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Winners and Losers From Insurance Industry Post Q1 Results

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The first-quarter earnings season is on its last leg with 474 of the elite S&P 500 members having reported financial figures per the Earnings Outlook. Accordingly, the curtains were brought down on 11 of the 16 Zacks sectors. Also, 13 sector participants registered strong earnings with double-digit growth.

The Finance sector (one of the 16 Zacks sectors) has delivered a sturdy performance with the bottom line improving 25.4% on 4.9% higher revenues. The beat ratio is solid with 75.8% companies exceeding earnings estimates and 69.7%, outpacing the top-line mark.

Integral to the Finance sector is the Insurance industry, which has shown a marked progress in the Q1 after a back-to-back dismal show in the last couple of quarters of 2017 due to a string of catastrophe events.

Per the Earnings Outlook, earnings for the insurance industry in the first quarter have grown 25.2% and the momentum is expected to continue in the upcoming quarters too.

The first quarter of 2018 largely benefitted from the new tax reforms, which slashed the tax rate by a substantial amount to 21%. A lower tax incidence directly boosted the bottom line. In fact, there are chances of more such tax cuts on the horizon. Lower tax usually widens scope for more capital deployment.

Earnings gained traction from lower catastrophe loss. Though the first quarter suffered California mudslide and the northeast winter storms weighing on the underwriting results of insurers, yet the magnitude of weather-related occurrences was much lower. Per a report by Fitch Ratings, the insurance industry is likely to regain its substantial underwriting profitability in 2018, albeit slowly, after a massive sufferance last year.

Insurers benefited from better pricing including price hikes implemented in the first quarter across many business lines.  Also, natural disasters accelerated the rate of policy renewals. While insurers are pricing their policies, an overall market softening prevails in both commercial and personal lines due to capital overflow in the market. The industry’s available capital resource remains at an all-time high. This in turn triggers more consolidations in the insurance space with mergers and acquisitions grabbing attention of late.

An improving interest rate environment continued to leverage investment results. Though life insurers lowered their exposure to rate sensitive instrument to weather the prolonged low rate era, the improving rates nonetheless, provided cushion.

The Fed had indicated three rate hikes in 2018, of which, one was already made in March. However, recently released minutes of the Fed state that the central bank is in no hurry to raise the interest rate. Instead, it would prefer to let the inflation rate remain above the 2% target. The Fed remains concerned about the trade wars surrounding Chinese tariffs.

However, encouraging economic data instills hope. Flourishing economy reflects a better employment scenario, the GDP’s translation into a more disposable income and a favorable consumer sentiment. A thriving job market raises optimism and its strength will likely aid life insurers’ credit-related investment loss to remain below average.

The insurance industry has declined 1.4% year to date compared with 5.8% lost by the S&P 500. Nonetheless, SPDR S&P Insurance ETF (KIE), which fairly represents the insurance industry, has inched up 1.3% in comparison to the S&P 500.

Winners and Losers Post Q1 Earnings Season

Although the first quarter was favored by tailwinds, helping the industry players release solid numbers, there were still a few stocks that lagged expectations.

It is thus a daunting task to identify such winners and losers from a pool of stocks. By resorting to the Zacks Stock Screener, we shortlisted an array of insurance stocks for investors to either add to their portfolio or steer clear of.

The Winners

We refine our search with parameters like price rises (outperforming the industry average), bullish Zacks Ranks, a positive earnings surprise and northbound estimate revisions over the last four weeks.

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

Birmingham, MI-based Conifer Holdings, Inc. (CNFR - Free Report) offers insurance coverage in specialty commercial and specialty personal product lines.

Zacks Rank #2 (Buy)
EPS Surprise: 300%
The Zacks Consensus Estimate for 2018 has been raised 72.3% and for 2019, revised 4.4% upward
1-Month Price Gain: 9.5%


Birmingham, AL-based Infinity Property and Casualty Corporation provides personal auto insurance products in the United States

Zacks Rank #2
EPS Surprise: 53.06%
The Zacks Consensus Estimate for 2018 has been moved 2.5% north and for 2019, nudged up 1.2%
1-Month Price Gain: 18.7%


Chicago, IL-based Kemper Corporation (KMPR - Free Report) provides property and casualty, and life and health insurance to individuals and businesses in the United States.

Zacks Rank #1
EPS Surprise: 95.65%
The Zacks Consensus Estimate for current-year earnings has been raised 16.5% and for 2019, moved 7.6% north
1-Month Price Gain: 30.7%


The Losers

We streamline our search with yardsticks like price declines, bearish Zacks Ranks, a negative earnings surprise and southbound estimate revisions in the last four weeks.

Grand Cayman based Greenlight Capital Re, Ltd. (GLRE - Free Report) engages in the provision of property and casualty reinsurance products and services worldwide.

Zacks Rank #5 (Strong Sell)
EPS Surprise: -85.45%
The Zacks Consensus Estimate for 2018 has been revised 9.2% downward and for 2019, moved 15.7% south.
1-Month Price Loss: 1.3%


Birmingham, AL-based ProAssurance Corporation (PRA - Free Report) provides property and casualty insurance, and reinsurance products in the United States.

A Zacks #5 Ranked player
EPS Surprise: -11.29%
The Zacks Consensus Estimate for 2018 has been lowered 6.2% and for 2019, decreased 9.7%.
1-Month Price Loss: 15.6%


Headquartered at Columbus, OH, State Auto Financial Corporation (STFC - Free Report) engages in writing personal, business and specialty insurance products.

Zacks Rank of 5
EPS Surprise: -14.89%
The consensus estimate for 2018 has been moved 20.7% south and for 2019, lowered 5.3%
1-Month Price Loss: 1.3%


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