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Travelers (TRV) Q1 Earnings Miss Estimates, Decline Y/Y

Zacks

The Travelers Companies, Inc.’s TRV first-quarter 2017 core income of $2.16 per share missed the Zacks Consensus Estimate of $2.40 by 10%. Moreover, the bottom line deteriorated 7.3% year over year.

The year-over-year decline in earnings can be attributed to lower net favorable prior year reserve development (which included $51 million after-tax impact from the U.K. Ministry of Justice’s recent “Ogden” discount rate adjustment), a lower underlying underwriting gain as well as higher catastrophe losses. However, increased net investment income partially offset the downside. Also, the bottom line was boosted by share buybacks.

Behind the Q1 Headlines

Total revenue of Travelers improved nearly 3.8% from the year-ago quarter to $6.9 billion. Revenues surpassed the Zacks Consensus Estimate of $6.8 billion.

Net written premiums displayed a record 5.3% year over year increase to $6.5 billion due to growth in each of the business segments – Business and International Insurance, Bond & Specialty Insurance and Personal Insurance.

Net investment income grew approximately 12.1% year over year to $610 million due to higher private equity returns. The improvement, however, was partially offset by a decrease in fixed income returns due to lower reinvestment rates available in the market.

Travelers’ underwriting gains plummeted 50.7% to $211 million. Combined ratio deteriorated 370 basis points (bps) year over year to 96.0% due to higher underlying combined ratio, wider catastrophe losses and lower net favorable prior-year reserve development.

At the end of the first quarter, statutory capital and surplus was $20.62 billion and debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 22.0%. This was within the company’s target range of 15–25%.

Adjusted book value per share was $81.56 per share, up 6.4% year over year.

Segment Update

Travelers' Business and International Insurance unit reported net written premiums of $4.0 billion, up 2.9% year over year.

Combined ratio deteriorated 150 bps year over year to 96.3%. This was attributable to higher underlying combined ratio and lower net favorable prior-year reserve development. The deterioration was partially mitigated by lower catastrophe losses.

Segment income of $468 million dipped 1.7% due to a decrease in net favorable prior-year reserve development. This, in turn, may be attributed to a $51 million after-tax increase in reserves related to the Ogden discount rate adjustment as well as lower underlying underwriting gain. However, the downside was partially offset by higher net investment income and somewhat lower catastrophe losses.

Bond & Specialty Insurance: Net written premiums rose 2.4% year over year to $504 million, mainly due to rise in new business volume in Management Liability and Surety.

Combined ratio deteriorated 1000 bps year over year to 79.3% owing to lower net favorable prior-year reserve development.

Segment income fell 10.4% year over year to $129 million owing to lower net favorable prior-year reserve development. However, the downside was partially offset by the current quarter benefit from a $17 million settlement of prior-year income tax related issues.

Personal Insurance: Net written premiums increased 11.6% year over year to about $2 billion.

Combined ratio deteriorated 620 bps year over year to 99.9% due to a higher underlying combined ratio, no net unfavorable prior-year reserve development when compared with net favorable prior-year reserve development in the year-ago quarter as well as higher catastrophe losses.

Segment income of $79 million plummeted 43.2% due to lower underlying underwriting gain, wider catastrophe losses and no net unfavorable prior-year reserve development compared with net favorable prior-year reserve development in the year-earlier quarter. However, the downside was partially limited by higher net investment income.

Dividend and Share Repurchase Update

The property & casualty (P&C) insurer returned total capital of $476 million to shareholders in the reported quarter. This included buy back of 2.4 million shares worth $286 million in the reported quarter. The company is now left with $709 million worth of shares for repurchase under its existing authorization at the end of the first quarter. Furthermore, the company’s board of directors authorized an additional $5.0 billion of share buyback.

The company’s board declared a quarterly dividend of 72 cents per share in the reported quarter. The dividend is payable on Jun 30, 2017 to shareholders on record at the close of business as of Jun 9, 2017.


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

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

Zacks Rank

Currently, Travelers has 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 first-quarter earnings so far, the bottom line at Brown & Brown, Inc. BRO and Torchmark Corporation TMK beat their respective Zacks Consensus Estimate, while The Progressive Corporation PGR lagged expectations.

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