3 Hot Insurance P&C Stocks Ahead of Q2 Earnings - Earnings ESP

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3 Hot Insurance P&C Stocks Ahead of Q2 Earnings

The second-quarter earnings season has commenced with speculations rife over earnings beats and or misses in every sector. The mood is quite optimistic in the non-life insurance industry, or the Property and Casualty (P&C) insurance sector, in particular. Along with benign cat environment, effective risk management should have translated into better numbers for the quarter.

Though April and May saw lashing winds and severe hailstorms, the industry escaped material cat losses. Courtesy of a benign cat environment, insurers are likely to have witnessed improved combined ratios - a primary measure of underwriting profitability. Moreover, lesser claim payments should drive earnings and help insurers pump up their reserves.

Market hardening led to improved pricing in the second quarter. This is likely to translate into higher premiums and thus drive margin expansion.

However, a sustained soft interest rate environment is expected to weigh upon the investment results. Though investment results are not expected to come anywhere near their historical highs, a better reinvestment rate might bring some respite.

Nonetheless, insurers are expanding their global footprint thereby infusing more capital into the already well-capitalized industry.

Favorable conditions are helping insurers to impressively deploy capital, as evident from their continued share repurchase activities and dividend hikes.

Moreover, the Zacks Industry Rank for P&C insurance industry is #60, falling in the upper 1/3 tier of Zacks Industry Rank. This clearly points to a positive outlook.

Given this favorable industry trend, it will be a good idea to add a few P&C insurance stocks that are poised to beat estimates in their upcoming release. An earnings beat should immediately propel these stocks. 

Picking the Right Stocks?

Picking the right stock for your portfolio could appear a daunting task given the wide range of companies in the Property and Casualty insurance space. One way to narrow down the list of choices is by looking at stocks that have a favorable Zacks Rank and a positive Earnings ESP .

Earnings ESP is our proprietary methodology for determining stocks with the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

The combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - and a positive Earnings ESP is usually an indication of an earnings beat. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

For investors seeking to apply this strategy to their portfolio, we have highlighted three P&C insurance stocks that might stand out with an earnings beat in their likely releases on July 23.

Everest Re Group Ltd. ( RE )

Bermuda-based, Everest Re Group writes property and casualty reinsurance and insurance in the United States, Bermuda and in international markets. Everest Re virtually underwrites all classes and categories of business in treaty, facultative and specialty lines both through brokers and directly with ceding companies.

An enriched product portfolio will help the company increase its premium writings. The company currently has a Zacks Rank #2 along with an Earning ESP of +6.01%. Everest Re posted an earnings beat of 12.17% on average in the last four quarters.

ACE Limited ( ACE )

Switzerland-based ACE Limited is one of the world's largest providers of P&C insurance and reinsurance. It writes marine, medical risk, excess property, environmental and terrorism insurance. ACE Limited provides specialized insurance products such as personal accident, supplemental health and life insurance to individuals in select countries. Its reinsurance operations include both P&C and life companies.

An improved property & casualty pricing environment is expected to drive higher premiums for this company. Its strategic acquisitions will also improve premium writings.

The company currently has a Zacks Rank #3 along with an Earning ESP of +0.89%. ACE Limited generated better-than-expected earnings in the last four quarters with an average beat of 14.5%. Solid underwriting performances aided the outperformance.

Allied World Assurance Company Holdings, AG ( AWH )

Switzerland-based Allied World Assurance Company is a provider of diversified property and casualty insurance and reinsurance solutions with operations in the U.S., the U.K., Bermuda, Canada, Hong Kong, Labuan, Switzerland and Singapore.

The company is expected to benefit from its service upgrade and global expansion.

The company currently has a Zacks Rank #3 along with an Earning ESP of +3.75%. Allied World posted an earnings beat of 45.63% on average in the last four quarters. 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Earnings

Referenced Stocks: RE , ACE , AWH

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