The Travelers Companies (NYSE:TRV) unveiled a wind credit scheme for fortified homes in Texas last week.  The scheme is already implemented by the company in Alabama and Mississippi and encourages safer building practices as it rewards homes that have been built to withstand the impact of tropical storms and hurricane winds by allowing greater savings. The announcement, made at the hurricane preparedness symposium, comes just before the onset of the hurricane season and has been welcomed by the state authorities as it has a huge economic and social impact on the state.
Yesterday’s Loss is Tomorrow’s Gain
Travelers, along with competing property and casualty insurers AIG (NYSE: AIG), MetLife (NYSE: MET) and Hartford Financial (NYSE: HIG), suffered huge losses from natural catastrophes such as Hurricane Irene last year. This year, however, a fall in natural disasters during the first quarter has helped the company recover. (See Travelers’ Strong Q1 Earnings Bode Well For Other Insurers) The losses from last year could yet have a positive effect for Travelers, as more businesses are motivated to opt for property insurance. We expect the U.S. business insurance market to increase through the Trefis forecast period as companies seek protection from uncertain climatic conditions.
The wind credit scheme is one of the measures taken by the company to increase margins this year, as it seeks to filter out homes which are more vulnerable to damage from a natural calamity, particularly in hurricane prone regions such as Texas. The state’s approval and active promotion of the scheme will lead to an increase in Travelers’ market share of the U.S. business and financial insurance, which accounts for the majority (73%) of our stock price estimate.
We presently have a price estimate of $63 for Travelers, which is inline with the market price.Notes: