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String of Q1 Earnings Beat Fail to Drive Insurance ETFs

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After a stellar ride early in 2017, the insurance industry has lost its momentum despite the fact that it tends to flourish with a rise in interest rates. With a Fed rate hike in March and another lift-off expected next month, the stocks are not as strong as they should ideally be. Even robust earnings from leading players in the industry failed to boost optimism.  

In particular, MetLife MET, Prudential Financial PRU, Chubb Corp CB, Allstate (ALL - Free Report) , and American International AIG surpassed both our earnings and revenue estimates while Aflac Inc. AFL lagged revenue estimates. Meanwhile, Travelers TRV missed on earnings but topped revenue estimates (read: Bet on Sector ETFs with Strong Beat Ratios).

Insurance Earnings in Focus

MetLife, the U.S. life insurer behemoth, reported robust earnings of $1.46 per share, which trumped the Zacks Consensus Estimate of $1.27 and improved 12.3% from the year-ago quarter. Revenues grew 2% year over year to $16.88 billion and were well ahead of our estimated $16.78 billion. On the other hand, PRU, the second largest U.S. life insurer, also beat our earnings estimate by 15 cents. Earnings improved 28% year over year. Revenues increased 6.3% year over year to $12 billion.

One of the leading property and casualty insurers – Chubb – reported earnings per share of $2.48, outpacing the Zacks Consensus Estimate by four cents and improving 9.7% from the year-ago quarter. Revenues of $7.59 billion also edged past our estimate of $7.25 billion. Another property and casualty insurer, Allstate, also topped the Zacks Consensus Estimate with a huge earnings beat of 60 cents and revenue beat of $942 million. On a year-over-year basis, earnings and revenues grew 95% and 6.3%, respectively.

AIG, the largest commercial insurer in the U.S. and Canada, beat our earnings and revenue estimates by 22.52% and 2.84%, respectively. Earnings per share of $1.67 reported by Aflac, the seller of supplement health insurance, trumped the Zacks Consensus Estimate by a nickel but declined 3.5% from the year-ago quarter. However, revenues of $5.31 billion fell short of our estimate of $5.55 billion (see: all the Financial ETFs here).

Personal property and casualty insurer Travelers posted earnings per share of $2.16, missing our estimate by 24 cents and declining 7.3% year over year. Revenues rose 3.8% year over year to $6.9 billion and were slightly ahead of our estimate of $6.8 billion.

ETFs in Focus

Despite the string of Q1 earnings beat, insurance ETFs – SPDR S&P Insurance ETF KIE and iShares U.S. Insurance ETF IAK – are underperforming the other corners of the financial space over the past one month. This is especially true as KIE and IAK gained 1.8% each when compared with gains of 4% for the broad financial ETF XLF and 4.9% for the bank ETF KRE (read: Trump's First 100 Days: 5 Must See ETF Charts).


This fund follows the S&P Insurance Select Industry Index, holding 50 stocks in its basket. Each of the in-focus firms accounts for around 2% share each. About 42% of the portfolio is allocated to the property and casualty insurance sector while life & health insurance accounts for 23.9% share. The ETF has managed $841.6 million in its asset base and trades in a good average daily volume of about 185,000 shares. The product has an expense ratio of 0.35% and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.


With AUM of $166.1 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 43 bps in annual fees. Volume is light, trading in roughly 24,000 shares per day. In total, the fund holds 61 securities in its basket with double-digit allocation going to Chubb. The other in-focus firms – MET, AIG, PRU, TRV, ALL and AFL – collectively make up for 42.3% of assets. Here also, property & casualty insurance accounts for the largest share at 44.6% while life & health insurance and multiline insurance round off the top three with a double-digit exposure each. IAK has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Top-Ranked ETFs That Crushed S&P 500 in the Bull Market).

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