The Travelers Companies, Inc. (NYSE:TRV) is one of the leading property and casualty insurers in the U.S., ranking sixth in terms of premiums earned with 4.4% of the market share.  The company’s primary focus is on business insurance covering small, mid-sized and large companies in the country. The business insurance division accounts for more than half of Travelers’ earned premiums and nearly 60% of the operating income. Clearly, it is the most important division for the company accounting for 70% of our price estimate. In this article, we look at the business insurance division in detail.
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Travelers’ business insurance division can be divided into three primary markets.
These include: 1) Select accounts, which caters to small businesses and accounts for 23% of the divisions’ net written premiums; 2) Commercial accounts, which caters to mid-sized businesses and accounts for 26% of the business insurance division’s net written premiums; and 3) National accounts, catering to large companies and accounting for just 8% of the division’s net written premiums.
Apart from these markets, Travelers also provides industry specific insurance coverage to companies in the construction, technology, public sector, oil and gas and agricultural lines of business. This industry focused underwriting unit accounts for 22% of the division’s net written premiums. Specialized underwriting and distribution units catering to office building owners, schools, municipalities, builders, marine transports and other special classes of commercial businesses round up the premium income.
The Products Being Offered
Workers’ compensation is Travelers’ main product line accounting for almost 30% of the net written premiums. The line covers employers for workplace injuries to employees. The benefits offered include medical benefits, disability benefits, death benefits and vocational rehabilitation benefits. The products included in this line of insurance include both fixed premium policies, loss sensitive policies and also loss prevention and risk management policies where the company charges insurance fees rather than premiums.
Workers’ compensation is a big market in the U.S. Total premiums earned by insurers from this product line in 2012 totalled $46 billion almost 10% of the total property and casualty premiums earned in the U.S.  Travelers’ is the second largest insurer in this product line behind Liberty Mutual and its market share has increased from 6% in 2010 to 7.31% in 2012. We expect the market share to remain stable in the coming years with a marginal increase to around 7.35% by the end of our forecast period.
Commercial multiperil, which is a combination of commercial property, automobile, workers’ compensation and general liability insurance is Travelers’ second biggest product line accounting for 26% of the business insurance premiums. The product line accounts for 7% of the total property and casualty premiums in the U.S.  Travelers’ has maintained a market share of 9.2% in the product line in the last three years and we expect this trend to continue.
Why Do We Show A Decline In Market Share?
Although Travelers’ has been fairly consistent in its two strongest product lines mentioned above, it has been losing out on market share in other product lines. These product lines include commercial automobile insurance, which accounts for 16% of the divisions’ premiums and covers bodily injury and property damage from the use of automobiles and trucks in business. Travelers’ market share in the U.S. in this line has dropped from 8.22% in 2010 to 7.78%.
Other lines in which Travelers’ has lost market share include commercial property and general liability insurance which covers third party claims occurring on the premises of the insured party.
Travelers’ market share in the overall business insurance market has dropped from 6.52% in 2008 to 6.17%. There are almost 2,500 property and casualty insurers’ operating in the U.S. which will provide stiff competition to Travelers’ in the coming years. We expect the company to lose out on market share in the years to come but its established operations in the the workers’ compensation and commercial multiperil lines of insurance will ensure that the market share does not fall below 5.5%.
Our price estimate of $70 for Travelers is at a discount of 10% to the current market price. In terms of the sensitivity in our analysis, should Travelers’ market share in the business insurance division improve to 7% by the end of our forecast period there is an upside of 10% to our estimate. On the other hand, if the market share drops below 5% we could see 10% downside to our price estimate. You can modify the interactive chart below to gauge the effect these scenarios and other changes in our forecast might have on our price estimate.Notes: