Insurance Stock Q2 Earnings Due On Jul 27: AFL, HIG & More

The second-quarter earnings season is picking up pace with 26% members of the elite S&P 500 Index having reporting quarterly numbers already. Per the latest second-quarter scorecard, the performance of 128 index members (accounting for 36.1% of the index’s total market capitalization) that have already reported their financial numbers this quarter, indicate that total earnings have increased 7% on 4.2% higher revenues. The beat ratio is impressive with 77.3% companies surpassing the bottom-line expectations and 70.3% outperforming on the top-line front. (For more information, please consult our Zacks Earnings Analysis ).

The Finance sector’s results (one of the 16 Zacks sectors) have not been very impressive, but aren’t too disappointing either. Of the sector’s total market cap in the S&P 500 index, 54.1% that have reported quarterly results show 7.4% earnings growth on 5.4% increase in revenues, both on a year-over-year basis. The beat ratio of 82.9% for bottom line and 68.6% for top line is higher than the beat ratio of the S&P 500.

The insurance industry is part of the broader Finance sector. Let’s see how the second quarter has turned up for insurers.

Results of insurers exposed to catastrophe losses will witness a dent in underwriting margins on account of several catastrophe losses that occurred during the quarter under review. Per Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (NYSE:AON), catastrophe losses suffered globally is estimated at $53 billion in the first half of 2017. Some insurers have estimated catastrophe losses in the second quarter stemming from severe wind and hail catastrophe events during April and May in the U.S.

The Allstate Corp (NYSE:ALL). projects $627 million (pre-tax) in catastrophe loss while Kemper Corporation estimates the same between $32 million and $38 million.

Another component of insurer’s top line, net investment income, has witnessed improvement, but still remains below historical levels, owing to still-low interest rates.

Nevertheless, the recent increase in interest rates by the Fed should offer some respite to life insurers that suffered spread compression on products like fixed annuities and universal life due to persistently low rates. Annuity sales too should benefit from higher rates. Nonetheless, life insurers have considerably lowered their exposure to interest-sensitive product lines.

Top line may also benefit from an improving economy and revived consumer sentiments which may lead to increased demand for insurance products.

On the flip side, pricing woes linger. Insurers having fat capital reserves are fighting hard to gain business in a highly competitive environment and one of the most common ways to achieve underwriting targets is by lower pricing. Certain lines of insurance – commercial property, workers’ compensation and general liability are mostly experiencing soft pricing.

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Nonetheless, core business growth, geographic expansion, mergers and acquisitions and prudent capital deployment via share repurchase are like to benefit insurers.

Let’s peek into these five insurance companies that are gearing up to report their second-quarter results on Jul 27.

Aflac Inc. (NYSE:AFL) has an Marsh & McLennan Companies, Inc. Quote