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Travelers (TRV) Q3 Earnings & Revenues Beat Estimates, Up Y/Y

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The Travelers Companies, Inc.’s (TRV - Free Report) third-quarter 2018 core income of $2.54 per share surpassed the Zacks Consensus Estimate of $2.22 by 14.4%. The bottom line also improved a whopping 179.1% 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 lower level of catastrophe loss and higher investment income. The bottom line benefited from lower U.S. corporate income tax rate as well and the impact of share buybacks.

Behind the Q3 Headlines
 
Travelers’ total revenues rose nearly 5.4% from the year-ago quarter’s figure to $7.7 billion. The top-line figure also outpaced the Zacks Consensus Estimate of $7.5 billion.
 
Net written premiums displayed a 6% year-over-year increase to $7.1 billion owing to growth in each business segment, namely Business and International Insurance, Bond & Specialty Insurance and Personal Insurance.
 
Net investment income rose 9.9% year over year to $646 million on higher private equity returns. Increase in fixed income returns owing to higher average level of fixed maturity investments, higher long-term reinvestment rates as well as short-term interest rates led to this upside.

Travelers reported an underwriting gain of $198 million, which compared favorably with the year-ago quarter’s underwriting loss of $246 million. Combined ratio improved 660 basis points (bps) year over year to 96.6% on account of lower catastrophe losses, partially offset by lower net favorable prior-year reserve development and a slightly higher underlying combined ratio.

At the end of the third quarter, statutory capital and surplus was $20.5 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 22.3%. Notably, this was within the company’s target range of 15-25%. Adjusted book value per share was $86.51, up 4.2% year over year.
 
Segment Update
    
Travelers’ Business Insurance unit reported net written premiums of $3.6 billion, up 6.2% year over year. This upside can be attributed to a continued strong retention, an improved renewal premium change and a rise in new business.
 
Combined ratio improved 920 bps year over year to 100.6%owing to lower level of catastrophe loss and a lower underlying combined ratio. However, net unfavorable prior-year reserve development partially marred this upside.
 
Segment income of $410 million skyrocketed 290.4% from the year-ago quarter’s level.
 
Bond & Specialty Insurance: Net written premiums rose 5.4% year over year to $644 million, primarily driven by improvement in surety premiums, a sustained solid retention plus record new business in management liability.
 
Combined ratio improved 750 bps year over year to 70.2% owing to higher net favorable prior-year reserve development and lower catastrophe losses. Nevertheless, slightly higher underlying combined ratio partially marred this upside.
 
Segment income soared 44.1% year over year to $196 million.
 
Personal Insurance: Net written premiums increased 5.9% year over year to about $2.8 billion.
 
Combined ratio improved 250 bps year over year to 97.2% driven by lower catastrophe losses and higher net favorable prior-year reserve development. However, this uptick was partially marred by higher underlying combined ratio.
 
Segment income surged 98.7% year over year to $153 million.
 
Dividend and Share Repurchase Update
 
The property & casualty (P&C) insurer returned total capital of $607 million to its shareholders in the reported quarter. This included a buyback of 3.1 million shares worth $400 million. The company is now left with shares worth $3.5 billion for repurchase under its existing authorization at the end of the third quarter.
 
The company’s board approved a quarterly dividend of 77 cents per share in the quarter under review. The dividend will be payable Dec 31, 2018 to shareholders of record at the close of business as of Dec 10, 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 third-quarter earnings so far, the bottom line of The Progressive Corporation (PGR - Free Report) and MGIC Investment Corporation (MTG - Free Report) outpaced the respective Zacks Consensus Estimate, while RLI Corp. (RLI - Free Report) missed the same.

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