Insurance ETFs Driving Up on Q4 Earnings - ETF News And Commentary

Financials, no doubt, has been the second biggest drag to overall Q4 earnings growth after energy as tough comparisons and uncertain global growth diluted earnings of some prime banks like Citigroup (C) and J.P. Morgan (JPM). Total earnings for 84.1% of the sector’s total market capitalization are down 3.3% on 0.6% revenue growth with beat ratios of 66.7% and 57.3%, respectively (read: Earnings Recap for Financial Sector and Impact on ETFs).

However, earnings from the insurance corner of the broad financial sector have been somewhat encouraging, with most of the firms either beating or meeting our earnings estimates. These include MetLife (MET), Aflac Inc. (AFL), Travelers (TRV), Chubb Corp (CB) and Allstate (ALL). Though both Prudential Financial (PRU) and American International (AIG) disappointed investors by missing our earnings estimates, they topped on revenues.

Insurance Earnings in Focus

MetLife, the U.S. life insurer behemoth, beat the Zacks Consensus Estimate by a penny with earnings of $1.38, which improved 1% from the year-ago quarter. Meanwhile, revenues slipped 0.5% year over year to $18.2 billion and were almost in line with the Zacks Consensus Estimate. On the other hand, PRU, the second-largest U.S. life insurer, missed our earnings estimate by 26 cents and deteriorated 3.6% from a year ago. However, revenues climbed 44.2% to $15.8 billion and were well above the Zacks Consensus Estimate of $12.1 billion.

Aflac, the seller of supplement health insurance, met our earnings estimate of $1.30 per share, which fell 7.7% from the year-ago earnings. Revenues slid 4.9% year over year $5.51 billion and marginally missed our estimate of $5.52 billion. The largest commercial insurer in the U.S. and Canada, AIG reported earnings of 97 cents, which fell short of the Zacks Consensus Estimate of $1.07 and declined 14% from the year-ago quarter. Revenues dropped 6.4% year over year to $15.0 billion, but were well above our estimate of $9.90 billion. With this, both Aflac and American International failed to beat earnings for five consecutive quarters.

One of the largest property and casualty insurers and an industry bellwether, Travelers, posted impressive earnings of $3.07 per share, outperforming the Zacks Consensus Estimate by 54 cents and growing 14.6% from the year-ago quarter. Revenues were also strong at $6.8 billion, up 1% from the year-ago quarter and above the Zacks Consensus Estimate of $6.6 billion (see: all the Financial ETFs here).

Earnings at another property and casualty insurer – Chubb – also beat our estimate by 6.02% and improved 11% from the year-ago quarter. However, revenues of $3.44 billion missed the Zacks Consensus Estimate of $3.46 billion. On the other hand, earnings of personal property and casualty insurer, Allstate outpaced the Zacks Consensus Estimate by a nickel and were ahead of the year-ago earnings of $1.70. With this, the company kept its earnings streak alive with a trailing four-quarter average beat of 11.37%. Revenues dipped 0.4% year over year to $8.76 billion but were well ahead of our estimate of $7.65 billion.

ETFs in Focus

Given the decent results and a positive impact of earnings on most stock prices, insurance ETFs have been enjoying smooth trading over the past one month, gaining nearly 5%. Investors looking to gain exposure to this corner of the market segment in a diversified way may consider the following ETFs. Any of these could be an excellent choice given that these have a top Zacks Rank of 2 or ‘Buy’ rating, suggesting their outperformance in the coming months.

Further, the Fed is on track to raise interest rates sometime in the middle of the year given the strengthening U.S. economy. As the sector is a clear beneficiary of a rising interest rate environment, an increase in interest rates would propel insurance stocks and ETFs higher (read: Rising Interest Rates Are Great News for These Bond ETFs).

SPDR S&P Insurance ETF (KIE)

This fund follows the S&P Insurance Select Industry Index and offers an equal weight exposure to 51 stocks, suggesting no concentration risk. None of the securities holds more than 2.23% of total assets. More than one-third of the portfolio is allocated to the property and casualty insurance sector while life & health insurance accounts for another one-fourth share. The ETF has managed $282.7 million in its asset base and trades in a moderate average daily volume of over 80,000 shares. The product has an expense ratio of 0.35%.

iShares U.S. Insurance ETF (IAK)

With AUM of $132.2 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 43 bps in annual fees. Volume is light, trading in about 20,000 shares per day. In total, the fund holds 65 securities in its basket with the largest allocation going to American International at 13.2%, closely followed by Metlife at 10.1%. Other firms hold less than 6.6% of assets.

PowerShares KBW Insurance Fund (KBWI)

This fund tracks the KBW Insurance Index and holds 25 securities in its basket. Out of these, TRV takes the top spot at 9.5% while PRU, ALL and MET belong to the top five holdings with a combined 20.7% share. CB occupies the tenth position with 4.2% of KBWI. The product has amassed about $6.9 million in AUM while volume is paltry under 1,000 shares. The ETF charges an annual fee of 35 bps.



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SPDR-KBW INSUR (KIE): ETF Research Reports
 
ISHARS-US INSUR (IAK): ETF Research Reports
 
PWRSH-KBW IP (KBWI): ETF Research Reports
 
METLIFE INC (MET): Free Stock Analysis Report
 
AFLAC INC (AFL): Free Stock Analysis Report
 
TRAVELERS COS (TRV): Free Stock Analysis Report
 
CHUBB CORP (CB): Free Stock Analysis Report
 
ALLSTATE CORP (ALL): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
AMER INTL GRP (AIG): Free Stock Analysis Report
 
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