The Travelers Companies, Inc. (NYSE:TRV) reported a 11% year-on-year increase in both net and operating income for the first quarter of 2012. The results were helped by margin expansion as the company continued to maintain underwriting discipline and timely insurance rate increases. The consolidated combined ratio or the ratio of expenses to premiums increased from 92.2% in the first quarter of 2012 to 88.5%, indicating a strong underwriting performance and a negative cost of float.
Business And Financial Insurance
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Travelers is the sixth largest property and casualty insurer in the U.S. with a market share of 4.5% in terms of premiums earned.  The company earns nearly two-thirds of its revenue and operating income from business and financial insurance offered to institutions across the country. The main products offered are workers’ compensation insurance and commercial multiperil insurance and each accounts for 20% of the division’s premiums.
Net written premiums for the business and financial insurance division increased by 2% over the prior year’s figure led by an 8% increase in workers’ compensation premiums. The insurance rate increases ranged from 6% to 10% in various lines across the division driven by workers’ compensation insurance and commercial automobile insurance. Business retention rates remained high at 80%, in-line with the 2012 figure.
Travelers is the market leader in the commercial automobile insurance business with a market share of 7.8%. It has a market share of 8.84% in the commercial mutiperil business and 7.31% in the workers’ compensation business. With continued underwriting discipline and rate increases, we expect Travelers to maintain its market share in the business and financial insurance industry.
Personal Insurance Shows Improvement
Apart from business insurance products, Travelers offers personal automobile insurance and homeowners’ insurance to individuals across the U.S. The combined ratio for the division improved by 8 basis points to 89.4%, helped by lower catastrophe related losses and higher net favorable prior year reserve development.
In the automobile line of insurance, the company maintained a retention rate of 81% and a renewal premium increase of 9%. The underlying combined ratio improved by 1 basis point to 94.4% as a result of the written rate increases.
Travelers reported a renewal premium increase of 12% in the homeowners’ line of insurance, up 2 basis points from 2012. Retention rates were around 84%. The combined ratio for the division improved by 4 basis points over the Q1 2012 figure to 81.1%, indicating a very strong underwriting performance.
Travelers has around 7.26 million personal policies in force with 2.36 million automobile policies and 4.90 million homeowners’ insurance policies. The company has a market share of 2.11% in the automobile market and 5.2% in the homeowners’ market.  We expect the company to concentrate on maintaining its underwriting discipline which might lead to a decrease in market share in the coming years.Notes: