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Key Forecast for Q3 Earnings Reports of AIG, CI, AIZ, WLTW

Third-quarter earnings have already crossed the halfway mark. As of Oct 27, 272 S&P 500 companies reported results with strong earnings numbers. Per the latest Earnings Preview, third-quarter results of these companies account for 64.2% of the index’s total market capitalization.

Total earnings for these companies are up 8.7% year over year on 6.7% rise in revenues, with 75.7% beating earnings per share estimates and 66.2% topping revenue estimates.

The insurance industry, an integral part of the the Finance sector (one of the 16 Zacks sectors), will witness soft results in the third quarter. A soft performance from the insurance industry will be a drag on the Finance sector’s third-quarter results. Per our report, earnings of the Finance sector will decline 2.9% though revenues will increase 1.1%.

The third quarter witnessed a slew of catastrophes, which will weigh on underwriting profitability as well as the bottom line of insurers. Though increasing catastrophes will induce fluctuation in underwriting results, we expect prudent underwriting practices and capital reserve piled up on a benign catastrophe environment to withstand the loss to some extent.

We do not expect insurance pricings to be strong in the third quarter.

However, net investment income, an important component of an insurer’s top line, is likely to witness improvement courtesy of three rate hikes approved since December 2016. Though the rate environment is advancing at snail’s pace, the impact of rate increase is clearly visible in the insurer’s investment results. The third quarter will also not be an exception.

Higher rates should offer some respite to life insurers, which suffered spread compression on products like fixed annuities and universal life due to continued low rates. Annuity sales should also benefit from higher rates.

However, life insurers have considerably lowered their exposure to interest-sensitive product lines.

Let’s take a sneak peek into the expected performance of four multiline insurance stocks that are scheduled to report earnings on Nov 2.

American International Group Inc. AIG third-quarter results are likely to suffer from nearly $3 billion of estimated catastrophe loss from hurricanes Harvey, Irma, Maria and the earthquake in Mexico. A lower amount of share buyback would also hurt its bottom line.

We expect to see earnings strength in its Consumer segment as the company enjoys a leading market position across many products and distribution channels, which allow it to maintain profitability in evolving markets.

Our proven model shows that AIG does not have the right combination of the two key ingredients — positive Earnings ESP  and Zacks Rank #1, 2 or 3 — to beat earnings estimates. It has an Earnings ESP of 0.00% and carries a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our https://www.zacks.com/premium/esp-buy?adid=zp_article_espfil...">Earnings ESP Filter.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions. (Read more: How Bad Will the Effect of Weather be on AIG Q3 Earnings?)

American International Group, Inc. Price and EPS Surprise

Cigna Corp.’s CI third-quarter results are expected to reflect growth in medical customers and specialty relationships, continued effective medical cost management operating expense discipline and strong capital.

We expect to see increased membership on growth across all its Commercial market segments, given its diversified product portfolio, a wide agent network and superior service. The Zacks Consensus Estimate for total membership is 15.7 million, up 3.5% year over year.

Increased revenues from Global Supplemental Business are likely on the back of its leading innovations, direct-to-consumer distribution capabilities, and easy-to-understand, affordable products that are designed to fill in gaps in coverage and locally licensed and strongly managed talent. The Zacks Consensus Estimate for revenues from this unit is $963 million, up 10.9% year over year.

Our proven model shows that Cigna does not have the right combination of the two key ingredients to beat earnings estimates. It carries a Zacks Rank #2 (Buy) that significantly increases the chances of an earnings beat. But it has an Earnings ESP of -0.23%, which makes our surprise prediction difficult. (Read more: Will Higher Membership, Revenues Aid Cigna Q3 Earnings?)

Cigna Corporation Price and EPS Surprise

Assurant Inc. AIZ has likely witnessed a decline in net premiums earned in the soon-to-be-reported quarter, mainly due to the ongoing normalization of lender-placed insurance business plus reduced contributions from mortgage solutions. Also, unprecedented hurricane activity will add to this downside. To that end, Assurant has projected pre-tax reportable catastrophe losses, net of reinsurance and reinstatement premiums, arising from Harvey, to range between $134 million and $140 million. Such losses will impact the performance of Global Housing segment the most in the third quarter.

Further, the company anticipates loss from Irma to exceed its retention of $125 million pretax. However, these losses will be covered by the company’s reinsurance program.

Our proven model shows that Assurant does not have the right combination of the two key ingredients to beat earnings estimates. It carries a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%. (Read more: Surprise Will lower Premiums Affect Assurant’s Q3 Earnings?)

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Assurant, Inc. Price and EPS Surprise

Willis Towers Watson plc WLTW is expected to have generated an improved top line, driven by commissions and fees as well as investment income.

Commissions and fees will likely increase on better performance across all segments. A gradually improving interest rate environment should drive investment income.

Solid business momentum at exchange business likely will likely favor results. Sales pipeline remains strong, especially in the mid-market, and memberships will likely increase. The Zacks Consensus Estimate for exchange solutions revenues is pegged at $179 million, up 0.6% sequentially.

Our proven model shows that Willis Towers does not have the right combination of the two key ingredients to beat earnings estimates. It carries a Zacks Rank #3 (Hold) and has an Earnings ESP of -0.07%. (Read more: Can Segmental Growth Drive Willis Towers Q3 Earnings?)

Willis Towers Watson Public Limited Company Price and EPS Surprise

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Willis Towers Watson Public Limited Company (WLTW): Free Stock Analysis Report
 
American International Group, Inc. (AIG): Free Stock Analysis Report
 
Assurant, Inc. (AIZ): Free Stock Analysis Report
 
Cigna Corporation (CI): Free Stock Analysis Report
 
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