Similar to the first quarter, the financial sector has been a
major drag on total Q2 earnings growth. This is especially true as
financials stand out for weak growth numbers, trailing autos (read:
Steer Clear of The Car ETF After Mixed Auto Stock
However, earnings growth and beat ratios fared better than expected
and improved from the last quarter. Total earnings for 97.5% of the
sector's total market capitalization are up 1.7% on 2.9% revenue
growth. This is well above the last quarter decline of 7.9% in
earnings and 1.2% in revenues. Further, the earnings beat ratio of
79.5% and revenue beat ratio of 73.1% also edged past 65.3% and 56%
ratios, respectively, recorded in Q1.
These encouraging figures came amid an ultra-low interest rate
environment, which is dragging the insurance space down. The
sentiments have been broadly mixed in the insurance sector in Q2
While some industry primes either beat or met our estimates on the
revenue front, most of these lagged on the bottom line. These
include MetLife (
), Travelers (
) and Chubb Corp (
). Earnings from other popular names such as American International
), Prudential Financial (
), Aflac Inc. (
) and Allstate (
) have been inspiring.
Insurance Earnings in Focus
, the U.S. life insurer behemoth, missed the Zacks Consensus
Estimate by 2 cents and deteriorated 4 cents from the year-ago
quarter. Revenue rose 5% year over year to $17.80 billion and beat
the Zacks Consensus Estimate of $17.22 billion. On the other hand,
, the second-largest U.S. life insurer, surprised the market yet
again with a strong earnings beat of 14 cents and 8.3%
year-over-year improvement. Total revenue fell 5.2% to $11.1
billion but was in line with the Zacks Consensus Estimate.
, the seller of supplement health insurance, topped our earnings
estimate by 7 cents and improved 2.5% from the year-ago earnings.
However, revenues of $5.84 billion met our estimate and declined
3.4% year over year. The largest commercial insurer in the U.S. and
- reported strong earnings of $1.25, which breezed past the Zacks
Consensus Estimate of $1.05 and was well above the year-ago
earnings of $1.12. Revenues dropped 12.6% year over year to $16.11
billion, but easily crushed our estimate of $9.87 billion.
One of the largest property and casualty insurers and an industry
, posted disappointing earnings of $1.93 per share, missing the
Zacks Consensus Estimate by 13 cents and deteriorating 9.4% from
the year-ago earnings. However, revenues were strong at $6.71
billion, up 2% from the year-ago quarter and above the Zacks
Consensus Estimate of $6.53 billion (read:
Regulatory Letdown? Not for These 3 Insurance
Earnings at another property and casualty insurer -
- also missed our estimate by a huge difference of 20 cent per
share and declined 4% from the year-ago earnings. Revenues of $3.54
billion nevertheless topped the Zacks Consensus Estimate of $3.41
billion and were flat year over year.
, personal property and casualty insurer, outpaced the Zacks
Consensus Estimate by 26.3%, but fell 9.8% year over year. Revenues
rose 0.8% year over year to $8.86 billion and were well ahead of
our estimate of $7.59 billion.
Insurance ETFs: Worth a Look
Despite higher Q2 growth, earnings failed to impress insurance
ETFs, pushing them down over the past one month. The beaten down
prices could be a solid entry point for investors seeking higher
returns, especially if interest rates go up. This is because the
U.S. economy strongly rebounded at 4% in Q2 from the worst decline
since the last recession ended five years ago that boosted the case
for a sooner-than-expected interest rates hike.
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 the products have
either a Zacks Rank of 1 or 'Strong Buy' rating or Zacks Rank of 2
or 'Buy' rating with a Medium risk outlook (see:
all the Financial ETFs here
SPDR S&P Insurance ETF (
This fund follows the S&P Insurance Select Industry Index and
offers an equal weight exposure across 51 stocks, suggesting no
concentration risk. None of the securities holds more than 2.28% of
total assets. About 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 $280.7 million in its asset base and trades in
a moderate average daily volume of 98,000 shares. The product has
an expense ratio of 0.35% and lost about 3.1% over the past one
month. The ETF has a Zacks Rank of 1.
iShares U.S. Insurance ETF (
With AUM of $128.8 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 21,000 shares per day. In total, the fund
holds 67 securities in its basket with the largest allocation to
American International at 13.9%, closely followed by Metlife at
10.6% and Prudential Financial at 7.4%. Other firms hold less than
6.2% of assets.
Here again, property and casualty insurance takes the top spot,
accounting for just half of the asset base. Life insurance and full
time insurance take the remaining portion in the basket. The fund
is down 3.3% over the trailing one month and has a Zacks Rank of 2
Top Ranked Insurance ETF in Focus: IAK
PowerShares KBW Insurance Fund (
This fund tracks the KBW Insurance Index and holds 25 securities in
its basket. Out of these, TRV takes the top spot at 8.7% while AFL,
MET and PRU also belong to the top five holdings with a combined
20.1% share. ALL and CB occupy the eight and tenth positions with
4% of KBWI each.
The product has amassed about $9.6 million in AUM while volume is
very light. The ETF charges a low annual fee of 35 bps. KBWI is
down 3.7% in the same period has a Zacks Rank of 1.
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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
TRAVELERS COS (TRV): Free Stock Analysis Report
CHUBB CORP (CB): Free Stock Analysis Report
AMER INTL GRP (AIG): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis
AFLAC INC (AFL): Free Stock Analysis Report
ALLSTATE CORP (ALL): Free Stock Analysis Report
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