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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The Travelers Companies, Inc. (TRV): Free Stock Analysis Report
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Chubb Limited (CB): Free Stock Analysis Report
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