The insurance industry is expected to have benefited from continued rate increases, strong retention rates, an improving interest rate environment and significant technological advancements in the fourth quarter of 2022. However, a catastrophic environment asset and persistent inflationary pressures are likely to have thrown up hurdles for insurers. Some of the insurers, including MetLife, Inc. ENCOUNTER, Afla Incorporated AFL, The Allstate Company ALL, American Financial Group, Inc. AFG and MGIC investment company MTG is expected to release its fourth quarter results on February 1.
The insurance space is housed within the broader finance sector (one of 16 major Zacks sectors within the Zacks Industry Classification). According to the latest earnings overview, total profits of financial companies for the fourth quarter of 2022 are expected to fall by 9.9% compared to the figure published in the quarter of the previous year, while the revenues of these companies are expected to increase by 2, 8%.
Factors likely to shape insurers’ performance in the fourth quarter
Large lines of insurance companies likely benefited from premium growth resulting from continued rate hikes, growing exposure and strong customer retention rates in the fourth quarter. An increase in the level of premiums is a good omen, as they are a major contributor to an insurer’s income. Diversified portfolios, which minimize concentration risks, held by insurers should also have boosted their premiums in the fourth quarter.
According to MarketScout, a Texas-based insurance distribution and underwriting company, U.S. commercial insurance rates rose at a composite rate of 5.1% in the quarter ahead. The same source cited a composite rate increase of 5.2% across all personal lines business in the fourth quarter of 2022.
However, large catastrophic losses from winter storm Elliott are expected to have weighed on underwriting results for insurance companies in the quarter ahead. Karen Clark & Company expects the storm to produce an estimated loss of $5.4 billion for the US insurance industry.
Although they come with their own set of worries, catastrophe losses typically increase policy renewal rates and prompt insurers to implement rate hikes.
In the fourth quarter, an improving interest rate scenario likely boosted investment returns for insurers exposed to rate-sensitive products. An aging US population should have supported steady premium flows for life insurers from their insurance and protection products in the quarter ahead.
The easing of border restrictions and the diminishing effects of the COVID-19 pandemic gave travelers more confidence, which, in turn, likely pushed up auto premiums in the fourth quarter. However, inflationary pressures should have increased spending on auto parts or labor costs, which likely put pressure on auto insurers’ margins.
The strength of the mortgage market, supported by increased policy renewals and lower unemployment rates, likely supported mortgage insurance premiums in the quarter ahead.
The insurance industry frequently employs large technology investments in blockchain, AI and advanced analytics, which aim to accelerate claims payment and automate processes. These investments likely reduced costs and supported insurers’ margins in the fourth quarter.
Let’s find out how the following insurers are positioned ahead of their fourth quarter 2022 results on February 1.
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MetLife: In the fourth quarter, MetLife’s revenues are expected to have benefited from the strong performance of its United States, Latin America and Europe, Middle East and Africa segments. However, lower net investment income and lower universal life insurance and investment product fees likely acted as headwinds. (Read more: Could falling premiums dampen MetLife’s fourth-quarter earnings?)
Zacks’ consensus estimate for MET’s fourth-quarter 2022 earnings is pegged at $1.76 per share, indicating an 18.9% drop from the reported figure for the year-ago quarter. The consensus mark for revenue is set at $17 billion, suggesting a 16.1% decline from the reported figure for the prior year quarter.
MetLife has an ESP on Earnings of -1.50% and a #3 Zacks Rank.
Earnings for MET have exceeded estimates in each of the past four quarters, with the average surprise being 28.00%. The same is illustrated in the table below:
MetLife, Inc. Awards and EPS Surprise
MetLife, Inc. price-eps-surprise | Quote from MetLife, Inc.
Aflac: Fed interest rate hikes likely boosted Aflac’s US operations in the fourth quarter, but Japanese operations likely suffered from sales difficulties. The multiple cost reduction efforts pursued by the AFL are expected to have resulted in lower expenses, contributing to margins in the quarter to report. (Read more: Can Aflac’s fourth-quarter earnings beat estimates on lower spending?)
Zacks’ consensus estimate for Aflac’s fourth-quarter 2022 earnings of $1.21 per share indicates a 5.5% decline from the reported year-ago quarter figure. The consensus mark for revenue is set at $4.5 billion, suggesting a decline of 17.4% from the reported figure for the prior year quarter.
AFL has a +1.29% earnings ESP and a No. 2 Zacks rank.
Aflac’s earnings have exceeded estimates in each of the past four quarters, with the average surprise being 4.83%. The same is illustrated in the table below:
Aflac Incorporated Award and EPS Surprise
Aflac Incorporated price-eps-surprise | Quote from Aflac Incorporated
Allstate: In the fourth quarter, Allstate is expected to have benefited from earned premium growth in the Property-Liability and Protective Services segments in the quarter ahead. Catastrophe losses, primarily from winter storm Elliott, likely weighed on its underwriting results. Management estimates pretax catastrophe losses at $779 million for the fourth quarter. (Read more: Allstate to report fourth quarter results: What’s in the cards?)
Zacks’ consensus estimate for ALL’s fourth-quarter 2022 earnings is set at a loss of $1.37 per share. Notably, earnings of $2.75 per share were recorded in the prior year quarter. The consensus mark for revenue was $12.5 billion, indicating a 2% decline from the reported figure for the prior year quarter.
Allstate has an Earnings ESP of 0.00% and a Zacks Rank of #5 (strong sell).
Earnings for ALL have exceeded estimates in three of the last four quarters and missed the target once, with the average surprise being 8.29%. The same is illustrated in the table below:
The Allstate Corporation Award and EPS Surprise
The price-eps-surprise of Allstate Corporation | The quote from Allstate Corporation
American financial: AFG’s fourth quarter results are expected to have improved thanks to improved net premiums earned in P&C insurance, coupled with other income. However, lower net investment income and high spending likely weighed on American Financial’s quarterly performance.
Zacks’ consensus estimate for AFG’s fourth-quarter 2022 earnings of $2.95 per share indicates a 28.4% decline from the reported year-ago quarter figure. The revenue consensus mark is pegged at $1.7 billion, suggesting a 3.8% decline from the year-ago quarter reading.
American Financial has an ESP on earnings of 0.00% and is ranked #3 by Zacks.
AFG’s earnings beat estimates in each of the past four quarters, averaging 28.16%. The same is illustrated in the table below:
American Financial Group, Inc. Price and EPS Surprise
American Financial Group, Inc. price-eps-surprise | American Financial Group, Inc. Quote
MGIC investment: The insurer’s performance is likely to have been driven by higher new business written and strong retention rates, leading to higher premiums in the fourth quarter. Claims payments likely trended lower in the quarter ahead. However, escalating underwriting and other fees are expected to have put pressure on MGIC Investment’s margins.
Zacks’ consensus estimate for MTG’s fourth-quarter 2022 earnings is set at 59 cents per share, suggesting a decline of 3.3% from the figure reported a year ago. The revenue consensus mark is pegged at $334.1 million, suggesting 14% growth over the reported figure for the prior year quarter.
MGIC Investment has an ESP on Earnings of 0.00% and a Zacks Rank of 3.
MTG’s earnings have exceeded estimates in each of the past four quarters, with the average surprise being 36.34%. The same is illustrated in the table below:
MGIC Investment Corporation award and surprise EPS
MGIC Investment Corporation price-eps-surprise | Quote from investment company MGIC
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