P&C Insurers' Q3 Earnings To Watch On Nov 1: Y, RNR & More

We are in the second half of the third-quarter reporting cycle and the picture so far shows improvement. Results from 291 S&P 500 members that combined account for 58.2% of the index’s total market capitalization are already on board, as per the Earnings Preview article. Total earnings for these companies are up 2.2% from the same period last year on 1.3% higher revenues, with 73.5% beating EPS estimates and 57.4% surpassing top-line expectations.

The Finance sector (one of the 16 Zacks sectors) started the Q3 earnings season on a strong note. In fact, the financial performance of 78.9% companies from this sector that have already reported their quarterly results indicates 9.3% earnings growth due to a 5.9% increase in revenues, on a year-over-year basis. Moreover, the beat ratios of 74.6% for the bottom line and 73.2% 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. The property and casualty (P&C) insurance industry also forms a sizable part of the broader finance sector. Let’s see how the third quarter has turned up for insurers so far.

Unlike the last quarter, which bore the brunt of high catastrophe losses, earnings for property and casualty players this quarter will be relieved by benign cat activity in the period under review.

Nevertheless, a still low interest rate environment will lead to depressed investment yields, consequently putting pressure on investment income which is one of the revenue drivers for the sector. However, a broader invested asset base and alternative asset classes bring some respite.

The industry is, however, expected to post another profitable quarter aided by capital gains and reserve releases. We also expect to see favorable reserve development related to the past years led by low catastrophe losses and prudent reserving practices.

The sector is flushed with excess capital, due to a benign catastrophe activity in recent years. The players are therefore indulging in share buyback, dividend hike and mergers and acquisitions. These efforts will also be accretive to earnings.

Insurers are expected to benefit from growing exposure to the key areas of the economy such as new vehicle sales and construction. Moreover, continued growth in workers’ compensation premiums and continued growth in premiums related to residential construction will drive premium growth.

Let’s take a look at how these four P&C insurers might fare when they report their third-quarter numbers on Nov 1.

Alleghany Corporation (NYSE:Y) together with its subsidiaries, engages in property and casualty reinsurance and insurance businesses in the United States and internationally. Alleghany has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell).

Last quarter, Alleghany missed the Zacks Consensus Estimate by 1.77%. With respect to the surprise trend, Alleghany surpassed expectations in two of the last four quarters, with an average beat of 12.08%.

American Financial Group, Inc., (NYSE:AFG) through its subsidiaries, provides property and casualty insurance products in the United States. It operates through four segments: Property and Casualty Insurance, Annuity, Run-Off Long-Term Care and Life, and Other. American Financial carries a Zacks Rank #3 (Hold). Its Earnings ESP is +2.61% as the Most Accurate estimate stands at 1.57 per share, while the Zacks Consensus Estimate is lower at $1.53. Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.

The company does not have an impressive earnings surprise trend. Last quarter, American Financial beat the Zacks Consensus Estimate by 1.59%. But it missed expectations in two of the last four quarters, with an average miss of 2.03%.

RenaissanceRe Holdings Ltd. (NYSE:RNR) together with its subsidiaries, provides reinsurance and insurance coverages and related services in the United States and internationally. The company operates through the Catastrophe Reinsurance, Specialty Reinsurance and Lloyd’s segments. It has an Earnings ESP of +3.59% as the Most Accurate Estimate stands at $2.31 per share, which is above the Zacks Consensus Estimate of $1.23. RenaissanceRe carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Last quarter, RenaissanceRe missed the Zacks Consensus Estimate by 229%. The company does not have a respectable earnings surprise trend. It missed expectations in two of the last four quarters, with an average miss of 6.73%.

Argo Group International Holdings, Ltd. (NASDAQ:AGII) underwrites specialty insurance and reinsurance products in the property and casualty market worldwide. The company has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 67 cents per share. It carries a Zacks Rank #4.

Last quarter, Argo Group beat the Zacks Consensus Estimate by 61.54%. The company surpassed expectations in each of the last four quarters, with an average beat of 21.73%.

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