Per the latest Earnings Preview, the Finance sector’s second-quarter earnings are expected to grow 94.3% while revenues are estimated to improve 3.1%. Insurance, one of the Finance sector industries, is set to report earnings growth of 29.6% on 4.5% higher revenues for the second quarter of 2021. Last year’s second-quarter performance was badly hit by COVID-induced restrictions. With increased vaccinations, restrictions getting lifted, and optimistic economic outlook, this quarterly performance will no doubt benefit from easy comparisons. But there’s more than easy comparison that likely has driven better numbers in the soon-to-be-reported quarter.

Performances of insurers are likely to have been aided by improved pricing, exposure growth, prudent underwriting, compelling products and service portfolio and increased adoption of technologies. The low-rate environment is likely to have acted as a dampener.

The second quarter of 2021 witnessed a benign catastrophe environment, driving underwriting profitability. Per a report published in ARTEMIS, analysts at RBC Capital Markets project 30-50% below average natural catastrophe losses or between $10 billion and $14 billion for the second quarter of 2021. United Insurance Holdings estimates second-quarter 2021 catastrophe loss of $40 million pre-tax or $31 million post-tax, stemming from two tropical storms and 14 additional PCS catastrophe events.

Insurers continued to witness improved pricing. Occurrences of natural disasters accelerated the policy renewal rate and aided better pricing even in the second quarter. Most of the commercial insurance lines are likely to have witnessed rate increase in the to-be-reported quarter. Per Willis Towers Watson’s Commercial Lines Insurance Pricing Survey, 29 U.S. commercial insurance lines are expected to witness price rise in 2021. Underwriting profitability in the to be reported quarter is thus likely to reflect reinsurance covers, favorable reserve development and solid capital level. Combined ratio, a measure of underwriting profitability, is likely to have improved in the second quarter of 2021.

A still near-zero interest rate environment is likely to have weighed on the performance of life insurers and long tail property and casualty insurers in particular. Investment income, which is an important component of an insurer’s top line, is likely to have been affected, though a larger investment asset base limited the downside.

Life insurers have been redesigning products by moving away from guaranteed savings products toward protection products of unit-linked savings products to weather low-rate environment.

Nonetheless, increased adoption of technologies like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation is expected to have expedited business operations and saved costs, thus aiding margins.

The insurance industry gained 5.2% in the second quarter, compared with the S&P 500 Index’s rise of 8.6% and the Finance sector’s increase of 7.2%.

Image Source: Zacks Investment Research

Potential Q2 Outperformers

With the help of the Zacks Stock Screener, we have identified a few stocks poised to outshine the Zacks Consensus Estimate in second-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.

AXIS Capital Limited (AXS Quick QuoteAXS - Free Report) provides a broad range of specialty insurance and reinsurance solutions across the globe.

Earnings ESP: +3.67%

Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NMI Holdings (NMIH Quick QuoteNMIH - Free Report) provides private mortgage insurance.

Earnings ESP: +4.76%

Zacks Rank #2

MetLife Inc (MET Quick QuoteMET - Free Report) is an insurance-based global financial services company providing protection and investment products to a range of individual and institutional customers.

Earnings ESP: +2.52%

Zacks Rank #2

Athene Limited provides various insurance and reinsurance retirement products across the United States and Bermuda.

Earnings ESP: +2.84%

Zacks Rank #2

Voya Financial Inc. (VOYA Quick QuoteVOYA - Free Report) operates as a retirement, investment, and employee benefits company in the United States.

Earnings ESP: +2.84%

Zacks Rank #2

Marsh & McLennan Companies (MMC Quick QuoteMMC - Free Report) is a globally leading insurance broker providing risk and insurance services, risk consulting, and employee benefits consulting services to clients worldwide.

Earnings ESP: +3.52%

Zacks Rank #2

Aflac Incorporated (AFL Quick QuoteAFL - Free Report) is a general business holding company and oversees the operations of its subsidiaries by providing management services and making capital available.

Earnings ESP: +2.36%

Zacks Rank #2