Improved pricing, new products and services, rising interest rates, and accelerated digitalization efforts are expected to have been the highlights of the insurance industry in the fourth quarter of 2022. The insurance players are part of the broader Zacks Finance sector (one of the 16 broad Zacks sectors within the Zacks Industry classification). Technological improvements and adoptions are expected to have lowered costs and improved efficiency for companies like Marsh & McLennan Companies, Inc. (MMC Quick QuoteMMC - Free Report) , American International Group, Inc. (AIG Quick QuoteAIG - Free Report) , Aflac Incorporated (AFL Quick QuoteAFL - Free Report) , Everest Re Group, Ltd. and Voya Financial, Inc. (VOYA Quick QuoteVOYA - Free Report) .

With the help of the Zacks Stock Screener, we have identified five companies, MMC, AIG, AFL, REand VOYA, which are poised to outpace the Zacks Consensus Estimate in fourth-quarter earnings. These stocks have the ideal combination of two ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy), #3 (Hold) — to surpass expectations. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Before we get into the details of factors that are anticipated to have influenced the fourth-quarter performance, let’s take a look at the sector projections.

Per the latest Earnings Preview, the finance sector’s fourth-quarter 2022 earnings are estimated to decline 9.2%, while revenues are expected to increase 2.7%. Rising interest rates, growing awareness, scaling of businesses and other factors are expected to have supported the industry players’ top-line growth.

Factors Shaping Q4 Results

In the fourth quarter, the insurance players are expected to have witnessed improved pricing. An active catastrophe environment and growing awareness are likely to have triggered the policy renewal rate and supported pricing growth. Favorable reserve development and robust capital levels are anticipated to have boosted the companies’ underwriting profitability.

The significant winter storm of late December resulted in massive catastrophe losses for some insurers, which weighed on their quarterly performances. For example, The Allstate Corporation alone incurred estimated catastrophe losses of $478 million from the Winter Storm Elliott. This can give an idea about how the property and casualty stocks suffered in the quarter. 

However, auto and home insurance premiums are expected to have increased significantly in the quarter under review, providing some respite to the industry players. The insurers facing increased expenses due to supply-chain woes, the shortage of microchips and auto replacement parts opted for auto rate hikes. This is expected to have boosted fourth-quarter premiums.

Inflationary pressures are expected to have triggered households to hedge against inflation and complement public health coverage with health insurances, which aided the health insurers. Insurance brokerage companies are expected to have gained from global expansions, increasing rates, tightening underwriting standards and cost-control efforts.

The high interest rate environment is likely to have aided the insurers’ investment yields. Rate-sensitive investments and alternative investments in private equity, hedge funds, and real estate, among others, are expected to have benefited the companies’ investment income.

Rising demand for protection products and policies with “living” benefits are likely to have boosted life insurers’ sales figures. Accelerated digitalization efforts are expected to have saved costs, improved operating efficiency and driven margin expansion for the insurance players.

Potential Q4 Outperformers

Below we list five insurance stocks that have the right mix of elements to pull off a beat this earnings season.

Based in New York, Marsh & McLennan is a globally leading insurance broker. Solid performances of the Risk and Insurance Services, and Consulting businesses are anticipated to have driven its fourth-quarter 2022 earnings, partially offset by higher costs. New business generation and solid retention rates are likely to have aided its performance in the quarter.

The Zacks Consensus Estimate for Marsh & McLennan’s fourth-quarter earnings is pegged at $1.40 per share, suggesting an increase of 2.9% from the year-ago reported figure. It beat earnings estimates in each of the past four quarters, with an average of 3.2%. MMC has an Earnings ESP of +2.72% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in New York, American International is a leading global insurance organization. A recovery in the travel and warranty business is expected to have boosted its Personal lines insurance business. Increased Life and Retirement premiums are expected to have aided its fourth-quarter 2022 earnings.

The Zacks Consensus Estimate for American International’s fourth-quarter earnings is pegged at $1.14 per share, which has improved 2.7% in the past 30 days. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 13%. AIG has an Earnings ESP of +13.33% and a Zacks Rank #2 at present.

Aflac, based in Columbus, GA, offers supplemental health and life insurance products. Increased enrollments, growth investments and productivity gains are expected to have benefited the company’s U.S. segment in the fourth quarter 2022. Expenses are expected to have improved and supported profits on growing efficiency levels, partly offset by the weaker contribution from its Japan segment.

The Zacks Consensus Estimate for Aflac’s fourth-quarter 2022 earnings is pegged at $1.21 per share, which has witnessed three upward estimate revisions against none in the opposite direction in the past 30 days. It beat earnings estimates in each of the past four quarters, with an average of 4.8%. AFL has an Earnings ESP of +2.12% and a Zacks Rank #2 at present.

Headquartered in Hamilton, Bermuda, Everest Re writes property and casualty, reinsurance and insurance in the United States, Bermuda and international markets. Product diversification, the expansion of its property insurance geographic footprint, international insurance, and growth of the existing Canada platform are likely to have aided its fourth-quarter 2022 profits.

The Zacks Consensus Estimate for Everest Re’s fourth-quarter earnings is pegged at $8.96 per share, which has improved 3.8% in the past 30 days. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 10.3%. RE has an Earnings ESP of +16.41% and a Zacks Rank #2 at present.

Based in New York, Voya Financial offers retirement, investment and employee benefits products in the United States. High return from its Wealth Solutions, Investment Management and Health Solutions businesses, and benefits from its distribution network expansion are likely to have aided its fourth-quarter profit levels. Its cost-saving initiatives are expected to have benefited the bottom line.

The Zacks Consensus Estimate for Voya Financial’s fourth-quarter 2022 earnings is pegged at $1.51 per share. The consensus mark for revenues is pegged at $259.9 million. It beat earnings estimates in each of the past four quarters, with an average of 35.2%. VOYA has an Earnings ESP of +7.77% and a Zacks Rank #2 at present.

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