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Insurance Stocks' Q4 Earnings on Feb 6: L, CNA, RE & More
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We are almost in the middle of the Q4 earnings season with nearly 44% members of the elite S&P 500 Index having reported quarterly results so far. According to the latest Earnings Outlook, the performance of the 219 index members (accounting for 58.8% of the index’s total market capitalization) that have already reported their financial numbers this quarter indicate that total earnings increased 5.4% due to 3.5% higher revenues. The beat ratio is strong with 64.8% companies surpassing bottom-line expectations and 53.4% 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 54.4% companies from this sector that have revealed their quarterly results shows 12.7% earnings growth due to 5.2% increase in revenues, both on a year-over-year basis. Moreover, the beat ratio of 67.3% for the bottom line is higher than the S&P 500. However, the beat ratio of 51% for the top line is lower than 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 quarter owing to the severity of the hurricane. The quarter also bore the brunt of an earthquake in New Zealand and other catastrophe events. 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 have benefited from 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 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 6.
Loews Corporation (L - Free Report) is a provider of commercial property and casualty (P&C) insurance in the U.S., Canada, the U.K., Continental Europe, and Singapore. Loews’ subsidiary – CNA Financial – is expected to deliver improved results backed by its fundamental operational strength and prudent underwriting approach. Supported by strong operations, Loews Hotels is expected to continue posting improved results. However, lesser contract drilling revenues, lower dayrates, reduced exploration and production budgets and an influx of new rig deliveries are likely to weigh on Diamond Offshore’s performance.
In the last-reported quarter, Loews beat the Zacks Consensus Estimate by 40.58%. Though the company has a favorable Zacks Rank #2 (Buy), its Earnings ESP of 0.00% makes surprise prediction difficult. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 63 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
According to our proven model a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or at least 3 (Hold) for an earnings beat.
With respect to the surprise trend, Loews surpassed expectations in two of the last four quarters with an average negative surprise of 9.38%. (Read more: Will Q4 Earnings Hold a Surprise for Loews Stock?)
CNA Financial Corporation (CNA - Free Report) provides commercial P&C insurance products, primarily in the U.S.
CNA Financial is likely to report growth in net premiums written fueled by improved retention. The company’s disciplined approach toward the market is expected to have resulted in a modest level of new business. Also, the company is likely to display profitability at its Life & Group business in the to-be-reported quarter. However, the company is expected to incur some additional severance expense in the fourth quarter owing to its efforts to simplify the organization with the dual purpose of improving the timeliness of its decision making and reducing costs.
In the last-reported quarter, CNA Financial beat the Zacks Consensus Estimate by 36.90%. This time the company is likely to surpass estimates as it has the right combination of a Zacks Rank #1 and an Earnings ESP of +13.42%. The Most Accurate Estimate stands at 93 cents, while the Zacks Consensus Estimate is pegged at 82 cents per share.
With respect to the surprise trend, CNA Financial surpassed expectations in three of the last four quarters but with an average negative surprise of 18.69%. (Read more: CNA Financial: A Beat in Store this Earnings Season?)
Everest Re Group Ltd. writes P&C, reinsurance and insurance in the U.S, Bermuda and international markets.
In the last-reported quarter, Everest Re beat the Zacks Consensus Estimate by 43.20%. This time the company is unlikely to post an earnings beat as it has a Zacks Rank #2 and an Earnings ESP of 0.00%. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $3.98 per share.
With respect to the surprise trend, Everest Re surpassed expectations in three of the last four quarters with an average beat of 25.64%.
Mercury General Corporation (MCY - Free Report) engages in writing personal automobile insurance in the U.S. In the last-reported quarter, Mercury General beat the Zacks Consensus Estimate by 26.42%. The company has a Zacks Rank #1 and an Earnings ESP of 0.00%. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 55 cents per share.
With respect to the surprise trend, Mercury General surpassed expectations in two of the last four quarters but with an average negative surprise of 21.04%.
Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Mercury General Corporation Price and EPS Surprise
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Insurance Stocks' Q4 Earnings on Feb 6: L, CNA, RE & More
We are almost in the middle of the Q4 earnings season with nearly 44% members of the elite S&P 500 Index having reported quarterly results so far. According to the latest Earnings Outlook, the performance of the 219 index members (accounting for 58.8% of the index’s total market capitalization) that have already reported their financial numbers this quarter indicate that total earnings increased 5.4% due to 3.5% higher revenues. The beat ratio is strong with 64.8% companies surpassing bottom-line expectations and 53.4% 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 54.4% companies from this sector that have revealed their quarterly results shows 12.7% earnings growth due to 5.2% increase in revenues, both on a year-over-year basis. Moreover, the beat ratio of 67.3% for the bottom line is higher than the S&P 500. However, the beat ratio of 51% for the top line is lower than 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 quarter owing to the severity of the hurricane. The quarter also bore the brunt of an earthquake in New Zealand and other catastrophe events. 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 have benefited from 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 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 6.
Loews Corporation (L - Free Report) is a provider of commercial property and casualty (P&C) insurance in the U.S., Canada, the U.K., Continental Europe, and Singapore. Loews’ subsidiary – CNA Financial – is expected to deliver improved results backed by its fundamental operational strength and prudent underwriting approach. Supported by strong operations, Loews Hotels is expected to continue posting improved results. However, lesser contract drilling revenues, lower dayrates, reduced exploration and production budgets and an influx of new rig deliveries are likely to weigh on Diamond Offshore’s performance.
In the last-reported quarter, Loews beat the Zacks Consensus Estimate by 40.58%. Though the company has a favorable Zacks Rank #2 (Buy), its Earnings ESP of 0.00% makes surprise prediction difficult. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 63 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
According to our proven model a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or at least 3 (Hold) for an earnings beat.
With respect to the surprise trend, Loews surpassed expectations in two of the last four quarters with an average negative surprise of 9.38%. (Read more: Will Q4 Earnings Hold a Surprise for Loews Stock?)
Loews Corporation Price and EPS Surprise
Loews Corporation Price and EPS Surprise | Loews Corporation Quote
CNA Financial Corporation (CNA - Free Report) provides commercial P&C insurance products, primarily in the U.S.
CNA Financial is likely to report growth in net premiums written fueled by improved retention. The company’s disciplined approach toward the market is expected to have resulted in a modest level of new business. Also, the company is likely to display profitability at its Life & Group business in the to-be-reported quarter. However, the company is expected to incur some additional severance expense in the fourth quarter owing to its efforts to simplify the organization with the dual purpose of improving the timeliness of its decision making and reducing costs.
In the last-reported quarter, CNA Financial beat the Zacks Consensus Estimate by 36.90%. This time the company is likely to surpass estimates as it has the right combination of a Zacks Rank #1 and an Earnings ESP of +13.42%. The Most Accurate Estimate stands at 93 cents, while the Zacks Consensus Estimate is pegged at 82 cents per share.
With respect to the surprise trend, CNA Financial surpassed expectations in three of the last four quarters but with an average negative surprise of 18.69%. (Read more: CNA Financial: A Beat in Store this Earnings Season?)
CNA Financial Corporation Price and EPS Surprise
CNA Financial Corporation Price and EPS Surprise | CNA Financial Corporation Quote
Everest Re Group Ltd. writes P&C, reinsurance and insurance in the U.S, Bermuda and international markets.
In the last-reported quarter, Everest Re beat the Zacks Consensus Estimate by 43.20%. This time the company is unlikely to post an earnings beat as it has a Zacks Rank #2 and an Earnings ESP of 0.00%. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $3.98 per share.
With respect to the surprise trend, Everest Re surpassed expectations in three of the last four quarters with an average beat of 25.64%.
Everest Re Group, Ltd. Price and EPS Surprise
Everest Re Group, Ltd. Price and EPS Surprise | Everest Re Group, Ltd. Quote
Mercury General Corporation (MCY - Free Report) engages in writing personal automobile insurance in the U.S. In the last-reported quarter, Mercury General beat the Zacks Consensus Estimate by 26.42%. The company has a Zacks Rank #1 and an Earnings ESP of 0.00%. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 55 cents per share.
With respect to the surprise trend, Mercury General surpassed expectations in two of the last four quarters but with an average negative surprise of 21.04%.
Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Mercury General Corporation Price and EPS Surprise
Mercury General Corporation Price and EPS Surprise | Mercury General Corporation Quote
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>