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The second-quarter earnings season has crossed the halfway mark with 381 members of the elite S&P 500 index having already reported their financial numbers. Per the latest Earnings Preview, the performance of these index participants indicates a 25% increase in total earnings on 10.4% higher revenues. The beat ratio is impressive with 80.1% companies surpassing bottom-line expectations while 73.8% outperforming on the top-line front. This uptrend bears an encouraging picture of the ongoing reporting cycle.
The Finance sector (one of the 16 Zacks sectors) is expected to deliver earnings growth of 20.5% on 6.3% higher revenues for the second quarter of 2018.
Integral to the Finance sector, the insurance industry is likely to witness better results this time around on the back of an improving rate environment, tax cuts and an overall favorable operating environment.
The insurance industry faced a catastrophe loss in the second quarter. Successive rain storms in the United States as well as Canada did cause damages but the loss was lower than the year-ago quarter’s shortfalls. A Morgan Stanley analyst noted that the second-quarter cat loss estimate is equivalent to about half of what the insurers usually suffer due to natural calamities in any given second quarter, per a carriermanagement.com report.
Improved pricing, prudent underwriting practices, portfolio repositioning as well as reliance on reinsurance covers have possibly helped insurers survive the deficits.
A steady increase in interest rates is likely to have supported net investment income, an important component of an insurer’s top line. Reflecting economic stability, the Federal Reserve raised the key interest rate in June, marking the second hike in 2018.
Also, a progressing employment scenario and a strengthening labor market have boosted demand for insurance covers. This in turn, should have driven premium revenues for the insurers.
A diversified portfolio, a wide geographic footprint, strategic consolidations as well as lower taxes are anticipated to have enhanced insurers’ performance in the quarter to be reported.
Let’s find out how the following insurers are placed ahead of their quarterly releases on Aug 6.
Brighthouse Financial, Inc.’s BHF expansive and a compelling suite of life and annuity products plus a strong market presence and efforts to enhance sales of annuity products should have supported Brighthouse Financial’s second-quarter results.
The company’s sustained efforts to boost distribution platform and network coupled with developing new products have likely aided the premium increase.
However, higher expenses should have continued to pressure on the margin. The company expects second-quarter corporate expenses to be considerably high. (Read more: Brighthouse Financial Q2 Earnings: What's in Store?)
The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.03 per share for Brighthouse Financial. The stock carries a Zacks Rank #3 (Hold), which raises the predictive power of ESP. However, its Earnings ESP of -1.28% leaves surprise prediction inconclusive as a company needs to have a positive ESP to be confident about an earnings surprise.
Per the company’s earnings history, its bottom line beat estimates in two of the last three quarters, the average negative surprise being -17.61%. The same is depicted in the chart below.