The Travelers Companies (NYSE:TRV) is increasing pricing and rates for its business and personal insurance segment and augmenting share repurchases to boost returns to its shareholders. At the Goldman Sachs U.S. Financial Services Conference, Travelers’ Chairman and CEO Jay Fishman said that the company continues to focus on better renewal policies, cost management and returning excess capital to shareholders.  The company has bought back $803 million shares in Q4 through December 5 and plans to repurchase a total of $1.1 billion to $1.2 billion shares in the period. In its outlook for 2012, Fitch Ratings has given a ‘stable’ outlook to the personal and commercial segments of the property and casualty insurance industry. This bodes well for Travelers and its U.S. property and casualty competitors such as MetLife (NYSE: MET) and Hartford Financial (NYSE: HIG).
The company noted that its policy renewal rate change, excluding exposure changes, increased to 5.8% for business insurance and 8.2% for commercial products in November, compared to 5.2% and 6.9% respectively in October this year. Rates also increased for the company’s personal insurance segment. The company’s operating return on equity suffered for the first nine months this year, primarily due to natural disaster losses. 2011 has recorded the highest catastrophe related losses since 2005, when hurricanes Katrina, Rita and Wilma rattled the industry. This has also led insurers to rethink their models and raise rates.
‘Stable’ outlook for 2012 by Fitch
Fitch Ratings’ 2012 outlook for the industry supports a turn in market pricing as insurers struggle to improve profitability. According to the report, 2011 was marked by low profitability due to the exceptionally high catastrophe losses, poor underwriting fundamentals and low investment yields. Fitch forecasts a slight improvement in profits in 2012, with an industry return on surplus of 5.4% next year compared to 2.7% this year, while projecting a combined ratio of around 103% for the industry. 
We believe that the company’s determination to increase rates and improve the terms and conditions of policies should help it improve profitability, even though it could lead to reduced volumes. The company remains confident that an increase in rates will more than offset any lost volumes.
We have a $63 price estimate for Travelers, a premium of about 5% to the current market price.Notes:
- Travelers Companies Inc at Goldman Sachs US Financial Services Conference, Travelers Events [↩]
- 2012 Outlook: Property/Casualty Insurance, Fitch Ratings’ Outlook Report [↩]