Travelers Reports Mixed 2015 Results With Improved Underwriting But Drop In Net Income
The Travelers Companies (NYSE:TRV), one of the largest property and casualty (P&C) insurers in the U.S. in terms of premium volume, reported mixed fourth quarter and full year 2015 earnings Thursday, January 21. [1] [2] Travelers’ full year 2015 net income declined 7% year-over-year (y-o-y) to $3.4 billion on the back of lower investment income and lower after-tax net realized investment gains, partially offset by a higher underwriting gain due to lower catastrophe losses. The lower catastrophe losses also helped improve the combined ratio – the ratio of claims to premiums earned – from 89% in 2014 to 88.3% in 2015. As far as the top line is concerned, the company reported a marginal 1% y-o-y drop in total revenues at $26.8 billion, with record net written premiums of over $24 billion.
Compared to its full year results, the company fared worse in the fourth quarter, with revenues declining 2% y-o-y to about $6.7 billion and operating income falling 13% y-o-y to $886 million. This was caused due to lower investment income and lower net prior year reserve development. [3] The latter also resulted in the combined ratio increasing unfavorably from 85% in Q4 2014 to 86.6% in Q4 2015.
We have a price estimate of $111 for Travelers’ stock, which is slightly below the current market price.
See our full analysis of Travelers here
Business And International Insurance
Business Insurance, which includes workers’ compensation, commercial automobile, fidelity and other insurance products, is the most valuable division for the company. It accounts for nearly two-thirds of the company’s total revenues. In 2015, net written premiums remained flat at $14.5 billion with strong domestic performance offsetting the 14% y-o-y decline in net written premiums in the international markets. The company’s international operations include Canada, Ireland, the U.K. and Brazil, and contributed 12.5% of the total premiums written in this division.
The division’s operating income declined from $2.35 billion in 2014 to $2.17 billion in 2015 due to a 15% drop in net investment income, partially offset by a 16% increase in underwriting gain. However, the combined ratio for the division improved from 93.1% to 92.1% in 2015 on the back of lower catastrophe related losses and favorable prior year reserve development.
Personal Insurance
The company offers homeowner’s multiperil and personal automobile insurance products within the Personal Insurance division. The net premiums written jumped 4% y-o-y to nearly $7.5 billion driven by higher new business volume from the company’s Quantum Auto 2.0, which offset the slight decline in the homeowner’s insurance product line. In the conference call, management added that Optima – the strategic insurance platform launched in Canada last year modeled after the U.S.-based Quantum Auto 2.0 – was receiving a positive initial response and is likely to help grow new business volumes significantly going forward.
Higher prior year reserve development and lower catastrophe related losses helped the combined ratio to improve from 88.7% in 2014 to 86.6% in 2015. As a result, the division’s operating income grew 8% to 889 million in 2015 over the previous year.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- SEC 8-K Filing, January 21 2016 [↩]
- NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS PROPERTY AND CASUALTY INSURANCE INDUSTRY 2014 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM [↩]
- Earnings Release, Travelers Investor Relations [↩]