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Travelers (TRV) Q2 Earnings Beat, Down Y/Y on Cat Loss

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The Travelers Companies Inc.’s (TRV - Free Report) second-quarter 2016 operating earnings of $2.20 per share beat the Zacks Consensus Estimate of $2.12 by 3.8%. However, the bottom line deteriorated 12.7% year over year.

The Travelers Companies Inc. (TRV - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

The decline in earnings can be attributed to higher catastrophe and certain non-catastrophe weather-related losses due to the occurrence of storms and hailstorms in several regions of the United States and the Fort McMurray wildfires in Canada. Also, lower net investment income contributed to the downside. Higher net favorable prior-year reserve development partially offset the downside.

Quarter in Details

Net written premiums rose 2.9% year over year to $6.3 billion, attributable to growth in Personal Insurance and domestic Business Insurance net written premiums.

Net investment income declined around 13.1% year over year to $549 million. The downside was attributable to lesser returns in fixed income portfolio owing to lower reinvestment rates. Also, lesser returns in non-fixed income portfolio due lower private equity and real estate partnership returns hurt net investment income.

Total revenue of Travelers inched up 1.1% from the year-ago quarter to $6.8 billion. Revenues beat the Zacks Consensus Estimate of $6.7 billion by 1.7%.

Travelers’ underwriting gains plunged 24.1% to $388 million. Combined ratio deteriorated 230 basis points (bps) year over year to 93.1% on higher catastrophe losses and higher underlying combined ratio, partially offset by higher net favorable prior-year reserve development.

At the end of the second quarter, statutory capital and surplus was $20.6 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 22.3%, within the company’s target range of 15–25%.

Adjusted book value per were $77.61 per share, up 6.2% year over year.

Segment Update
    
Travelers' Business and International Insurance unit reported net written premiums of $3.7 billion, up 0.03% year over year.

Combined ratio deteriorated 430 bps year over year to 97.5%. The deterioration was attributable to higher catastrophe losses and an increased underlying combined ratio, partially offset by higher net favorable prior-year reserve development.

Operating income of $393 million plummeted 27.6% on lower investment income and higher catastrophe losses and non-catastrophe weather-related losses. Higher net favorable prior-year reserve development partially offset the downside.

Bond & Specialty Insurance: Net written premiums inched up 0.4% year over year to $536 million, mainly due to a rise in new business volume in Management Liability.

Combined ratio showed significant improvement of 2130 bps year over year to 52.4%.

Operating income surged 33.8% year over year to $202 million, owing to higher net favorable prior-year reserve development.

Personal Insurance: Net written premiums increased 8.8% year over year to $2.1 billion.

Combined ratio deteriorated 460 bps year over year to 95.7% due to lower net favorable prior-year reserve development and a higher underlying combined ratio.

Operating income of $116 million plunged 33.3% due to lower net favorable prior-year reserve development.

Dividend and Share Repurchase Update

The property & casualty (P&C) insurer returned total capital of $747 million to its shareholders. This included the buyback of 4.9 million shares worth $550 million in the reported quarter. The company is left with $2.2 billion worth of share repurchase under its existing authorization at the end of the second quarter.

The company’s board of directors has declared a quarterly dividend of 67 cents per share during the reported quarter. The dividend is payable on Sep 30 to shareholders on record at the close of business as of Sep 9, 2016.

TRAVELERS COS Price, Consensus and EPS Surprise

TRAVELERS COS Price, Consensus and EPS Surprise | TRAVELERS COS Quote

Zacks Rank and Performance of Other Insurers

Travelers currently holds a Zacks Rank #4 (Sell). Among the other players from the insurance industry that have reported their second-quarter earnings so far, the bottom line at RLI Corp. (RLI - Free Report) and Progressive Corp. (PGR - Free Report) missed their respective Zacks Consensus Estimates, while Brown & Brown Inc.’s (BRO - Free Report) earnings beat the same.

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