The insurance industry experienced decent top-line growth, fairly resilient margins and increased capital management in 2011. Keefe, Bruyette & Woods expects it to continue into 2012 and stocks will be traded more in line with fundamentals next year.

According to the firm’s “2012 Life Insurance Outlook” report, capital ratios remain at or near all-time highs for many companies, while capital management increased in 2011. Also, low rates are a manageable earnings headwind and will not be a material balance sheet issue in the next few years.

KBW expects life insurers to keep growing and valuations to rationalize as the companies continue to demonstrate top-line growth, capital management and EPS growth.

Naming a number of life insurers in its report, KBW says Prudential Financial will continue to generate above-average EPS growth due to good momentum from its franchise in Japan and a balance of revenue growth and capital management. Meanwhile, Ameriprise Financial has demonstrated superior balance sheet performance, changed its advisory model to dramatically improve profitability, and exploited market conditions by making a transformational asset management acquisition.

Carrie Burns writes for Insurance Networking News.