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Insurance Stocks Q2 Earnings Due on Jul 28: AFL, HIG & More

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After suffering weak premiums last year due to COVID-led shutdowns, companies saw business conditions improving this year. In 2020, auto premiums declined as people stayed at home and travelled less, and thus avoided to get an auto insurance cover. High unemployment rate and a ramped-down economic activity also took a toll on commercial insurance and group insurance businesses. Plus, increased mortality claims weighed on the underwriting margins of life insurers.

Insurance industry is better off this year, marked by a strong start with first-quarter results, which showed a marked improvement. According to the latest report from Verisk, a leading global data analytics provider, and the American Property Casualty Insurance Association, private property/casualty insurers in the United States witnessed a rise in their net income in the March quarter of 2021 from the year-earlier levels. This growth was fueled, partly by a surge in realized capital gains and an uptick in earned premiums from the prior-year levels.

Despite growth in earned premiums, combined ratio — a key measure of underwriting profitability — worsened due to significant catastrophe losses.

In the to-be-reported quarter, insurers are likely to have gained from higher premiums and gains from alternative investments, partly offset by weather-related losses and higher expenditure outlay on automation.

Improved Pricing

Pricing plays an important role in premium revenues for insurers. Insurance rates are likely to have improved on occurrences of natural disasters and accelerated policy renewals. Per Willis Towers Watson’s Commercial Lines Insurance Pricing Survey, 29 U.S. commercial insurance lines are expected to witness a price rise in 2021.

Lower-Than-Expected Catastrophes

Catastrophe losses adversely impact insurers’ underwriting margins. In the event of massive losses stemming from cat events, insurers have to settle claims, which may stress their margins. The second quarter of 2021 is likely to have witnessed a benign catastrophe environment.

Per an ARTEMIS report, analysts at RBC Capital Markets project 30-50% below-average natural catastrophe losses or the same ranging between $10 billion and $14 billion for the June quarter.

Soft Interest Rates to Weigh on Investment Income

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

In order to protect investment returns in a low interest rate environment, insurers are investing in alterative assets, away from super safe fixed bonds, which are carrying very low investment yields at present. These alternative assets are corporate loans, private equity, private debt, hedge funds etc.

Investment in Automation Continues

Insurers are investing heavily in overhauling their operations by adopting a technology-driven infrastructure. The industry was slow to adapt to the digital ways but the COVID-19 pandemic hastened this process. Insurers are now embracing blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation. On one hand, these investments are expected to have flared up the cost outlay, while on the other, the same enhanced operational efficiency.

Latest Performance

The latest Earnings Preview indicates that the Finance sector saw unusually high year-over-year growth rates. But the growth comparison is not fair given that the second quarter is a function of big reserve releases and easy comparisons. The players in the insurance industry are integral to the finance sector.

Now let’s take a look at the five insurers that are scheduled to announce results on Jul 28.

According to the Zacks model, a company needs the right combination of the two key ingredients — a positive   Earnings ESP   and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our  Earnings ESP Filter..

Stocks to Report Earnings

Aflac Incorporated  (AFL - Free Report) : Pandemic conditions are expected to have affected the company’s sales in both the segments of Japan (contributed to 70% of total revenues) and the United States (30%) as face-to-face sales are expected to have been persistently low because of COVID-19 restrictions. Aflac is trying to revive sales through virtual channels but interpersonal interactions between agents and customers work most effectively while selling life and health insurance policies.

At Aflac’s Japan segment, its top distribution agent Japan Post announced that cancer policies sales will be restored in April. Japan Post was barred from making sales from cancer insurance policies in mid-2019 after it was held accountable for sales malpractices and put under investigation. This resumption of sales now paves the way for a gradual recovery in Aflac Cancer Insurance sales during the second half of the year. (Read more: Will Aflac Maintain Its Earnings Beat Streak in Q2?)

Aflac has an Earnings ESP of +2.20% and a Zacks Rank of 3 (Hold) at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company boasts an impressive earnings surprise history as its bottom line beat estimates in each of the trailing four quarters, the average being 19.69%. This is depicted in the chart below:

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated price-eps-surprise | Aflac Incorporated Quote

The Hartford Financial Services Group, Inc. (HIG - Free Report) : Revenues are likely to have gained from contribution by its Commercial Lines, Hartford Funds and Corporate segments. Strong sales are expected to have contributed to the top line. Net investment income of the company might have increased owing to solid limited partnership returns.

However, the Personal Lines segment is likely to have shown lower earned premiums, which in turn, might have hurt its revenue base. The segment might have suffered lower miles drivenand weak new vehicle sales. (Read more: What's in Store for Hartford Financial's Q2 Earnings?)

Hartford Financial has an Earnings ESP of -3.99% and is currently Zacks #3 Ranked.

The company delivered a positive surprise in three of the trailing four quarters (missing the mark in one), the average beat being 18.73%.

Cincinnati Financial Corporation  (CINF - Free Report) : Strong renewal premiums, price increases, premium growth initiatives and a wider exposure are likely to have aided premiums in the to-be-reported quarter. The Zacks Consensus Estimate for premiums earned is pegged at $1.5 billion, indicating an increase of 3.4% from the year-ago quarter’s reported figure.

Despite a still low interest rate environment, strong cash flow from operating activities is estimated to have contributed to investment income. Given the improving excess and surplus lines market, the Excess and surplus lines segment is likely to have recorded a better performance on the back of higher renewal prices.

Better pricing in the reinsurance market is likely to have bumped up Cincinnati Re’s premium. (Read more: Is Cincinnati Financial Likely to Beat on Q2 Earnings?)

Cincinnati Financial has an Earnings ESP of +10.98% and a Zacks Rank #2 (Buy) at present.

The company delivered a positive surprise in three of the trailing four quarters (missing the mark in one), the average beat being 18.73%.


Arch Capital Group Ltd. (ACGL - Free Report) : Gross premiums written is likely to have increased at its Insurance segment, led by rate hikes, new business opportunities and growth in the existing accounts, partially offset by deterioration in the travel business.

The company’s Reinsurance segment is likely to have gained from higher rates and business wins.

Its Mortgage business is likely to have demonstrated growth in Australian single premium mortgage insurance, partially offset by a lower level of U.S. primary mortgage insurance in force on monthly premium policies.
Arch Capital has an Earnings ESP of +11.11% and a Zacks Rank of 3, currently.

The company delivered a positive surprise in each of the trailing four quarters, the average being 40.35%.

Arch Capital Group Ltd. Price and EPS Surprise

Arch Capital Group Ltd. Price and EPS Surprise

Arch Capital Group Ltd. price-eps-surprise | Arch Capital Group Ltd. Quote

Everest Re Group, Ltd. (RE - Free Report) : Premiums are likely to have benefited from new business opportunities, better pricing, strong renewal retention, expanded shares on attractive renewals, a solid global presence and product diversification.

The Insurance segment is likely to have benefited from product diversification, progress in international insurance, ramp-up of the Canadian and European platforms and expense management.

Net investment income is likely to have benefited from higher income from a fixed income portfolio, augmented limited partnership income, healthier dividend income from the equity portfolio and increased income from other invested assets. (Read more: Everest Re Group to Report Q2 Earnings: What's in Store?)

Everest Re has an Earnings ESP of 0.00% and a Zacks Rank of 3, presently.

The company delivered a positive surprise in two of the trailing four quarters (missed estimates in the other two), the average beat being 7.22%.
Everest Re Group, Ltd. Price and EPS Surprise