3 Hot Insurers Expecting Earnings Beats - Earnings ESP

As the first earnings season of 2014 unfolds, the U.S. property-casualty (P&C) or the non-life insurance industry marks a quarter of benign catastrophe losses, prudent enterprise risk management, healthy reserves as well as improved premiums and pricing for insurance and reinsurance.

However, it also points out intense competitive market dynamics and escalating regulatory mandates that now require these insurers to maintain a robust business and capital modelling in order to stay a step ahead of these challenges.

Nonetheless, non-life insurers are aggressively seeking to take advantage of the moderate catastrophe period and alongside, steer clear of the low interest rate environment by keeping their expense ratios at minimum, thereby stabilizing margins. Additionally, strong direct distribution networks are boosting the policies-in-force of most sector participants.

Moreover, the ‘P&C insurance' holds a Zacks Industry Rank #26, significantly improving from a Zacks Industry Rank #62 recorded for the sector in the beginning of February this year. This reflects a favorable position of the non-life insurance industry among the 260+ Zacks industry groups.

While we cannot overlook the challenges from restricted investment yields, compliance costs due to regulatory changes and volatility of catastrophes, we also cannot ignore the efforts of the industry players to boost capital levels and internal operating fundamentals, overall supporting a sustainable recovery in the U.S. P&C industry.

The positive effects are also evident by healthy capital deployment initiatives adopted by many insurers in the quarter, boosting investor confidence in the sector. A good idea would be to check out the potential of a handful of P&C insurance stocks that can outperform their peers in their upcoming release, as this should lead to a rapid price appreciation of their shares.

Picking the most worthy stocks within the huge P&C insurance industry could be akin to finding a needle in the haystack. Once coherent way is the wise selection of those stocks that have a perfect blend of a favorable Zacks Rank – a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Zacks

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Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

For investors seeking to apply this strategy to their portfolio, we present 3 P&C insurance stocks that emerge as potential growth riders this week and the next:

carries a Zacks Rank #1 (Strong Buy) with a noticeable earnings ESP of +16.67%. The Zacks Consensus Estimate for first-quarter 2014 is pegged at $4.86 per share.

With an average earnings beat of +17.8% in 3 of the last 4 quarters, this company's strength lies in its improved overseas business and stable operating cash flows. Everest Re's 10-year average combined ratio has remained below breakeven levels which signify its underwriting profitability.

Headquartered in Hamilton, Bermuda, Everest Re virtually underwrites all classes and categories of business in treaty, facultative and specialty lines both through brokers and directly with ceding companies, globally.

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is another Zacks Rank #1 insurer with an earnings ESP of +10.32%. The Zacks Consensus Estimate for first-quarter 2014 is $1.26 per share.

The company has delivered positive earnings surprises in all of the last 4 quarters, with an average beat of +42.9%, and is expected to surpass expectations in the first-quarter as well. Platinum Underwriters boasts of strong underwriting efficiencies, focus on core operations, efficient claims management and incremental shareholder return.

Headquartered in Pembroke, Bermuda, Platinum Underwriters is a global P&C, marine and finite risk insurer and reinsurer.

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, a Zacks Rank #3 (Hold) insurer is also worth considering with an earnings ESP of +10.26%. The Zacks Consensus Estimate for the first quarter stands at 78 cents per share. The company's strong operating leverage has not only strengthened its balance sheet and cash flows but also supported nine straight annual dividend hikes since 2005.

Headquartered in Greenwich, Connecticut, W.R. Berkley Corp. is a Fortune 500 company and a premier commercial lines P&C insurer in the U.S.

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While uncertainty from weather-related events prevails, we believe the investment yields should stabilize going ahead in 2014 and 2015, driven by improved momentum in the economy, thereby shoring up investment returns. Alongside, healthy renewals, steady underwriting and cost discipline along with improved premiums are likely to paint a brighter picture of the future of the U.S. P&C insurance industry. For the moment, you can securely bank on the industry outperformers that still boast of superior earnings strength.