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Will Catastrophe Loss Hamper Chubb's (CB) Earnings in Q4?

Zacks Equity Research

Chubb Limited CB is slated to report fourth-quarter 2018 results on Feb 5 after the market closes. In the last reported quarter, the company delivered a positive surprise of 3.43%.

Let’s see, how things are shaping up for this announcement.

The property and casualty (P&C) insurer is likely to report premium growth in the soon-to-be-reported quarter, driven by an improved commercial property and casualty (P&C) pricing across numerous business lines, a compelling product portfolio and contributions from numerous growth initiatives undertaken by the insurer.

Moreover, strategic buyouts are expected to have contributed to this probable increase in premiums.

Riding on the strength of rising interest rates and higher reinvestment rates, the company might have experienced better investment results in the to-be-reported quarter.

On the back of higher premiums and investment income, the company is expected to see a stronger top line in the quarter to be reported.

Further, a lower tax incidence and continued share buybacks might have cushioned the P&C insurer’s bottom line in the fourth quarter.

Additionally, Chubb is anticipated to have displayed higher renewal retention rates and new business volume growth in the soon-to-be-reported quarter, driven by a sustained operational performance.

Chubb has provided its global net catastrophe loss estimates of about $585 million pretax or $505 million after tax, net of reinsurance including reinstatement premiums. Such loss can be attributed to Hurricane Michael, California wildfires and other worldwide events including storms in Australia and Typhoon Trami in Japan. This in turn, is feared to dent the company’s underwriting results, thereby keeping the combined ratio under pressure.

The company might have incurred escalated expenses, mainly due to higher loss and loss expenses, policy acquisition costs, administrative expenses and policy benefits. This in turn, will perhaps erode the P&C insurer’s operating margin expansion.

The impact of catastrophe loss and possible higher expenses could weigh on the company’s bottom line in the fourth quarter. In fact, the Zacks Consensus Estimate for earnings stands at $1.93, reflecting a plunge of 39.1% from the year-ago quarter.

What Our Quantitative Model States

Our proven model does not conclusively show that Chubb is likely to beat on earnings this to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Chubb has an Earnings ESP of 0.00%. This is because both he Zacks Consensus Estimate and the Most Accurate Estimate are pegged at $1.93. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Chubb Limited Price and EPS Surprise


Chubb Limited Price and EPS Surprise | Chubb Limited Quote

Zacks Rank: Chubb carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the finance sector with the apt combination of elements to surpass estimates this reporting cycle are as follows:

Apollo Investment Corporation AINV is set to report fourth-quarter earnings on Feb 6 and has an Earnings ESP of +0.72%. The company has a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Willis Towers Watson Public Limited Company WLTW has an Earnings ESP of +0.63% and is a Zacks #3 Ranked player. The company is slated to announce fourth-quarter earnings on Feb 7.

Radian Group Inc. RDN has an Earnings ESP of +3.03% and a Zacks Rank of 1. The company is anticipated to release fourth-quarter earnings on Feb 8.

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