What To Expect From Travelers’ Q1 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 first quarter on Thursday, April 20, where its underwriting performance will be in focus. Travelers had a relatively lackluster 2016, with weak earnings in the first three quarters owing to higher catastrophe losses; in the last quarter, higher investment income was only partially able to compensate for the lower underwriting gains owing again to higher catastrophe losses.

In full year 2016, the company’s operating income dropped by 14% year-over-year (y-o-y) to about $3 billion and the combined ratio (the ratio of claims to premiums earned) increased by 370 basis points to 92.0%. 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 partially offset by higher net favorable prior year reserve development. However, the company performed slightly better in the last quarter compared to the first three months.

In Q4 2016, Traveler’s revenues grew 8% year-over-year (y-o-y) to about $7.2 billion and its operating income per share grew by 10% to $3.20, beating analyst estimates of $2.73 per share, driven by higher net investment income and settlement of a reinsurance dispute, partially offset by a lower underwriting gains. In the upcoming first quarter results, 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 figures.trv-20
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 declined considerably over the last one year in the U.S., from 5.0% in March 2016 to 4.5% in March 2017. [1] 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.

In the business insurance division, higher catastrophe losses and higher non-catastrophe weather related losses led to a combined ratio of 94.3% in 2016 compared to 92.1% in 2015. We expect it to remain around the 92-93% range in the first quarter due to several weather-related events in the last three months in the U.S. and Canada such as severe winter storms and flooding in Nevada, California, Wyoming and Mississippi. [2]

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