Ahead of the Bell: Life and health insurers

An analyst on Tuesday downgraded MetLife Inc. and Conseco Inc., but upgraded Torchmark, based on an analysis of how continued economic deterioration could put the life and health insurers at risk for a need to raise new capital.

Friedman, Billings, Ramsey & Co. analyst Randy Binner downgraded MetLife and Conseco to "Market Perform" from "Outperform." He raised his rating on Torchmark to "Outperform" from "Market Perform."

Binner analyzed the three firms' ability to generate operating profit to offset potential losses tied to investments. The new analysis by FBR assumes a Standard & Poor's 500 level of 700 and estimates realized losses on investments for the insurers. FBR's analysis also includes additional investments such as hybrid securities and sovereign debt to determine potential losses.

Following the analysis, Binner's loss estimates increased for MetLife's investments in commercial real estate loans, hybrid securities and sovereign and corporate debt.

Furthermore, MetLife is sensitive to continued deterioration in equity markets, which could lead to capital constraints in the coming quarters even if the insurer cuts its dividend, Binner wrote.

Despite the downgrade, shares of MetLife rose 92 cents, or 7.4 percent, to $13.40 in premarket trading Tuesday.

Binner said he downgraded Conseco amid concerns the insurer would struggle to offset credit losses.

Torchmark, on the other hand, has the best capital position in the sector to offset potential credit losses, Binner said. That ability to deal with credit losses without needing to find new capital sources should enable the insurer to outperform its peers, he added.

Binner noted that Torchmark will face credit losses from its investments in corporate debt and other investments.