The second-quarter earnings season is in full swing, with 92 members of the S&P 500 index due to report their financial results this week. Earnings of the 36 index members that have reported already as per the Earnings Preview report declined 3.9% on 0.1% lower revenues. However, the beat ratio is 66.7% for the bottom line and 41.7% for the top line.
About 7.8% of the companies in the Finance sector have already reported their results. Total earnings are down 5.4%, though revenues managed a 0.4% improvement. The beat ratio is 57.1% for earnings and 42.9% for revenues.
The property and casualty (P&C) insurance industry is part of the broader finance sector. Let’s see how the second quarter has turned up for insurers so far. This quarter witnessed varied catastrophes, including a wildfire in Canada, flooding in Europe, earthquakes in Japan and Ecuador and hailstorms in Texas. The industry is estimated to incur an expected loss of $15 billion to over $20 billion due to 25 weather events that occurred in the quarter. These have weighed on the underwriting results of insurers, and hurt their underwriting income and combined ratio.
However, prudent underwriting approaches have likely limited capital erosion.
To the disappointment of the sector, the interest rate remains unchanged as the Federal Reserve stayed away from raising the same due to weak employment data and Brexit induced uncertainties. Therefore, investment income, which forms a major component of insurers’ revenues, remained under pressure. But a broader invested asset base and alternative asset classes bring some respite.
Nonetheless, insurers in this well-capitalized industry remain well poised on the back of their expanded and diversified product and service portfolio, which is driving premiums higher. Effective capital deployment involving share buybacks should boost the bottom line.
As many as 299 companies are due to report their quarterly results this week. Among these, let’s see what’s in store for three P&C insurers that are slated to come up with their numbers on Jul 21 before the opening bell.
The Travelers Companies, Inc. (NYSE:TRV) provides a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the U.S. and select international markets. The company delivered a 9.34% negative earnings surprise last quarter. Travelers Companies has an Earnings ESP of -2.82% and a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the quarter is pegged at $2.13.
Travelers’ underwriting results may have deteriorated to higher catastrophe losses. Investment income is likely to remain low, mainly due to low reinvestment rates and lesser returns in the non-fixed income portfolio. However, Travelers is likely to witness a rise in new business written in the to-be-reported quarter. Moreover, the company’s Personal Insurance business may come up with robust numbers, with strong retention in both Agency Auto and Agency Homeowners. Continued share buyback should boost the bottom line. (Read more: Travelers Q2 Earnings: Disappointment in Store?)
With respect to the surprise trend, Travelers Companies surpassed expectations in three of the last four quarters, with an average beat of 12.28%.
Stewart Information Services Corporation (NYSE:STC) is primarily involved in title insurance. The company delivered a 16.00% negative earnings surprise last quarter. For the second quarter of 2016, Stewart Information Services has an Earnings ESP of 0.00%. It currently carries a Zacks Rank #4. The Zacks Consensus Estimate for the quarter is pegged at 86 cents.
With respect to the surprise trend, Stewart Information Services surpassed expectations in two of the last four quarters, with an average beat of 10.32%.
STEWART INFO SV Price and EPS Surprise
STEWART INFO SV Price and EPS Surprise | STEWART INFO SV Quote
First American Financial Corporation (NYSE:FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions. First American Financial delivered a 13.89% positive earnings surprise last quarter. First American Financial has an Earnings ESP of -3.70% and a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the quarter is pegged at 81 cents.
With respect to the surprise trend, First American Financial surpassed expectations in three of the last four quarters, with an average miss of 14.26%.
FIRST AMER FINL Price and EPS Surprise
FIRST AMER FINL Price and EPS Surprise | FIRST AMER FINL Quote
Keep an eye on our full earnings articles to see how these companies finally fared.
TRAVELERS COS (TRV): Free Stock Analysis Report
FIRST AMER FINL (FAF): Free Stock Analysis Report
STEWART INFO SV (STC): Free Stock Analysis Report
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