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5 Insurance Stocks Poised to Beat Q3 Earnings Estimates

Tanuka De

The Finance sector is set to report financial numbers from next week. Per the latest Earnings Preview, Finance is one of the seven Zacks sectors likely to deliver earnings growth. Earnings for the sector are expected to increase 0.2% on 6.5% higher revenues.

Integral to the Finance sector, insurers are expected to deliver better numbers in the to-be-reported quarter. Insurers are likely to have benefited from improved pricing, reinsurance agreements, compelling products and service portfolio, adoption of technologies to curb operational costs and deeper reach. Catastrophe losses and lower interest rate might have acted as partial offsets. Nonetheless, better employment scenario along with rising wages is expected to boost policy sales driving premiums higher.

The insurance industry lost 1.2% in the third quarter against the S&P 500 Index’s rise of 1.1% and the Finance sector’s decrease of 0.6%. The third quarter witnessed cat events as well as two rate cuts by the Federal Reserve – two major factors that may have affected insurers’ performance.


 

The third quarter of a year generally bears the brunt of unprecedented catastrophes, which cause mass devastation. Risk modeling and analytics firm RMS expects insured losses to range between $3.5 billion and $6.5 billion from Hurricane Dorian while catastrophe modeler Karen Clark & Co. estimates insured losses in the United States and Caribbean to be around $5 billion, per media release. RMS estimates insured losses from Typhoon Faxai to be between $5 billion and $9 billion while catastrophe risk modeling firm AIR Worldwide expects loss in the range of $3 billion to $7 billion.

Recently, Arch Capital Group ACGL estimated third-quarter pre-tax gross catastrophe loss in the range of $65-$75 million, primarily due to Hurricane Dorian and Typhoon Faxai while AXIS Capital Holdings AXS estimated preliminary pre-tax loss in the range of $150 million to $175 million in the third quarter, due to Hurricane Dorian, Japanese typhoons and other weather-related events.

Nonetheless, underwriting profitability might have improved on better pricing and underwriting practice. In a report published in Business Insurance, four of the six commercial property/casualty insurance lines posted higher premium renewal rates during the third quarter of 2019 per insurance exchange Ivans Insurance Solutions. Workers compensation however witnessed soft pricing. According to Ivans Insurance Solutions, commercial property rates increased 4.2%, businessowners policies rate rose 4.17% and commercial auto rates increased 4.32%. Umbrella liability and general liability rates witnessed 2.66% and 2.51% rise respectively.

Further, portfolio repositioning and reinsurance covers should have helped insurers withstand any deficits.

However, the Federal Reserve has made 25 basis points rate cut twice in the third quarter of 2019, citing muted inflation pressure and geopolitical tension. The rate now stands in the range of 1.75-2%. Nonetheless, higher invested asset base might have somewhat offset the impact of low rates for insures.

Increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation are likely to have expedited business operations and saved cost.

Also, a sturdy capital level is expected to have widened the scope for capital deployment to pursue growth initiatives as well as reward shareholders via dividend hikes, special dividends and share buybacks.

Potential Q3 Outperformers

With the help of our Zacks Stock Screener, we have identified a few stocks poised to outshine the Zacks Consensus Estimate in the third quarter.  These stocks have the ideal combination of a positive Earnings ESP and a favorable Zacks Rank and are likely to surpass expectations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Also, these stocks have a solid earnings history.

Cigna Corporation CI provides insurance and related products and services in the United States and internationally.

Zacks Rank #2 (Buy)

Earnings ESP: +1.53%

Average four-quarter positive surprise: 7.02%

The Progressive Corporation PGR provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States.

Zacks Rank #2

Earnings ESP: +10.89%

Average four-quarter positive surprise: 7.49%

Radian Group RDN engages in the mortgage and real estate services business in the United States.

Zacks Rank #2

Earnings ESP: +1.89%

Average four-quarter positive surprise: 10.10%

Arthur J. Gallagher AJG provides insurance brokerage, consulting, and third-party claims settlement and administration services to entities in the United States and internationally.

Zacks Rank #3 (Hold)

Earnings ESP: +1.98%

Average four-quarter positive surprise: 3.26%

eHealth EHTH provides private health insurance exchange services to individuals, families, and small businesses in the United States and China.

Zacks Rank #2

Earnings ESP: +31.90%

Average four-quarter positive surprise: 167.16%

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