Insurance Stocks' Q3 Earnings Due on Nov 2: MET, ALL & LNC
Strong retention, accelerated digitalization, interest rate hikes and reinsurance agreements are likely to have benefited insurance industry stocks in the third quarter. Furthermore, favorable renewals and organic business growth might have boosted September-quarter results of companies like MetLife, Inc. MET, The Allstate Corporation ALL and Lincoln National Corporation LNC, which are set to announce quarterly numbers on Nov 2. Yet, increased expenses and an active catastrophe environment might have been spoilsports.
The insurance space belongs to the Finance sector (one of the 16 broad Zacks sectors within the Zacks Industry classification), overall earnings of which are projected to decline 7.4% from the year-ago quarter’s reported figure. Revenues are expected to inch up 3.8%, as indicated by our latest Earnings Preview. The downward estimate for earnings might have been caused by higher expenses and catastrophe losses stemming from devastating Hurricane Ian. However, increased earned premiums are expected to have partially offset the negatives.
Let’s delve deeper and look at the key factors that are likely to have impacted the insurance stocks during the quarter under review.
Factors Setting the Tone for Insurance Stocks’ Q3 Results
Insurance players, having property and casualty (P&C) line of business exposure, are likely to have taken a hit from Hurricane Ian-led catastrophe losses. In fact, Swiss Re expects the claims from the Category 4 Atlantic hurricane to be within the $50-$65 billion range. Favorable reserve development might have enabled the insurers to counter the catastrophe losses and shielded their underwriting results.
While an active catastrophe environment takes its toll, it usually accelerates policy renewal rate and calls forth insurers to administer rate hikes for seamless claim payments. Insurance pricing in the United States increased 5% in the September quarter, per the Marsh Global Insurance Market Index. Improved pricing, exposure growth and client retention might have enabled the industry players to generate higher premiums in the third quarter. Moreover, diversified portfolios minimizing concentration risks are expected to have boosted their premium growth.
Throughout the third quarter, business activities are expected to have gained serious momentum, which might have boosted demand for insurance products. Product diversification and redesigning are likely to have aided insurers in addressing rising demand, fueling revenues in the quarter. Also, growing awareness following the onset of the COVID-19 pandemic might have continued to support the businesses.
The rising frequency of travel across the world are expected to have boosted auto premiums. Also, ramped-up economic activities might have aided the commercial insurance and group insurance businesses in the third quarter. Companies with rate-sensitive products and investments are expected to have benefited from the improving interest rate environment. Two rate hikes in the third quarter alone are likely to have supported investment income.
Insurance companies are likely to have benefited from rising operating efficiency, thanks to accelerated digitalization and the emergence of insurtech. Technologies like artificial intelligence, blockchain, advanced analytics, cloud computing, telematics and robotic process automation aid seamless operations and lowers costs. This might have boosted the margins of the insurance players in the third quarter.
Insurance Providers Reporting on Nov 2
Against the backdrop discussed above, let’s find out how the following three companies are placed ahead of their third-quarter earnings release tomorrow.
Our proprietary model clearly indicates that a company needs to have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
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MetLife: The Zacks Consensus Estimate for MetLife’s premiums is currently pegged at $10,941 million, which suggests growth of 15.7% from the prior-year quarter. The consensus mark for adjusted earnings in Latin America indicates a humongous 282.8% jump from the year-ago period’s actuals. However, the Zacks Consensus Estimate for MET’s U.S. business’ adjusted earnings is pegged at $549 million, which suggests a fall of 38.7% from the prior-year quarter’s reading.
The Zacks Consensus Estimate for the third-quarter earnings and top line stands at $1.18 per share and $19.9 billion, respectively, indicating an earnings decline of 50.6% but a revenue increase of 16.4% from the corresponding year-ago quarter’s actuals. As far as earnings surprises are concerned, MetLife’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average being 38.4%. (Read more: MetLife to Post Q3 Earnings: Here's What to Expect)
MetLife, Inc. Price and EPS Surprise
MetLife, Inc. price-eps-surprise | MetLife, Inc. Quote
Our proven model doesn’t conclusively predict an earnings beat for MetLife this time around. This is because the stock has an Earnings ESP of 0.00% and a Zacks Rank #3.
The Allstate Corporation: This leading property-casualty insurer’s third-quarter revenues might have been supported by better premiums. The consensus mark for net premiums earned from Property-Liability and Protection Services segments suggests year-over-year increases of 8.6% and 25.2%, respectively. Prudent rate increases and strong policy retention rates are likely to aid its results. However, Allstate’s Q3 earnings might have taken a hit from pre-tax catastrophe losses, net of reinsurance, of $763 million in the third quarter. The auto insurance business’ underwriting results are likely to suffer from increasing loss costs due to the inflationary pressure.
The consensus mark for net investment income from the Property-Liability unit is currently pegged at $449 million, indicating a decline of 36.8% from the year-ago period. (Read more: Can High Catastrophe Losses Hurt Allstate's Q3 Earnings?)
The Zacks Consensus Estimate for the to-be-reported quarter’s bottom and the top line is pegged at a loss of $1.67 per share and $12.7 billion, respectively, indicating an earnings decline of 328.8% but a revenue increase of 2.6% from the corresponding year-ago quarter’s readings. As far as earnings surprises are concerned, ALL’s bottom line beat the Zacks Consensus Estimate in two of the last four quarters, missing the mark twice, the average negative surprise being 5.6%.
The Allstate Corporation Price and EPS Surprise
The Allstate Corporation price-eps-surprise | The Allstate Corporation Quote
Allstate has an Earnings ESP of 0.00% and a Zacks Rank of 3.
Lincoln National: Its Group Protection business is likely to have witnessed growth in the third quarter. The consensus mark for revenues from Group Protection indicates an upside of 3.7% from the year-ago quarter’s level. The Retirement business is expected to have gained from an improved economy and increased account values. The consensus estimate for insurance premiums indicates 3.3% year-over-year growth. However, the consensus mark for net investment income indicates a 17.9% decline in the third quarter from the year-ago period’s finals.
The Zacks Consensus Estimate for the to-be-reported quarter’s bottom and top line stands at $1.93 per share and $4.4 billion, respectively, indicating an earnings increase of 19.1% but a revenue decline of 16% from the respective year-earlier quarter’s readings. As far as earnings surprises are concerned, LNC’s bottom line missed the Zacks Consensus Estimate in each of the last four quarters, the average negative surprise being 19.5%.
Lincoln National Corporation Price and EPS Surprise
Lincoln National Corporation price-eps-surprise | Lincoln National Corporation Quote
Lincoln National has an Earnings ESP of 0.00% and is Zacks #4 (Sell) Ranked.
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