U.S. Markets close in 2 hrs 8 mins

3 Insurers Set to Beat in Q4 Earnings on Gain in Pricing

Sapna Bagaria

Per InsuranceNewsNet findings, Commercial insurance prices in the United States increased by nearly 2% year over year, during the fourth quarter of 2018. This marked the fourth consecutive quarter of price hike.  

Commercial lines, which account for about half of U.S. property/casualty insurance industry premium, include the many kinds of insurance products designed for businesses. Commercial lines account for about 45% of the total insurance industry’s net premium written.

Per the findings, all the business lines, other than Workers’ Compensation saw price increase in the range of 1-3%. Workers’ Compensation was down 1.5% in the fourth quarter.

Another major business line, the Personal Lines, witnessed an average increase of 2.25% in the fourth quarter of 2018. Among the sublines, Homeowners rates in the fourth quarter 2018 remained stable at plus 3% for homes under $1,000,000 and plus 2% for homes over $1,000,000. Automobile rates were down slightly and personal articles rates were up slightly, both moving by 0.5%.

The rate increase, as seen now, is a result of players’ response to catastrophe loss sustained in recent years, led them to hike premium to recover losses across the affected insurance lines. This is, however a welcome development after the industry saw soft market conditions in three years prior to 2017. Better pricing should therefore help insurers’ revenue growth.

Players also stand to gain from the increase in the fed funds’ rate, which affects insurers’ investment income. They invest a portion of the premiums they receive and thus a higher rate will boost investment income. Given the recovery in the U.S. economy, the Fed has been active in raising interest rates that currently stand at 2.25% to 2.5% from the near-zero level, when the recession hit the economy hard.

Thus the current operating environment looks favorable for the growth of companies having sizable market presence in Commercial and Personal insurance.

However, players should suffer from high claim costs from Hurricane Michael and California wild fires that caused damages of around $32.5 billion. Insurer Chubb Limited CB recently released its preliminary net loss estimates of about $225 million pretax or $195 million after tax, net of reinsurance including reinstatement premiums.

Nevertheless, the industry boasts a strong capital position, which should help them to easily absorb these losses.

Below we mention three stocks having exposure to Commercial and Personal Insurance business, and are expected to beat on fourth-quarter earnings given their favorable Zacks Rank #1(Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital Group, Inc. KNSL based in Richmond, VA, is a specialty insurance company. Its commercial line offerings include construction, small business, professional liability, excess casualty, energy, general casualty, life sciences, allied health, product liability, healthcare, commercial property, management liability, inland marine, environmental, public entity and commercial insurance. The company also writes homeowners insurance in the personal lines market.

The stock caries a Zacks Rank #3 and has an Earnings ESP of +13.01%, a combination that increases our predictive power of an earnings beat this quarter.

The company beat earnings estimates in each the last four reported quarters at an average of 13.5%. The same is depicted in the chart below:

Kinsale Capital Group, Inc. Price and EPS Surprise

Kinsale Capital Group, Inc. Price and EPS Surprise | Kinsale Capital Group, Inc. Quote

The Progressive Corporation PGR provides personal and commercial property-casualty insurance, and other specialty property-casualty insurance and related services primarily in the United States. Its Personal Lines segment writes insurance for personal autos, and recreational and other vehicles. The company's Commercial Lines segment provides primary liability, physical damage, and other auto-related insurance. Its Property segment provides residential property insurance for homeowners, other property owners, and renters, as well as personal umbrella insurance and primary and excess flood insurance.

Progressive’s Zacks Rank of 1 and Earnings ESP of +0.99% makes us confident of a likely positive surprise.

The company beat earnings estimates in each the last four reported quarters at an average of 13.5%. The same is depicted in the chart below:

The Progressive Corporation Price and EPS Surprise

The Progressive Corporation Price and EPS Surprise | The Progressive Corporation Quote

Goosehead Insurance Inc. GSHD operates as an insurance agency. Its product portfolio includes homeowner's insurance; auto insurance; other personal lines products including flood, wind and earthquake insurance; excess liability or umbrella insurance; specialty lines insurance, commercial lines insurance and life insurance.

The company carries a Zacks Rank #3 and has an Earnings ESP of +3.13%. The company beat earnings estimates in one of the three reported quarters at an average of 29.6%. The same is depicted in the chart below:

Goosehead Insurance Inc. Price and EPS Surprise

Goosehead Insurance Inc. Price and EPS Surprise | Goosehead Insurance Inc. Quote

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>


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
 
Chubb Limited (CB) : Free Stock Analysis Report
 
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
Goosehead Insurance Inc. (GSHD) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.