Insurance ETFs Leading Financials on Q2 Earnings

The insurance industry has been shaping up well this reporting cycle with robust earnings from leading players. Prominent players such as MetLife Inc (NYSE:MET), Chubb Ltd (NYSE:CB) and Allstate Corp (NYSE:ALL) surpassed both our earnings and revenue estimates, while AFLAC Incorporated (NYSE:AFL) lagged revenue estimates. American International Group Inc (NYSE:AIG) too beat our earnings estimate, while Prudential Financial Inc (NYSE:PRU) and Travelers Companies Inc (NYSE:TRV) missed the same. However, Travelers topped our revenue estimates.

Insurance Earnings in Focus

MetLife, the U.S. life insurer behemoth, reported robust earnings of $1.30 per share, which beat the Zacks Consensus Estimate of $1.28 and improved 57% from the year-ago quarter. Revenues increased 3% year over year to $17.6 billion and were well ahead of our estimate of $17.1 billion. On the other hand, PRU, the second largest U.S. life insurer, missed our earnings estimate by 61 cents. Earnings improved 13.6% year over year. Revenues increased 10.2% year over year to $13 billion.

One of the leading property and casualty insurers, Chubb, reported earnings per share of $2.50, outpacing the Zacks Consensus Estimate by a penny and improving 11% from the year-ago quarter. Revenues of $8.1 billion also edged past our estimate of $7.5 billion. Another property and casualty insurer, Allstate, also topped the Zacks Consensus Estimate on earnings and revenues by 53.3% and 13.9%, respectively. On a year-over-year basis, earnings and revenues grew 122.6% and 4.6%, respectively.

AIG, the largest commercial insurer in the U.S. and Canada, beat our earnings estimate by 27.5%. Earnings per share of $1.83 reported by Aflac, the seller of supplement health insurance, trumped the Zacks Consensus Estimate by 12.3% and increased 7% from the year-ago quarter. However, revenues of $5.4 billion fell short of our estimate of $5.48 billion.

Personal property and casualty insurer Travelers posted earnings per share of $1.92, missing our estimate by 24 cents and declining 12.7% year over year. Revenues grew 5.9% year over year to $7.2 billion and were ahead of our estimate of $6.9 billion.

ETFs in Focus

Given the robust Q2 results, insurance ETFs – SPDR S&P Insurance ETF (NYSEARCA:KIE) and iShares Dow Jones US Insurance Index ETF (NYSEARCA:IAK) – have been outperforming the other corners of the financial space over the last one month. This is especially true as KIE and IAK gained 3% and 2.2%, respectively compared with gains of 1.9% for the broad Financial Select Sector SPDR Fund (NYSEARCA:XLF). However, these funds have a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook.

SPDR S&P Insurance ETF

This fund follows the S&P Insurance Select Industry Index, holding 52 stocks in its basket. Each of the in-focus firms accounts for around 2% share each. About 41.1% of the portfolio is allocated to the property and casualty insurance sector, while life & health insurance accounts for 26% share. The ETF has managed $954.1 million in its asset base and trades in a good average daily volume of about 130,000 shares. The product has an expense ratio of 0.35%.

iShares Dow Jones US Insurance Index ETF

With AUM of $178.6 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 44 bps in annual fees. Volume is light, trading in roughly 11,000 shares per day. In total, the fund holds 63 securities in its basket with double-digit allocation going to Chubb. The other in-focus firms – AIG, MET, PRU, TRV, ALL and AFL – collectively make up for 38.7% of assets. Here also, property & casualty insurance accounts for the largest share at 45.2%, while life & health insurance and multiline insurance round off the top three with a double-digit exposure each.

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