Travelers insurance earnings surpassing the Zacks Consensus

Best Insurance stock - Travelers insurance earnings surpassing the Zacks Consensus : The Travelers Companies, Inc. (TRV - Analyst Report) reported earnings of 72 cents per share in the fourth quarter of 2012, surpassing the Zacks Consensus Estimate of 4 cents per share. However, results plunged 51% from $1.48 earned in the year-ago quarter. Operating income of $278 million dipped 54% the reported quarter.

The year-over-year downside was largely attributable to higher catastrophe losses mostly due to Hurricane Sandy. However, higher underlying underwriting margins and higher net favorable prior-year reserve development limited the downside to some extent.

Cat loss in the quarter was $689 million or $1.78 per share. Including net realized investment gains of $26 million or 6 cents per share, the company reported net income of $304 million or 78 cents per share, comparing unfavorably with net income of $618 million or $1.51 a share. The year-ago quarter included net realized investment gains of $9 million.

Operational Update

Net written premiums during the quarter were $5.4 billion, up 2% year over year.

Net investment income increased 5.7% year over year to $689 million during the quarter, largely attributable to better performance at non-fixed income portfolio, partly muted by reduction in fixed income returns.

Travelers posted underwriting loss of $338 million, comparing unfavorably with profit of $187 million in the year-ago quarter. Combined ratio deteriorated 950 basis points year over year to 105.4% in the reported quarter. The deterioration was due to higher catastrophe losses, partially muted by higher underwriting margins and higher net favorable prior-year reserve development.

Total revenue in the quarter under review was $6.5 billion, increasing 2% year over year, driven by the augmentation in premiums earned and net investment income. Revenues surpassed the Zacks Consensus Estimate of $6.3 billion.

Full Year Highlights

Operating earnings of $6.21 per share outpaced the Zacks Consensus Estimate of $5.56 and year ago earnings of $3.28. The upside stemmed from a combination of lower catastrophe losses, higher underwriting margins and higher net favorable prior-year reserve development

Including net realized investment gains of 9 cents, the company reported net income of $6.30 per share, surging from $3.36 a share earned in 2011.

Total revenue increased 1% year over year to $25.7 billion. It also outperformed the Zacks Consensus Estimate of $25.2 billion.

Underwriting gains of $296 million reversed the year-ago loss of $745 million. Combined ratio improved 800 basis points.

Segment Update

Business Insurance: Net written premium increased 6% year over year to $2.78 billion in the quarter, largely driven by increases in renewal rate change.

The combined ratio deteriorated 770 basis points year over year to 103.5%, mainly due to higher catastrophe losses.

Operating income slid 27% year over year to $326 million in the fourth quarter of 2012, primarily attributable to higher catastrophe losses.

Financial, Professional & International Insurance: Net written premium in the quarter under review improved 2% year over year to $808 million, driven by a 6% increase in net written premiums in the International business.

The combined ratio deteriorated 100 basis points year over year to 80.2% in fourth quarter 2012, attributable to higher catastrophe losses.

Operating income descended 13.8% year over year to $131 million, attributable to higher catastrophe losses, partly offset by higher underlying underwriting margins

Personal Insurance: Net written premium skidded 3% year over year to $1.79 billion, primarily due to lower new business volumes.

The combined ratio deteriorated 1540 basis points year over year to 89.7% in the fourth quarter of 2012, largely driven by higher catastrophe losses.

Operating loss of $114 million compared unfavorably with profit of $77 million in the year-ago quarter largely due to higher catastrophe loss. However, higher underlying underwriting margins and higher net favorable prior-year reserve development limited the downfall.

Dividend and Share Repurchase

Travelers spent $400 million to buyback 5.4 million shares in the quarter, taking the tally to $1.45 billion spent to buyback 22.4 million shares in 2012. The company is still left with $2.159 billion remaining under its authorization.

The company also paid $178 million in dividends. Additionally, the board approved a quarterly dividend of 46 cents, payable Mar 29, 2013, to the shareholders of record as of Mar 8, 2013.

Our Take

Travelers continues with the trend of delivering positive earnings surprise.

Though its exposure to cat loss weighs on the results, prudent underwriting practices and favorable prior-year reserve development managed to limit the adverse affect.

High retention rate, pricing gains, positive renewal rate changes, and a strong capital position are among the other positives, which are likely to support Travelers perform better going forward.

Travelers’ continuous share buyback strategy has a positive impact on earnings per share and also bolsters shareholder value.

Further, Travelers recently increased its stake in J. Malucelli Participações em Seguros e Resseguros S.A., a market leader in the surety insurance business in Brazil. Further, it made some useful investments to augment its technology platform. It scores strongly with the rating agencies as well.

source -  Zacks.com

Travelers stock prices rally today

Best Insurance Stock - Travelers stock prices rally today : Shares of Travelers Cos. rallied on Tuesday after the insurance company reported quarterly earnings that exceeded Wall Street’s expectations.

The Financial Select Sector SPDR Fund XLF +0.41% , which tracks the performance of financial stocks in the S&P 500 SPX -0.28% , traded marginally higher in midmorning trade.   The broader U.S. stock market declined after data showed a decline in sales of existing homes in December. The S&P 500 slipped 0.3% to 1,481.

Travelers TRV +2.63%  was the top gainer among S&P 500 financial stocks and the biggest gainer in the blue-chip Dow Jones Industrial Average DJIA +0.12% , with its shares up nearly 3%. The insurer said its fourth-quarter profit slumped 51% as it racked up millions in claims from Hurricane Sandy, which hit the Northeastern U.S. in November. Still, the results were better than expected. See: Travelers fourth-quarter profit down 51% after Sandy. Another insurer, Allstate Corp. ALL +1.76% , gained 1.8%.

State Street Corp. STT +3.36%  shares rose 2.6% after the investment manager was upgraded to neutral from underweight at J.P. Morgan Chase, which said that the company’s new cost-savings program is expected to offset its lower net interest margin, In the banking sector, shares of Regions Financial Corp. RF +4.58%  rose 1.5% after the lender swung to a fourth-quarter profit, source : http://www.marketwatch.com

Travelers insurance stock outlook 2013

Travelers insurance stock forecast 2013 : Shares of The Travelers Companies closed at $74.95 Monday, trading for 10.9 times the consensus 2013 earnings per share estimate of $6.85. The consensus 2014 earnings per share estimate is $7.06. The shares returned 25 percent during 2012.

Based on a quarterly payout of 46 cents, the shares have a dividend yield of 2.45 percent.

Travelers on Dec. 5 announced that its preliminary estimate of losses related to Sandy was $1.135 billion, net of reinsurance. The after-tax loss estimate was $650 million. The company is scheduled announce its fourth-quarter results on Jan. 22, with a consensus earnings estimate of seven cents a share, compared to earnings per share of $2.22 during the third quarter, and $1.48 during the fourth quarter of 2011.

The company on Dec. 5 also said it intended to resume repurchasing common shares, which it had suspended temporarily after Sandy hit. For the first three quarters of 2012, Travelers reported an underwriting profit of $845 million. For 2011, the company reported an underwriting loss of $745 million.

Loss From Sandy
Catastrophe related losses account for about 10% of Travelers total claims and expenses. In 2011, natural disasters like Hurricane Irene and Tropical Storm Lee, led to catastrophe related losses of around $1 billion. The operating margin for the business insurance division fell from 17% in 2010 to 12% in 2011, while the operating margin for personal insurance fell from 6% to a 4% loss.

The business insurance division reported catastrophe losses of $360 million for the first nine months of the calendar year. Given the estimate provided by the company, we expect an operating margin of around 15% for the fiscal year.

he catastrophe related losses reported by the personal insurance division through the first nine months of 2012 totaled $450 million. We expect an operating margin around 6% for the fiscal year. For a detailed analysis of the operating margins and the affect of Superstorm Sandy,

Revenue Growth
To mitigate the effects of the losses incurred by Travelers due to Hurricane Irene and Tropical Storm Lee, the company had to undertake several pricing initiatives. Insurance rates increased by almost 8% through the first nine months of 2012, but the company was still able to maintain high retention rates, close to 80% in the business insurance division. This allowed a 3% growth in business insurance premiums. Given the company’s historical performance, we expect it to maintain premium growth. However, there are more than 2,500 property and casualty insurers in the U.S. and the highly competitive nature of the market will lead to a slight decline in Travelers’ market share in the coming years.

Importance Of Investments
Although Travelers earns just 12% of its revenues from returns on investments, it is important for the company to invest premiums earned. Looking at the 2011 figures, we can see that Travelers earned about $22 billion in premiums and had to pay around $24 billion in claims. The $3 billion it earned from investment income allowed the company to maintain a profit for the year.

Most of Travelers investments are in fixed maturity securities like government bonds, which account for 85% of the net investment income with a yield of around 4%. However as the Fed has stated that interest rates will be kept low for the next few years, we expect a slight decline in yield in the coming years, with a recovery coinciding with an improvement in macro-economic conditions.