Strong Q3 Earnings Push Insurance ETFs Higher

The insurance industry has performed well this reporting cycle with robust earnings from key players. Even damages from successive hurricanes Harvey and Irma have not taken the sheen away from the industry as predicted earlier (read: Insurance ETFs Back On Track Post Hurricane Irma).

Prominent players such as MetLife (NYSE:MET) , Prudential Financial (NYSE:PRU) , Chubb Corp (NYSE:CB) , Allstate (NYSE:ALL) and Travelers (NYSE:TRV) surpassed both our earnings and revenue estimates. While American International (NYSE:AIG) missed the earnings estimate, Aflac Inc. (NYSE:AFL) lagged revenue estimates.

Insurance Earnings in Focus

MetLife, the U.S. life insurer behemoth, reported robust earnings of $1.09 per share, which beat the Zacks Consensus Estimate by 19 cents but declined 11% from the year-ago quarter. Revenues increased 5% year over year to $16.8 billion and were well ahead of the estimate of $15 billion. PRU, the second-largest U.S. life insurer, also beat the earnings estimate by 30 cents. Earnings improved 13.2% year over year. Revenues increased 10.2% year over year to $13.4 billion edging past the $12.24 billion estimate.

One of the leading property and casualty insurers, Chubb, reported loss of 13 cents per share, narrower than the Zacks Consensus Estimate of a loss of 26 cents and deteriorated from earnings of $2.88 in the year-ago quarter. Revenues of $8.74 billion edged past the estimated $8.1 billion. Another property and casualty insurer, Allstate, also topped the Zacks Consensus Estimate on earnings and revenues by 81.8% and 13.1%, respectively. On a year-over-year basis, earnings and revenues grew 27% and 4.8%, respectively.

AIG, one of the largest commercial insurers in the United States and Canada, came up with a huge earnings miss of 47%. Earnings per share of $1.70 reported by Aflac, the seller of supplement health insurance, trumped the Zacks Consensus Estimate by 4.9% but decreased 2.3% from the year-ago quarter. Revenues also fell 3.5% year over year to $5.51 billion and fell short of the $5.55 billion estimate (see: all the Financial ETFs here).

Personal property and casualty insurer Travelers posted earnings per share of 91 cents, easily crushing the Zacks Consensus Estimate by 53 cents but declining 62.1% year over year. Revenues grew 5.2% year over year to $7.2 billion and were ahead of the estimated $7.0 billion.

ETFs in Focus

Given the robust Q3 results, insurance ETFs SPDR S&P Insurance ETF (LON:KIE) and iShares U.S. Insurance ETF IAK have been leading the way in the past 10 days. This is especially true as KIE has shed 0.4% and IAK has gained 0.1% compared with a loss of 1.8% for the broad financial ETF XLF. KIE has a Zacks ETF Rank #4 (Sell) while IAK has a Zacks ETF Rank #3 (Hold).

KIE

This fund follows the S&P Insurance Select Industry Index, holding 51 stocks in its basket. Each of the in-focus firms accounts for around 2% share each. About 40.1% of the portfolio is allocated to the property and casualty insurance, while life & health insurance accounts for 27.1% share. The ETF has managed $774.9 million in its asset base and trades in a good average daily volume of about 121,000 shares. The product has an expense ratio of 0.35% (read: ETFs to Buy After Weak Jobs Report).

IAK

With AUM of $177.8 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 44 bps in annual fees. Volume is light, trading in roughly 12,000 shares per day. In total, the fund holds 62 securities in its basket with the in-focus seven firms occupying the top seven positions and collectively making up for 46.8% of assets. Here also, property & casualty insurance accounts for the largest share at 45%, while life & health insurance and multiline insurance round off the top three with a double-digit exposure each.



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