The insurance sector is among the prime beneficiaries of a rate hike. This is because the sector players are able to earn higher returns on their investment portfolio of longer-duration bonds. But these firms incur losses as the value of longer-duration bonds goes down with a rise in interest rates. Nevertheless, since insurance companies have long-term investment horizons, they can hold investments until maturity and hence no actual losses are realized.
With the Fed slowing down the pace of rate hike and expectations of a pause in further hikes coupled with mixed results of the leading players in the industry, insurance ETFs struggled to find a footing over the last month. SPDR S&P Insurance ETF KIE and iShares U.S. Insurance ETF IAK are down more than 1% each (read: 4 ETFs Zones to Benefit as Fed Pushes Rate to Above 5%).
Insurance Earnings in Focus
The U.S. life insurance behemoth MetLife MET missed both earnings and revenue estimates. MetLife reported earnings of $1.52 per share, which missed the Zacks Consensus Estimate by 33 cents and declined 25% from the year-ago quarter. Revenues declined 7.7% year over year to $16.13 billion and were below the consensus estimate of $16.81 billion. The second-largest U.S. life insurer and Prudential Financial PRU missed on earnings but beat on revenues. Earnings per share of $2.66 lagged the Zacks Consensus Estimate of $3.02 and decreased 16.1% from the year-ago earnings. Revenues grew 10.5% year over year to $15.1 billion and edged past the consensus mark of $13.24 billion.
One of the leading property and casualty insurers, Chubb Corp CB surpassed the Zacks Consensus Estimate for earnings per share by 174 cents and topped the revenue estimate by $429 million. Earnings per share improved 15.1% year over year. Another property and casualty insurer, Allstate ALL incurred a loss per share of $1.30, narrower than the Zacks Consensus Estimate of a loss of $1.94. The company reported earnings of $2.58 in the year-ago quarter. Revenues grew 9.3% year over year to $13.8 billion, well above the consensus mark of $12.82 billion.
Earnings per share of $1.55 reported by Aflac AFL, a seller of supplemental health insurance, trumped the Zacks Consensus Estimate by 17 cents and improved 7.6% from the year-ago earnings. Revenues dropped 7.2% year over year to $4.8 billion and beat the consensus mark of $4.6 billion (see: all the Financial ETFs here).
Personal property and casualty insurer Travelers TRV posted earnings per share of $4.11, beating the Zacks Consensus Estimate by 47 cents but declining 2.6% from the year-ago earnings. Revenues grew 10% year over year to $9.7 billion but missed the consensus mark of $9.8 billion.
ETFs in Focus
SPDR S&P Insurance ETF (KIE)
SPDR S&P Insurance ETF follows the S&P Insurance Select Industry Index, holding well-diversified 49 stocks in its basket. About 47.3% of the portfolio is allocated to property and casualty insurance, while life & health insurance and insurance brokers round off the next two spots with double-digit exposure.
SPDR S&P Insurance ETF has managed $522.8 million in its asset base and trades in a good average daily volume of about 1.1 million shares. The product has an expense ratio of 0.35% and a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Sector ETFs Likely to Gain on April Inflation Data).
iShares U.S. Insurance ETF (IAK)
With AUM of $424.9 million, iShares U.S. Insurance ETF offers exposure to U.S. companies that provide life, property and casualty, and full-line insurance. It tracks the Dow Jones U.S. Select Insurance Index and holds 56 securities in its basket with a double-digit concentration on the top two firms.
Property & casualty insurance accounts for the largest share at 58.8%, while life & health insurance and multiline insurance round off the next two spots with double-digit exposure each. iShares U.S. Insurance ETF charges 39 bps in annual fees and trades in an average daily volume of 49,000 shares per day. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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