Headwinds To Investment Income Will Weigh On Travelers’ Growth Over Coming Years

by Trefis Team
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Travelers (NYSE:TRV) is the sixth-largest property and casualty (P&C) insurance company in the United States in terms of direct written premiums. The company has a strong presence across the country, with California and New York being the largest contributors. It provides Personal insurance, Bond & Specialty Insurance and Business Insurance services to retail customers, small-mid size businesses, and corporates. Travelers’ business model faces stiff challenges and competition from offerings by its global competitors such as: American International Group (AIG), Hartford Financial Services Group (HIG), MetLife, Allstate Insurance Group, State Farm Group, and Berkshire Hathaway Group.

Trefis details the key components of Travelers’ Revenues in an interactive dashboard, along with our forecast for the next three years. In 2019, Travelers’ Business Insurance and Personal Insurance segments are expected to contribute roughly $15.8 billion (50%) and $10.5 billion (33%) respectively to its Total Revenue estimate of $31.5 billion. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for Travelers’ Revenues. Additionally, you can see more Trefis data for insurance companies here.

What to expect from Travelers’ Revenues?

  • Although revenues have grown at an average annual rate of 5% from $27.6 billion in 2016 to $30.3 billion in 2018, we expect the growth rate to reduce to 3% over the next three years.
  • Total revenues are expected to increase by 9% from $30.3 billion in 2018 to $33 billion by 2021, mainly driven by growth in Business Insurance and Personal Insurance divisions.

[A] Personal Insurance revenues are expected to cross $11 billion by 2021

  • This segment provides coverage for bodily injury and property damage caused by a personal vehicle. It also provides coverage for vehicle damage caused by natural disasters and theft.
  • The segment revenues have grown 18% from $8.5 billion in 2016 to $10 billion in 2018, mainly driven by growth in personal automobile premiums.
  • However, we expect the average annual growth rate to reduce from 8% over 2016-2018 to 3% in coming years.
  • This would enable the revenues to cross $11 billion by 2021.

[B] Bond & Specialty Insurance would grow by 14% from $2.4 billion in 2018 to $2.8 billion by 2021.

  • Bond & Specialty Insurance provides coverage for losses to an individual’s house and its contents from a variety of perils (except flood). Additionally, the company provides coverage for valuable personal items, special events, and boats and yachts, under this product line.
  • This segment has grown at an average annual rate of 3% over the last three years. Further, we expect the growth rate to increase to 4% in the subsequent years.
  • This would enable the segment revenues to cross $2.8 billion by 2021.

[C] Business Insurance revenues are expected to cross $16.6 billion by 2021.

This segment has contributed more than 50% of total revenues over the last three years. It has grown 5% from $14.5 billion in 2016 to $15.2 billion in 2018.

It could be sub-divided into 4 units-

  • Commercial Automobile & Property provides coverage to businesses for bodily injury and property damage, from the use of automobiles and trucks in a business operation. It grew 12% from $3.8 billion in 2016 to $4.2 billion in 2018 and is further expected to cross $4.7 billion by 2021.
  • Workers’ Compensation provides coverage for employers, who are mandated by law to pay for workplace-related injuries to employees. The benefits covered under the product’s policy include medical, disability, death benefits, and vocational rehabilitation. While the unit’s revenues have reduced 2% over 2016-2018, we expect it to increase by 4% from $3.9 billion in 2018 to $4 billion by 2021.
  • Commercial Multi-Peril offers different types of property and casualty coverage in a single policy. Further, Travelers provides all of its Business Insurance products such as commercial property, commercial automobile, workers’ compensation, and general liability in a multiple peril policy. This unit is on a growth trajectory and is expected to cross $3.6 billion by 2021.
  • General Liability & Others include the Commercial Multi-peril line, which offers a combination of property and liability insurance along with other insurance products like fidelity and surety insurance, commercial property insurance and general liability insurance. Notably, revenues from this unit are expected to increase 11% from $3.8 billion in 2018 to $4.2 billion by 2021.

Overall, we expect the segment revenues to grow at an average annual rate of 3% over the next three years – from $15.2 billion in 2018 to $16.6 billion in 2021.

[D] Investment of Insurance Premiums would contribute $2.6 billion in 2019, which is roughly at the same level as 2018.

  • This segment represents the return on the insurance premiums invested to generate income and capital appreciation.
  • Income generated from investment of insurance premiums is very important for the profitability of an insurance company, and Travelers is no exception.
  • The segment revenues increased by 10% y-o-y in 2017, before reporting a slight drop in the subsequent year due to lower asset valuations in the second half of 2018.
  • We expect the revenues to remain around the current level of $2.6 billion in 2019, as lower consumer activity level and negative bond market condition would affect its performance.
  • Thereafter, we expect it to grow at an average annual rate of 2% and cross $2.7 billion by 2021.

Trefis estimates Travelers’ stock (shows cash and valuation analysis) to have a fair value of $146, which is slightly lower than the current market price.

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