Kass Says Short Life Insurers to Profit From Interest Rates

  • Reinvestment challenges for insurers are `profound,' Kass says
  • Kass has said he's shorting insurers Lincoln and MetLife

Doug Kass, the short seller who founded Seabreeze Partners Management, said investors should bet against the shares of life insurers as years of near record-low interest rates squeeze returns.

“The sectors that I like on the short side would be the life insurance sector where the reinvestment challenges are profound in a lower-for-longer interest-rate environment,” Kass said Tuesday in a Bloomberg Radio interview with Tom Keene and Barry Ritholtz. He’s previously written about how he’s shorting Lincoln National Corp. and MetLife Inc.

Life insurers’ shares have tumbled in recent months, hurt by market volatility and the pressure from low yields on traditional holdings such as government bonds and corporate debt. New York-based MetLife extended declines Tuesday after Federal Reserve Chair Janet Yellen said the Federal Open Market Committee should be cautious in raising interest rates because of heightened global economic risks.

MetLife has dropped about 12 percent this year after sliding 11 percent in 2015. The insurer’s quarterly results have been hurt by the low rates and deteriorating investment results in its alternative investment portfolio, where the company bets on private equity and hedge funds in search of higher returns. Lincoln has slumped 22 percent since Dec. 31.

Yellen’s Caution

“I consider it appropriate for the committee to proceed cautiously in adjusting policy,” Yellen said in the text of prepared remarks Tuesday. “This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric.”

Insurers have been reshaping investment portfolios, revamping their product mix and raising rates on some policies. Aflac Inc., the supplemental health insurer that counts Japan as its biggest market, more than tripled its stock bets in that nation in the fourth quarter to get better returns than in fixed income.

“It’s important to recognize that we have effectively managed through persistently low rates and will continue to do so,” Randal Freitag, the chief financial officer of Radnor, Pennsylvania-based Lincoln, said February in a conference call. “Importantly, our product portfolio has been repriced over the past several years to reflect a low interest rate environment.”

Short-selling involves an investor borrowing a stock and selling it, acting on a bet that its market value will fall. If the wager pans out, the investor then repurchases the stock at a lower price.

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