Insurance industry stocks in the fourth quarter are expected to have benefited from strong retention, accelerated digitalization, favorable renewals, interest rate hikes and reinsurance agreements. Furthermore, better pricing, exposure growth, diversified portfolio and organic business growth are likely to boost the December-quarter results. Insurers like Radian Group Inc. (RDN Quick QuoteRDN - Free Report) , Everest Group, Ltd. (EG Quick QuoteEG - Free Report) , First American Financial Corporation (FAF Quick QuoteFAF - Free Report) , Sun Life Financial Inc. (SLF Quick QuoteSLF - Free Report) and The Allstate Corporation (ALL Quick QuoteALL - Free Report) are set to report their fourth-quarter earnings on Feb 7.

Solid retention, exposure growth across business lines and improved pricing are likely to have fueled premiums. An active catastrophe environment accelerated the policy renewal rate and led to better pricing in the fourth quarter. Per a report in Business Insurance, U.S. commercial insurance rates rose 5.6% on average in the fourth quarter.

Better pricing, reinsurance arrangements, portfolio repositioning, reinsurance covers, favorable reserve development and prudent underwriting are likely to drive an improvement in fourth-quarter underwriting results. Per reports in Reinsurance News, JP Morgan estimates insured losses in the fourth quarter in the range of $8-$10 billion, largely attributable to Hurricane Otis.

Auto premiums are likely to have improved, given increased travel across the world. A stronger mortgage market is likely to have favored mortgage insurance premiums. A low unemployment rate is likely to have aided commercial insurance and group insurance.

A bigger investment asset base, higher reinvestment rate and alternative investments in private equity, hedge funds and real estate, among others, are expected to have aided net investment income in the fourth quarter.

Courtesy of their solid capital position, insurers pursued strategic mergers and acquisitions, which are likely to have diversified their portfolios, sharpened their competitive edge and expanded their geographic footprint in the fourth quarter. Insurers also enhanced shareholders' value via share buybacks and dividend increases.

The insurance industry’s increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation expedite business operations. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. These investments are likely to have curbed costs and aided margins of insurers in the fourth quarter.   

Insurance Providers Reporting on Feb 7

Against the backdrop discussed above, let’s find out how the following five companies are placed ahead of their December-quarter earnings release tomorrow.

Per our proprietary model, the combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Radian Group: Higher net investment income and growth in monthly premium policy insurance in force are likely to aid Radian Group’s fourth-quarter results. Higher mortgage interest rates are expected to have helped RDN’s persistency. Lower claim payments are likely to have boosted margins in the fourth quarter. However, the positives are expected to have been offset by lower premiums in the homegenius segment, rising expenses stemming from inflationary pressure and increased operating costs.

The Zacks Consensus Estimate for fourth-quarter earnings and revenues is pegged at 83 cents per share and $296.1 million, respectively, indicating an increase of 1.2% and a decline of 20.9% from the respective year-earlier period’s readings.  Radian Group has an Earnings ESP of 0.00% and is a Zacks #3 Ranked player.

RDN’s bottom line beat the Zacks Consensus Estimate in all the last four quarters, the average surprise being 25.26%. This is depicted in the chart below:

Everest Group: Fourth-quarter results are expected to reflect premium growth, driven by an increase in the reinsurance business and insurance business. Net investment income is likely to have benefited from higher new money yields, investment in floating-rate securities and improved assets under management. Despite catastrophe losses that induce volatility in profits, underwriting results are likely to benefit from rate increases, exposure growth and traditional risk management capabilities in the to-be-reported quarter. (Read more: Will Everest Group Pull Off a Surprise in Q4 Earnings?)

The Zacks Consensus Estimate for the to-be-reported quarter’s bottom and top line is pegged at $14.63 per share and $4.01 billion, respectively, indicating an earnings improvement of 19.8% and a revenue increase of 25.5% from the corresponding year-ago quarter’s readings. The company has an Earnings ESP of +1.18% and a Zacks Rank #3.

EG’s earnings surpassed estimates in three of the last four reported quarters while missing in one, the average surprise being 24.50%. This is depicted in the chart below:

First American Financial: Its Title Insurance and Services business is expected to have gained momentum from improved agent premiums, higher direct premiums and escrow fees, increased domestic residential purchases, and commercial transactions. Higher operating revenues in the home warranty business and higher net realized investment gains in both the home warranty and property and casualty businesses are expected to have driven the Specialty Insurance business. A higher number of closed orders, increases in average revenue per order, solid performance of the commercial market, as well as improved direct premium and escrow fees from favorable refinance are likely to have led to revenue growth in the to-be-reported quarter.

The Zacks Consensus Estimate for First American Financial’s fourth-quarter earnings of 75 cents per share implies a decline of 44.4% from the prior-year quarter’s reported number. The estimate for fourth-quarter revenues is pegged at $1.39 billion, indicating a decline of 17.4% from the respective year-earlier period’s readings. First American Financial has an Earnings ESP of 0.00% and carries a Zacks Rank #4 (Sell).

The insurer delivered an earnings surprise in three of the last four quarters and missed in the other quarter, the average being 11.94%. This is depicted in the chart below:

Sun Life Financial: The company’s fourth-quarter results are likely to benefit from compelling Asia business, growing global asset management business, favorable business mix, growth in mutual fund sales, Hong Kong pension business and business growth. Escalating expenses due to higher operating expenses, commissions and other expenses are likely to have been a dampener.

The Zacks Consensus Estimate for the bottom line is pegged at $1.17, indicating a 6.4% decrease from the year-ago quarter reported figure. The company has an Earnings ESP of -0.79% and a Zacks Rank 2.
SLF’s earnings surpassed estimates in three of the last four quarters, while matching in one, the average being 3.98%. This is depicted in the chart below:

The Allstate Corporation: Its fourth-quarter revenues are expected to have been supported by improved net premiums earned, attributable to rate increases. The estimate for the Property-Liability segment’s premiums earned is $12.7 billion, which indicates an improvement of 11.3% year over year. The consensus mark for revenues from the Protection Services segment suggests a year-over-year increase of 25.4%.

The homeowners’ insurance business is likely to have received a boost from improved average gross premium per policy in the Allstate and National General brands coupled with a rise in policies in force. However, catastrophe losses are likely to have hurt the overall underwriting results of Allstate in the to-be-reported quarter and led to a deterioration in the combined ratio. (Read more: Factors Setting the Tone for Allstate's Q4 Earnings)

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings and revenues is pegged at $3.87 per share and $15.05 billion, respectively, indicating an earnings improvement of 384.6% and a revenue increase of 11% from the corresponding year-ago quarter’s readings.

The company has an Earnings ESP of 0.00% and a Zacks Rank #2. As far as earnings surprises are concerned, ALL’s bottom line beat the Zacks Consensus Estimate in three of the last four quarters and missed the mark once, the average surprise being 31.50%. This is depicted in the chart below:

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