The insurance industry’ impressive show in the first three quarters of 2019, backed by price gains across most of its business lines, new products and services, consolidation and robust capital position, is likely to have continued in the fourth quarter. Premium rate hikes in most of the insurance lines such as commercial, property, personal, financial and professional were the key catalysts for fourth-quarter revenues.
The Zacks Insurance industry in the past year rose by 14.4% compared with the broader finance sector’s growth of 12.2%. It however lagged the S&P 500 Index’s rise of 25.1%.
Factors Likely to Influence Insurers’ Q4 Results
A strong economy may have fueled demand for commercial insurance, which protects business owners and their employees. It includes protection from damage to property or injury to employees, referred to as public and employers' liability in insurance parlance.
Life insurers, in particular, are likely to have gained from modifications made to their product portfolio to adapt to low interest rates. Many insurers limited sales or removed products that used to offer guaranteed returns and shifted to protection products of unit-linked savings products, which pass investment risks on to policyholders. This change in sales mix is likely to have a mixed effect on overall life insurance sales.
Investment income, another major revenue driver is likely to have seen a decline from the year-ago reported level due to low interest rates. The Federal Reserve slashed federal funds rates thrice last year. A reduction in interest rates put pressure on investment rates and consequently investment yields. Nonetheless, a higher invested asset base might have somewhat offset the impact of low rates for insures. Also, investment in alternative assets might have helped the overall return on investment portfolio.
Increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation may have expedited business operations and saved cost.
Also, a sturdy capital level is expected to have widened the scope for capital deployment to pursue growth initiatives as well as reward shareholders via dividend hikes, special dividends and share buybacks.
Choosing the Winners
Earnings ESP is our proprietary methodology for determining the stocks that have the best chance to deliver a positive earnings surprise in their next earnings announcement. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. The selection can be done with the help of the Zacks Stock Screener. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Our chosen stocks have the right combination of elements to deliver a positive surprise this season. Moreover, these have a solid earnings history
W.R. Berkley Corporation (WRB - Free Report) is one of the nation’s largest commercial lines property casualty insurance providers. The company offers a variety of insurance and reinsurance services.
Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings ESP: +2.03%
Average four-quarter positive surprise: 32.31%
W.R. Berkley Corporation Price and EPS Surprise
RenaissanceRe Holdings Ltd. (RNR - Free Report) primarily provides property-catastrophe reinsurance to insurers and reinsurers globally.
Zacks Rank #2
Earnings ESP: +18.32%
Average four-quarter positive surprise: 23.27%
RenaissanceRe Holdings Ltd. Price and EPS Surprise
Aflac Inc. (AFL - Free Report) provides voluntary supplemental health and life insurance through its subsidiaries and has operations in Japan and the United States.
Zacks Rank #3
Earnings ESP: +0.33%
Average four-quarter positive surprise: 7.3%
Aflac Incorporated Price and EPS Surprise
Cincinnati Financial (CINF - Free Report) markets property and casualty insurance through its subsidiaries.
Zacks Rank #3
Earnings ESP: +1.95%
Average four-quarter positive surprise: 20.79%
Cincinnati Financial Corporation Price and EPS Surprise