The insurance industry is expected to have benefited from prudent rate increases, strong customer retention rates, improved investment yields and continuous technology advancements in the first quarter of 2023. However, an active catastrophe environment and inflationary pressures might have hindered the growth of insurers. Insurers like Aflac Incorporated (AFL Quick QuoteAFL - Free Report) , Arch Capital Group Ltd. (ACGL Quick QuoteACGL - Free Report) , AXIS Capital Holdings Limited (AXS Quick QuoteAXS - Free Report) and AMERISAFE, Inc. (AMSF Quick QuoteAMSF - Free Report) are set to report their first-quarter earnings on Apr 26.

The insurance space is housed within the broader Finance sector (one of the 16 broad Zacks sectors within the Zacks Industry classification). Per the latest Earnings Preview, the total earnings of finance companies for first-quarter 2023 are forecast to improve 7.6% from the prior-year quarter’s reported figure, while revenues of these companies are estimated to grow 7.9%.

Factors Likely to Decide the Fate of Insurers in Q1 Earnings

Premiums, the most significant contributor to any insurer’s top line, are expected to have received an impetus from uninterrupted rate hikes, exposure growth and solid customer retention rates in the first quarter. Rate hikes enable insurers to make uninterrupted claim payments.

Diversified portfolios, through which insurers minimize concentration risks, are likely to have boosted sales of insurance policies and drive higher premiums in the to-be-reported quarter. However, sustained inflationary pressure is expected to have taken a toll on the premium-paying capability of insurers.

According to a Texas-based insurance distribution and underwriting company, MarketScout, the commercial property and casualty insurance rates in the United States registered more than 5% growth in the first quarter.

Continued incidence of catastrophe losses might have inflicted volatility on the underwriting results of insurers and led to a deteriorating combined ratio in the to-be-reported quarter. Nevertheless, insurers remain equipped with reinsurance covers and favorable reserve development to withstand the blow of catastrophe losses. Also, an active catastrophe environment is likely to have boosted the policy renewal rate for insurers.  

Per Aon, global insured catastrophe losses are anticipated to be $15 billion in the first quarter, with 58% stemming from disasters in the United States.

Growing interest rates, though at a moderate pace, in order to tame inflation might have driven investment yields for insurers having exposure to rate-sensitive products and investments. An aging U.S. population is expected to have sustained the solid demand for life insurance and protection products in the to-be-reported quarter.

Auto premiums are likely to have received an impetus in the first quarter of 2023 from an increase in the number of cars plying on roads following receding pandemic effects. However, inflationary headwinds might have thrown roadblocks for auto insurers by escalating auto part expenses or labor costs. The resumption of commercial and industrial activities is expected to have boosted demand for worker compensation insurance coverage in the to-be-reported quarter.

Technology investments in blockchain, AI and advanced analytics, which seem to be the need of the hour amid a booming digitization era, are expected to have ramped up claim payments and automated processes for insurers. This, in turn, is likely to have curbed their operating costs and driven margins in the first quarter.    

Let’s find out how the following insurers are placed before their earnings announcements.

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Aflac: Revenues of Aflac are likely to have benefited from growing sales within its U.S. segment in the first quarter. The unit might have gained on tactical investment in growth initiatives and productivity gains. Multiple cost-curbing efforts are expected to have lowered operating costs and aided margins in the to-be-reported quarter.

The Zacks Consensus Estimate for AFL’s first-quarter 2023 earnings is pegged at $1.38 per share, indicating a 2.8% decline from the prior-year quarter’s reported figure. The consensus mark for revenues is pegged at $4.6 billion, suggesting a 12.8% plunge from the year-ago quarter’s reported figure.

Aflac has an Earnings ESP of +1.20% and a Zacks Rank #3.

AFL’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 5.88%. The same is depicted in the chart below:

Arch Capital: Rate increases, new business opportunities and improvement in existing accounts are likely to have boosted premiums for Arch Capital in the to-be-reported quarter. Net investment income is expected to have benefited from solid cash flow from operations and higher reinvestment rates. However, elevated catastrophe losses are likely to have dampened its underwriting profitability. (Read more: Will Arch Capital's  Beat Streak Continue in Q1 Earnings?)

The Zacks Consensus Estimate for Arch Capital’s first-quarter 2023 earnings of $1.51 per share indicates an improvement of 37.3% from the prior-year quarter’s reported figure. The consensus mark for revenues is pegged at $2.8 billion, suggesting 29.8% growth from the year-ago quarter’s reported figure.

ACGL has an Earnings ESP of +3.92% and a Zacks Rank #3.

Arch Capital’s earnings outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 24.17%. The same is depicted in the chart below:

Axis Capital: In the first quarter, the Insurance segment of Axis Capital might have gained from increased new business opportunities, rate increases on renewal and continued strong retentions. New business growth and increased rates across North America and Global Markets are likely to have benefited the Reinsurance unit. Technology investments that pave the way for efficient operations are likely to have provided an impetus to its margins.

The Zacks Consensus Estimate for AXS’s first-quarter 2023 earnings is pegged at $1.89 per share, which implies a 9.6% decline from the prior-year quarter’s reported figure. The consensus mark for revenues stands at $1.5 billion, suggesting 8% growth from the year-ago quarter’s reported figure.

Axis Capital has an Earnings ESP of 0.00% and a Zacks Rank of #3.

AXS’s earnings outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 5.70%. The same is depicted in the chart below:

AMERISAFE: Its first-quarter results are expected to gain from an improved interest rate environment, which in turn, is likely to have generated higher returns from its investments. A reduced expense line might have driven its margins. However, a decline in premiums is likely to have dampened the quarterly performance in the to-be-reported quarter.   

The Zacks Consensus Estimate for AMSF’s first-quarter 2023 earnings of 66 cents per share indicates a 19.5% decrease from the prior-year quarter’s reported figure. The consensus mark for revenues is pegged at $74.5 million, suggesting 0.9% growth from the year-ago quarter’s reading.

AMERISAFE has an Earnings ESP of 0.00% and is Zacks #3 Ranked.

AMSF’s earnings outpaced estimates in each of the trailing four quarters, the average beat being 26.19%. The same is depicted in the chart below:

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