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Will Higher Premiums Aid CNA Financial’s (CNA) Q4 Earnings?


We expect CNA Financial Corporation CNA to surpass expectations in fourth-quarter 2017 results before the market opens on Feb 12.

Why a Likely Positive Surprise?

Our proven model shows that CNA Financial has the right combination of the two key ingredients to beat estimates this quarter.

Zacks ESP: CNA Financial has an Earnings ESP of +2.75%. This is because the Most Accurate estimate of 84 cents is higher than the Zacks Consensus Estimate of 82 cents. The positive ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

CNA Financial Corporation Price and EPS Surprise

CNA Financial Corporation Price and EPS Surprise | CNA Financial Corporation Quote

Zacks Rank: CNA Financial sports a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP as stocks with a favorable Zacks Rank of 1, #2 (Buy) or 3 (Hold) along with a positive Earnings ESP have significantly higher chances of an earnings beat.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Driving the Better-Than-Expected Earnings

CNA Financial is likely to have witnessed a substantial improvement in net premiums earned in the soon-to-be-reported quarter, fueled by an increase in new business as well as a solid retention. In fact, the Zacks Consensus Estimate for the metric in the period is pegged at $1.8 billion, reflecting a 1.3% rise from the prior-year quarter.

Given the impressive track record of maintaining combined ratio at favorable levels in spite of a challenging operating environment, the property and casualty (P&C) insurer might have experienced improvement in the same. This upside signified a superior underwriting discipline. The Zacks Consensus Estimate for the combined ratio is pegged at 99%, representing an improvement of 100 basis points on a year-over-year basis.

Additionally, with the rising interest rate environment, the P&C insurer is anticipated to have reported higher net investment income. Also, improved limited partnership returns are estimated to have contributed to this increase in investment income.

However, being a P&C insurer, CNA Financial has possibly incurred higher catastrophe loss due to the California wildfires occurring during the fourth quarter. This in turn might affect the company’s underwriting profitability, hampering the insurer’s overall performance to an extent.

Also, the company probably has incurred higher expenses, primarily due to increasing net incurred claims and benefits and amortization of deferred acquisition costs. This rise in expenses is likely to restrict the operating margin expansion, hurting the company’s overall profitability in turn.

Other Stocks to Consider

Some other stocks worth considering from the finance sector with the right combination of elements to exceed estimates this time around are as follows:

Brighthouse Financial, Inc. BHF is set to report fourth-quarter earnings on Feb 12. The stock has an Earnings ESP of +2.27% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sun Life Financial Inc. SLF has an Earnings ESP of +0.71% and a Zacks Rank #3. The company is slated to release fourth-quarter earnings on Feb 14.

Ares Management, L.P. ARES has an Earnings ESP of +7.14% and a Zacks Rank of 3. The company is scheduled to announce fourth-quarter earnings on Feb 15.

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