We are downgrading
Travelers Companies, Inc.
) to Neutral from Outperform as we remain concerned about its
fourth quarter results being negatively affected due to the
catastrophe loss stemming from Superstorm Sandy.
HARTFORD FIN SV (HIG): Free Stock Analysis
TRAVELERS COS (TRV): Free Stock Analysis
BERKLEY (WR) CP (WRB): Free Stock Analysis
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Exposure to catastrophe events always remains a headwind for
property & casualty insurers. Travelers' results have always
been adversely affected by catastrophes. The occurrence of
Superstorm Sandy in the final quarter of the year is apprehended
to impede the company's results. Catastrophe loss modeling
companies project the loss to be approximately $20 billion for
the industry. Travelers' cat loss in the fourth quarter of 2011
quadrupled from the loss incurred in the year-ago period. Cat
loss incurred was largely due to early snowstorms in northeastern
However, due to the absence of any significant catastrophe event,
Travelers posted underwriting gain in the third quarter with
significant improvement in combined ratio.
Alongside, Travelers has significant exposure to asbestos and
environmental claims and related litigation as a result of high
market shares of historical acquisitions. We are concerned that
Travelers may continue to take extraordinary reserve additions
for both asbestos and environmental exposure.
Counting on the positives, Travelers Business Insurance continued
to deliver positive trend in net written premiums on the back of
pricing gains and positive audit premiums. Retentions were at a
high level. Further, after a long gap of five quarters, Travelers
enjoyed higher investment income.
Travelers has always been focused on returning more value to its
shareholders via share buybacks and dividends. Its dividend
yield of 2.66% is better than that of its nearest peers,
Hartford Financial Services Group
) with a yield of 1.87% and
W. R. Berkley Corp.
) with a yield of 0.93%. With excess capital at its disposal,
Travelers expects share buybacks in the fourth quarter to be more
thanthe third quarter.
Travelers currently carries a Zacks # 3 Rank, implying a
short-term Hold rating.