The Q4 earnings season is in full swing with 33.9% of the elite S&P 500 Index members having reported quarterly results so far. According to our latest Earnings Preview , the performance of the 170 index members (accounting for 33.9% of the index's total market capitalization) that have already reported their financial numbers this quarter indicate that total earnings increased 6% on 3.1% increase in revenues. The beat ratio is strong with 64.1% companies surpassing bottom-line expectations and 54.7% outperforming on the top-line front.
The Finance sector (one of the 16 Zacks sectors) has started the Q4 earnings season on a strong note. In fact, the financial performance of 43.3% companies from this sector that have revealed their quarterly results shows 11.3% earnings growth due to 3.1% increase in revenues, both on a year-over-year basis. Moreover, the beat ratio of 66.7% for the top line compares favorably with the S&P 500. Beta ratio for the bottom line was at par with the S&P 500.
The Finance sector is highly diversified and includes several industries like insurance, banks and securities exchanges to name a few.
The insurance industry was severely affected by Hurricane Matthew in Q4. The industry is likely to have incurred between $3 billion and $9 billion in loss in the fourth quarter owing to the severity of the hurricane. The quarter also bore the brunt of earthquake in New Zealand and other catastrophe events.
Cincinnati Financial Corporation CINF projected pre-tax catastrophe loss between $75 million and $85 million for fourth quarter, while Alleghany Corporation Y estimated fourth-quarter catastrophe loss to be less than million $75 million. XL Group plc XL expects to incur pre-tax catastrophe loss of $245 million. Argo Group International Holdings, Ltd. AGII is likely to incur pre-tax catastrophe loss between $20 million and $25 million.
These have weighed on the underwriting results of insurers, hurting their underwriting income and combined ratio. However, prudent underwriting practices should provide some respite.
Though the Fed raised the interest rate, it was toward the end of Q4. The insurers, therefore, are unlikely to reap the benefit of the rate hike. Nonetheless, broader invested asset base and alternative asset classes are positives. Also, spread compression on products like fixed annuities and universal life is likely to have improved.
While expansion of the Affordable Care Act has ushered in good news for insurers offering health benefits, improvement in the housing market should support mortgage insurers. On the other hand, improving healthcare and benefits consulting service should boost the top-line growth of insurance brokers.
To sum up, core business growth, geographic expansion and strategic acquisitions, improving employment scenario and better payroll should prove beneficial for insurance companies in Q4.
With a number of companies set to report their Q4 results soon, we expect to get a clearer idea of the trends of this earnings cycle. Meanwhile, let's find out how these four insurers might perform when they report their quarterly numbers on Jan 31.
Chubb LimitedCB 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. The company delivered a positive surprise of 9.09% in the last quarter. According to our quantitative model, a company needs the right combination of two key ingredients - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) - to increase its odds of an earnings surprise. Chubb has a Zacks Rank #3 and Earnings ESP of +2.88% that makes us confident of beat.
The Zacks Consensus Estimate for Q4 is pegged at $2.43 per share, while the Most Accurate estimate stands at $2.50. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Chubb has likely witnessed an increase in net premiums written owing to the strategic initiatives undertaken. However, Chubb has scaled down its guidance for net premiums for 2016 for a few portfolios. Investment income for Q4 is expected between $820 million and $830 million.
Chubb expects integration expense savings of about $515 million in 2016. However, the company has projected 2016 integration and merger-related expenses of $525 million in 2016. Also, Q4 catastrophic loss is anticipated to be about $200 million pre tax, stemming from Hurricane Matthew. (Read more: Chubb Limited Q4 Earnings: Is a Beat in the Cards? )
With respect to the surprise trend, Chubb beat expectations in three of the last four quarters, with an average negative surprise of 4.06%.
D/B/A Chubb Limited New Price and EPS Surprise
Aflac Inc.AFL offers voluntary insurance policies in Japan and the U.S. that provide financial protection against income and asset loss. The company delivered a positive earnings surprise of 4.60% in the last quarter. The company has an Earnings ESP of -0.61% and a Zacks Rank #5 (Strong Sell), which makes surprise prediction. Please note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement.
Sales in Japan as the company started selling its new cancer insurance product designed exclusively for cancer survivors, though sales of first sector products is expected to decline since as Aflac is taking steps like production caps, commission restructuring, product re-pricing and, in select cases,, product discontinuance to control its sales. High expenses in Aflac U.S. might drain into the segment's margins. For 2016, the company expects operating EPS in the range of $6.40 to $6.60. (Read more: Will Aflac Disappoint Investors this Earnings Season? )
The Zacks Consensus Estimate for Q4 is pegged at $1.64 per share.
With respect to the surprise trend, Aflac beat expectations in the last four quarters with an average beat was 4.65%.
Aflac Incorporated Price and EPS Surprise
W.R. Berkley Corp.WRB is a provider of commercial lines property casualty insurance coverages. The company posted a negative surprise of 1.12% in the last quarter. The company's Zacks Rank #2 increases the predictive power of ESP but its Earnings ESP of 0.00% makes surprise prediction difficult.
The Zacks Consensus Estimate for Q4 is pegged at 83 cents per share.
With respect to the surprise trend, W.R. Berkley beat expectations in three of the last four quarters with an average beat of 3.77%.
W.R. Berkley Corporation Price and EPS Surprise
RenaissanceRe Holdings Ltd.RNR primarily provides property-catastrophe reinsurance to insurers and reinsurers globally on the basis of excess of loss (coverage of losses over a specified limit). The company posted a negative surprise of 9.52% in the last quarter. The company's Zacks Rank #3 increases predictive power of ESP but its Earnings ESP of -28.87% makes surprise prediction difficult.
The Zacks Consensus Estimate for Q4 is pegged at $1.42 per share.
With respect to the surprise trend, RenaissanceRe missed expectations in three of the last four quarters with an average negative surprise of 17.36%.
RenaissanceRe Holdings Ltd. Price and EPS Surprise
You can see the complete list of today's Zacks Rank #1 stocks here .
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