The Q1 earnings season started on a strong note with 16.2% members of the elite S&P 500 Index reporting solid quarterly numbers so far. According to the latest Earnings Outlook, the performance of the 57 index members that have already reported their financial numbers this quarter indicate that total earnings have increased 18.7% on 6.4% higher revenues. The beat ratio is impressive with 75.4% companies surpassing bottom-line expectations and 54.4% 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 41% companies from this sector that have revealed their quarterly results shows 26.8% earnings growth on 8.5% increase in revenues, both on a year-over-year basis. Moreover, the beat ratio of 76.5% for the bottom line and 52.9% 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, insurers having concentrated business in Midwest and the South have to bear the impact of storms in Midwest and the South that occurred during Feb 28 and Mar 22. This is expected to weigh on their underwriting results. Cincinnati Financial Corporation (CINF - Free Report) announced pre-tax catastrophe loss of about $106 million for Q1. The company expects the metric to deteriorate combined ratio by 920 basis points (bps) and estimates combined ratio between 99% and 101%.
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 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 property and casualty (P&C) insurers.
Let’s find out how these two insurers might perform when they come up with their quarterly numbers on Apr 24.
Everest Re Group, Ltd. (RE - Free Report) 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 121.86%. The company’s Zacks Rank #3 (Hold) combined with an Earnings ESP of +2.24% makes us confidant of an earnings beat in Q1. The Most Accurate estimate is pegged at $5.48 and the Zacks Consensus Estimate stands at $5.36 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 (Buy) or at least 3 for an earnings beat.
With respect to the surprise trend, Everest Re beat expectations in three of the three four quarters with an average surprise of 43.49%.
W.R. Berkley Corp. (WRB - Free Report) is one of the nation’s premier commercial lines P&C insurance providers. In the last reported quarter, W.R. Berkley Corp. missed the Zacks Consensus Estimate by 1.20%. 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 73 cents 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, W.R. Berkley Corp. surpassed expectations in two of the last four quarters with an average surprise of 0.66%.
W.R. Berkley Corporation Price and EPS Surprise
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