Insurers Due To Report Q4 Earnings On Feb 11: L, RE, BHF
Zacks Investment Research | Feb 07, 2019 08:31PM ET
Favorable operating backdrop that including interest rate hikes, improved pricing, continued share repurchases, strategic consolidations and lower tax rates should benefit Insurance industry players’ fourth-quarter 2018 results. However, catastrophe events like California wildfires and Hurricane Michael may prove to be a drag on underwriting profitability.
Insurers should continue to benefit from an improving rate environment. Following an accelerated pace of rate hikes, the interest rate currently stands at 2.50%. In fact, on the back of economic improvement, the Fed raised rates in all the four quarters of 2018. Thus, net investment income, which is an important component of insurers’ top line, is likely to improve. Also, insurers should gain from an increase in yields on their investment income.
Pricing plays an important part in recovering losses across the affected insurance lines. Since the fourth quarter of 2017, almost all business lines have been witnessing improved pricing except for Workers’ Compensation and the fourth quarter of 2018 was not an exception either.
Per InsuranceNewsNet findings, Commercial insurance prices in the United States increased nearly 2% year over year in the fourth quarter of 2018. This marked the fourth consecutive quarter of price hike. Workers’ Compensation was down 1.5% in the fourth quarter. Improved pricing drove premium growth.
However, the fourth quarter bore the brunt of Hurricane Michael and California wildfires, which weighed on underwriting profitability and lowered combined ratios. According to a report published in Insurance Journal on Dec 12, insured losses from the California wildfire were $9.05 billion while catastrophe modeler CoreLogic estimated total losses resulting from the wildfires in Northern and Southern (NYSE:SO) 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.
Nonetheless, a lower level of tax incidence, due to lower tax rate, is expected to boost margins. Also, owing to higher net profit available, companies hiked dividend payouts.
The insurance industry boasts a sturdy capital level, which helped it pursue strategic mergers and acquisitions and engage in share buybacks. These activities are expected to boost the bottom line of industry players.
Let’s take a sneak peek at how the following insurers are poised prior to their fourth-quarter earnings reports on Feb 11.
Loews Corporation’s (NYSE:L) continued strong performances at CNA Financial Loews Hotels are likely to aid its fourth-quarter performance. Boardwalk Pipeline is likely to deliver better numbers on the back of growth-enhancing projects. CNA Financial’s efficient management of its long-term care book of business through prudent product claim handling is expected to mitigate risks and enable a rate increase. Operating expenses and interest expense are likely to increase. (Read more: Zacks Investment Research
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