We are halfway through the Q4 earnings season with nearly 55% members of the elite S&P 500 Index having reported quarterly results so far. According to the latest Earnings Preview , the performance of the 275 index members that have already reported their financial numbers this quarter indicate that total earnings increased 6.9% due to 4.2% higher revenues. The beat ratio is strong with 68% companies surpassing bottom-line expectations and 54.5% 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 72.2% companies from this sector that have revealed their quarterly results shows 12.1% earnings growth due to 4.7% increase in revenues, both on a year-over-year basis. Moreover, the beat ratio of 70.8% for the bottom line and 55.4% for the top line is higher than the beat ratio of 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 catastrophe losses in 2016 compared with benign cat activity in 2015. It was also hit by Hurricane Matthew in Q4. The industry is likely to have incurred between $3 billion and $9 billion in loss in the quarter owing to the severity of the hurricane. The quarter also bore the brunt of an earthquake in New Zealand and other catastrophe events. These are expected to have weighed on the underwriting results of insurers, hurting their underwriting income and combined ratio. However, prudent underwriting practices should bring some respite.
Though the Fed raised the interest rate, it was toward the end of Q4. Insurers, therefore, are unlikely to have benefited from the rate hike.
Nonetheless, the 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.
To sum up, core business growth, geographic expansion and strategic acquisitions, an improving employment scenario and better payroll should prove beneficial for insurance companies in Q4.
With a number of companies likely to report Q4 results soon, we expect to get a clearer idea of the trends this earnings cycle. Let's find out how these three insurers might perform when they come up with their quarterly numbers on Feb 7.
Assurant Inc . AIZ is a premier provider of specialized insurance products in North America and other selected markets overseas. Both Solutions and Specialty Property business are expected to have witnessed soft results in the to-be-reported quarter. Net operating income of Assurant is likely have decreased owing to the anticipated fall in lender-placed insurance business, loss of the tablet program and lower contributions from the legacy businesses. However, the company is likely to have experienced growth in the fee-based capital-light businesses, which constitute 27% of segmental revenues.
In the last-reported quarter, Assurant missed the Zacks Consensus Estimate by 12.28%. Though the company has a favorable Zacks Rank #3 (Hold), its Earnings ESP of -17.50% makes surprise prediction difficult. While the Most Accurate Estimate stands at 33 cents, the Zacks Consensus Estimate stands higher at 40 cents per share. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here. . You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
According to our proven model a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 for an earnings beat.
With respect to the surprise trend, Assurant surpassed expectations in two of the last four quarters but with an average negative surprise of 7.92%. (Read more: What's in Store for Assurant this Earnings Season? )
Assurant, Inc. Price and EPS Surprise
Genworth Financial Inc . GNW offers various products in life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance through financial intermediaries, advisors, independent distributors and sales specialists.
Increase in new business written is likely have driven better results at U.S. Mortgage Insurance business. Cash expenses are also likely to have decreased. Loss ratio forthe U.S. mortgage insurance is expected to be below 30-40% in 2016. However, a low interest rate environment is likely to have weighed on investment results.
In the last-reported quarter, Genworth Financial missed the Zacks Consensus Estimate by 485.71%. Though the company has a favorable Zacks Rank #3, its Earnings ESP of -17.50% makes surprise prediction difficult. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 20 cents per share.
With respect to the surprise trend, Genworth Financial surpassed expectations in two of the last four quarters but with an average negative surprise of 149.40%. (Read more: Genworth Financial Q4 Earnings: What's in the Cards? )
Genworth Financial Inc Price and EPS Surprise
CNO Financial Group, Inc . CNO develops, markets, and administers health insurance, annuity, individual life insurance, and other insurance products for senior and middle-income markets in the United States.
In the last-reported quarter, CNO Financial beat the Zacks Consensus Estimate by 5.71%. A favorable Zacks Rank #3 and an Earnings ESP of +2.56% makes us confidant of an earnings beat this to be reported quarter. While the Most Accurate Estimate stands at 40 cents, the Zacks Consensus Estimate is pegged lower at 39 cents per share.
With respect to the surprise trend, CNO Financial surpassed expectations in three of the last four quarters but with an average negative surprise of -1.07%.
CNO Financial Group, Inc. Price and EPS Surprise
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