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Travelers Reports Q2 Preliminary Results, Expects Cat Loss

The Travelers Companies, Inc. TRV estimates net loss per diluted share of 16 cents or core loss per diluted share of 20 cents in second-quarter 2020. Higher catastrophe losses and losses incurred in its non-fixed income investment portfolio were primarily responsible for the loss.  

The Zacks Consensus Estimate for second-quarter earnings is currently pegged at a loss of 20 cents per share, which compares unfavorably with the year-ago quarter’s earnings of $2.02 per share. We expect estimates to move further south once analysts start incorporating loss estimates into their numbers.

For the second quarter, the company estimates several weather-related and civil unrest events across the United States to result in pre-tax catastrophe losses of $854 million, net of reinsurance ($673 million after tax).  Insurance losses in the second quarter include $114 million pre-tax, which is related to the pandemic.

Being a property and casualty (P&C) insurer, Travelers has a substantial exposure to losses from catastrophic events, which induce volatility in its underwriting results. First-quarter 2020 incurred year-over-year increase of 72.5% in catastrophe losses.

The COVID-19 pandemic is also likely to have weighed on underwriting results of most P&C insurers and Travelers is no exception. Underwriting gain declined 27.1% year over year to $288 million in the first quarter, while combined ratio deteriorated 180 bps to 95.5% attributable to financial market volatility on account of the pandemic.

Concurrently, on a pre-tax basis, net investment income is anticipated to be $268 million for the second quarter ($251 million after tax). While the company’s fixed income portfolio is projected to report pre-tax investment income of $511 million ($438 million after tax), its non-fixed income portfolio is expected to incur pre-tax loss of $234 million ($180 million after tax). The Zacks Consensus Estimate for second quarter net investment income is pegged at $192 million, which indicates a decline of 70.4% from the year-ago reported figure.

Further, Travelers estimation of ultimate audit premiums receivable has been subject to a reduction $63 million pre-tax.

Travelers is set to report its second-quarter earnings on Jul 23 before the market opens.

Our proven model does not conclusively predict an earnings beat for Travelers this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.The company has a Zacks Rank #3 and an Earnings ESP of -74.35%.You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Furthermore now that PG&E Corporation and Pacific Gas and Electric Company (“PG&E”) has emerged from bankruptcy as on Jul 1 of this year, Travelers also estimates favorable prior year reserve development of around $400 million pre-tax, net of expenses and reinsurance. This prior year reserve development, which will be recognized in third-quarter 2020, mainly relates to claims arising from 2017 and 2018 wildfires in California.

Shares of this P&C insurer have lost 21.8% in a year compared with the industry’s decline of 11.6%. Nevertheless, we believe that this auto insurer remains well poised to gain from declining claims amid a reduction in the number of vehicles plying on roads due to the COVID-19 pandemic.

Several property and casualty insurers are coming up with second-quarter catastrophe loss estimates. Chubb Limited CB estimates global net catastrophe loss of $1.807 billion pretax or $1.15 billion after tax for the second quarter. Arch Capital Group Ltd. ACGL also estimates second-quarter pre-tax net catastrophe losses in the range of $205 million to $225 million across its property casualty insurance and reinsurance segments, net of reinsurance recoveries and reinstatement premiums. Cincinnati Financial Corporation CINF estimates pretax catastrophe losses of around $231 million for the second quarter.

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