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Insurance Stock Q4 Earnings on Feb 1: MET, LNC, TMK, UNM, XL

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The Q4 earnings season is in full swing with 33.9% of the elite S&P 500 Index having reported quarterly results so far. According to the latest Earnings Preview, the performance of the 170 index members (accounting for 33.9% of the index’s total market capitalization) that have already reported their financial numbers this quarter indicate that total earnings increased 6% on a 3.1% increase in revenues. The beat ratio is strong with 64.1% companies surpassing bottom-line expectations and 54.7% outperforming on the top-line front.

The Finance sector (one of the 16 Zacks sectors) has started the Q4 earnings season on a strong note. In fact, the financial performance of 43.3% companies from this sector that have revealed their quarterly results shows 11.3% earnings growth on 3.1% increase in revenues, both on a year-over-year basis. Moreover, the beat ratio of 66.7% for the top line compares favorably with the S&P 500. Beta ratio for the bottom line was on par with the S&P 500.

The Finance sector is highly diversified and includes several industries like insurance, banks and securities exchanges to name a few.

The insurance industry was severely affected by catastrophe losses in 2016 compared with benign cat activity in 2015. It was also hit by Hurricane Matthew in Q4. The industry is likely to have incurred between $3 billion and $9 billion in loss in the fourth quarter owing to the severity of the hurricane. The quarter also bore the brunt of an earthquake in New Zealand and other catastrophe events.

For the October to December period, Cincinnati Financial Corporation (CINF - Free Report) projected pre-tax catastrophe loss between $75 million and $85 million, while Alleghany Corporation estimated catastrophe loss of less than $75 million. XL Group plc expects to incur pre-tax catastrophe loss of $245 million. Argo Group International Holdings, Ltd. is likely to incur pre-tax catastrophe loss between $20 million and $25 million.

These are expected to have weighed on the underwriting results of insurers, hurting their underwriting income and combined ratio. However, prudent underwriting practices should bring some respite.
 
Though the Fed raised the interest rate, it was toward the end of Q4. Insurers, therefore, are unlikely to reap the benefit of the rate hike.

Nonetheless, the broader invested asset base and alternative asset classes are positives. Also, spread compression on products like fixed annuities and universal life is likely to have improved.

To sum up, core business growth, geographic expansion and strategic acquisitions, an improving employment scenario and better payroll should prove beneficial for insurance companies in Q4.
    
With a number of companies likely to report their Q4 results soon, we expect to get a clearer idea of the trends this earnings cycle. Let’s find out how these four insurers might perform when they come up with their quarterly numbers on Feb 1.

Torchmark Corporation premiums are likely to have increased in the to-be-reported quarter due to impressive performance by the American Income Exclusive Agency. Higher agent count – estimated between 6,750 and 6,950 by 2016 – is expected to have resulted in an increase in life sales.

Continued share buyback is another positive and should support the bottom line.

Despite challenges at Liberty National, the company expects life net sales to grow between 10% and 11% in 2016, while health net sales growth is estimated between 7% and 9%.

In the last-reported quarter, Torchmark beat the Zacks Consensus Estimate by 2.68%. This time the company is unlikely to come up with a beat as it has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.12 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

With respect to the surprise trend, Torchmark surpassed expectations in three of the last four quarters with an average beat of 0.90%. (Read more: Torchmark Q4 Earnings: Stock to Pull a Surprise?)

Torchmark Corporation Price and EPS Surprise

 

Torchmark Corporation Price and EPS Surprise | Torchmark Corporation Quote

Lincoln National Corporation’s (LNC - Free Report) earnings are expected to see an upside from disciplined expense management and incremental capital management.

The life insurance segment’s results are expected to show top-line growth from a change in sales mix as the company is focusing on an increase in sales of product without long-term guarantees, and the scale back of sale of products with long-term guarantees.

Also, the company’s repricing efforts and enhancements to claims management functions to restore profitability will boost sales in its Group Protection segment.

In Retirement Plan Services, small market sales are expected to increase as a result of distribution expansion and increased wholesaler productivity. This momentum is expected to continue, aided by the recent launch of the enhanced small-market Director product.

The bottom line should also be favored by Lincoln National’s expense management efforts. The company is successfully managing general and administrative expenses in a period of slower revenue growth.

Finally, Lincoln National’s share repurchase driven by its balance sheet strength and capital generation will further lift its bottom line.

Last quarter, Lincoln National beat the Zacks Consensus Estimate by 12.96%. This time again the company is expected to come up with a beat First, it has an Earnings ESP of +0.59% with the Most Accurate Estimate standing at $1.71 per share, a penny above the Zacks Consensus Estimate of $1.70. Also, the company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

With respect to the surprise trend, Lincoln National surpassed expectations in two of the last four quarters but it was an average miss of 0.81%. (Read more: Lincoln National Q4 Earnings: A Beat in the Cards?)

For MetLife Inc. (MET - Free Report) we expect investments in business growth to affect earnings in the Latin America segment.

In its auto insurance business, the company has been undertaking targeted rate increases over the last 12 months. It has also increased premium rates on renewals. These increases, along with other management actions, should increase an improving auto combined ratio in the to-be-reported quarters.

We, however, expect property and casualty sales to decline by mid single digits due to pricing actions as well as a shift toward the more profitable business segments and markets.

The company’s bottom line will be aided by its expense management initiatives. In its Japan business, we expect sales to decline as the company shifts its sales to the higher return foreign currency-denominated life products from low-return yen life products.

In its EMEA segment, we expect to see an increase in sales led by a favorable shift toward higher-margin products.

Last quarter, MetLife beat the Zacks Consensus Estimate by 12.28%. This time the company is unlikely to come up with a beat as the company has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.48%. The Most Accurate estimate stands at a $1.33 per share, below the Zacks Consensus Estimate of $1.35.  

With respect to the surprise trend, MetLife missed expectations in three of the last four quarters, with an average miss of 10.5%. (Read more: What’s in Store for MetLife this Earnings Season?)

MetLife, Inc. Price and EPS Surprise

 

MetLife, Inc. Price and EPS Surprise | MetLife, Inc. Quote

XL Group is likely to report top-line growth on the back of increased premiums at the Reinsurance segment as well as higher gross premiums written and diversified product offerings.

Moreover, continued share buyback should drive the company’s bottom line.

Further, the property and casualty insurer is likely to have experienced a decline in operating expenses as the ongoing integration and synergy benefits are gaining traction.

In addition, the company is expected to have witnessed improved underwriting results, which in turn, should mitigate the impact of catastrophe losses incurred in the fourth quarter.

Coming to this matter, XL Group estimates pre-tax catastrophe loss of $245 million, net of reinsurance and including reinstatement premiums, stemming from Hurricane Matthew and the earthquake in New Zealand.

Last quarter, XL Group beat the Zacks Consensus Estimate by 4.76%. This time the company is unlikely to come up with a beat as it has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. The Most Accurate estimate and the Zacks Consensus Estimate stand at 34 cents.

With respect to the surprise trend, the company delivered positive surprises in three of the last four quarters, with an average beat of 11.77%.  (Read more: What's in Store for XL Group this Earnings Season?).

XL Group Ltd. Price and EPS Surprise

 

XL Group Ltd. Price and EPS Surprise | XL Group Ltd. Quote

Unum Group (UNM - Free Report) is likely to report operating income growth in the fourth quarter, primarily due to an increase in premiums at Unum US and Colonial Life businesses. Also, consistency in favorable benefits should drive growth for the insurer.

Moreover, the company likely witnessed top-line improvement and solid profit margins owing to disciplined pricing and underwriting principles in new businesses. In fact, all aspects of the company’s business are expected to have improved in the quarter.

Also, Unum Group projected a decline of about $5.5 million in interest expenses in the fourth quarter due to debt maturity.

Last quarter, Unum Group beat the Zacks Consensus Estimate by 4.21%. This time the company is unlikely to come up with a beat as it has a Zacks Rank #2 and an Earnings ESP of 0.00%. The Most Accurate estimate and the Zacks Consensus Estimate stand at 98 cents.

With respect to the surprise trend, the company delivered positive surprises in each of the last four quarters, with an average beat of 4.59%. (Read more: Unum Group Q4 Earnings: Is a Surprise in the Cards?)

Unum Group Price and EPS Surprise

 

Unum Group Price and EPS Surprise | Unum Group Quote

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