P&C Insurance Stock Q3 Earnings On Oct 26: XL, AXS & More

The Q3 earnings season is in full swing with results from 23.2% of the S&P 500 Index members already on board. Earnings of these 116 members (accounting for 30% of the index’s total market capitalization) are up 3.3% on 1.8% higher revenues as per the latest Earnings Preview report. While 80.2% of these companies delivered positive earnings surprises, 62.9% managed to beat revenue estimates.

The Finance sector (one of the 16 Zacks sectors) has started the Q3 earnings season on a strong note. In fact, the financial performance of 33.3% companies from this sector that have already reported their quarterly results indicates 7.9% earnings growth due to a 5.1% increase in revenues, on a year-over-year basis. Moreover, the beat ratios of 90% for the bottom line and 86.7% for the top line compare favorably with the S&P 500.

The Finance sector is highly diversified and includes several industries like insurance, banks and financial transaction services to name a few.

Insurers (particularly the property and casualty companies) are expected to witness an improvement in underwriting results – underwriting income and combined ratio – courtesy of a benign cat loss environment. This, along with prudent reserving practices, should lead to favorable reserve development.

The industry is expected to see another profitable quarter backed by capital gains and reserve releases. Exposure to key areas of the economy, such as new vehicle sales and construction should benefit property and casualty insurers.

However, a still low interest rate environment will continue to weigh on investment yields and consequently hurt investment income. Lower investment income might hurt quarterly revenues as it is one of the major contributors of top-line growth.

Nonetheless, a broader invested asset base and alternative asset classes should offer some respite. We note that insurers that have managed to accumulate excess capital due to lower catastrophe losses in recent years are deploying the same to buy back shares. This strategy should boost their bottom line in Q3.

Insurance - Property and Casualty Industry Price Index

Insurance - Property and Casualty Industry Price Index

As many as 810 companies, including 171 index members, are due to report their results this week. Let’s take a look at how these five property and casualty insurers might fare when they report their Q3 numbers on Oct 26.

XL Group plc (NYSE:XL) is an insurance and reinsurance company providing property, casualty, and specialty products to industrial, commercial, professional, insurance companies, and other enterprises across the globe. The company delivered a positive earnings surprise of 60.87% in the last quarter. According to our quantitative model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) – to increase its odds of an earnings surprise. Though XL Group has a favorable Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.

XL Group is likely have benefited from higher net premiums earned, strong international exposure and diversified product offerings. However, a decline in net investment income and increase in operating expenses raise concerns. (Read more: Can XL Group Pull a Surprise this Earnings Season?)

With respect to the surprise trend, XL Group beat expectations in two of the last four quarters but with an average miss of 1.35%. The Zacks Consensus Estimate for Q3 is pegged at 42 cents per share.

XL GROUP LTD Price and EPS Surprise

XL GROUP LTD Price and EPS Surprise | XL GROUP LTD Quote

AXIS Capital Holdings Limited (NYSE:AXS) is a global provider of specialty lines insurance and treaty reinsurance. The company delivered a positive earnings surprise of 45.71% in the last quarter. AXIS Capital has an Earnings ESP of 0.00% and a Zacks Rank #3.

With respect to the surprise trend, AXIS Capital surpassed expectations in three of the last four quarters with an average beat of 3.08%. The Zacks Consensus Estimate for Q3 is pegged at $1.09 per share.

AXIS CAP HLDGS Price and EPS Surprise

AXIS CAP HLDGS Price and EPS Surprise | AXIS CAP HLDGS Quote

Arch Capital Group Ltd. (NASDAQ:ACGL) provides property, casualty, and mortgage insurance and reinsurance products worldwide. The company delivered a positive earnings surprise of 15.31% in the last quarter. Arch Capital has an Earnings ESP of -0.98% and a Zacks Rank #2. You can see the complete list of today’s Zacks Rank #1 stocks here.

With respect to the surprise trend, Arch Capital outpaced estimates in each of the last four quarters, with an average beat of 7.10%. The Zacks Consensus Estimate for Q3 is pegged at $1.02 per share.

ARCH CAP GP LTD Price and EPS Surprise

ARCH CAP GP LTD Price and EPS Surprise | ARCH CAP GP LTD Quote

Aspen Insurance Holdings Limited (NYSE:AHL) is engaged in insurance and reinsurance businesses worldwide. The company delivered a negative earnings surprise of 28.57% in the last quarter. Arch Capital has an Earnings ESP of 0.00% and a Zacks Rank #3.

With respect to the surprise trend, Arch Capital surpassed expectations in two of the last four quarters but with an average miss of 9.15%. The Zacks Consensus Estimate for Q3 is pegged at $1.28 per share.

ASPEN INS HLDGS Price and EPS Surprise

ASPEN INS HLDGS Price and EPS Surprise | ASPEN INS HLDGS Quote

Selective Insurance Group, Inc. (NASDAQ:SIGI) provides insurance products and services in the United States. The company delivered a positive earnings surprise of 2.86% in the last quarter. Arch Capital has an Earnings ESP of 0.00% and a Zacks Rank #2.

With respect to the surprise trend, Selective Insurance surpassed expectations in three of the last four quarters with an average beat of 9.05%. The Zacks Consensus Estimate for Q3 is pegged at 77 cents per share.

SELECT INS GRP Price and EPS Surprise

SELECT INS GRP Price and EPS Surprise | SELECT INS GRP Quote

Keep an eye on our full earnings articles to see how these companies finally fared.

Confidential from Zacks

This week, Zacks researchers have named 7 other stocks that look to break out even sooner than today's Bull of the Day. You can see these time-sensitive tickers free, and access additional trades that are not available to the public. Simply click here>>