The second-quarter earnings season is in its last leg, with 63% of the S&P 500 members having already reported their financial results. Earnings of these 317 index members have declined 3.3% on 0.9% lower revenues as per the Earnings Preview report. However, the beat ratio is 72.9% for the bottom line and 53.6% for the top line.
Earnings of 80% of the companies in the Finance sector (with 75.7% market capitalization) that have already reported have declined 4.2%, while revenues have managed to increase 1.1%. Beat ratios (66.7% for earnings and 52.8% for revenues) compare unfavorably with the S&P 500.
The insurance industry is part of the broader finance sector. The second quarter witnessed varied catastrophe, including a wildfire in Canada, flooding in Europe, earthquakes in Japan and Ecuador, and hailstorms in Texas. Underwriting results were affected, with underwriting income and combined ratio witnessing deterioration. Industry loss is estimated at $15–$20 billion. The bottom lines of P&C insurers that have already reported suffered due to these catastrophe events.
Despite a slight rise in interest by the Fed last December, the interest rate environment is still low. This in turn will keep investment results under pressure. Nonetheless, the slight rate rise is a breather for life insurers that suffered spread compression on products like fixed annuities and universal life due to sustained low rates.
Nevertheless, insurers in this well-capitalized industry remain well poised on the back of their expanded and diversified product and service portfolio that is driving premiums higher.
As many as 1090 companies are due to report their quarterly results this week, including 116 S&P 500 members. Among these, let’s see what’s in store for four insurers that are reporting on Aug 5.
Berkshire Hathaway Inc. BRK.B is a holding company with 90 subsidiaries engaged in operations in insurance, rail roads, utilities, manufacturing services, retail and home building. The company delivered a 3.23% positive surprise last quarter. Berkshire Hathaway has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.84. The company carries a Zacks Rank #3 (Hold).
Berkshire Hathaway’s second-quarter results are expected to have benefited from better the performing utilities and energy, manufacturing, service and retail, and finance and financial products segments. Strategic acquisitions should continue to support results. However, exposure to catastrophe losses and high expenses incurred on rail road operations can hurt margins. (Read: Will Berkshire Hathaway Q2 Earnings Hit the Stock?)
With respect to the surprise trend, Berkshire Hathaway lagged expectations in three of the last four quarters, with an average miss of 8.40%.
Willis Towers Watson plc WLTW is a leading global advisory, broking and solutions company catering to large companies and mid-market and small businesses across the world. The company delivered a 21.79% positive surprise last quarter. Willis Towers is poised for an earnings beat this time around as it has the right combination of the two key ingredients of a positive Earnings ESP and a favorable Zacks Rank #3.
For the upcoming results, Willis Towers has an Earnings ESP of +1.89% as the Most Accurate estimate stands at $1.62 and the Zacks Consensus Estimate is pegged lower at $1.59.
Strategic acquisitions are expected to boost the top line. Fees and commissions will likely improve on strong organic growth across segments. However, an expected rise in interest expense, operating expenses and decline in investment income are deterrents. (Read: Will Willis Towers Q2 Earnings Deliver a Surprise?)
With respect to the surprise trend, Willis Towers lagged expectations in two of the last four quarters, with an average miss of 3.28%.
Enstar Group Limited ESGR offers innovative capital release solutions and specialty underwriting capabilities through its network of group companies across the world. The company delivered a 193.75% positive earnings surprise last quarter. Enstar Group has an Earnings ESP of 0.00% as the Most Accurate estimate as well as the Zacks Consensus Estimate are pegged at $2.14. It currently carries a Zacks Rank #3.
With respect to the surprise trend, Enstar Group surpassed expectations in only one of the last four quarters, with an average beat of 29.27%.
Hallmark Financial Services Inc. HALL is a specialty property/casualty insurer, underwriting and servicing about $0.5 billion annually in commercial and personal insurance premiums in select markets. Hallmark Financial delivered a 25% negative earnings surprise last quarter. It has an Earnings ESP of 0.00% – both the Most Accurate estimate and Zacks Consensus Estimate pegged at 20 cents – and a Zacks Rank #3.
With respect to the surprise trend, Hallmark Financial surpassed expectations in two of the last four quarters, with an average beat of 101.41%.
Keep an eye on our full earnings articles to see how these companies finally fared.
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