Travelers ( TRV ), one of the leading property and casualty insurers in the U.S., has delivered decent results in recent years, with revenues beating market expectations more often than not. The company is scheduled to announce second-quarter earnings on Thursday, July 19. Last quarter yielded mixed results for the company, as revenue beat market expectations but earnings per share missed by a wide margin because of higher than expected catastrophe losses due to storms in March. While we expect improvement in EPS for the upcoming quarter, revenues will likely experience modest growth. We expect Travelers to report earnings of about $2.58 per share on revenues of $7.3 billion for the quarter, based on our interactive model for Travelers . Moreover, we maintain a $147 price estimate for the Travelers' stock , which is ahead of the current market price. Below we take a look at some of the key trends that we will be watching when the company reports earnings.
Personal Insurance Business Will Likely Deliver Strong Results
Personal Insurance has been a strong contributor to the company's top line in the past few quarters, and we expect this trend to continue in the upcoming quarter. Pricing increases in the Automobile category and Policy-In-Force (PIF) growth in the Homeowners category will likely drive the growth for this segment. Meanwhile, the company recently launched Quantum Home 2.0, a homeowners insurance product that provides flexible coverage options. The product was initially launched in select states, but the company plans to gradually roll it out in several states later in the year. This should provide a boost to the company's top line, as the product has been gaining traction among customers. Moreover, the success of personal line auto products in Canada, along with the introduction of new suites of services, bodes well for the business.
Business Insurance Could Experience Slight Pressure
The company's Business Insurance segment could experience some pricing pressure. As per NOAA's (National Oceanic and Atmospheric Organization) prediction, which has been reliable in the past, the number of hurricanes could be lower than the last year. While this bodes well for insurers because of lower expected catastrophe losses, it also means that product pricing could go down, thereby negatively impacting the net written premiums. This, along with the fact that the company's performance in National Accounts and National Property market has been on a decline over the past few years, will likely offset the growth in Select Accounts and Middle Markets.
Margins Will Likely Improve
More recently, the company has focused on improving efficiency and enhancing customer experience. One of the steps that it took in this regard was to initiate a pilot program that supports local underwriting process by processing less complex accounts in centralized business centers. This not only has resulted in productivity gains for the company but also has freed up local underwriters who can now utilize their time to go after more complex account opportunities. This strategy, along with robust cost management efforts, will likely improve the margins in the upcoming quarter.
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