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Can Higher Premiums Contribute to Chubb's (CB) Q3 Earnings?

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Chubb Limited (CB - Free Report) is slated to report third-quarter 2018 results on Oct 23 after the market closes. Last reported quarter, the company delivered a positive earnings surprise of 1.90%.

Let’s see, how things are shaping up for this announcement.

The property and casualty (P&C) insurer is likely to report premium growth in the soon-to-be-reported quarter, driven by an improved commercial property and casualty (P&C) pricing across its numerous business lines, compelling product portfolio as well contributions arising from numerous growth initiatives undertaken by the insurer. Additionally, the company has possibly witnessed higher premiums across its segments, contributing to a probable rise in the metric.

Also, strategic buyouts are expected to have contributed to this probable increase in premiums. The Zacks Consensus Estimate for premiums in the third quarter is pegged at $8 billion, up 2.5% from the year-ago period’s consensus mark.

Owing to the rising interest rates along with likely growth in private equity distributions, the company might have experienced better investment results in the to-be-reported quarter. In fact, the Zacks Consensus Estimate stands at $825 million, representing an improvement of 1.5% on a year-over-year basis. Notably, the company anticipates quarterly investment income run rate to range between $875 million and $885 million.

On the back of higher premiums as well as investment income, the company is likely to witness a stronger top-line in the quarter to be reported.

Further, lower tax incidence and continued share buybacks are likely to have cushioned the P&C insurer’s bottom line in the third quarter. The consensus estimate for the metric is projected at $2.44 per share versus the year-ago quarter’s loss of 13 cents.

Additionally, Chubb has probably displayed higher renewal retention rates and new business volume growth in the soon-to-be-reported quarter, backed by a sustained operational performance.

Chubb has provided its preliminary net loss estimates of $450 million pretax or $372 million after tax, net of reinsurance including reinstatement premiums. Such loss can be attributed to more than 20 different weather-related events including Hurricane Florence in the United States in September, California wildfires, rain and hailstorm in Colorado, and typhoons Mangkhut and Jebi in Asia. This in turn, is likely to hamper the company’s underwriting results, thus keeping the combined ratio under pressure.

The company might have incurred escalated expenses, mainly due to higher loss and loss expenses, policy acquisition costs, administrative expenses as well as policy benefits. This in turn, will perhaps weigh on the P&C insurer’s operating margin expansion.

What Our Quantitative Model States

Our proven model does not conclusively show that Chubb is likely to beat on earnings this to-be-reported period. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Chubb has an Earnings ESP of -2.31%. This is because the Most Accurate Estimate is pegged at $2.38, lower than the Zacks Consensus Estimate of $2.44. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.  

Chubb Limited Price and EPS Surprise


Chubb Limited Price and EPS Surprise | Chubb Limited Quote

Zacks Rank: Chubb carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company needs to have a positive ESP to be confident about an earnings surprise. Therefore, this combination leaves surprise prediction inconclusive.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:

Everest Re Group, Ltd. (RE - Free Report) is set to report third-quarter earnings on Oct 29 and has an Earnings ESP of +10.43%. The company is a Zacks #3 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

RenaissanceRe Holdings Ltd. (RNR - Free Report) has an Earnings ESP of +0.73% and is a #2 Ranked player. The company is set to release third-quarter earnings on Oct 30.

Lincoln National Corporation (LNC - Free Report) has an Earnings ESP of +0.26% and is a #2 Ranked player. The company is set to announce third-quarter earnings on Nov 1.

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