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10 February 2012
Last updated at 08:37 ET

NBA 2K12 was the best selling sports title in January

Video game sales slumped in the US – their biggest market – in January.

NPD group said stores sold $1.14bn (£720m) worth of games over the month, down 34% on the previous year. It added that hardware sales were down 38%.

The consumer data provider linked the drop to a lack of major new releases.

Other analysts also pointed to worries about the economy and said this might have an impact on the upcoming launch of Sony’s PlayStation Vita console.

NPD said that Activision Blizzard’s Call of Duty: Modern Warfare 3 was the month’s best-selling title. It was followed by Just Dance 3, Elder Scrolls V: Skyrim and NBA 2K12.

Microsoft’s Xbox 360 held onto its title as the top selling hardware platform for the sixth month running.

“While the lack of new launches was a major reason for software declines, games which launched in the last three months of 2011 also performed poorly in January 2012, down 31% in units compared to fourth quarter launches in January 2011,” NPD analyst Liam Callahan added.

“As shoppers were not drawn to stores due to new launch activity, this potentially impacted additional software purchases made on impulse.”

The video games news website, IGN, said it had noted a similar drop-off in activity in the UK market. It said sales should pick up when Mass Effect 3 goes on sale in March, but noted that shoppers were worried.

“You can’t really deny that the economy is a factor,” Keza MacDonald, the firm’s UK games editor, told the BBC.

“The lack of big new releases is just a tiny bit of the picture. The fact people are buying less games shows up in the US, European and Japanese data.

“People are just buying fewer games because they have less money to spend. The data before Christmas was also not particularly strong.”

Vita’s challenge

The news comes as Sony prepares the global launch of its new PlayStation Vita games console. The device goes on sale across Europe, Australia and the Americas on 22 February.

Sony’s incoming chief executive, Kazuo Hirai, hopes the Vita will help Sony return to profit

Analysts at IHS Screen Digest have forecast 7 million units will be sold by the end of the year. They say that would be 25% less than what its predecessor the PlayStation Portable System achieved over its initial roll-out.

“I think there is a segment of the population – potentially a narrowing segment – which is still engaged by specialist devices such as handheld consoles,” said the firm’s head of games, Piers Harding-Rolls.

“But it is a very price-driven situation and part of that equation is definitely the content on offer.

“Sony has hit the mark with a strong line-up at launch which should drive strong initial sales, but there’s the potential that demand will drop off quite significantly after the first few weeks.”

Industry watchers note that the console will have to compete for attention with Apple’s latest iPad which the Wall Street Journal suggests will launch in March.

“A lot of the market for handheld gaming was kids and that market has completely shifted to iPhones, Android phones and touchscreen tablets,” said Ms MacDonald.

“The Vita is a nice bit of kit – it has gadget appeal – but I’m not sure it has mainstream appeal.”

Article source: http://www.bbc.co.uk/go/rss/int/news/-/news/technology-16983122

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The impact of a series of natural disasters in 2011 and the
ongoing economic uncertainty is still quite palpable in the
performance of U.S. insurers. These impediments aside, there are
fundamental challenges that are expected to come in the way
insurers’ efforts to meet growing investor expectations in the
upcoming quarters. Among the possible way outs of such
difficulties, rising rates and pricing flexibility are primary.

The overall health of the U.S. insurance industry has improved to
some extent in the recent quarters, after enduring pricing
pressures and reduced insured exposure for quite some time. The
market turmoil resulting from the Great Recession forced many
companies to take immense write-downs, but those memories are fast
becoming a thing of the past.

That said, continued soft market conditions, shrinking businesses,
a still-high unemployment rate, uncertain fiscal policy and
legislative challenges are threatening insurers’ ability to rebound
to the historical growth rate. The industry continues to be
challenged by subdued premium volume growth in a perked up economy
as well as a massive healthcare restructuring.

Though there are signs of economic recovery, its sluggish pace is
expected to continue at least through the first half of 2012. Also,
structural economies of scale have pushed the industry toward
consolidation. As a result, inter-segment competition within the
industry has alleviated. Moving forward, maintaining profitability
after complying with regulatory requirements could be a painful
task.

We expect static growth from persistent soft market conditions to
result in further consolidation in the industry. Though there are
near-term opportunities for insurers, braced by some rapidly
growing sectors such as health care and technology, overall
industry conditions are expected to improve beyond the first half
of 2012, should the economy turn to growth post-recovery. Probably,
the industry would take a couple of years to overcome most industry
challenges with the help of an improved market mechanism.

Life Insurers

Losses in the investment portfolio and lower income from the
variable annuity business will continue to hurt earnings of life
insurers. Most life insurers have substantial exposure to
commercial real estate-backed loans and securities, which will
result in further losses in the coming quarters.

As the industry’s statutory capital level fell sharply during the
recession, life insurance companies will need to optimize their
capital levels to address the ensuing challenges. In the short
term, traditional sources of capital are expected to fulfill most
of what life insurers need in order to stay in good shape. However,
non-traditional sources of capital will take years to strengthen
financials of the insurers.

Moreover, regulatory changes under the Dodd-Frank Wall Street
Reform are still troubling life insurers as they pose strategic and
competitive challenges. In order to address such concerns, life
insurers may have to burn some of their financial energy.

The underlying trends amid sluggish economic recovery indicate
stability of U.S. life insurers over the medium term with respect
to credit profile and financial prospects. However,
higher-than-average asset losses of life insurers, primarily
resulting from their real estate exposure, will remain a major
concern in 2012.

Most importantly, the tardy economic recovery is making it
difficult for life insurers to enhance their customer base. In
fact, the insurers are struggling to even retain their existing
clientele. Narrowed disposable income owing to high unemployment
and huge credit card debt has made it difficult for Americans to
invest in retirement products such as life insurance.

Moreover, the low interest rate environment is one of the major
risks for life insurers at this point. Investment income remains
weak as life insurers are experiencing low returns on fixed-income
instruments.

On the other hand, interest in cheaper products to cover only basic
risks has increased. So, returning to providing basic services and
reducing operating costs should be the primary course of action for
life insurers to realize some profit in the near term.

Some life insurers have already gone back to the basics in order to
meet demand and escape financial and regulatory difficulties, but
taking shelter from the icy winds will not be adequate for
thriving. Life insurance companies have to be more proactive to
weather the situation.

Health Insurers

The U.S. health care system is significantly dependent on private
health insurance, the primary source of coverage for most
Americans. More than half of the U.S. citizens are covered under
private health insurance.

Unfortunately, these insurance companies utilize a pre-existing
exemption clause to control costs and maximize profit. The historic
health care legislation, which was passed by Congress in 2010, aims
to prevent private insurance companies from using the pre-existing
clause, but at the same time claims to bring in 32 million more
people under coverage by 2019.

While the legislative overhaul brings more regulatory scrutiny for
private insurance companies, the net negative effect is far softer
than was initially feared. Also, the removal of this uncertainty is
a net positive in its own right.

Though the reform will provide more cross-selling opportunities for
health insurers, their overall profitability will be marred in the
long run as the negative impact of Medicare Advantage payment cuts,
industry taxes and restrictions on underwriting practices will more
than offset the benefits of adding the extra 32 million.

The recent growth in nonfarm payroll employment is expected to
enhance health insurers’ customer base to some extent as these
people are getting insured through their jobs. According to the
U.S. Bureau of Labor Statistics, in January, total nonfarm payroll
employment rose by 243,000 and the rate of unemployment decreased
to 8.3%.

However, reduced government employment will partially offset this
benefit. Moreover, growth in industry revenue is expected to
decline till 2015 as insurers will be forced to adjust the benefits
to comply with the health care legislation. Among others, providing
coverage to everyone regardless of whether they had an expensive
pre-existing condition would put their top line at stake.

Property Casualty Insurers

Steep losses in the investment portfolios since the beginning of
2008 have significantly reduced the capital adequacy of most
Property Casualty insurers. The seizure of credit markets and
rising concerns over defaults have pushed down bond prices sharply
since then, causing significant realized and unrealized capital
losses on these insurers’ portfolios. As Property Casualty
insurers hold about two-thirds of the invested assets in the form
of bonds, their capacity is highly sensitive to changes in credit
market conditions.

While the ongoing recovery in the credit and equity markets is
leading to a reduction in unrealized investment losses, the premium
rates continue to decline, though at a slower pace.

Reduced financial flexibility and weak underwriting and reserves
have added to insurer woes. The only positive trend visible as of
now is a slight improvement in some insurance pricing after
persistent deterioration for two years since 2008.

Though premium rates are showing signs of stabilization in the
recent quarters, loss trends are rising at a faster pace. This will
ultimately lead to underwriting margins compression.

On the other hand, catastrophe losses, competition, lower
reinvestment yields and economic uncertainty will remain the
headwinds for Property Casualty insurers’ operating
performance in the near-to-mid term.

However, the Property Casualty industry endured the latest
financial crisis better than the other financial service sectors.
Once the economic recovery gains momentum, insurance volume will
grow rapidly.

The recent quarters have been witnessing an increasing rebound in
claims-paying capacity (as measured by policyholders’ surplus),
which reflects the industry’s resilience over the prior years.

Strong capital adequacy and conservative investment strategies will
keep these insurers on solid financial footing in the upcoming
quarters.

Reinsurers

Losses from the investment portfolios of reinsurance companies have
gotten worse during the last few quarters. The deterioration
resulted from the supply-demand imbalance in reinsurance coverage
due to intense competition that kept pricing soft over the last few
years.

Also, catastrophic events like Hurricanes Ike and Gustav were the
major culprits that pressure on underwriting profits. However, in
the recent months, reinsurance prices have increased substantially.
In fact, rising rates are expected to be more than sufficient to
offset 2011 catastrophe losses.

With signs of recovery in the capital market (though still weak by
any means), concerns related to reinsurers’ ability to access
capital markets on reasonable terms have sufficiently eased.

However, lesser new business and rising expense ratios are major
concerns for reinsurers at this point. An increased level of price
competition also may hurt top lines in the upcoming quarters.

Moreover, reinsurance market capital levels are expected to be down
for reinsurers with huge exposure to the European sovereign debt
crisis.

OPPORTUNITIES

We remain positive on
Phoenix Companies, Inc.

(
PNX

) and
ProAssurance Corporation

(
PRA

) with a Zacks #1 Rank (short-term Strong Buy).

Other insurers that we like with a Zacks #2 Rank (short-term Buy)
include
AMERISAFE, Inc.

(
AMSF

),
Manulife Financial Corporation

(
MFC

),
Ace Limited

(
ACE

),
Markel Corporation

(
MKL

),
OneBeacon Insurance Group, Ltd.

(
OB

),
Progressive Corporation

(
PGR

),
RenaissanceRe Holdings Ltd.

(
RNR

),
Prudential Financial, Inc.

(
PRU

),
Horace Mann Educators Corporation

(
HMN

) and
MetLife, Inc.

(
MET

American International Group Inc.

(
AIG

) currently retains a Zacks #3 Rank which translates into a
short-term Hold rating.

WEAKNESSES

We expect continued pressure on investment portfolios and lower
income from the variable annuity business to restrict the earnings
growth rate of life insurers. Also, reduced financial flexibility
and weak underwriting will hurt the earnings of Property
Casualty Insurers.

Among the Zacks covered U.S. insurers, we prefer to stay away from
the Zacks #5 Rank (short-term Strong Sell) companies –
Axis Capital Holdings Limited

(
AXS

), C
incinnati Financial Corporation

(
CINF

),
Loews Corporation

(
L

),
Endurance Specialty Holdings

(
ENH

),
Kemper Corporation

(
KMPR

),
Meadowbrook Insurance Group

(
MIG

) and
MGIC Investment Corporation