Jhe insurance industry is one of the main beneficiaries of higher rates, as they are able to earn higher yields on their investment portfolio of longer-dated bonds. At the same time, these companies are incurring losses as the value of longer-term bonds declines with rising interest rates. Nevertheless, since insurance companies have long-term investment horizons, they can hold investments until maturity and therefore no real loss will be realized (read: Biggest U.S. rate hike since 2000 in May: Sector ETFs up for grabs).
Upbeat earnings from major players in the insurance industry added strength, with some major players beating earnings and revenue estimates. This will pave the way for a further recovery of insurance funds as SPDR S&P Insurance ETF KIE and iShares US Insurance ETF IAK.
Focus on insurance revenues
MetLife MET, the U.S. life insurance giant, reported earnings of $2.08 per share, which beat Zacks’ consensus estimate of 45 cents and was down 5% from the quarter. the previous year. Revenue rose 6.1% year-over-year to $17.7 billion and topped the consensus estimate of $602 million. Prudential Financial PRU, the second-largest U.S. life insurer, beat earnings but lagged revenue estimates. Earnings per share of $3.17 beat Zacks’ consensus estimate of $2.67 and were down 20.6% from a year earlier. Revenue fell 0.7% year-over-year to $13.66 billion, but fell short of the consensus mark of $14.18 billion.
Leading P&C insurer Chubb Corp CB beat Zacks’ consensus estimate for earnings per share by 30 cents while missing revenue by $305 million. Earnings per share improved 51.6% year over year. Another P&C insurer, Allstate ALL, posted earnings of $2.58 per share, missing the consensus estimate of 21 cents but plunging 57.8% year-over-year. Revenue rose 4.8% year over year to $12.6 billion, well above the consensus mark of $11.63 billion.
Earnings of $1.42 per share reported by Aflac AFL, a seller of supplemental health insurance, topped the Zacks consensus estimate of 4 cents, but fell from earnings of $1.53 a year ago. a year. Revenue fell 10.2% year over year to $5.27 billion and beat the consensus mark of 2.2% (see: all financial ETFs here).
Property and casualty insurer Travelers TRV reported earnings per share of $4.22, beating Zacks’ consensus estimate of 52 cents and improving earnings from a year earlier by 54.6%. Revenue rose 6.8% year-over-year to $8.83 billion and was below the consensus mark of $8.93 billion.
Focus on ETFs
SPDR S&P Insurance ETF (KIE)
The SPDR S&P Insurance ETF tracks the S&P Insurance Select Industry Index, holding 52 stocks in its basket. Each of the targeted companies represents a share of approximately 2%. About 44.6% of the portfolio is allocated to property and casualty insurance, while life and health insurance and insurance brokers round out the next two spots with double-digit exposure.
SPDR S&P Insurance ETF has managed $429.6 million in its asset base and trades a good average daily volume of around 1 million shares. The product has an expense ratio of 0.35% and a Zacks ETF Rank #3 (Hold) with a medium risk outlook (read: ETF Areas to Consider as the Fed Hikes Rates Again in 2022).
iShares US Insurance ETF (IAK)
With $429.6 million in assets under management, iShares US Insurance ETF provides exposure to US companies that offer life, property, casualty and full line insurance. It tracks the Dow Jones US Select Insurance Index and holds 59 stocks in its basket, with the six companies targeted occupying the top eight positions and collectively representing 38.1% of assets.
P&C insurance represents the largest share with 54.7%, while life and health insurance and multi-line insurance complete the next two places with double-digit exposure each. iShares US Insurance ETF charges 42 basis points in annual fees and trades an average daily volume of 103,000 shares per day. It has a Zacks ETF #3 rating with a medium risk outlook.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.