Prudential Leads Insurer Rally After Barclays Upgrade

Prudential Financial Inc. (PRU) led gains among U.S. life insurers after Barclays Plc recommended investors buy the shares, citing rising interest rates.

Prudential, the No. 2 U.S. life insurer, gained 3.7 percent to $78.70 at 11:03 a.m. in New York. Larger rival MetLife Inc. (MET) rose 3.5 percent to $48.72. CNO Financial Group Inc., Unum Group and Lincoln National Corp. each climbed more than 2 percent.

Higher yields can bolster profits at life insurers, which invest in bonds to back future payouts to policyholders, Jay Gelb, an analyst at Barclays, wrote in a research note today. He raised his ratings on MetLife and Newark, New Jersey-based Prudential to overweight from equalweight.

“Life insurance fundamentals are likely to improve over the next several years as a result of higher yields, a steeper yield curve, and a recovering economy,” Gelb said in the note. “Rising interest rates benefit life insurers because this eases pressure on revenue and policy guarantees.”

Bond yields have risen this year as investors weigh the prospect that the U.S. Federal Reserve will scale back its stimulus measures. The 10-year Treasury (USGG10YR) yields 2.86 percent, compared with as little as 1.61 percent in May.

Prudential and New York-based MetLife advanced 48 percent this year. The Standard & Poor’s 500 Index (SPX) is up 16 percent.

Barclays estimates that the 10-year Treasury yield will end the year at 3.1 percent and reach 3.75 percent by the third quarter of next year, Gelb said.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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