Chubb Limited CB is slated to report fourth-quarter 2017 results on Jan 30 after the market closes. Last quarter, the company delivered a positive earnings surprise of 50.00%.
Let’s see, how things are shaping up for this announcement.
Chubb’s fourth-quarter underwriting results will be affected by the California wildfires. The company has projected catastrophe loss from the same at nearly $249 million after-tax. While from all other natural catastrophe events, net insured loss is estimated at $34 million after-tax. Such losses are attributable to commercial and personal property plus casualty insurance operations as well as reinsurance activities. The Zacks Consensus Estimate for combined ratio in the to-be-reported period is pegged at 89%, a deterioration of 120 basis points from the year-ago quarter.
Moreover, such losses will render volatility to the company’s earnings. The Zacks Consensus Estimate is pegged at $2.30, reflecting a year-over-year decline of 15.4%.
Premiums earned have likely reduced in the soon-to-be-reported quarter due to the company’s inability to generate enough underwriting returns. The Zacks Consensus Estimate for net premiums earned is pegged at $6.6 billion, representing a fall of 6.8% on a year-over year basis.
Additionally, the company might have incurred higher expenses, mainly due to higher loss and loss expenses, policy acquisition costs, administrative expenses and policy benefits. This in turn will weigh on the Chubb’s operating margin expansion.
Nonetheless, the company is anticipated to have witnessed higher net investment income in the yet-to-be-reported quarter. In fact, the Zacks Consensus Estimate for the metric is pegged at $773 million, translating to an increase of 3.9% on a year-over-year basis. This is mainly because of improving rate environment. Also, the company expects its quarterly investment income run rate to range between $845 and $855 million.
Earnings Whispers
Our proven model does not conclusively show that Chubb is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.
Zacks ESP: Chubb has an Earnings ESP of -1.06%. This is because the Most Accurate estimate is pegged at $2.28, lower than the Zacks Consensus Estimate’s $2.30. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
D/B/A Chubb Limited New Price and EPS Surprise
D/B/A Chubb Limited New Price and EPS Surprise | D/B/A Chubb Limited New Quote
Zacks Rank: Chubb holds a Zacks Rank #3, which increases the predictive power of ESP. However, a company needs a positive ESP to be confident about an earnings surprise. Thus, this combination leaves surprise prediction inconclusive.
We caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:
American Financial Group, Inc. AFG is set to report fourth-quarter earnings on Jan 31. The stock has an Earnings ESP of +1.82% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Primerica, Inc. PRI has an Earnings ESP of +0.58% and a Zacks Rank of 2. The company is set to announce fourth-quarter earnings on Feb 7.
Torchmark Corporation TMK has an Earnings ESP of +0.12% and a Zacks Rank of 1. The company is slated to release fourth-quarter earnings on Feb 7.
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