Unfortunately, it appears you have to have a subscription to see the chart on line, but to summarize, the total returns to the end of 2011 (by eyeballing the chart) are: SNL Small Insurance Nasdaq Insurance 1 year: -2% +5% 2 year: +12% +25% 3 year: +10% +28% 4 year: -18% +19% 5 year: -23% +20%
So, my point here is that it is not only NWLI who has unperformed the last several years, but most of the small cap insurance companies.
The question then becomes, has something changes that gives larger cap insurance companies a long term competitive advantage over the small ones or is is just a valuation / market issue? You can always make the case that larger insurance companies can better leverage technology and economies of scale to drive better margins, but that is nothing new and I don't think is anything new, so I tend to think it is just the fact that people who want insurance investments are buying the larger ones - why do the work to analyze a NWLI which also has more risk, when you can buy a MET at a P/E of 6? If insurance works, MET will make a lot of money. Longer term, I see NWLI outperforming MET because it is cheaper relative to it's long term valuation and business is fine, but, again, unfortunately, I think we are back to being patient.
Investors are still afraid of life insurance because of the low interest rates and stock market risk. They worry that if rates stay so low, lifeco's won't be able to make money.
There are 2 issues with this:
1. The lifeco's are not stupid and have figured out how to make money in a low rate environment.
2. Rates will rise. They have to revert to the mean in the long run. You see stronger economies like Canada saying rates rise probably less than a year. The U.S. will face pressures in the next couple of years as well. Because investors look forward, on average, 6 months, expect the lifeco's to start moving upwards quickly when this is understood.