What Are Travelers’ Key Sources of Revenue?

by Trefis Team
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Travelers (NYSE: TRV), one of the leading property and casualty insurers in the U.S., operates three primary businesses – Business Insurance, Personal Insurance, and Bond & Specialty Insurance. Below, we expand on these businesses, their historical performance, and our expectations going forward.

  • Business Insurance, the largest division, provides property and casualty insurance products and services to various industries across the world. The solutions include commercial auto and truck insurance, workers compensation, property insurance, and cyber liability insurance solutions. In the U.S., the company caters to the needs of markets ranging from Select Accounts to National Properties. The business is also prevalent in Canada, UK, Ireland, and Brazil. It contributes to about 57% of Traveler’s revenue and saw 1.6% growth in 2017, on account of NWP growth in select account and middle market.
  • Personal Insurance encompasses property, auto, and liability insurance to individuals and households in U.S. and Canada. Over the last few years, this division has been the stand-out performer for the company. The 9.4% growth in 2017 was driven by higher renewal rates, increased business volumes, and improved pricing. As a result, net written premiums grew by 9%. Meanwhile, the business generated higher investment income from short-term securities.
  • Bond & Specialty Insurance covers payment and commercial surety for construction and general enterprises, management liabilities, and professional liabilities. This business has remained fairly stable over the past few years, with 2017 experiencing a steady 1.5% revenue growth.

We have created an interactive dashboard analysis that shows Travelers’ key revenue sources and the expected 2018 performance. You can adjust the revenue drivers to see the impact on the overall revenues, EPS, and price estimate.

Personal Insurance Business To Continue On Its Upward Trend

Personal Insurance has been a strong contributor to the company’s top line in the past few years, and we expect this trend to continue in the upcoming year. Pricing increases in the Automobile category and Policy-In-Force (PIF) growth in the Homeowners category will likely drive the growth in this segment. Meanwhile, the company has recently launched Quantum Home 2.0, a homeowners insurance product that provides flexible coverage options. The product was initially launched in select states, but the company plans to gradually roll out the product in several states later in the year. This should provide a boost to the company’s top line, as the product has been gaining traction amongst the customers. Moreover, with personal property insurance prices potentially set to rise in 2018, largely due to catastrophes in 2017, Travelers should experience moderate growth in net written premiums.

Business Insurance Could Experience Slight Pressure; Bond & Specialty To Generate Stable Revenues

As per NOAA’s (National Oceanic and Atmospheric Organization) prediction, which has been reliable in the past, the number of hurricanes could be lower than the last year. While this bodes well for insurers because of lower expected catastrophe losses, it also means that product pricing could go down, thereby negatively impacting the net written premiums. This, along with the fact that the company’s performance in National Accounts and National Property market has been on a decline over the past few years, will likely offset the growth in Select Accounts and Middle Markets. However, a large part of the company’s fixed income portfolio is in investment grade, which helps the company to generate stable investment income, and we expect this to continue in the coming years.

We maintain our $147 price estimate for Travelers, which is ahead of the current market price. Disagree? Detailed steps to arrive at Travelers’ price estimate are outlined in our interactive dashboard, and you can modify our assumptions to arrive at your own estimate for the company.

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