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Insurance Stocks' Earnings Due on Aug 2: AIG, CI & More

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The second-quarter earnings season is in full swing, with 265 members of the elite S&P 500 index having already reported their financial numbers.

Per the latest Earnings Preview, the performance of these index participants indicates a 23.6% increase in total earnings on 10.1% higher revenues. The beat ratio is impressive, with 80.8% companies surpassing bottom-line expectations and 72.1% outperforming on the top-line. This uptrend bears an encouraging portrayal of the ongoing reporting cycle.

The Finance sector (one of the 16 Zacks sectors) is expected to deliver earnings growth in mid-20s on nearly mid-single-digit stronger revenues.
Integral to the Finance sector, the insurance industry is likely to witness better results this time around on the back of an improving rate environment, tax cuts and an overall favorable operating environment.

The insurance industry had a benign catastrophe loss incidence in the second quarter. Successive rain storms in the United States as well as Canada did cause damage but the loss was less than the year-ago quarter. A Morgan Stanley analyst noted that the second-quarter cat loss estimate is equivalent to about half of what insurers have usually suffered as a result of natural calamities in any given second quarter, per a report.

Improved pricing, prudent underwriting practices, portfolio repositioning as well as reliance on reinsurance covers have possibly helped insurers survive the deficits.

A steady increase in interest rates is likely to highly boost net investment income, an important component of an insurers’ top line. Reflecting economic stability, the Federal Reserve raised the key interest rate in June for the second hike in 2018.

A diversified portfolio, a wide geographic footprint, strategic consolidations and lower taxes are anticipated to enhance insurers’ performance in the quarter to be reported.

Per Moody’s, brokers in the United States will benefit in particular from steady economic growth, rising P&C re/insurance rates and a lower 21% corporate tax rate (reduced from 35%), which will likely boost net profits and operating cash flows, and see brokers exceed the 4% median organic growth of 2016-17.

Let’s find out how the following insurers are placed ahead of their quarterly releases on Aug 2.

American International Group, Inc.’s (AIG - Free Report) earnings are expected to witness catastrophe loss, which occurred in and around the United States, in its General Insurance business.

Within its Life Insurance business, the Individual Retirement and Group Retirement sub-segments should see higher policy fees primarily from growth in assets under management.

We, however, expect to see an underwriting loss in the to-be reported quarter as the company continues to take decisive actions and make investments to position itself for long-term profitable growth. In the last quarter, the company announced that it does not expect to see an underwriting profit through 2018.

AIG carries a Zacks Rank #4 (Sell) and an Earnings ESP  of 0.00%. We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions. (Read more: AIG to Report Q2 Earnings: Is Disappointment in Store?)

The company doesn’t have an attractive earnings surprise history. It missed estimates in three of the last four reported quarters, with an average negative surprise of 15.6%. This is depicted in the chart below:

American International Group, Inc. Price and EPS Surprise

Alleghany Corporation (Y - Free Report) creates value through owning and managing operating subsidiaries and investments, anchored by a core position in property and casualty reinsurance and insurance.
The stock carries a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%.

Though the company is a Zacks #3 Ranked, its Earnings ESP makes surprise prediction inconclusive. You can see the complete list of today’s Zacks #1 Rank stocks here

It beat estimates in three of the last four reported quarters, with an average positive surprise of 17.61%. This is depicted in the chart below:

Alleghany Corporation Price and EPS Surprise

Cigna Corp. (CI - Free Report) earnings should show strong performance across each of its priority growth platforms — Commercial employer, U.S. seniors, Global Supplemental Benefits and Group Disability & Life.

Moreover, Cigna’s results should reflect growth in medical customers and specialty relationships, continued effective medical cost management, operating expense discipline and accretion from a low tax rate.

Its segment Global Healthcare is expected to deliver revenue growth led by higher contribution from Commercial Employer business, in both risk and ASO medical customers, particularly in its Select and Middle-market segments.

Another segment, Global Supplemental Benefits, should show business growth and continued strong operational performance.

Cigna has witnessed growth in its membership for the past many quarters and the trend continued in the second quarter of 2018, given its diversified product portfolio, a wide agent network and superior service.

Though the company is Zacks #3 Ranked, its Earnings ESP of -1.91% makes surprise prediction difficult. (Read more: Will Revenue, Membership Growth Aid Cigna Q2 Earnings?)

The company boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 15.74%. This is depicted in the chart below:

Cigna Corporation Price and EPS Surprise

Willis Towers Watson Public Limited Company (WLTW - Free Report) is expected to witness another quarter of growth in commissions and fees on the strength of its improved segmental performances, an expanded footprint and contributions from acquisitions.

In its Exchange business, Willis Towers continues to maintain a robust 2018 sales pipeline in both the middle and large markets. For 2018, the company enrolled 0.2 million lives with 35,000 retirees in the individual marketplace and estimates another 45,000-55,000 retirees to enroll further.

Investment income is likely to have increased in the quarter attributable to an improving rate environment.

Share buybacks and a low tax rate will likely give the company’s bottom line a boost.

The company’s Zacks Rank of 3 coupled with its Earnings ESP of +0.53% increases the odds of a likely earnings surprise for the stock. (Read more: Can Willis Towers Deliver A Beat in Q2 Earnings?).

The company surpassed estimates in two of the trailing four quarters, with an average positive surprise of 1.22%. This is depicted in the chart below:

Athene Holdings Ltd. (ATH - Free Report) is a retirement services company providing Fixed and fixed indexed annuity products, Reinsurance services.

The stock’s Zacks Rank of 2 and an Earnings ESP of +1.12% makes us confident of an earnings beat this quarter.

With respect to the surprise trend, the company’s earnings surpassed expectations in each of the last four quarters, with an average positive surprise of 19.63%.

Athene Holding Ltd. Price and EPS Surprise

Athene Holding Ltd. Price and EPS Surprise | Athene Holding Ltd. Quote

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