUM

Prior Feature Fee Accum. % Withdrawal % Current Feature Fee Accum. % Withdrawal %

AMP SecureSource 0.65 NA 6.0% SecureSource Stages 2 0.95% 6.0% 4.0%-7.0%

AXA GWB for Life 0.65 7.0% 4.0 -7.0% GMIB with GWB for life conversion 0.90% 4.0%-8.0 4.0%-6.0%

HIG Lifetime Income Builder Selects 0.55 NA 5.0 -8.0% Future6 0.85% 6.0% 4.0%-5.0%

LNC i4LIFE Advantage 0.40 3.0%-6.0% NA Lifetime Income Advantage 2.0 1.05% 5.0% 4.0%-5.0%

MFC Principal Plus for Life 0.40 5.0% 5.0% Income Plus for Life 1.00% 5.0% 4.0%-5.0%

MET GMIB Plus 0.80 6.0% 6.0% GMIB Max 1.00% 6.0% 6.0%NFS L-Inc 0.70 7.0% 4.0 -7.0% L-Inc (10% option) 1.20% 10.0% 3.0%-6.0%

PRU HD Lifetime 7 0.60 7.0% 5.0 -8.0% HD Lifetime Income 0.95% 5.0% 3.0%-6.0%

Source: VARDS, company reports and J.P. Morgan estimates.

Low Interest Rates Key Challenge for Life Insurers

In our view, the major fundamental negative in the current environment is the

low level of interest rates. Our 2012 estimates assume a 10-year Treasury rate of

roughly 3.5%, significantly above the current level of 2.21%. Even though Treasury

yields have been low for the past several years (average 10-year yield of 3.65% in

2008, 3.25% in 2009, 3.20% in 2010, 3.20% YTD), wide credit spreads mitigated the

impact on insurers new money rates in 2008, 2009, and 1H10. As a result, portfolio

yields have only really been pressured by low rates for the past year. If rates remain

at current levels, portfolio yields will gradually decline, pressuring investment

income and likely resulting in downward revisions to EPS estimates. Prolonged low

rates could also result in balance sheet charges if companies are forced to reduce

discount rates for reserves or write off DAC and/or goodwill. Among our coverage

companies, we believe results for LNC, MET, PL, and SYA are the most sensitive to

sustained low interest rates, while AFL, AIZ, RGA, and TMK seem the least at risk.

Besides their impact on earnings, low rates are likely to continue to weigh on

investor sentiment on the group, limiting P/BV multiple expansion. While low rates

are a headwind for earnings, we do not expect them to necessitate capital raises for

life insurance companies.


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we believe the fair value range for the group is 1.0x-1.2x book value (ex. AOCI) and

8-10x forward EPS. While 2012 EPS estimates would need to be revisited if current

interest rate and equity market conditions sustain, valuations appear to be discountinga considerably worse macro environment. Given life insurers improved balance

sheets and risk management, we do not anticipate equity raises even if the markets

return to 2008/2009 levels. Therefore, we believe a return to trough valuations (0.4x

P/BV ex. AOCI and P/E of 3x in March 2009) would be unwarranted. On the other

hand, investors are likely to assign a higher risk premium to the group than in the

past, especially if market volatility remains elevated. Nonetheless, we believe the

group offers compelling long-term upside and think the risk-reward for most life

insurance stocks is attractive.

Figure 1: Life Insurance: Historical P/BV

Based on total book values

Source: Bloomberg and J.P. Morgan.

Figure 2: Life Insurance: Historical P/E

Based on one year forward calendar year earnings

Source: Bloomberg and J.P. Morgan.

Defensive Stocks Should Outperform N-T

If macro conditions deteriorate, we believe insurers with strong capital

positions, clean portfolios, and limited market exposure offer the best risk-

reward. Our current ratings and model assumptions do not contemplate a U.S.recession or severe market downturn, but we believe that companies with the

following attributes would perform best if market conditions remain volatile:

Strong capital position: In our view, companies with capital flexibility to

continue to repurchase stock despite poor macro trends will outperform the

group. In addition, if markets deteriorate further, investors will be less concerned

about capital and liquidity at insurers with stronger balance sheets, providing

downside support to these companies P/BV multiples. In our view, AIZ, TMK,

and UNM have the strongest balance sheets as shown by their considerable

0.4

0.8

1.2

1.6

2.0

2.4

2.8

12/98 6/00 12/01 6/03 12/04 6/06 12/07 6/09 12/10

Actual P/BV Average P/BV

Average = 1.4

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

12/98 6/00 12/01 6/03 12/04 6/06 12/07 6/09 12/10

Actual P/E Average P/E

Average = 10.5


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excess capital, strong free cash flow generation, and liability profiles that are less

sensitive to market volatility.

Low investment portfolio risk: If credit market conditions worsen, we expectinvestors to place increased emphasis on the perceived risk in a companys

portfolio. Thus, we believe insurers with low allocations to European

investments, structured securities, and commercial real estate would be viewed

favorably. In our view, RGA, TMK, and UNM have the most conservative

investment portfolio allocations.

Below-average sensitivity to equity market declines or low interest rates: In a

volatile market environment, we would favor companies whose earnings are

driven by non-market-driven factors such as mortality or morbidity. Given their

more predictable results, we believe these stocks would garner a premium P/E

multiple relative to the group. Notable companies in this category include AFL,

RGA, TMK, and UNM.

International exposure: We expect results in companies international

businesses (ex. Europe) to continue to generate healthy growth even if the U.S.

economy weakens. In addition, low interest rates are less of a headwind in

foreign businesses. The companies with the largest and best-positioned

international businesses, in our view, are AFL, MET, PRU, and RGA.

On the other hand, companies with the following characteristics are likely to perform

poorly in the event of continued volatile equity markets and low interest rates:

Cheap stocks with weak business fundamentals: In our view, with the entire

sector trading below book value, investors should focus on higher-quality

franchises as opposed to low-priced turnaround stories. We are especially

concerned about further deterioration in operating trends at GNW and PNX if the

macro environment worsens.

Above-average sensitivity to equity markets and interest rates: If current

market conditions continue, companies with high exposure to interest rates (LNC,

MET, PL, SYA) and those with a significant presence in equity-sensitive

products (HIG, LNC, PFG, PRU) should be the most affected.

In the current environment, RGA (rated Overweight) is our best idea. We

expect sustained high returns, strong operating trends, and limited exposure to macro

conditions to enable RGA to outperform the group. While growth in the U.S.

business is likely to be muted given low cession rates, margins should remain robust

given a favorable pricing environment. Also, RGAs international business should

grow at a double-digit rate as the company expands into new countries and increases

its penetration rate in existing markets. RGA appears even more attractive in thecurrent environment given its conservative investment portfolio, below-average

exposure to low interest rates, and minimal earnings sensitivity to the equity market.

The stock is currently valued at 0.9x book value (ex. AOCI) and 6.4x 2012E

earnings, close to the group level. Given RGAs superior returns (12% ROE vs. 10%

for the group) and lower risk profile, we believe a premium valuation is warranted.

TMK and UNM (both rated Neutral) should also perform well in a volatile

market environment. Both companies have considerable capital flexibility, below-

average investment portfolio risk, and no equity market sensitivity. As a result, we

expect both to continue repurchasing stock, which should drive healthy EPS growth


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despite low interest rates and weak top-line growth. Higher unemployment could

hold back UNMs disability margins and weigh on the stocks multiple, but we

expect the companys overall results to hold up better than peers if the macroenvironment deteriorates further.

We remain cautious on PNX (rated Underweight) and would also avoid GNW

(rated Neutral) despite their depressed valuations. In our view, PNX deserves to

trade at a sizable discount to the group given its low returns, poor operating trends,

and weak financial health. We lack visibility into the timing of a turnaround in

Genworths U.S. mortgage insurance business, which we believe is critical for the

stocks valuation to recover.

Among our Overweight-rated stocks, we expect HIG to perform worst in a poor

macro environment due to its high sensitivity to the equity market and weak

operating fundamentals in the annuity business. MET and PRU also have above-

average market sensitivity, but we see modest downside risk given superior operatingtrends and the large earnings contribution from international markets. Of the two, we

prefer PRU as a result of its superior ROE potential, better operating trends (stronger

growth in foreign business), and lower earnings sensitivity to interest rates. In our

coverage universe, AFL has by far the most exposure to European investments and

would likely underperform if credit conditions deteriorate. However, the companys

core business has higher return potential than other insurers and has below-average

exposure to the weak equity market and low interest rates. As a result, we expect the

stock to outperform once concerns about Europe dissipate, even if the U.S. economy

remains weak and the markets are volatile.


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Companies Recommended in This Report (all prices in this report as of market close on 16 August 2011)Genworth Financial, Inc. (GNW/$6.45/Neutral), Phoenix Companies (PNX/$1.92/Underweight), Reinsurance Group of

America (RGA/$51.30/Overweight), Torchmark Corp (TMK/$36.16/Neutral), Unum Group (UNM/$23.02/Neutral)

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for ReinsuranceGroup of America, Unum Group, Genworth Financial, Inc. within the past 12 months.

Client:J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Reinsurance Group of

America, Torchmark Corp, Unum Group, Genworth Financial, Inc., Phoenix Companies. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment

banking clients: Reinsurance Group of America, Torchmark Corp, Unum Group, Genworth Financial, Inc..

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the followingcompany(ies) as clients, and the services provided were non-investment-banking, securities-related: Reinsurance Group of America,Torchmark Corp, Unum Group, Genworth Financial, Inc., Phoenix Companies.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,and the services provided were non-securities-related: Reinsurance Group of America, Torchmark Corp, Unum Group, GenworthFinancial, Inc., Phoenix Companies.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment bankingReinsurance Group of America, Torchmark Corp, Unum Group, Genworth Financial, Inc..

Investment Banking (next 3 months): J.P. Morgan expect to receive, or intend to seek, compensation for investment bankingservices in the next three months from Reinsurance Group of America, Torchmark Corp, Unum Group, Genworth Financial, Inc., Phoenix

Companies.

Non-Investment Banking Compensation:J.P. Morgan has received compensation in the past 12 months for products or servicesother than investment banking from Reinsurance Group of America, Torchmark Corp, Unum Group, Genworth Financial, Inc., PhoenixCompanies.

Date Rating Share Price($)

Price Target($)

19-Dec-08 OW 38.69 51.00

24-Apr-09 OW 30.17 42.00

28-Jul-09 OW 39.23 50.00

27-Oct-09 OW 46.99 57.00

21-Apr-10 OW 55.96 64.00

15-Jul-10 OW 47.79 62.00

11-Oct-10 OW 48.26 60.00

04-Jan-11 OW 55.51 65.00

19-Apr-11 OW 59.10 67.000

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Dec08

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Reinsurance Group of America (RGA) Price Chart

OW $57 OW $60

OW $50 OW $62

OW $51 OW $42 OW $64 OW $65 OW $67

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Dec 19, 2008.


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Price Target($)

19-Dec-08 N 29.42 32.00

05-Feb-09 N 20.65 27.00

23-Apr-09 N 20.27 24.00

28-Jul-09 N 26.60 31.50

06-Jan-10 N 30.52 35.50

08-Feb-10 OW 29.39 35.50

21-Apr-10 OW 36.84 40.00

11-Oct-10 OW 36.27 42.00

28-Oct-10 OW 38.21 43.00

04-Jan-11 OW 40.74 44.00

06-Jul-11 OW 42.99 44.00

11-Jul-11 N 43.17 44.00


Price Target($)

19-Dec-08 N 17.01 22.00

04-Feb-09 N 14.24 20.00

05-Aug-09 N 19.75 26.00

06-Jan-10 N 20.23 24.00

21-Apr-10 N 25.89 27.00

04-Aug-10 N 22.73 26.00

04-Jan-11 N 24.83 28.00

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Torchmark Corp (TMK) Price Chart

N $24 OW $40 OW $44

N $27 OW $35.5 OW $43 N $44

N $32 N $31.5 N $35.5 OW $42 OW $44



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Unum Group (UNM) Price Chart

N $20

N $22 N $26 N $24 N $27N $26 N $28




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Price Target($)

19-Dec-08 N 3.34 -

08-May-09 N 5.28 --

07-Oct-09 N 12.10 15.00

29-Jan-10 N 13.84 16.00

21-Apr-10 N 18.50 18.00

30-Jul-10 N 15.79 17.00

11-Oct-10 N 12.77 15.00

29-Oct-10 N 12.58 13.00

18-Jul-11 N 9.06 12.00

29-Jul-11 N 7.82 10.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entireperiod.J.P. Morgan ratings: OW = Overweight, N= Neutral, UW = Underweight

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months,we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverageuniverse.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocksin the analyst's (or the analyst's team's) coverage universe.] The analyst or analyst's team's coverage universe is the sector and/or countryshown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Bhullar, Jimmy S: AFLAC, Inc. (AFL), American International Group (AIG), Assurant, Inc. (AIZ), GenworthFinancial, Inc. (GNW), Hartford Financial Services (HIG), Lincoln National (LNC), MetLife, Inc. (MET), National Financial Partners(NFP), Phoenix Companies (PNX), Principal Financial Group (PFG), Protective Life (PL), Prudential Financial (PRU), ReinsuranceGroup of America (RGA), Symetra Financial (SYA), Torchmark Corp (TMK), Unum Group (UNM)

0

14

28

42

56

70

Price($)

Oct

06

Jul

07

Apr

08

Jan

09

Oct

09

Jul

10

Apr

11

Genworth Financial, Inc. (GNW) Price Chart

N $13

N $18 N $15 N $10

N N N $15 N $16 N $17 N $12


Break in coverage May 08, 2009 - Oct 07, 2009.

0

7

14

21

Price($)

Mar08

Dec08

Sep09

Jun10

Mar11

Phoenix Companies (PNX) Price Chart

UW



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J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2011

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 47% 42% 11%IB clients* 50% 46% 32%

JPMS Equity Research Coverage 45% 47% 8%IB clients* 70% 64% 52%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category.

Equity Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology andrisks on any securities recommended herein. Research is available athttp://www.morganmarkets.com ,or you can contact the analystnamed on the front of this note or your J.P. Morgan representative.

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation basedupon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues,

which include revenues from, among other business units, Institutional Equities and Investment Banking.

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