What To Expect From Travelers’ Q4 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 fourth quarter on Tuesday, January 24, where its underwriting performance will be in focus. Travelers has had a lackluster 2016 so far, with weak earnings in the first three quarters owing to higher catastrophe losses.

In the first nine months of 2016, the company’s operating income dropped by about 20% year-over-year (y-o-y) and the combined ratio (the ratio of claims to premiums earned) increased by 390 basis points to 92.8%. The decline in operating income was primarily due to higher non-catastrophe weather-related losses, lower net favorable prior-year reserve development, and lower investment income.

During the fourth quarter, Travelers is likely to have faced similar headwinds, which could pressure its combined ratio to remain at the prevailing higher levels. Reuters’ polled analysts expect revenue and EPS of $6 billion and $2.65 a share, implying a decline of 10% and 6%, respectively, over the prior year quarter’s figures.trv-15See 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 declined in the last six months in the U.S., from 4.9% in July to 4.7% in December. [1] It was around 5.0% 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 losses and higher non-catastrophe weather related losses led to a combined ratio of 96.2% in the first nine months of 2016 compared to 92.9% in the same period last year. We expect it to remain around the 95-96% levels in the fourth quarter as well due to several weather related events in the last three months in the U.S. and Canada such as Hurricane Matthew in states such as Florida, Georgia and Virginia, severe storms and flooding in Pennsylvania, Minnesota, Wisconsin and Iowa, and wildfires in Tennessee. [2]

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Notes:
  1. Unemployment Rate – Bureau of Labor Statistics Data []
  2. Disaster Declarations U.S., FEMA []
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