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Insurance ETFs Leading Financial Sector in Q4 Earnings

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The financial sector seems a clear winner of Trump presidency and Fed policy. The stocks in the sector are enjoying a surge since the election on the heels of Trump’s promise to deregulate the industry and lower corporate taxes. Additionally, rising interest rates, stabilizing oil prices and strong corporate earnings are backing the rally.

Total earnings for 79.9% of the sector’s total market capitalization that have reported so far are up 11.8% on 5% higher revenues with beat ratios of 66.2% and 60.8%, respectively. The growth rates for the same group of companies are better than the 12-quarter average of 5.6% for earnings and 1.9% for revenue (read: Will Trump & Fed Make 2017 a Year of Financials ETFs?).

Earnings from the insurance industry have particularly been strong with most players like Chubb Corp CB, Allstate ALL) and Travelers (TRV - Free Report) beating both our earnings and revenue estimates. MetLife MET, Prudential Financial PRU and Aflac Inc. AFL outpaced our estimates on bottom line.

Insurance Earnings in Focus

One of the leading property and casualty insurers – Chubb – reported a huge beat of 29 cents on earnings and improved 14.3% higher than the year-ago quarter. Revenues of $7.93 billion also surpassed the Zacks Consensus Estimate of $7.49 billion. Another property and casualty insurer and an industry bellwether, Allstate, also topped the Zacks Consensus Estimate by 56 cents with earnings of $2.17 per share, which jumped 85% from the year-ago quarter. Revenues increased 6.8% year over year to $9.3 billion and edged past the Zacks Consensus Estimate of $8.3 billion.

Earnings of $3.20 per share reported by personal property and casualty insurer Travelers trumped the Zacks Consensus Estimate by 57 cents and improved 10.3% from the year-ago quarter. Revenues of $7.16 billion were well ahead of our estimate of $6.84 billion (see: all the Financial ETFs here).

MetLife, the U.S. life insurer behemoth, reported mixed results. Earnings of $1.35 per share beat the Zacks Consensus Estimate by a penny and improved 1.5% from the year-ago quarter. However, revenues of $17.2 billion fell shy of our estimated $17.3 billion. On the other hand, PRU, the second largest U.S. life insurer, also beat our earnings estimate by 15 cents. Earnings also improved 26.8% year over year. Revenues inched up 1.3% year over year to $13.4 billion.

However, Aflac, the seller of supplement health insurance, posted earnings per share of $1.54, missing our estimate by 10 cents and decreasing 1.3% year over year. Revenues rose 12% year over year to $6 billion and were ahead of our estimate of $5.8 billion.

ETFs in Focus

Given solid Q4 earnings, insurance ETFs – SPDR S&P Insurance ETF KIE and iShares U.S. Insurance ETF IAK – have fared well than the other corners of the financial space over the past on month. This is especially true as KIE and IAK are up 3.6% and 2.7%, respectively, as compared to the gain of 2.3% for the broad financial ETF (XLF) and 1.6% for the current tempting bank ETF (KIE). Investors’ should note that both insurance ETFs have a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.


This fund follows the S&P Insurance Select Industry Index, holding 50 stocks in its basket. Each of the in-focus firms account for around 2% share each. About 41% of the portfolio is allocated to the property and casualty insurance sector while life & health insurance accounts for 23.2% share. The ETF has managed $857.8 million in its asset base and trades in a good average daily volume of about 165,000 shares. The product has an expense ratio of 0.35% (read: Profit from Rising Financial Stocks with Leveraged ETFs).


With AUM of $151.3 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 44 bps in annual fees. Volume is light, trading in roughly 23,000 shares per day. In total, the fund holds 61 securities in its basket with double-digit allocation going to Chubb. The other in-focus five firms – MET, PRU, TRV, ALL and AFL – collectively make up for 32.5% of assets. Here also, property & casualty insurance accounts for the largest share at 43.4% while life & health insurance and multiline insurance round off the top three with double-digit exposure each.

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