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Travelers (TRV) Q1 Earnings Miss Estimates, Revenues Beat

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The Travelers Companies, Inc.’s (TRV - Free Report) first-quarter 2018 core income of $2.46 per share missed the Zacks Consensus Estimate of $2.68 by 8.2%. However, the bottom line improved 13.9% year over year.

The Travelers Companies, Inc. Price, Consensus and EPS Surprise

 

The Travelers Companies, Inc. Price, Consensus and EPS Surprise | The Travelers Companies, Inc. Quote

 

This year-over-year increase in earnings can be attributed to higher net favorable prior-year reserve development along with a solid underlying underwriting gain. Moreover, lower income tax expenses, driven by the reduced U.S. corporate income tax rate also contributed to the upside. However, a benefit of $39 million in the prior-year quarter from the settlement of prior-year tax matters, partially offset this upside. Nonetheless, the bottom line was boosted by share buybacks.

Behind the Q1 Headlines
 
Total revenues of Travelers rose nearly 5% from the year-ago quarter to $7.3 billion. Also, the top line beat the Zacks Consensus Estimate of $7.2 billion.
 
Net written premiums displayed a 5.1% year-over-year increase to $6.8 billion owing to growth in each business segment, namely Business and International Insurance, Bond & Specialty Insurance and Personal Insurance.
 
Net investment income slid 1.1% year over year to $603 million on lower private equity returns. Increase in fixed income returns due to higher average level of fixed maturity investments as well as short-term interest rates, led to this downside.

Travelers reported an underwriting gain of $258 million, up 22.3% from the year-ago quarter. Combined ratio improved 50 basis points (bps) year over year to 95.5% owing to higher net favorable prior-year reserve development and a benefit derived from catastrophe loss. However, a higher underlying combined ratio partially offset this improvement.

At the end of the first quarter, statutory capital and surplus was $20.5 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 23.4%. This was within the company’s target range of 15-25%. Adjusted book value per share was $84.54, up 3.7% year over year.
 
Segment Update
    
Travelers’ Business Insurance unit reported net written premiums of $3.9 billion, up 3.6% year over year. A continued strong retention, an improved renewal premium change and a solid new business led to this upside.
 
Combined ratio deteriorated 110 bps year over year to 97.5% due to higher underlying combined ratio as well as catastrophe loss. However, higher net favorable prior-year reserve development partially offset this downside.
 
Segment income of $452 million grew 2.3% on the back of lower segment income before income taxes, which was more than offset by decreased income tax expense.
 
Bond & Specialty Insurance: Net written premiums rose 5.5% year over year to $574 million, primarily driven by improved domestic surety premiums, a sustained solid retention plus an increased new business in domestic management liability.
 
Combined ratio improved 470 bps year over year to 74.7% owing to lower underlying combined ratio as well as catastrophe loss along with higher net favorable prior-year reserve development.
 
Segment income improved 19.3% year over year to $173 million, attributable to higher segment income before income taxes, partially offset by higher income tax expense.
 
Personal Insurance: Net written premiums increased 7.6% year over year to about $2.3 billion.
 
Combined ratio improved 210 bps year over year to 97.5%, backed by a higher net favorable prior-year reserve development and a benefit derived from catastrophe loss, partially offset by a higher underlying combined ratio.
 
Segment income surged 44.9% to $129 million, attributable to higher segment income before income taxes, partially offset by higher income tax expense.
 
Dividend and Share Repurchase Update
 
The property & casualty (P&C) insurer returned total capital of $598 million to shareholders in the reported quarter. This included a buyback of 2.8 million shares worth $401 million. The company is now left with shares worth $4.2 billion for repurchase under its existing authorization at the end of the first quarter.
 
The company’s board announced a quarterly dividend of 77 cents per share in the quarter under review, marking a 7% increase. The dividend will be paid on Jun 29, 2018 to shareholders of record at the close of business as of Jun 8, 2018.
 
Zacks Rank
 
Travelers carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Performance of Other Insurers

Among other players from the insurance industry having reported first-quarter earnings so far, the bottom line of The Progressive Corporation (PGR - Free Report) , MGIC Investment Corporation (MTG - Free Report) and Torchmark Corporation beat the respective Zacks Consensus Estimate.

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