Travelers Beats Q4 2016 Estimates On Higher Investment Income But Catastrophe Losses Still A Concern

by Trefis Team
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The Travelers Companies (NYSE:TRV), one of the largest property and casualty (P&C) insurers in the U.S., reported mixed earnings for the fourth quarter, with operating income growing 4% year-over-year (y-o-y) but its combined ratio (the ratio of claims to premiums earned) increasing by 340 basis points to 90.0%. The increase in operating income was primarily due to higher net investment income and settlement of a reinsurance dispute, partially offset by a lower underwriting gain driven by higher catastrophe losses and personal auto results.
trv-19 The company’s revenues grew 8% year-over-year (y-o-y) to about $7.2 billion in Q4 2016. In terms of bottom line, the company’s operating income per share grew by 10% to $3.20, beating analyst estimates of $2.73 per share for the quarter. Going forward, analysts expect revenue and EPS of $6.3 billion and $2.52 a share, implying a gain of (-6)% and 10%, respectively, over the prior year quarter’s our full analysis of Travelers here

Business And International Insurance

The Business and International Insurance division reported revenues of $3.5 billion in the quarter, comparable to the year ago quarter and accounting for 58% of total premiums. This was driven by a 5% increase in First Party premiums in the domestic market, partially offset by a 2% decline in international market premiums and Specialized Distribution premiums in the domestic market. The company’s international operations include Canada, Ireland, the U.K., and Brazil, and contributed 13% of the total premiums written in this division.

The division’s operating income grew 28% to $722 million driven by settlement of a reinsurance dispute, a higher underlying underwriting gain, higher net investment income and higher net favorable prior year reserve development, partially offset by higher catastrophe losses. The segment reported a combined ratio of 89.0%, an increase of 60 basis points on a y-o-y basis.

In the Bonds and Specialty Insurance business, operating income declined by 1% to $161 million due to lower net favorable prior year reserve development and higher catastrophe losses, partially offset by a lower underlying combined ratio. This was reflected in the combined ratio for the segment as well, which worsened by 60 basis points over the prior year quarter to 65.7%.

Personal Insurance

The company offers homeowner’s multiperil and personal automobile insurance products within the Personal Insurance division. The net premiums written jumped 12% y-o-y to over $2 billion driven by higher new business volume from the company’s Quantum Auto 2.0 and growth in the homeowner’s insurance product line.

Lower underlying underwriting gains and net unfavorable prior year reserve development helped worsen the division’s combined ratio by 11.5 percentage points y-o-y to 98.2% in Q4 2016. As a result, the division’s operating income declined 56% to $97 million in the fourth quarter.

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