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Insurance ETFs Crushing Financials On Q1 Earnings

insuranceAfter driving earnings for many quarters, the financial sector has been a major drag on total Q1 earnings growth. This is especially true as financials is the second-worst performing sector this earnings season, trailing autos.

Total earnings for 100% of the sector’s total market capitalization are down 7% with a lower beat ratio of 64.6%. Revenues are also down 14% year over year with a beat ratio of 54.4%. The weakness can mostly be blamed on sluggish results from big U.S. banks.

Despite disappointing earnings, one corner of the broader financial segment – insurance – is performing quite well than the others. Most of the insurers reported gloomy revenue numbers missing our estimate, while earnings seem quite inspiring. This is primarily thanks to a string of earnings beat by some of popular names such as American International (AIG), Prudential Financial (PRU), Aflac Inc. (AFL) and Travelers (TRV).

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However, MetLife (MET) and Allstate (ALL) reported lackluster earnings and Chubb Corp (CB) met earnings estimate.

Insurance Earnings in Focus

MetLife, the U.S. life insurer behemoth, missed the Zacks Consensus Estimate by 3 cents and deteriorated 7% from the year-ago quarter. On the other hand, PRU, the second-largest U.S. life insurer, surprised the market with a strong earnings beat of 13 cents and 5.7% year over year improvement.

Aflac, the seller of supplement health insurance, topped our earnings estimate by a penny and saw no change from the year-ago earnings. The largest commercial insurer in the U.S. and Canada – AIG – also reported strong earnings. Though earnings per share of $1.21 surpassed the Zacks Consensus Estimate of $1.08, the figure was below the year-ago earnings of $1.34 (read: 3 ETFs to Profit from the Hot Insurance Industry).

One of the largest property and casualty insurers and an industry bellwether,Travelers, posted record earnings of $2.95 per share, strongly beating Zacks Consensus Estimate of $2.13 and improving from the year-ago earnings of $2.33.

Though earnings at another property and casualty insurer – Chubb - managed to meet our estimate of $1.50, the figure showed a 30% year-over-year decline thanks to severe winter. Allstate, personal property and casualty insurer, lagged the Zacks Consensus Estimate by 14 cents and the year-ago earnings by a nickel.

Insurance ETFs in Focus

Based on decent earnings, insurance ETFs are leading the financial ETF space in the trailing one-month period. Investors looking to gain exposure to this corner of the market segment in a diversified way may consider the following ETFs.

SPDR S&P Insurance ETF (NYSEARCA:KIE)

This fund follows the S&P Insurance Select Industry Index and offers equal weight exposure across 51 stocks, suggesting no concentration risk. None of the securities holds more than 2.39% of total assets. About two-fifths of the portfolio is allocated to the property and casualty insurance sector while life & health insurance accounts for another one-fifth share.

The ETF has managed $271 million in its asset base so far and trades in good average daily volume of 136,000 shares. The product has an expense ratio of 0.35% and added about 2.9% over the past one month. The ETF has a Zacks Rank of 2 or ‘Buy’ rating with Medium risk outlook.

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