The first quarter of 2018 earnings season is round the corner. Our Earnings Preview projects double-digit earnings growth for 11 of the 16 Zacks sectors. Though there is noise buzzing around Trump’s levy of tariff on China and the chemical attack in Syria, the U.S. Insurance Industry still seems stabilized.

Per our Earnings Preview, the Finance sector earnings are expected to increase 19.1% on 4.5% higher revenues. This is a huge improvement from the preceding quarter’s performance, fueled by a progressing rate environment, lower tax incidence and a better domestic growth scenario.

Earnings of the Insurance industry, an important component of finance sector (accounting for 25% of total earnings and ranks the second biggest earnings contributor), is estimated to grow 15% in the first quarter.

A Benign Cat Environment

By God’s grace, the first quarter escaped the furies of Mother Nature. Nonetheless, there were a notable few cat events like the California mudslide and northeast winter storms. But the magnitude of such losses is softer than last year’s deadly hurricanes, Californian wildfires and the Mexican earthquakes, which wreaked a huge havoc. In fact, 2017 was the costliest period in terms of cat loss.

Nonetheless, insurers having already suffered the bruise last year, weathered its first-quarter loss too. However, underwriting profitability must have been affected, albeit at lesser magnitude.

Price hikes, prudent underwriting practices, portfolio repositioning and taking reinsurance covers will help the insurers withstand the deficits.

Improving Rate Environment

Jerome Powell, on his debut, has raised the interest rate by 25 basis points and the same now stands at 1.75%. The Federal Reserve has hinted at two more hikes in 2018 followed by three in 2019 and two in 2020, thus nudging up the rate to 3.4%. Owing to a gradually advancing rate environment, investment results have also markedly improved from the historical lows.

Benefits of Tax Reforms

President Donald Trump has signed the Tax Cuts and Jobs Act into law on Dec 22, 2017. The tax reform policy — an overhaul of the tax code after 31 years — lowers the corporate tax burden to 21% from 35%, calling for a $1.5-trillion tax reduction. This move is likely to lower tax incidence, aiding margin expansion.

Interestingly, due to lower tax incidence, net profit available to shareholders will be higher, leaving enough room for greater dividend payout by the companies.

Encouraging Economic Data

A favorable employment situation, inflation approaching 2%, easing of the U.S. dollar and a momentum in oil prices point toward a better economic scenario.

Fed officials anticipate unemployment rate at 3.8% for 2018, 3.6% for both 2019 and 2020 and 4.5% over the long term.

The Fed estimates GDP to grow at 2.7% in 2018, 2.4% in 2019, 2% for 2020 and 1.8% in the long run.

A reviving housing market is expected to boost insurable exposures and premiums written. Stronger corporate bonds and improving recovery-bound real estate market might help curtail the credit-related investment loss.

Price Performance

The Insurance industry has underperformed the S&P 500 index since the onset of the first quarter. While the industry has lost 9%, the elite index has declined 2.5%.

 

Industry Rank

The Insurance industry is further divided into five components, two falling within the top half (industries with the best average Zacks Rank) of the Zacks Industry Rank and the rest three at the bottom half.

Life is positioned at #39, Brokerage at #63 falls within the top half while Multiline is ranked at #176. While Property and Casualty is placed at #205, Accident & Health at #206 belongs to the bottom half.

Stocks to Consider

A compelling portfolio, consolidations to accelerate growth and global expansion, judicious underwriting, capital influx and an effective capital deployment to enhance shareholders’ value brace insurers solidly against all odds.

With the help of our Zacks Stock Screener, we shortlisted an array of insurance stocks with a bullish Zacks Rank supported by upward estimate revisions over the last 60 days and price gains of minimum 10% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Health Insurance Innovations, Inc. HIIQ is a market leading cloud-based technology platform and distributor of innovative health insurance products.

Zacks Rank #2 (Buy)
The Zacks Consensus Estimate for 2018 has been raised 22.2%
Year-to-Date Price Gain: 16.1%
The Zacks Consensus Estimate for 2018 earnings reflects 104.6% year-over-year increase on 3.1% higher revenues

 

Kinsale Capital Group, Inc. KNSL is a specialty insurance group, focusing on the excess and surplus lines market.

Zacks Rank of 2
The Zacks Consensus Estimate for 2018 has been revised 2.5% upward
Year-to-Date Price Gain: 12.1%
The Zacks Consensus Estimate for 2018 earnings reflects 61.6% year-over-year increase on 15.9% higher revenues   

 

National General Holdings Corp., NGHC, a specialty personal lines insurance holding company, provides various insurance products and services in the United States.

Zacks Rank #1
The Zacks Consensus Estimate for 2018 has been moved 5.7% north
Year-to-Date Price Gain: 23.2%
The Zacks Consensus Estimate for 2018 earnings represents 46.7% year-over-year surge on 16.7% higher revenues


 

Everest Re Group, Ltd. RE provides reinsurance and insurance products.

Zacks Rank of 1
The consensus mark for 2018 has been raised 7.8%
Year-to-Date Price Gain: 12.1%
The Zacks Consensus Estimate for 2018 earnings reflects 157.1% year-over-year increase on 9.5% higher revenues

 

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Health Insurance Innovations, Inc. (HIIQ): Free Stock Analysis Report
 
Everest Re Group, Ltd. (RE): Free Stock Analysis Report
 
National General Holdings Corp (NGHC): Free Stock Analysis Report
 
Kinsale Capital Group, Inc. (KNSL): Free Stock Analysis Report
 
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