Insurance Stocks' Earnings Due on Jul 26: CINF, HIG & More

The second-quarter earnings season is gathering momentum. Already, 87 members of the elite S&P 500 index have reported their financial numbers. Per the latest Earnings Preview, the performance of these index participants indicates 20.9% increase in total earnings on 10.3% higher revenues. The beat ratio is impressive, with 86.2% companies surpassing bottom-line expectations and 77% outperforming on the top-line front.

The Finance sector (one of the 16 Zacks sectors) is expected to deliver earnings growth in mid- 20s on 4.2% stronger revenues per the Earnings Preview.

Integral to the Finance sector, the insurance industry is likely to witness better results this time around on the back of an improving rate environment, tax cuts and an overall favorable operating environment.

The insurance industry had a benign catastrophe loss incidence in the second quarter. Successive rain storms in the United States as well as Canada did cause damage but the loss was less compared with the year-ago quarter. A Morgan Stanley analyst noted that the second-quarter cat loss estimate is equivalent to about half of what insurers have usually suffered as a result of natural calamities in any given second quarter, per a carriermanagement.com report.

Improved pricing, prudent underwriting practices, portfolio repositioning as well as reliance on reinsurance covers have possibly helped insurers survive the deficits.

A steady increase in interest rates is likely to have highly boosted net investment income, an important component of an insurer’s top line.

Reflecting economic stability, the Federal Reserve raised the key interest rate in June for the second hike in 2018.

A diversified portfolio, a wide geographic footprint, strategic consolidations and lower taxes are anticipated to have enhanced insurers’ performance in the quarter to be reported.

Per Moody’s, brokers in the United States will benefit in particular from steady economic growth, rising P&C re/insurance rates and a lower 21% corporate tax rate (reduced from 35%), which will likely boost net profits and operating cash flows, and see brokers exceed the 4% median organic growth of 2016-17.

Let’s find out where the following insurers stand ahead of their quarterly releases on Jul 26.

Cincinnati Financial Corporation CINF possibly incurred a certain level of cat loss in the to-be-reported quarter, which in turn, might dent its underwriting results and combined ratio.

Further, the company has likely reported an increase in total benefits and expenses, mainly driven by higher insurance loss and contract holders’ benefits, underwriting, acquisition and insurance expenses. This, in turn, might restrict the P&C insurer’s operating margin expansion.  

On a positive note, Cincinnati Financial is likely to report premium growth in the to-be-reported quarter, mainly driven by several premium growth initiatives undertaken by the company, price increases as well as a higher level of insured exposures.

The Zacks Consensus Estimate of 54 cents per share for second quarter reflects a 15.6% year-over-year decline. Cincinnati Financial carries a Zacks Rank #5 (Strong Sell) and an Earnings ESP of 0.00%. We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions. (Read more: Cincinnati Financial Q2 Earnings: What's in Store?)

The company beat earnings estimates in three of the last four reported quarters, with an average positive surprise of 11.1%. The same is depicted in the chart below:

Cincinnati Financial Corporation Price and EPS Surprise

Cincinnati Financial Corporation Price and EPS Surprise | Cincinnati Financial Corporation Quote

The Hartford Financial Services Group, Inc. HIG Commercial Lines and Personal Auto businesses are expected to sustain the trend of delivering solid results in the to-be-reported quarter. Commercial Lines segment is also expected to perform well, contributing to the company’s top line. The performance is also expected to get a boost from the Group Benefit and Mutual Funds segments.

The company expects its book value per share to have decreased by about $2.45 from Mar 31, 2018 onward because of the sale of Talcott. The same has likely enabled the company to effectively deploy its capital among its shareholders.

The company is expected to have retained its focus on disciplined capital deployment in the second quarter as well.

The Zacks Consensus Estimate of $1.03 per share for the to-be-reported quarter reflects a 0.96% year-over-year decline. Hartford Financial carries a Zacks Rank #2 (Buy) and an Earnings ESP of +0.28%, which makes us confident of a likely positive surprise. (Read more: Hartford Financial: Is a Beat in Store for the Stock?).

You can see the complete list of today’s Zacks #1 Rank stocks here.

The company beat earnings estimates in each the last four reported quarters at an average of 9.55%. The same is depicted in the chart below:

The Hartford Financial Services Group, Inc. Price and EPS Surprise

The Hartford Financial Services Group, Inc. Price and EPS Surprise | The Hartford Financial Services Group, Inc. Quote

Marsh & McLennan Companies Inc.'s MMC results are expected to benefit from increased revenues, likely to be in the range of 3-5%. The Zacks Consensus Estimate for net operating revenues in the to-be-reported quarter is pegged at $3.7 billion, reflecting 6.3% year-over-year growth.

The Risk and Insurance Services segment has likely kept the past few quarters’ trend intact wherein it has grown on the back of strategic acquisitions. The Consulting segment has also been contributing to the company’s revenue base over the last few quarters and is expected to maintain the trend in the second quarter as well. The consensus mark for revenues from this segment stands at $1.6 billion, up 4.7% year over year.  
Lower tax incidence is likely to favor the company’s earnings this season.

The Zacks Consensus Estimate of $1.11 per share for the yet-to-be-reported quarter reflects an 11% year-over-year increase. The company has an Earnings ESP of +0.76%, which increases the odds of a likely earnings surprise. However, a Zacks Rank #4 (Sell) lowers our predictive power of ESP, leaving surprise prediction inconclusive. (Read more: Can Marsh & McLennan Deliver a Beat in Q2 Earnings?)

The company beat earnings estimates in each the trailing four reported quarters at a 4.49% average. The same is depicted in the chart below:

Marsh & McLennan Companies, Inc. Price and EPS Surprise

Marsh & McLennan Companies, Inc. Price and EPS Surprise | Marsh & McLennan Companies, Inc. Quote

Aflac Inc.'s AFL second-quarter results are expected to benefit from increased sales from its U.S. segment. We expect to see strong financial performance and continued strength in the profitability of Aflac U.S. led by the ongoing investment in this business, delivery of value-added services and increased client retention; product partnering to drive improved account values and employee access; and investment in administrative capabilities.

Aflac’s top line remains sufficiently exposed to a challenging operating environment, primarily in Japan. The persistent low interest rate environment has led the company to deemphasize sales of first-sector (life insurance) products in Japan and emphasize sales of third-sector products. However, comparatively, third-sector sales are expected to be down in the first half of the year due to the introduction of one refreshed core medical product in the first quarter of 2017. Sales should, however, be aided by the recent introduction of a new cancer plan. The Zacks Consensus Estimate for revenues from the Japan business is expected to be $3.76 billion, down 1.1% year over year.

The Zacks Consensus Estimate for Aflac is pegged at 98 cents, up 6.5% year over year. Though the company is a Zacks #3 Ranked, its Earnings ESP of -0.27% makes surprise prediction difficult. (Read more: Will Aflac's Earnings Suffer From Weak Japan Revenue?)

The company beat earnings estimates in each the last four reported quarters, with an average positive surprise of 7.17%. The same is depicted in the chart below:

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise | Aflac Incorporated Quote

Arthur J. Gallagher & Co. AJG is likely to report top-line growth in the to-be-reported quarter, mainly driven by organic sales as well as strategic mergers and acquisitions. Also, expected revenue improvement across the segments of Brokerage, Risk Management and Corporate is likely to contribute to this upside. The Zacks Consensus Estimate for revenues is also pegged at $1.6 billion, representing a rise of 1.1% from the prior-year quarter.

Additionally, we anticipate the company to have displayed improved organic growth at its Brokerage segment in the period to be reported, driven by strong growth across all its divisions. To top it all, the company expects revenues from this segment to be benefited by a favorable forex impact. In fact, the Zacks Consensus Estimate for this metric is pegged at $979 million, representing an 11.4% rise from the year-ago quarter.

Owing to the gradual improvement in interest rates, the company is likely to witness better investment results with the consensus mark pegged at $15.5 million, reflecting a rise of 27% on a year-over-year basis.

The Zacks Consensus Estimate for the company is pegged at 62 cents, down 39.8% year over year. The company’s Zacks Rank of 3 and its Earnings ESP of +0.63% makes us fairly confident of a likely earnings beat. (Read more: Arthur J. Gallagher Q2 Earnings: Is a Beat in Store?)

The company beat earnings estimates in each the last four reported quarters, with an average positive surprise of 3.71%. The same is depicted in the chart below:

Arthur J. Gallagher & Co. Price and EPS Surprise

Arthur J. Gallagher & Co. Price and EPS Surprise | Arthur J. Gallagher & Co. Quote

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Aflac Incorporated (AFL) : Free Stock Analysis Report
 
Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
 
Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
 
The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
 
Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
 
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