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Insurers' Q4 Earnings Roster for Feb 6: MET, PRU, CINF, LNC

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Insurance industry players’ fourth-quarter 2018 results are likely to benefit from favorable operating backdrop that include interest rate hikes, improved pricing, continued share repurchases, strategic consolidations and lower tax rates. However, catastrophe events like California wildfires and Hurricane Michael may prove to be a drag on underwriting profitability.

Insurers should continue to benefit from an improving rate environment. Following an accelerated pace of rate hikes, the interest rate currently stands at 2.50%. In fact, on the back of economic improvement, the Fed raised rates in all the four quarters of 2018. Thus, net investment income, which is an important component of insurers’ revenues, is likely to improve.  Also, insurers should gain from an increase in yields on their investment income.

Pricing plays an important part for insurers in recovering losses across the affected insurance lines. Since the fourth quarter of 2017, almost all business lines have been witnessing improved pricing except for Workers’ Compensation and the fourth quarter of 2018 was not an exception either.

Per InsuranceNewsNet findings, Commercial insurance prices in the United States increased nearly 2% year over year in the fourth quarter of 2018. This marked the fourth consecutive quarter of price hike.  Workers’ Compensation was down 1.5% in the fourth quarter. Improved pricing drove premium growth.

However, the fourth quarter bore the brunt of Hurricane Michael and California wildfires, which weighed on underwriting profitability and lowered combined ratios. According to a report published in Insurance Journal on Dec 12, 2018, insured losses from the California wildfire were $9.05 billion while catastrophe modeler CoreLogic estimated total losses resulting from the wildfires in Northern and Southern California between $15 billion and $19 billion. Per reports from Florida Office of Insurance Regulation, Hurricane Michael is estimated to cause about $4.3 billion in insured losses.

Nonetheless, a lower level of tax incidence, due to lower tax rate, is expected to boost margins. Also, owing to higher net profit available, companies hiked dividend payouts.

The insurance industry boasts a sturdy capital level, which helped it pursue strategic mergers and acquisitions and engage in share buybacks. These activities are expected to boost the bottom line of industry players.

Let’s take a sneak peek how the following insurers are poised prior to their fourth-quarter earnings reports on Feb 6.

MetLife, Inc.’s (MET - Free Report) fourth-quarter results are likely to benefit from favorable underwriting, solid volume growth, better expenses and investment margins as well as lower taxes. All the segments are expected to come up with solid performances. Region wise, Japan, China and Australia and Latin America are expected to witness higher sales. However, cost of initiatives is likely to put pressure on margins. (Read more: Factors Likely to Shape MetLife’s Q4 Earnings)

The Zacks Consensus Estimate for earnings per share of $1.30 in the yet-to-be-reported quarter indicates a 17.1% year-over-year rise. Although the company’s Zacks Rank #3 (Hold) increases the predictive power of ESP, its Earnings ESP of -1.03% makes surprise prediction difficult. According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 has a good chance of beating estimates if it also has a positive Earnings ESP.

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The company surpassed estimates in all the three reported quarters of 2018, with the average surprise being 12.58%. This is depicted in the chart below:

MetLife, Inc. Price and EPS Surprise

Prudential Financial, Inc. (PRU - Free Report) is expected to benefit from new recurring premium sales, expanded product offerings and broader distribution capabilities in the fourth quarter of 2018.  Accelerated pace of rate hikes and broader invested asset balances should benefit investment results. However, higher policyholders’ benefits, amortization of deferred policy acquisition costs and general and administrative expenses may result in higher expenses. (Read more: Prudential Financial Q4 Earnings: What's in the Cards?)

The Zacks Consensus Estimate for EPS of $2.88 for the fourth quarter indicates an increase of 7.1% year over year. Prudential carries a Zacks Rank of 4 and has an Earnings ESP of -1.65%.

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The company’s earnings outpaced estimates in two of the three reported quarters of 2018, with the average positive surprise being 0.35%. The same is depicted in the chart below:

Prudential Financial, Inc. Price and EPS Surprise

Cincinnati Financial Corporation (CINF - Free Report) is expected to benefit from higher premiums and improved net investment income. A better-than-expected performance is likely at Cincinnati Re, which is also a substantial contributor to the company’s earnings. However, cat loss is likely to weigh on underwriting profits. Increase in total benefits and expenses are dampeners.  (Read more: Cincinnati Financial Q4 Earnings: What's in Store?)

The Zacks Consensus Estimate of 80 cents for fourth-quarter earnings per share indicates nearly 14% year-over-year decline. The company has a  Zacks Rank #3 and an Earnings ESP of -8.75%.

It surpassed expectation in two of the three reported quarters of 2018, with the average positive surprise being 16.60%. The same is depicted in the chart below:

Cincinnati Financial Corporation Price and EPS Surprise

Lincoln National Corp. (LNC - Free Report) is likely to benefit from improved performances across all its segments. While Annuities business should gain from higher fee income from account value growth and lower expenses, Life Insurance sales will likely increase led by product launches. Total deposits in In Retirement Plan Services segment should increase on growth in both first-year sales and recurring deposits. (Read: What to Expect From Lincoln National in Q4 Earnings)

The Zacks Consensus Estimate for fourth-quarter earnings indicates nearly 14% year-over-year decline. The company has a Zacks Rank #3 and an Earnings ESP of -8.75%.

It surpassed expectation in two of the three reported quarters of 2018, with the average beat being 16.60%. The same is depicted in the chart below:

Lincoln National Corporation Price and EPS Surprise

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