4Q Insurance Earnings: Banks’ Investment Income Results Could Provide Earnings Insight

In this week's insurance sector analysis, we discuss bank earnings, the macro environment, and EPS implications. 

Event of the Week

Bank earnings were reported this week, and part of the picture that materialized is familiar. Results reported in the most recent quarter reflect the tailwind provided by strong equity markets throughout the reporting period. As we have seen before, strong equity markets boost investment income, and banks such as JPM and Bank of America reported investment income equal to, but mostly above, analyst expectations.

Yesterday, Goldman and Morgan Stanley also reported strong results. The solid investment income reported during the week bodes well for the upcoming earnings of insurance companies that derive a larger-than-average percentage of total income from investment income.

Macro Trend

Overall, the macro environment was mostly positive throughout the quarter. Other than stagnant employment numbers, strong equity markets and tepid inflation provided ample support for writers of homeowners insurance (see Inflationary Pressure Drops and Other Positive Signals for Homeowners Insurance) and auto insurance, and investment income.

This week’s note focuses on FactSet data and functionality available to surface companies that derive a larger-than-average percentage of total income from investment income. Beyond simply identifying the companies in this note that produce high proportions of investment income, additional FactSet functionality is available to uncover companies that held top-performing stocks within investment portfolios. 

The table below includes estimates for year-over-year net investment income. Other than Progressive, estimates appear lackluster given the strong the equity market performance throughout the quarter. Notably, Allstate is estimated to produce a slim 3.5% year-over-year improvement in investment income.

Using 2024 statutory data, the table below ranks the largest groups/subs of the companies in the table above by net investment income as a percentage of net income. Allstate’s 63% share of investment income to net income is not an outlier within the group of other companies in the table of estimates. However, the 3.5% estimate of year-over-year growth of investment income falls far short of the growth estimates for the other companies. 

Allstate’s 60+% share of investment income to net income is below the 2023 industry average of 80% shown in the table below. Other than Travelers' 71%, Allstate’s 63% contribution of investment income to total income falls closest to the industry average.

Expectations for Allstate’s growth of investment income is significantly below the other estimates in the table. Allstate’s percentage of investment income to total income is not materially below other companies in the table or the industry average. Taken together, the weight of Allstate’s investment income / total income, the low expectations for growth and the market strength during the quarter, there is potential for higher-than-expected investment income, which would contribute to a positive earnings surprise. 

Linking Macro Trends to Potential EPS Impact

Our Macro Tracker table lists key economic data relevant to insurance company earnings. The right-hand column ties macro trends to the potential impact on company earnings.

Deep sector data and functionality shown in this report are available through the FactSet workstation. 

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.