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2 Insurance Picks for Your Portfolio, Avoid Travelers (TRV)

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The Travelers Companies, Inc. (TRV - Free Report) has been witnessing downward revisions over the last 60 days. The Zacks Consensus Estimate for 2017 moved south by 2.1% and for 2018, by 0.5%. In fact, Travelers failed to beat estimates in two of the last four quarters.

The stock presently carries a Zacks Rank #4 (Sell) with an unimpressive Growth Score of F. Back-tested results show that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), handily outperform other stocks.

Shares of Travelers have lost 1.4% in a year, lagging the industry’s growth of 17.5% as well as the S&P 500’s 15.9% gain.



The underwriting results of non-life insurers will be affected due to damages caused by Hurricane Harvey that hit Texas sometime back and was assigned Category 4 Hurricane.  Before one could come to terms with the devastation occurred, Hurricane Irma is already making way to be deemed as another Category 4 Hurricane, which could strike regions ranging from Caribbean to Florida.

Travelers being a property and casualty insurer will not escape the disaster caused by these catastrophe events since its underwriting results have severely taken a beating. Per Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (AON - Free Report) , the industry already suffered $53 billion in catastrophe losses in the first half of 2017, the highest figure since 2011.

The company has been witnessing high level of catastrophe losses for a considerable period of time. Notably, the first half of 2017 marked the highest level of catastrophe losses for the company in the past six years. Combined ratio — indicative of the underwriting loss or profit of a company — deteriorated.

Travelers has also been witnessing increasing expenses, weighing on operating income expansion and thus inducing volatility to the bottom line.

The Federal Reserve announced intention for three rate hikes in 2017 with another three in 2018. The Fed has already made two hikes in the first half of 2017. However, at the annual central banking conference in Jackson Hole, WY on Aug 25, no hints were dropped about the next hike in interest rates. The lack of signals about the announcement of the next rate hike was interpreted as ‘dovish’ by the markets. For 2017, Travelers anticipates about $15-$20 million of lower after-tax net investment income on a quarterly basis as compared to 2016.

Nonetheless, an improving interest rate environment is aiding investment results of the insurers.

Though increasing catastrophes will induce fluctuation in underwriting results, insurers have braced themselves with prudent underwriting practices to weather the loss to some extent.

Also, influx of capital, building of reserves and containment of underwriting expenses must pave the way for growth prospects.

Choosing the Stocks

There are other attractive stocks in the property & casualty insurance industry that may not be as big a name as Travelers but promise greater returns.

We have boiled down to two other stocks with potential to enhance one’s portfolio. We refine our search using the favorable Zacks Rank, northbound estimate revisions, VGM Score and growth projections. VGM Score of A or B coupled with Buy-ranked stocks are the best deals to offer.

Illinois-based Atlas Financial Holdings, Inc. (AFH - Free Report) engages in underwriting commercial automobile insurance policies in the United States. The company has a Zacks Rank #1 with a VGM Score of A. The company delivered positive surprises in two of the last four quarters with an average beat of 57.94%. Atlas Financial is witnessing upward estimate revisions — up 4.5% for 2017 and 2.6% for 2018, respectively — over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for 2017 reflects a year-over-year improvement of 389.3% on revenue growth of 28.1%.

Connecticut-based The Navigators Group, Inc. (NAVG - Free Report) underwrites ocean marine, property and casualty, professional liability, plus specialty insurance products and services in the United States as well as internationally. The company has a Zacks Rank #2 and a VGM Score of B. Navigators Group is witnessing upward estimate revisions — up 3.5% for 2017 and 2.9% for 2018, respectively, — over the last 60 days.

The Zacks Consensus Estimate for 2017 reflects a year-over-year rise of 7.2% on revenue growth of 8.8%.
 

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