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Insurance Stocks to Post Q1 Earnings on May 1: CNA, L & More

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The Q1 earnings season is getting into full gear with 40% members of the elite S&P 500 Index reporting solid quarterly numbers so far. According to the latest Earnings Outlook, the performance of 181 index members that have already reported their financial numbers this quarter indicate that total earnings have increased 10% on 4.3% higher revenues. The beat ratio is impressive with 75.7% companies surpassing bottom-line expectations and 64.1% outperforming on the top-line front.

The Finance sector (one of the 16 Zacks sectors) has delivered a strong performance so far. Financial performance of 59.2% companies from this sector that have revealed their quarterly results shows 9% earnings growth on 7.3% increase in revenues, both on a year-over-year basis. Moreover, the beat ratio of 67.4% for the bottom line and 65.1% for the top line is higher than the beat ratio of the S&P 500.  

Insurers (particularly the property and casualty companies) are likely to witness improvement in underwriting results owing to a benign catastrophe environment. However, impact of storms in Midwest and the South that occurred during Feb 28 and Mar 22, as well as cyclone Debbie in Australia weighed on underwriting results.

Nonetheless, the improving interest rate, albeit at a slower pace, should cushion investment results that suffered due to the prolonged period of low rates. Owing to a stabilizing economy, improving employment and inflation reaching 2%, the Fed raised interest rates in Dec 2016 and in Mar 2017.  Investment income, which is a major component of insurers’ top line, is likely to have improved. 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.

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. Investment yield is also likely to have improved. Annuity sales too should have benefited from a higher rates.

Prudent underwriting practices should also have supported investors. However, we do not expect pricings to have been strong. Nonetheless, core business growth, geographic expansion, strategic acquisitions and effective capital deployment via share repurchase should prove beneficial for insurers.

Let’s find out how these four insurers might perform when they release their quarterly numbers on May 1.

Loews Corporation (L - Free Report) , through its subsidiaries, provides commercial property and casualty (P&C) insurance in the United States, Canada, the United Kingdom, Continental Europe, and Singapore. In the last reported quarter, Loews beat the Zacks Consensus Estimate by 25.4%. The company’s Zacks Rank #3 (Hold) and an Earnings ESP of -3.03% complicates surprise prediction. The Most Accurate Estimate is pegged at 64 cents and the Zacks Consensus Estimate stands at 66 cents. 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 (Buy) or at least 3 for an earnings beat.

The company is expected to have witnessed improved performance at CNA Financial as well as Loews Hotel. Investment income is expected to have benefited from alternative investments and slight improvement in interest rates. However, soft results at Diamond Offshore may limit the upside. (Read:  What's in the Cards for Loews this Earnings Season?)

With respect to the surprise trend, Loews beat expectations in three of the three four quarters with an average surprise of 7.23%.

Loews Corporation Price and EPS Surprise

 

Loews Corporation Price and EPS Surprise | Loews Corporation Quote

CNA Financial Corporation (CNA - Free Report) operates as a P&C insurer. It offers commercial P&C insurance products, mainly across the United States. In the last reported quarter, CNA Financial met the Zacks Consensus Estimate. The company has a Zacks Rank #3 and an Earnings ESP of +10.13%, which makes us confidant of an earnings beat. The Most Accurate Estimate stands at 87 cents and the Zacks Consensus Estimate stands at 79 cents per share.

CNA Financial’s Specialty and International segments and Life & Group business is expected to have delivered improved results. However, higher expenses are likely to have been dampeners. (Read: CNA Financial Q1 Earnings: Is a Beat in the Cards?)

With respect to the surprise trend, CNA Financial surpassed expectations in three of the last four quarters with an average surprise of 11.59%.

White Mountains Insurance Group, Ltd. (WTM - Free Report) engages in insurance, reinsurance, and insurance services businesses in the United States. In the last reported quarter, White Mountains missed the Zacks Consensus Estimate by 228.67%. The company has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, which complicates surprise prediction. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at a loss of 1 cent per share.

Please note that the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

With respect to the surprise trend, White Mountains surpassed expectations in two of the last four quarters but with an average negative surprise of 214.78%.

White Mountains Insurance Group, Ltd. Price and EPS Surprise

 

Mercury General Corporation (MCY - Free Report) writes personal automobile insurance in the United States. In the last reported quarter, Mercury General beat the Zacks Consensus Estimate by 5.45%. The company has a Zacks Rank #3 but an Earnings ESP of 0.00%, which complicates surprise prediction. 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 with an average negative surprise of 20.17%.

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