Travelers (TRV) Q3 Earnings And Revenues Beat Estimates

The Travelers Companies Inc.’s (NYSE:TRV) third-quarter 2016 operating earnings of $2.40 per share beat the Zacks Consensus Estimate of $2.37 by 1.3%. However, the bottom line deteriorated 18.1% year over year.

The decline in earnings can be attributed to lower net favorable prior-year reserve development and higher non-catastrophe weather-related losses. However, the bottom line benefitted from share buyback.

Quarter in Details

Total revenue of Travelers improved 2.4% from the year-ago quarter to $6.9 billion. Revenues surpassed the Zacks Consensus Estimate of $6.7 billion.

Net written premiums rose 3.2% year over year to $6.4 billion, primarily due to growth in Personal Insurance.

Net investment income declined around 5.2% year over year to $582 million. The downside stemmed from lesser returns in fixed income portfolio owing to lower reinvestment rates.

Travelers’ underwriting gains plunged 46.2% to $408 million. Combined ratio deteriorated 600 basis points (bps) year over year to 92.9% due to higher underlying combined ratio and lower net favorable prior-year reserve development.

At the end of the third quarter, statutory capital and surplus was $20.61 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 22.3%. This was within the company’s target range of 15–25%.

Adjusted book value per were $78.82 per share, up 6 % year over year.

Segment Update

Travelers' Business and International Insurance unit reported net written premiums of $3.6 billion, down 0.2% year over year.

Combined ratio deteriorated 390 bps year over year to 96.1%. The deterioration was attributable to a higher underlying combined ratio, lower net favorable prior-year reserve development and higher catastrophe losses.

Operating income of $457 million decreased 16.3% due to lower underlying underwriting gain, higher catastrophe losses and lower net favorable prior-year reserve development.

Bond & Specialty Insurance: Net written premiums inched up 0.2% year over year to $566 million, mainly due to a rise in new business volume in Management Liability.

Combined ratio deteriorated 1300 bps year over year to 70.1%, owing to lower net favorable prior-year reserve development, a higher underlying combined ratio and more catastrophe losses.

Operating income plunged 25.5% year over year to $146 million, owing to lower net favorable prior-year reserve development.

Personal Insurance: Net written premiums increased 10% year over year to $2.2 billion.

Combined ratio deteriorated 780 bps year over year to 92.9% due to a higher underlying combined ratio and net unfavorable prior-year reserve development, partially offset by lower catastrophe losses.

Operating income of $158 million plunged 34.4% due to lower underlying underwriting gain and net unfavorable prior-year reserve development, partially offset by lower catastrophe losses.

Dividend and Share Repurchase Update

The property & casualty (P&C) insurer returned total capital of $755 million to its shareholders. This included buy back of 4.8 million shares worth $562 million in the reported quarter. The company is left with $1.7 billion worth of share repurchase under its existing authorization at the end of the third 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 Dec 30, to shareholders on record at the close of business as of Dec 9, 2016.

Zacks Rank

Travelers currently holds 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 the other players from the insurance industry that have reported their third-quarter earnings so far, the bottom line at Progressive Corp. (NYSE:PGR) and MGIC Investment Corp. (NYSE:MTG) beat their respective Zacks Consensus Estimate, while RLI Corp. (NYSE:RLI) missed the same.

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