Improved pricing, strong retention, new business, favorable renewals, reinsurance agreements, compelling products and service portfolios, interest rate hikes and accelerated digitalization are expected to boost insurance stocks’ second-quarter results. Some of the insurers like Arthur J. Gallagher & Co. (AJG Quick QuoteAJG - Free Report) , Cincinnati Financial Corporation (CINF Quick QuoteCINF - Free Report) , Willis Towers Watson Public Limited Company (WTW Quick QuoteWTW - Free Report) , AMERISAFE, Inc. (AMSF Quick QuoteAMSF - Free Report) and First American Financial Corporation (FAF Quick QuoteFAF - Free Report) are set to announce quarterly results on Jul 27. However, an active catastrophe-level is likely to have weighed on their performance.

Improved pricing, solid retention and exposure growth across business lines are likely to have aided premiums. An active catastrophe environment accelerated the policy renewal rate and led to better pricing in the first quarter. Per a report by MarketScout, the composite rate for the United States commercial property and casualty lines increased more than 5% in the to-be-reported quarter.

JP Morgan estimates insured losses from major natural catastrophes, driven by storms in the United States, to be less than $10 billion in the second quarter of 2023. Nonetheless, better pricing, reinsurance arrangements, portfolio repositioning, reinsurance covers, favorable reserve development and prudent underwriting are likely to drive an improvement in underwriting results.

With three rate hikes already in 2023, investment income is likely to have improved, as insurers are beneficiaries of a rising rate environment. The Fed expects to execute another interest rate hike at its next meeting.

A bigger investment asset base, higher reinvestment rate and alternative investments in private equity, hedge funds and real estate among others are expected to have aided net investment income in the second quarter.

Courtesy of their solid capital position, the insurers pursued strategic mergers and acquisitions, which are likely to have diversified their portfolios, sharpened their competitive edge and expanded their geographic footprint in the second quarter. They also enhanced shareholders' value via share buybacks and dividend increases.

The increased adoption of technologies is expected to have improved operational efficiency, enhanced cybersecurity, upgraded policy administration and claims systems and limited costs, thus aiding margins in the second quarter. These, in turn, are likely to have driven the profit levels of the insurance industry players.

Let’s see how the abovementioned five insurers are placed ahead of their second-quarter 2022 earnings on Jul 27.

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Arthur J. Gallagher’s second-quarter results are expected to reflect new business, strong retention and renewal premium increases across its business lines. Revenues associated with acquisitions and organic revenue growth, organic change in base commissions and fee revenues are likely to have favored commission and fee revenues. Net investment income in the to-be-reported quarter is likely to have benefited from increases in interest income from higher interest rates earned on funds and fiduciary cash. Total expenses are likely to have increased mainly because of higher compensation, interest expenses, depreciation and change in estimated acquisition earnout payables. (Read more: What's in Store for Arthur J. Gallagher in Q2 Earnings?)

The Zacks Consensus Estimate for Arthur J. Gallagher’s second-quarter earnings per share of $1.87 indicates a 10% increase from the year-ago quarter reported figure. The company has an Earnings ESP of -1.38% and a Zacks Rank #2.  

AJG’s earnings outpaced estimates in each of the trailing four quarters, the average beat being 1.96%. This is depicted in the chart below:

Cincinnati Financial’s premiums are likely to have benefited from premium growth initiatives, a higher level of insured exposures and price increases and higher premiums from Cincinnati Re. Net investment income in the to-be-reported quarter is likely to have benefited from strong cash flow from operating activities and higher dividend income and interest income owing to an improving interest rate environment. CINF is expected to have gained from better pricing and increased exposure, which are likely to have aided underwriting profitability. Total benefits and expenses are likely to have increased mainly due to higher insurance losses and contract holders' benefits, acquisition and insurance expenses, and interest expenses.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 72 cents, indicating a 10.7% increase from the year-ago quarter’s reported figure. The company has an Earnings ESP of -29.56% and a Zacks Rank #3. (Read more:  What's in Store for Cincinnati Financial in Q2 Earnings?)

CINF’s earnings beat estimates in two of the last four reported quarters and missed in the other two. The same is depicted in the chart below:

Willis Towers Watson’s second-quarter revenues are likely to have benefited from improved performance at wealth businesses, career businesses, health and Benefits Delivery & Outsourcing businesses. The wealth businesses are likely to have gained from higher levels of project work across all regions, actuarial valuation activity, new administration clients in North America and client acquisitions. Growth in Benefits Delivery & Outsourcing is likely to have been driven by Medicare Advantage sales and its expanded client base, new projects and client activities in Europe and North America.

Expenses in the quarter to be reported are likely to have decreased because of lower depreciation and amortization. The downside is likely to have been partially offset by higher salaries and benefits, other operating expenses, restructuring costs and transaction and transformation costs. (Read more: What's in the Cards for Willis Towers in Q2 Earnings?)

The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.38, indicating a 2.5% increase from the year-ago quarter reported figure. The company has an Earnings ESP of -3.28% and a Zacks Rank #3.
WTW’s earnings outpaced estimates in each of the trailing four quarters, the average beat being 1.24%. This is depicted in the chart below:

AMERISAFE’s second-quarter results are expected to gain from enhanced agent relations that support its new business growth. Strong audit premiums amid a soft rate market are expected to drive premium revenues in the future. Net investment income is expected to gain from higher yields on fixed maturity securities and cash and cash equivalents. However, product concentration risks and elevated expenses level are likely to have affected its operations in the to-be-reported quarter.

The Zacks Consensus Estimate for AMSF’s second-quarter 2023 earnings of 69 cents per share indicates a 1.4% increase from the prior-year quarter’s reported figure. AMERISAFE has an Earnings ESP of 0.00% and is Zacks #1 Ranked.

AMSF’s earnings outpaced estimates in each of the trailing four quarters, the average beat being 24.03%. The same is depicted in the chart below: