Wells Fargo downgraded reinsurer RGA today from overweight to market perform.
The key reason — along with expansion risks and increased competition — was expectation of “unfavorable mortality.”
Analyst John Halls writes:
Excess Winter Mortality May Not Be Built Into Estimates. Data shows U.S. mortality rates peak in December and January and are at their lowest points from mid-July to mid-August (see Figure 2, below). We are not sure this fact is reflected in estimates, despite RGA missing Q1 consensus in each of the previous three years. The three-month period of December 2010-February 2011 ranked as the 39th coldest winter for the U.S. in the 116-year historical record, according to statistics released last month by the National Climatic Data centre.
According to a study authored by two University of California economists, fatalities in the continental U.S. climb for several weeks after severe cold spells, numbering up to 360 per cold day and 14,380 per year. According to the study, deaths linked to cold account for 0.8% of the United States’ annual deaths and outnumbers deaths from leukemia, murder and chronic liver disease combined. Cardiovascular and respiratory diseases are the top causes of death for those who die following severe hot or cold weather.
Here’s a chart on when people die:
And the 2011 outlook for RGA: