The insurance sector is one of the prime beneficiaries of a rate hike, as these are able to earn higher returns on their investment portfolio of longer-duration bonds. At the same time, these firms incur losses as the value of longer-duration bonds goes down with rising interest rates. Nevertheless, since insurance companies have long-term investment horizons, they can hold investments until maturity, and hence, no actual losses will be realized (read: Biggest U.S. Rate Hike Since 2000 in May: Sector ETFs to Win).
Upbeat earnings from the leading players in the insurance industry added to the strength as some of the prominent players surpassed estimates for both earnings and revenues. This will pave the way for a further rally in insurance funds like SPDR S&P Insurance ETF KIE and iShares U.S. Insurance ETF IAK.
Insurance Earnings in Focus
MetLife MET, the U.S. life insurance behemoth, reported earnings of $2.08 per share, which outpaced the Zacks Consensus Estimate by 45 cents and declined 5% from the year-ago quarter. Revenues rose 6.1% year over year to $17.7 billion and breezed past the consensus estimate of $602 million. Prudential Financial PRU, the second-largest U.S. life insurer, beat on earnings but lagged on revenue estimates. Earnings per share of $3.17 topped the Zacks Consensus Estimate of $2.67 and decreased 20.6% from the year-ago earnings. Revenues declined 0.7% year over year to $13.66 billion but fell short of the consensus mark of $14.18 billion.
One of the leading property and casualty insurers, Chubb Corp CB, outpaced the Zacks Consensus Estimate for earnings per share by 30 cents while missing on revenues by $305 million. Earnings per share improved 51.6% year over year. Another property and casualty insurer, Allstate ALL, came up with earnings per share of $2.58, missing the consensus estimate by 21 cents but plunging 57.8% year over year. Revenues grew 4.8% year over year to $12.6 billion, well above the consensus mark of $11.63 billion.
Earnings per share of $1.42 reported by Aflac AFL, a seller of supplement health insurance, trumped the Zacks Consensus Estimate by 4 cents but declined from the year-ago earnings of $1.53. Revenues dropped 10.2% year over year to $5.27 billion and beat the consensus mark by 2.2% (see: all the Financial ETFs here).
Personal property and casualty insurer Travelers TRV posted earnings per share of $4.22, exceeding the Zacks Consensus Estimate by 52 cents and improving 54.6% from the year-ago earnings. Revenues grew 6.8% year over year to $8.83 billion and lagged the consensus mark of $8.93 billion.
ETFs in Focus
SPDR S&P Insurance ETF (KIE)
SPDR S&P Insurance ETF 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. About 44.6% 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 $429.6 million in its asset base and trades in a good average daily volume of about 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 Fed Hikes Rates Again in 2022).
iShares U.S. Insurance ETF (IAK)
With AUM of $429.6 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 59 securities in its basket, with the in-focus six firms occupying the top eight positions and collectively making up 38.1% of the assets.
Property & casualty insurance accounts for the largest share at 54.7%, while life & health insurance and multiline insurance round off the next two spots with a double-digit exposure each. iShares U.S. Insurance ETF charges 42 basis points in annual fees and trades in an average daily volume of 103,000 shares per day. It has a Zacks ETF Rank #3 with a Medium risk outlook.
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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
Chubb Limited (CB) : Free Stock Analysis Report
MetLife, Inc. (MET) : Free Stock Analysis Report
Prudential Financial, Inc. (PRU) : Free Stock Analysis Report
Aflac Incorporated (AFL) : Free Stock Analysis Report
The Allstate Corporation (ALL) : Free Stock Analysis Report
iShares U.S. Insurance ETF (IAK): ETF Research Reports
SPDR S&P Insurance ETF (KIE): ETF Research Reports
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