Which Segment Is Driving Travelers’ Growth: Business Insurance Or Personal Insurance?

Travelers (NYSE:TRV) is the sixth-largest property and casualty (P&C) insurance company in the United States in terms of direct written premiums, and offers Personal Insurance, Bond & Specialty Insurance and Business Insurance services to its clients. The insurance giant derives a majority of its revenues from Business Insurance segment, which has contributed around 50% of Travelers’ revenues over the last three years. While the smaller Personal Insurance segment has grown at a much faster rate than Traveler’s Business Insurance operations over the last two years, we expect the latter to fare much better in the face of expected economic headwinds over coming years.

Trefis details the key components of Travelers’ Revenues in an interactive dashboard, along with our forecast for 2019-2020. While the 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 be around 4% over 2019-2020. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for Travelers’ Revenues.

What To Expect From Travelers’ Revenues?

• Travelers’ has added $2.7 billion to its revenue over the last two years, from $27.6 billion in 2016 to $30.3 billion in 2018.
• We expect a revenue growth of about $2.7 billion over 2019-2020, which would be driven by about $1.3 billion from Business Insurance, $1 billion from Personal Insurance, $300 million from Bond & Specialty Insurance and $100 million from Investment of Insurance Premiums.
• This would enable the revenues to cross $33 billion by 2020.

Details about how trends in Travelers revenues compare with peers MetLife, AIG and Hartford Financial are available in our interactive dashboard.

(A) Business Insurance revenues are expected to cross $16.5 billion by 2020.

• It could be subdivided in 4 segments:
  1. Commercial Automobile & Property: offers coverage to businesses for bodily injury and property damage, from the use of automobiles and trucks in a business operation.
  2. Commercial Multi-Peril: offers different types of property and casualty coverage in a single policy. Further, Travelers provides all of its Business Insurance products in a multiple peril policy.
  3. General Liability & Others: 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.
  4. Workers’ Compensation: provides coverage for employers, who are mandated by law to pay for workplace-related injuries to employees.
• This segment has contributed more than 50% of total revenues over the last three years. It has grown 5% over the last 2 years, from $14.5 billion in 2016 to $15.2 billion in 2018.
• Commercial Automobile & Property revenues were the main driver of segment growth over the last two years. 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 2020.
• Although Workers Compensation has reduced 2% over 2016-2018 due to decline in premiums, we expect it to increase 4% from $3.9 billion in 2018 to $4 billion by 2020.
• Commercial Multi-peril is on a growth trajectory; it grew 6% from $3.1 billion in 2016 to $3.3 billion in 2018 and is expected to cross $3.6 billion by 2020.
• Notably, growth in premiums is expected to increase General Liability & Other Lines revenues by 11% from $3.8 billion in 2018 to $4.3 billion by 2020.
• Overall, we expect the segment revenues to grow at an average annual rate of 4% over 2019-2020 — from $15.2 billion in 2018 to $16.5 billion in 2020.

(B) Personal Insurance revenues are expected to cross $11 billion by 2020

• It provides coverage for bodily injury and property damage caused by a personal vehicle. It also offers coverage for vehicle damage caused by natural disasters and theft.
• Although the segment has shown positive growth over the last 2 years, we expect the average annual growth rate to reduce from 8% over 2016-2018 to 5% in coming years.
• This would help segment revenues cross $11 billion by 2020.

(C) Bond & Specialty Insurance would grow by 14% from $2.4 billion in 2018 to $2.7 billion by 2020.

• It 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 2 years, from $2.3 billion in 2016 to $2.4 billion by 2018. Further, we expect the growth rate to increase to 6% in the near term as weak economic conditions lead to an uptick in bond insurance.
• This would enable the segment revenues to cross $2.7 billion by 2020.

(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.
• Despite 3% y-o-y expected growth in Average Invested Assets, the segment revenues would remain around the current level of $2.6 billion in 2019, as lower consumer activity level and negative bond market conditions would have a negative impact on yield %.
• Thereafter, we expect it increase 6% and cross $2.7 billion by 2020, due to improvement in segment’s yield % and higher Average Invested Assets.

Our interactive dashboard for Travelers details what is driving changes in revenues for Travelers’ Personal Insurance and Investment of Insurance Premiums.

Trefis estimates Travelers’ stock (shows cash and valuation analysis) to have a fair value of $142, which is roughly 5% higher than the current market price (Our price estimate takes into account Travelers’ earnings release for the third quarter).

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