Insurance: Contrary to Positive Estimates, Jobs Data Points to Headwinds

In this insurance sector analysis, we discuss the event of the week, the macro environment, and EPS implications. 

Event of the Week

Examples emerged over the week that showed existing employee headcount is dwindling. In addition, the most recent government data shows that jobs created for new employees continues a decline seen throughout the year. On Thursday a Financial Times article cited an ADP report that private employers trimmed 32,000 jobs last month. Both Verizon and Hewlett-Packard announced layoffs last week.

Macro Trend

The chart below shows the most recent U.S Bureau of Labor Statistics data for September (published November 20). While the most recent government data shows an uptick in payroll gains, the more recent ADP data indicates ongoing deterioration and job creation that remains below levels seen at the beginning of the year. 

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.

What this week’s macro data tells us is that insurance companies have been battling a weakening jobs market throughout the year: a combination of rising unemployment and a slowdown in payroll gains. Companies that sell group insurance, such as group life insurance, face a shrinking customer base and a potential shrinking source of premiums.

Using FactSet data, this report identifies select insurance companies with concentrations of group life premiums, which represent insurance sold to corporate employees. Absent an economy that is adding employees, insurance companies with high concentrations of group premiums will face revenue headwinds if this portion of the premium base starts to decline. 

The report concludes by identifying companies that not only have high concentrations of group premiums, but also carry positive analyst estimates for 4Q revenue growth despite the unfolding deterioration in jobs data.

Using FactSet functionality and detailed statutory data provided through AM Best, over 2,000 insurance entities were screened to identify insurance entities with concentrations of group life premiums that would face life revenue headwinds in the current macro environment.

It seems obvious to say that life insurance premiums can form the cornerstone of a life insurance company’s business. However, there are many types of life insurance products sold. One product within the life insurance product universe is group life insurance that is sold through employers to employees. Group life insurance products can account for a significant portion of total life insurance premiums.

Applying FactSet’s screening functionality to statutory data, total life and group life premium data were pulled and group life premiums were calculated as a percentage of total life premium. Several examples of life premiums for larger companies are provided below.

The parent companies of the entities above certainly have additional entities, as well as additional premium revenue and revenue from sources other than life insurance. However, the revenue headwind from declining group life insurance sales—and group products in general—should be considered in light of current macro trends.

4Q revenue estimates for the parent companies of the entities above are shown below. Despite ongoing deterioration in jobs data and concentrations of group premiums, analysts are expecting a 4Q pickup in revenues vs 3Q.

• The Hartford Insurance Group (HIG): 7.2%

• Prudential Financial, Inc. (PRU): 3.3%

• The Hartford Insurance Group, Inc.: 0.5%

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.