Wall Street kicked off the fourth-quarter 2022 earnings season last Friday. However, the season will pick up speed this week. This reporting cycle will be important, as market participants will closely monitor any signs of declining profit, revenue, or margins.
A large section of economists and financial experts are concerned that the US economy could face at least a mild recession in 2023 with a regime of higher interest rates and tighter monetary control adopted by the Federal Reserve.
However, five insurers are likely to top the fourth quarter 2022 earnings results. These are – Aflac Inc. (AFL – free report), Reinsurance Group of America Inc. (RGA – free report), Marsh & McLennan Companies Inc. (CMM – free report), Unum Group (UNM – free report) and The Travelers Companies Inc. (VRT – free report).
Insurance Sector Q4 2022
An improved interest rate environment benefits life insurers as their products and investments are rate sensitive. Therefore, a favorable interest rate positively impacts the earnings, capital and reserves, liquidity and competitiveness of life insurers.
Insurance brokerage firms are continually expanding globally, cross-selling products, raising rates, tightening underwriting standards, and reining in spending. The growth of the aging population is driving demand for retirement benefit products. The growing population of baby boomers and millennials, as well as increasing awareness, are driving demand for health insurance, life insurance, accident insurance, and other forms of insurance.
To stay competitive in the industry, players are embracing technological change. The threat comes from new entrants, including technology companies like insurtechs, start-ups, and others. Insurers are focused on using technology and innovation, including artificial intelligence, robotics and blockchain, to simplify and improve the customer experience, increase efficiencies, change business models and drive other disruptive changes in the industries in which existing players operate.
Accelerated digitization is also driving down costs, helping margin expansion. It will also help speed up claims processing, thereby improving operational performance and retention rate. While technology investments increase business efficiencies, the expenses associated with such investments increase operating costs. At the same time, insurers must protect themselves from falling prey to cyber threats.
Our top picks
Five insurance companies are poised to outperform fourth-quarter earnings results. Each of these stocks carries a Zacks Rank #2 (Buy) and has a positive Earnings ESP. You can see Full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the probability of them outperforming is up to 70%. These shares are expected to appreciate after the earnings release. You can discover the best stocks to buy or sell before they are reported with our ESP earnings filter.
The chart below shows the price performance of our five picks over the past quarter.
Image Source: Zacks Investment Research
The companies of travelers has a strong presence in the US auto, homeowners, and commercial property and casualty markets with strong inorganic growth. A high retention rate, an increase in new business, and a positive change in the renewal premium bode well.
TRV’s trading business should work well due to the stability of the market. The Travelers Companies remains bullish on the personal business line, given growth in the profitable homeowner and car dealer business. TRV expects fixed income NII, including short-term equity gains, to be around $500 million after-tax in the fourth quarter.
The Travelers Companies has an ESP Benefit of +2.59%. It has an expected earnings growth rate of 11.2% for the current year. The Zacks Consensus Estimate for current year earnings has improved 0.1% over the past seven days.
TRV posted surprise gains in the last four reported quarters, averaging 25.4%. The company will publish earnings results on January 24, before the opening bell.
Marsh & McLennan Companies is well positioned for growth thanks to the significant investments and acquisitions made within its operating units, the launch of new products and the expansion into new businesses.
MMC’s increased stake in Marsh India will further fuel growth. Revenues have been growing thanks to a broad geographic footprint and strong customer retention. The Risk and Insurance Services unit has also been contributing to revenue growth.
Marsh & McLennan Companies has an Earnings ESP of +5.67%. It has an expected earnings growth rate of 9.8% for the current year. The Zacks Consensus Estimate for current year earnings has improved 1% over the past seven days.
MMC posted earnings surprises in the last four reported quarters, with an average pace of 3.2%. The company will publish earnings results on January 26, before the opening bell.
Unum GroupConservative pricing and booking practices have contributed to overall profitability. A sustained increase in UNM premiums is driven by high levels of persistence in core business lines and strong sales volume coupled with strong benefits experience.
Continued launch of dental products and geographic expansion have paid off as UNM’s acquired dental insurance businesses are growing in the US and UK. We believe strong operating results have led to strong statutory earnings and capital, which drives financial flexibility.
Unum has an earnings ESP of +0.80%. It has an expected earnings growth rate of 1% for the current year. The Zacks Consensus Estimate for current year earnings has improved 0.3% over the past 30 days.
Unum posted earnings surprises in the last four reported quarters, averaging 34.9%. The company will publish its earnings results on January 31, after the closing bell.
aflac is about to grow from the purchase of Argus Dental and Vision. Multiple product launches, the creation of a virtual sales channel and a strong product portfolio will continue to drive sales for AFL. Your cost saving efforts will contribute to the bottom line.
Sound capital management allows you to return shareholder funds through share buybacks and dividend payments. AFL has been raising its dividend for 40 consecutive years. Its strong solvency position is impressive.
Aflac has an earnings ESP of +2.12%. It has an expected earnings growth rate of 3.1% for the current year. The Zacks Consensus Estimate for current year earnings has improved 0.7% over the past 30 days.
AFL posted earnings surprises in the last four reported quarters, averaging 4.8%. The company will publish earnings results on February 1, after the closing bell.
Reinsurance Group of America consistently benefits from a mix of organic and transactional opportunities. RGA’s niche position in the reinsurance markets and expanding international presence are positive aspects. Individual mortality has matured and provides a foundation for stable income. Individual mortality has matured and provides a foundation for stable income.
Significant value embedded in existing business should generate predictable earnings over the long term. RGA is poised to benefit from the improving life reinsurance pricing environment and higher investment income. A solid solvency position reflects your ability to pay interest.
Reinsurance Group of America has an Earnings ESP of +1.59%. It has an expected earnings growth rate of 5.5% for the current year. The Zacks Consensus Estimate for current year earnings has improved 2.3% over the past 30 days.
RGA posted earnings surprises in three of the last four reported quarters, averaging 49.7%. The company will publish earnings results on February 2, after the closing bell.
Stay on top of upcoming earnings announcements with the Zacks earnings calendar.