What To Expect From Travelers’ Q3 Results

by Trefis Team
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The Travelers Companies (NYSE:TRV), the fifth-largest property and casualty insurer in the U.S., is scheduled to report earnings for the third quarter on Thursday, October 20, where its underwriting performance will be in focus. Travelers faced a tough second quarter due to a higher level of catastrophe losses. The company’s net income declined 18% over the previous year’s quarter to $664 million in Q2 2016, primarily driven by higher catastrophe and certain non-catastrophe weather-related losses. Wind and hailstorms in Texas, and the wildfire in Canada, were the primary contributors to the company’s catastrophe losses. As a result, Travelers’ combined ratio (the ratio of claims to premiums earned) increased to 93.1% in the second quarter compared to 90.8% a year ago. ((2015 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM, NAIC, March 28 2016))

During the third quarter, Travelers is likely to have faced similar headwinds, which could pressure its combined ratio to remain at the prevailing higher levels. The company is expected to report EPS of $2.42 in the upcoming results, against EPS of $2.97 in the third quarter last year. trv-11

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., increasing from 4.9% in July to 5.0% in September. [1] It was around 5.1-5.3% 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.

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In the business insurance division, higher catastrophe-related losses led to a combined ratio of 94.4% in the first half of 2016 compared to 92.9% in the same period last year. We expect it to remain around the 93%-94% levels in the third quarter as well due to about 16 weather related events in July and 10 in August in the U.S. and Canada. P&C insurer Allstate reported last week that its expected catastrophe loss for the months of July and August was $407 million (pre-tax). For perspective, Allstate reported catastrophe losses of $1.8 billion in the first half of 2016 on revenues of $18 billion.

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Notes:
  1. Unemployment Rate – Bureau of Labor Statistics Data []
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