The insurance industry, which broadly encompasses life and property plus casualty (PC) insurers, has been dealt a crushing blow by the COVID-19-led adversity. Life insurers are particularly hit by the very low interest rate levels, given their exposure to products that provide guaranteed minimum returns. PC insurers have been witnessing weak investment income, induced by soft investment yields and equity market declines. Notably, property and casualty insurers enjoy a wider exposure to equity investments than life insurers.
In the current economic environment, property and casualty insurers should be better off than life insurers. These companies have been benefiting from top-line growth on the back of their vast and diversified businesses. Premium rates in Personal and Commercial lines of insurance have been rising over the last several quarters, a trend that most likely continued in the to-be-reported quarter. Significantly, premiums form a key component of an insurer’s revenues.
Also, players with extensive exposure to auto insurance business should be relatively better-placed amid the ongoing lockdowns and social distancing. Precautionary measures to contain the spread of the COVID-19 pandemic prompted Americans to stay home. This, in turn, reduced driving and frequency of accidents, boding well for players who deal in automobile insurance business in the form of lower claims outgo, which is attributable to a decline in the road mishap rate.
Many notable insurance companies including The Travelers, The Allstate, Chubb, Geico, The Hartford Insurance, Progressive Corp., Kemper Corp. among others are returning a portion of premiums to their customers and extending other supportive offerings like no penalty for late premium payment, provision of other free services etc. Thus, auto insurers are likely to have gained traction from profitability in the first quarter owing to this trend.
Apart from the worldwide coronavirus outbreak, the PC industry might have suffered from weather-related catastrophe loss from the March tornado in Nashville. Overall catastrophe activity in the to-be-reported quarter is likely to have been worse than the prior-year quarter. Also, charges from the impact of COVID-19 are expected to have dented margins.
Nevertheless, insurers are well-equipped with strong balance sheets, which might have helped them properly deploy resources for share buybacks, thereby lending an impetus to their earnings per share in the first quarter.
The latest Earnings Preview indicates that total earnings for the Finance sector, which comprises the insurance industry, are expected to be down 28.4% while revenues are projected to be 2.5% higher year over year.
Let’s take a look at the following four insurance stocks that are slated to report first-quarter 2020 results on Apr 29.
Aflac Incorporated’s AFL earnings performance is likely to have been affected by lower returns from its Japan business, partially offset by gains from U.S. business. Decline in investment income due to soft interest rates is also expected to have been a concern.
The Zacks Consensus Estimate of $1.11 per share for Aflac’s first-quarter earnings indicates a 0.89% dip from the prior-year reported number. Likewise, the consensus estimate for sales of $5.5 billion suggests a 2.8% slip from the prior-year reported number.
Our proven model does not conclusively predict an earnings beat for Aflac this time around. The combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — increases the odds of a positive surprise, which is not the case here.
Aflac currently has an Earnings ESP of -0.18% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
(Read More: What's in the Offing for Aflac This Earnings Season?)
The company boasts an attractive earnings surprise history, having surpassed estimates in each of the last four quarters, the average being 5.67%. This is depicted in the chart below:
Aflac Incorporated Price and EPS Surprise
Aflac Incorporated price-eps-surprise | Aflac Incorporated Quote
The Hartford Financial Services Group, Inc.’s HIG Personal Lines segment is likely to have performed disappointingly in the first quarter due to higher expenses and lower earned premiums, which in turn, might have affected its revenue base. Moreover, investment income of the company might have fallen due to the bleak interest rate environment.
The Zacks Consensus Estimate for Hartford Financial’s first-quarter earnings of $1.33 per share implies a 4.3% decrease from the prior-year reported number. Likewise, the consensus estimate for sales of $3.32 billion suggests a 30.5% decline from the year-ago reported figure.
Hartford Financial has an Earnings ESP of -0.94% and is Zacks #3 Ranked. (Read More: What's in Store for Hartford Financial's Q1 Earnings?)
The company flaunts an impressive earnings history, having delivered a positive surprise in all the trailing four quarters, the average being 14.4%. This is depicted in the chart below:
The Hartford Financial Services Group, Inc. Price and EPS Surprise
The Hartford Financial Services Group, Inc. price-eps-surprise | The Hartford Financial Services Group, Inc. Quote
Primerica, Inc. PRI provides financial products and services. It assists its clients in meeting their needs for term life insurance, which it underwrites, and mutual funds, variable annuities and other financial products.
It has an Earnings ESP of -5.56% and is a #3 Ranked stock.
The company flaunts a stellar earnings record, having delivered a positive surprise in all the trailing four quarters, the average being 3.69%.
Primerica, Inc. Price and EPS Surprise
Primerica, Inc. price-eps-surprise | Primerica, Inc. Quote
National General Holdings Corp. NGHC provides Property and Casualty and Accident and Health insurance products. It sells personal and commercial automobile insurance, recreational vehicle and motorcycle insurance, supplemental health insurance products and other niche insurance products.
It has an Earnings ESP of +19.05% and a Zacks Rank #3.
The company has an impressive earnings history, having delivered a positive surprise in three of the trailing four quarters (missed estimates in one), the average beat being 8.97%.
National General Holdings Corp Price and EPS Surprise
National General Holdings Corp price-eps-surprise | National General Holdings Corp Quote
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