What To Expect From Travelers’ Q2 Results
The Travelers Companies (NYSE:TRV), the fifth-largest property and casualty insurer in the U.S., is scheduled to report earnings for the second quarter on Thursday, July 21, where its underwriting performance will be in focus. Travelers faced a tough first quarter due to higher level of catastrophe losses in the winter. The combined ratio – the ratio of claims to premiums earned – worsened by 340 basis points to 92.3% during the first quarter. Higher catastrophe losses, coupled with lower investment income, caused a sharp decline of about 16% in operating income compared to a year ago. ((2015 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM, NAIC, March 28 2016))
During the second quarter, Travelers is likely to have faced similar headwinds, which could pressure its combined ratio to remain at the prevailing higher levels. The Insurance Council of Texas reported last month that insurance and reinsurance companies are set to pay for losses totaling about $2 billion due to severe hailstorms striking the state in April. [1] Another report by PCS put insured losses in the first half of 2016 at $15 billion across the U.S. and Canada. The report cited 27 major catastrophes for the estimate, which included wildfires in Alberta, Canada in May and the intense hailstorms and flooding in San Antonio in April. The Insurance Bureau of Canada stated that the Alberta wildfires caused damage worth $3.8 billion, making it the most expensive disaster for insurance companies in Canada’s history. [2] [3]
See our full analysis of Travelers here
Business Insurance In Focus
The company’s business and financial division includes worker’s compensation, commercial automobile and general liability products. The worker’s compensation line, which is one of the most important product lines for Travelers, is significantly affected by employment activity. The unemployment rate has been been fluctuating around 5% in the last three months in the U.S., declining from 5.0% in April to 4.9% in June. [4] It was around 5.3-5.4% during the same period last year. This is a good indicator for growth in this line of business for Travelers. We expect improving macroeconomic conditions to benefit the workers’ compensation insurance market, and Travelers being the leader in this segment should be able to benefit from the economic recovery. With a share of roughly 8% in terms of net premiums earned, Travelers is the largest player in the worker’s compensation insurance product line in the U.S. market.
In the business insurance division, higher catastrophe-related losses led to a combined ratio of 94.8% in Q1 2016 compared to 93.3% in Q1 2015. We expect it to remain around the 94%-95% levels in the second quarter as well due to the earlier mentioned catastrophe losses in the U.S. and Canada.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- San Antonio, Texas hailstorm insured losses to pass $2 billion, Artemis.bm, June 3 2016 [↩]
- $15 billion of U.S. & Canada insured losses in first-half of 2016: PCS, Artemis.bm, July 11 2016 [↩]
- Alberta wildfire damage to cost $3.58B, making it Canada’s most expensive disaster: Report, bnn.ca, July 7 2016 [↩]
- Unemployment Rate – Bureau of Labor Statistics Data [↩]