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Insurance Stocks' Q2 Earnings on Jul 25: CB, WRB, RNR, AWH

The second-quarter earnings season is gathering pace with 19% members of the S&P 500 Index having reported solid quarterly numbers so far. Per the latest Earnings Preview, total earnings for 97 index members (accounting for 28.1% of index’s total market capitalization) that have reported financial numbers, have increased 8.4% on 5.1% higher revenues. The beat ratio is impressive with 78.4% companies surpassing bottom-line expectations and 72.2% outperforming top-line estimates.

The Finance sector (one of the 16 Zacks sectors) has delivered a strong performance so far. 53.3% of the sector’s total market cap in the S&P 500 index that have revealed quarterly results shows 7.2% earnings growth on 5.4% increase in revenues, both on a year-over-year basis. The beat ratio of 81.1% for the bottom line and 66.7% for the top line is higher than the beat ratio of the S&P 500.  

The second quarter witnessed several catastrophe losses, which will weigh on underwriting results as well as the bottom line of insurers. Per Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc AON, catastrophe losses suffered globally is estimated at $53 billion in the first half of 2017.  Few insurers have estimated to have incurred catastrophe losses in the second quarter stemming from severe wind and hail catastrophe events occurred during April and May in the U.S.

Horace Mann Educators Corp. HMN estimated between $31 million and $34 million, hurting the bottom line by 49–53 cents. While Donegal Group Inc. DGICA estimates a catastrophe loss of about $20.1 million and sees loss between 7 and 9 cents per share.

Nonetheless, prudent underwriting standards should have helped insurers guard against a capital reserve erosion that has built up owing to a benign catastrophe environment.
    
Net investment income, a major component of an insurer’s top line, has witnessed improvement; albeit far lower than the historical highs. The Federal Reserve has been increasing the interest rates, reflecting their confidence in the improving economic conditions. The Fed has raised interest rate thrice in three quarters. An improving rate environment not only aided an increase in Net investment income but has also improved investment yields.

Higher rates should offer some respite to life insurers that suffered spread compression on products like fixed annuities and universal life due to persistently low rates. Annuity sales too should have benefited from higher rates. Nonetheless, life insurers have considerably lowered their exposure to interest-sensitive product lines.

Also, improving economy means more disposable income and better consumer sentiment. This in turn, is likely to have supported more policy writings, driving premiums higher, which contribute a lion’s share in an insurers’ top line.

On the flip side, we do not expect pricings to have been strong. To write new business and retain renewals, insurers have been easing pricing, leading to soft pricing.  Commercial property, workers’ compensation and general liability were the once mostly experiencing soft pricing.

Nonetheless, core business growth, geographic expansion, strategic buyouts and prudent capital deployment via share repurchase have benefited insurers.

This week will see more than 800 companies reporting their quarterly results, including 183 S&P 500 members.

Let’s find out how these four insurers might perform when they release their quarterly numbers on the above announced date.

Chubb Limited CB is one of the world’s largest providers of property and casualty (P&C) insurance and reinsurance. In the last reported quarter, Loews beat the Zacks Consensus Estimate by 1.64%. The company’s Zacks Rank #4 (Sell) and an Earnings ESP of +0.80% complicate the surprise prediction. The Most Accurate estimate is pegged at $2.51 cents and the Zacks Consensus Estimate stands at $2.49. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for an earnings beat. However, we caution against the Sell-rated stocks (#4 or 5), that should never be considered going into an earnings announcement.

Chubb is expected to have witnessed an improved top line, courtesy its strategic buyouts and organic endeavors. Premiums have increased on diversified product mix. Given gradually improving rate environment, Chubb expects its quarterly investment income run rate to remain in the range of $830–$840 million. However, escalating expenses might weigh on margin expansion while exposure to catastrophe loss likely has induced volatility on underwriting results. (Read: Can Chubb Limited Spring a Surprise in Q2 Earnings?)

With respect to the surprise trend, Chubb beat expectations in three of the last four quarters with an average positive surprise of 5.56%.

D/B/A Chubb Limited New Price and EPS Surprise

RenaissanceRe Holdings Ltd. RNR primarily provides property-catastrophe reinsurance to insurers and reinsurers globally.  In the last reported quarter, RenaissanceRe missed the Zacks Consensus Estimate by 40.10%. The company has a Zacks Rank #3 and an Earnings ESP of 0.0%, which makes surprise prediction difficult. The Most Accurate estimate as well as the Zacks Consensus Estimate stand at $2.33 per share.

With respect to the surprise trend, RenaissanceRe beat expectations in only one of the last four quarters but the average beat was 8.28%.

RenaissanceRe Holdings Ltd. Price and EPS Surprise

W.R. Berkley Corporation WRB is one of the nation’s premier commercial lines property and casualty insurance providers. In the last reported quarter, W.R. Berkley missed the Zacks Consensus Estimate by 4.11% The company has a Zacks Rank #3 and an Earnings ESP of +2.67 that makes us confident of a likely earnings beat this soon-to-be-reported quarter. The Most Accurate estimate is pegged at 77 cents, while the Zacks Consensus Estimate stands at 75 cents per share.

With respect to the surprise trend, W.R. Berkley missed expectations in three of the last four quarters but the average miss was 0.66%.

W.R. Berkley Corporation Price and EPS Surprise

Allied World Assurance Company Holdings, AG AWH provides property and casualty (P&C) insurance and reinsurance products globally. In the last reported quarter, Allied World missed the Zacks Consensus Estimate by 18.46%. With respect to the surprise trend, Allied World beat expectations in only one of the last four quarters but the average beat was 14.98%.

Allied World Assurance Company Holdings, AG Price and EPS Surprise

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Aon PLC (AON): Free Stock Analysis Report
 
Horace Mann Educators Corporation (HMN): Free Stock Analysis Report
 
D/B/A Chubb Limited New (CB): Free Stock Analysis Report
 
W.R. Berkley Corporation (WRB): Free Stock Analysis Report
 
RenaissanceRe Holdings Ltd. (RNR): Free Stock Analysis Report
 
Donegal Group, Inc. (DGICA): Free Stock Analysis Report
 
Allied World Assurance Company Holdings, AG (AWH): Free Stock Analysis Report
 
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