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The Zacks Analyst Blog Highlights: Progressive, Cigna, Radian and Aon

Zacks Equity Research



For Immediate Release





Chicago, IL – January 11, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: The Progressive Corp. PGR, Cigna Corp. CI, Radian Group Inc. RDN and Aon plc AON.

Here are highlights from Thursday’s Analyst Blog:

4 Insurers Set for Q4 Earnings Beat on Multiple Tailwinds

The Finance sector is set to report financial numbers from next week. Per the Earnings Outlook, Finance is one of the seven Zacks sectors likely to deliver double-digit earnings growth. Earnings for the sector are expected to increase 19.6% on 3.5% higher revenues. While a drop in tax rate is expected to boost earnings, revenues are likely to reflect weak loan growth and softness in trading volumes, partially offset by improved margins owing to an improving rate environment.

Integral to the Finance sector, insurers are expected to deliver better numbers. However, catastrophe loss could weigh on their earnings.

Improving Rate Environment

The Central Bank made four rate hikes in 2018, reflecting economic progress, strong labor market and inflation of the Fed’s 2% target. With the one-quarter percentage point hike at the December FOMC meeting, the interest rate now stands at 2.50%.

Given a rising rate environment, investment income — an important component of insurers’ top line — should continue to trend up.

Strong Labor Market

An average of 0.3 million increase in jobs has been reported over the past three months. Per U.S. Bureau of Labor Statistics, unemployment rate was 2.9% in December while yearly wage growth was 3.2%.

Tax Reforms and Capital Deployment

A lower level of tax incidence, courtesy of implementation of the new tax rate, effective first-quarter 2018 has been boosting earnings of the companies. This, in turn, will not only aid margin expansion but also lead to higher dividend payouts owing to higher net profit.

Also, the insurance industry boasts a sturdy capital level, helping it pursue strategic mergers and acquisitions.

California Wildfires Likely to Dent Underwriting Results

California wildfires destroyed thousands of residential and commercial properties in the fourth quarter of 2018. Apart from California wildfire, Hurricane Michael is also expected to take a toll on insurers’ fourth-quarter profits. According to a report published in Insurance Journal on Dec 12, 2018, insured losses from the California wildfire came in at $9.05 billion while catastrophe modeler CoreLogic estimated total losses resulting from the wildfires in Northern and Southern California between $15 billion and $19 billion. Per reports from Florida Office of Insurance Regulation, Hurricane Michael is estimated to cause about $4.3 billion in insured losses.

Insurers AXIS Capital Holdings estimated pre-tax loss ranging between $125 million and $150 million while Hartford Financial Services expects losses in the range of $275-$290 million, post tax. Chubb estimates about $225 million pretax or $195 million after tax. Mercury General estimates pre-tax gross catastrophe loss of $253 million, stemming from Camp Fire and Woolsey Fire. RLI anticipates cat loss between $22 million and $27 million, net of reinsurance from Hurricane Michael.

Pricing Firms Up

Industry participants started to raise price from the fourth quarter of 2017, following huge cat losses.

Per Willis Towers Watson plc’s Commercial Lines Insurance Pricing Survey, commercial insurance prices in the United States increased more than 2% in the third quarter of 2018. Per the survey, commercial auto, commercial property, and excess/umbrella liability witnessed price increase. Commercial property witnessed low- to mid-single digit increase for the fourth consecutive quarter. Commercial auto witnessed a double-digit rise for the fourth straight quarter

Nonetheless, workers compensation continues to suffer.

Improved pricing, prudent underwriting practices, portfolio repositioning and reinsurance covers will help insurers weather headwinds.

Price Performance

The Insurance industry fared better than the Zacks S&P 500 composite as well as the Finance sector in the fourth quarter. Though the industry decreased 8.6%, its performance was better than 14% decline of the index and Finance sector’s decline of 11.4%.

Q4 Outperformers

With the help of our Zacks Stock Screener, we have identified a few stocks poised to outshine the Zacks Consensus Estimate in the fourth quarter.  These stocks have the ideal combination of two ingredients — 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.

The Progressive Corp. provides personal and commercial auto insurance, residential property insurance plus other specialty property-casualty insurance and related services, primarily in the United States.
Zacks Rank #1
Earnings ESP: +1.20%
Average four-quarter positive surprise: 13.48%
The Zacks Consensus Estimate of $1.02 for the fourth quarter indicates 29.1% year-over-year improvement.
Estimates for 2019 have been revised 1% upward over the past 60 days.

Cigna Corp. provides insurance and related products and services in the United States and globally.
Zacks Rank #2
Earnings ESP: +0.48%
Average four-quarter positive surprise: 13.46%
The Zacks Consensus Estimate of $2.51 for the fourth quarter projects 29.4% year-over-year increase.
Earnings estimates for 2019 have been revised 18.7% higher over the past 60 days.

Radian Group Inc. provides mortgage and real-estate products and services in the United States
Zacks Rank #2
Earnings ESP: +3.03%
Average four-quarter positive surprise: 11.33%
The Zacks Consensus Estimate of 66 cents for the fourth quarter indicates year-over-year increase of 29.4%.

Aon plc provides risk management services, insurance and reinsurance brokerage, and human resource consulting and outsourcing services worldwide.
Zacks Rank of 3
Earnings ESP: +2.75%
Average four-quarter positive surprise: 4.57%

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 Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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