Insurance ETFs Continue To Underperform, Despite Favorable Environment

May 18, 2017 6:29am NYSE:KIE

insurance

From Zacks: After a stellar ride early in 2017, the insurance industry has lost its momentum despite the fact that it tends to flourish with a rise in interest rates.


With a Fed rate hike in March and another lift-off expected next month, the stocks are not as strong as they should ideally be. Even robust earnings from leading players in the industry failed to boost optimism.

In particular, MetLife (METFree Report) , Prudential Financial (PRUFree Report) , Chubb Corp (CBFree Report) , Allstate (ALLFree Report) , and American International (AIGFree Report) surpassed both our earnings and revenue estimates while Aflac Inc. (AFLFree Report) lagged revenue estimates. Meanwhile, Travelers (TRVFree Report) missed on earnings but topped revenue estimates (read: Bet on Sector ETFs with Strong Beat Ratios).

Insurance Earnings in Focus

MetLife, the U.S. life insurer behemoth, reported robust earnings of $1.46 per share, which trumped the Zacks Consensus Estimate of $1.27 and improved 12.3% from the year-ago quarter. Revenues grew 2% year over year to $16.88 billion and were well ahead of our estimated $16.78 billion. On the other hand, PRU, the second largest U.S. life insurer, also beat our earnings estimate by 15 cents. Earnings improved 28% year over year. Revenues increased 6.3% year over year to $12 billion.

One of the leading property and casualty insurers – Chubb – reported earnings per share of $2.48, outpacing the Zacks Consensus Estimate by four cents and improving 9.7% from the year-ago quarter. Revenues of $7.59 billion also edged past our estimate of $7.25 billion. Another property and casualty insurer, Allstate, also topped the Zacks Consensus Estimate with a huge earnings beat of 60 cents and revenue beat of $942 million. On a year-over-year basis, earnings and revenues grew 95% and 6.3%, respectively.

AIG, the largest commercial insurer in the U.S. and Canada, beat our earnings and revenue estimates by 22.52% and 2.84%, respectively. Earnings per share of $1.67 reported by Aflac, the seller of supplement health insurance, trumped the Zacks Consensus Estimate by a nickel but declined 3.5% from the year-ago quarter. However, revenues of $5.31 billion fell short of our estimate of $5.55 billion (see: all the Financial ETFs here).

Personal property and casualty insurer Travelers posted earnings per share of $2.16, missing our estimate by 24 cents and declining 7.3% year over year. Revenues rose 3.8% year over year to $6.9 billion and were slightly ahead of our estimate of $6.8 billion.

ETFs in Focus

Despite the string of Q1 earnings beat, insurance ETFs – SPDR S&P Insurance ETF (KIEFree Report) and iShares U.S. Insurance ETF (IAKFree Report) – are underperforming the other corners of the financial space over the past one month. This is especially true as KIE and IAK gained 1.8% each when compared with gains of 4% for the broad financial ETF (XLFFree Report) and 4.9% for the bank ETF (KREFree Report) (read: Trump’s First 100 Days: 5 Must See ETF Charts).

KIE

This fund follows the S&P Insurance Select Industry Index, holding 50 stocks in its basket. Each of the in-focus firms accounts for around 2% share each. About 42% of the portfolio is allocated to the property and casualty insurance sector while life & health insurance accounts for 23.9% share. The ETF has managed $841.6 million in its asset base and trades in a good average daily volume of about 185,000 shares. The product has an expense ratio of 0.35% and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

IAK

With AUM of $166.1 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 43 bps in annual fees. Volume is light, trading in roughly 24,000 shares per day. In total, the fund holds 61 securities in its basket with double-digit allocation going to Chubb. The other in-focus firms – MET, AIG, PRU, TRV, ALL and AFL – collectively make up for 42.3% of assets. Here also, property & casualty insurance accounts for the largest share at 44.6% while life & health insurance and multiline insurance round off the top three with a double-digit exposure each. IAK has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Top-Ranked ETFs That Crushed S&P 500 in the Bull Market).

The SPDR S&P Insurance ETF (NYSE:KIE) was unchanged in premarket trading Thursday. Year-to-date, KIE has gained 1.70%, versus a 5.50% rise in the benchmark S&P 500 index during the same period.

KIE currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 39 ETFs in the Financial Equities ETFs category.


This article is brought to you courtesy of Zacks Research.


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