The insurance industry is anticipated to have gained on prudent rate hikes, solid retention rates, new business growth, improved investment yields, a merger and acquisition (“M&A) strategy and continuous technological advancements in second-quarter 2023. However, an active catastrophe environment and continued inflationary pressures are likely to have dampened growth prospects for insurers. Some of the insurers, including The Allstate Corporation (ALL Quick QuoteALL - Free Report) , Aflac Incorporated (AFL Quick QuoteAFL - Free Report) , American International Group, Inc. (AIG Quick QuoteAIG - Free Report) , Prudential Financial, Inc. (PRU Quick QuotePRU - Free Report) and Unum Group (UNM Quick QuoteUNM - Free Report) , are set to report their second-quarter earnings on Aug 1.

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 second-quarter 2023 are anticipated to rise 13.2% from the prior-year quarter’s reported figure. These companies’ revenues are anticipated to improve 7.4% year over year.

Factors Likely to Shape Insurers’ Performance in Q2

Revenues of insurance companies are likely to have benefited from an expanding premium base, which resulted from continued rate hikes, exposure growth and solid customer retention rates in the second quarter. Growing premiums bode well for insurers as they account for a significant chunk to their top line.

The commercial property insurance rates in the United States witnessed an increase of 10.7% in the to-be-reported quarter, per the Texas-based insurance distribution and underwriting company, MarketScout. According to the same source, rate increases in general liability and inland marine insurance lines registered rate increases of 7% and 5%, respectively, in the second quarter.  

A solid capital position enables insurers to pursue an M&A strategy to build diversified portfolios, which is likely to have minimized concentration risks and boosted the sale of insurance policies in the second quarter. Higher policy sales might fetch higher premiums to insurers.

However, an active catastrophe environment is expected to have created roadblocks for insurers’ underwriting results in the to-be-reported quarter. Per JP Morgan analysts, insured losses from major natural catastrophes are likely to be less than $10 billion in the second quarter, with the majority of such losses stemming from storms in June.  

Despite its associated share of worries, catastrophe losses usually ramp up the policy renewal rate and prompt insurers to implement rate hikes. Insurers are also equipped with reinsurance covers and favorable reserve development to counter catastrophe losses.

For insurers having exposure to rate-sensitive products, an improved interest rate environment is expected to have boosted their investment yields in the second quarter. An aging U.S. population might have sustained the solid demand for insurance and protection products of life insurers, fetching steady premium flows.

A higher number of cars plying on roads as a result of receding pandemic effects is likely to have boosted auto premiums of insurers in the to-be-reported quarter. However, persistent inflationary headwinds and uninterrupted claim expenses might have exerted strain on the profits of auto insurers.

The resumption of commercial and industrial activities in full swing is expected to have provided an impetus to the demand for worker compensation insurance coverage in the second quarter.

The insurance industry frequently resorts to significant technology investments in light of a booming digital era, which are expected to have accelerated claim payments and automated processes. These investments are likely to have curbed costs and aided the margins of insurers in the second quarter.    

Let’s find out how the following insurers are placed before their second-quarter 2023 results on Aug 1.

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Allstate: Its results are likely to have benefited on the back of higher premiums in the Property-Liability segment resulting from improved average premiums in its auto insurance business and policy growth in the homeowners’ insurance business. Growing market-based investment income are expected to have aided quarterly results. However, elevated loss costs resulting from persistent inflationary pressure and the continued incidence of catastrophe losses might have hurt the performance of Allstate in the second quarter. (Read more: Allstate to Report Q2 Earnings: Here's What to Expect)

The Zacks Consensus Estimate for Allstate’s second-quarter 2023 earnings is pegged at a loss of $3.83 per share, wider than the prior-year quarter’s loss of 76 cents. The consensus mark for revenues is pegged at $14.2 billion, suggesting a 9.7% growth from the year-ago quarter’s reported figure.

ALL has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell).

Allstate’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 18.51%. The same is depicted in the chart below:

Aflac: In the second quarter, the results of Aflac are expected to have been driven by growing adjusted net investment income in the Aflac U.S. segment. Aflac Japan might have gained from from the launch of an enhanced cancer insurance product, thereby leading to increased persistency rates and higher sales. Numerous cost-curbing initiatives are likely to have lifted margins in the to-be-reported quarter. (Read more: Is a Beat in Store for Aflac This Earnings Season?)

The Zacks Consensus Estimate for AFL’s second-quarter 2023 earnings is pegged at $1.42 per share, indicating a 2.7% decline from the prior-year quarter’s reported figure. The consensus mark for revenues stands at $4.5 billion, suggesting a 16.3% plunge from the year-ago quarter’s reported figure.

Aflac has an Earnings ESP of +1.41% and a Zacks Rank #3.

AFL’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 8.23%. The same is depicted in the chart below:

American International: Revenues of AIG are likely to have benefited on the back of higher premium income as a result of strength in commercial and personal lines businesses. The General Insurance segment might have witnessed rate increases, higher retention rates and new business growth in the second quarter. However, a decline in alternative investment income and lower fee income are expected to have been a roadblock for AIG’s Life and Retirement unit. (Read more: What’s in the Cards for American International’s Q2 Earnings?)

The Zacks Consensus Estimate for AIG’s second-quarter 2023 earnings is pegged at $1.54 per share, which indicates a 29.4% rise from the prior-year quarter’s reported figure. The consensus mark for revenues stands at $12.3 billion, suggesting a 12.7% growth from the year-ago quarter’s reported figure.

American International has an Earnings ESP of -0.56% and a Zacks Rank of #3.

AIG’s earnings outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 9.22%. The same is depicted in the chart below:

Prudential Financial: Its second-quarter performance is expected to have gained from improved underwriting and favorable disability results in the Group Insurance business. Net investment income might have benefited from increased fixed-income reinvestment rates and higher returns on short-term investments. However, assets under the management of Prudential Financial are likely to have been hit by higher interest rates, weaker equity markets, net outflows and unfavorable foreign exchange rate impacts.  

The Zacks Consensus Estimate for PRU’s second-quarter 2023 earnings of $3.04 per share indicates a 74.7% surge from the prior-year quarter’s reported figure. The consensus mark for revenues is pegged at $12.7 billion, suggesting 7.9% fall from the year-ago quarter’s reading.

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

PRU’s earnings missed estimates in each of the trailing four quarters, the average negative surprise being 13.74%. The same is depicted in the chart below:

Unum: In the second quarter, Unum’s performance are likely to be aided by strong group product lines results, which in turn, might have resulted from favorable claim trends in group disability. Solid agent recruiting and productive small case sales might have benefited the Colonial segment. However, an elevated operating expense level is expected to have partially offset the upside in the to-be-reported quarter.

The Zacks Consensus Estimate for UNM’s second-quarter 2023 earnings is pegged at $1.87 per share, indicating a 2.1% decline from the prior-year quarter’s reported figure. The consensus mark for revenues stands at $3.1 billion, suggesting a 0.8% growth from the year-ago quarter’s reported figure.

Unum has an Earnings ESP of -0.06% and a Zacks Rank #2.

UNM’s earnings outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 18.61%. The same is depicted in the chart below:

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