Travelers Companies (NYSE:TRV) will announce its fourth quarter results on Tuesday. The company’s attention to improve rates and the conditions around its insurance products will likely result in higher revenues but low reinvestment income will provide headwinds. High catastrophe losses, which weighed heavily on the insurance industry last year, will be one area of focus that could impact earnings. Travelers operates in the highly competitive commercial and personal property and casualty insurance market with other insurers such as Metlife (NYSE:MET) and Hartford Financial (NYSE:HIG).

We have a $63 price estimate for Travelers, which is in line with the current market price.

See our detailed analysis for Travelers’ stock here

The company has reiterated at various events, its commitment to boost contract pricing. At a Goldman Sachs conference in December, the insurer 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 last year.^[1]

Though this is a positive development in the insurance industry that suffered severe losses due to weather related disasters in 2011, a significant increase in policy rates compared to competitors might mean a decrease in volume of business for the company. In Q3 earnings conference call, the company seemed ready for this trade-off.

We believe the company’s efforts to launch new products and services such as those for clean technology and energy business as well as engaging its customers will strengthen its market standing help offset the decline in volume due to higher policy renewal rates. We will be looking at company’s ability to retain business in the face of such changes.

Any increase in losses estimated from hurricane Irene may trouble the insurer and hurt its earnings. The company registered $489 million in pre-tax losses in Q3 mainly attributable to Hurricane Irene and Tropical Storm Lee. Further, stock repurchases of around $1.1 billion to $1.2 billion may lend some support to its per share reported earnings.

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