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Travelers (TRV) Q4 Earnings & Revenues Beat, Increase Y/Y

The Travelers Companies, Inc. 's TRV fourth-quarter 2016 operating earnings of $3.20 per share surpassed the Zacks Consensus Estimate of $2.63 by 21.7%. Moreover, the bottom line improved 10.3% year over year.

The year-over-year increase in earnings can be attributed to the settlement of a reinsurance dispute as well as higher investment income. Also, share buybacks drove bottom-line growth However, lower underwriting gain, owing to more catastrophe losses and wider loss estimates for personal auto bodily injury liability coverages, partially offset the upside.

The Travelers Companies, Inc. Price, Consensus and EPS Surprise

The Travelers Companies, Inc. Price, Consensus and EPS Surprise | The Travelers Companies, Inc. Quote

Full-Year Highlights

For 2016, Travelers reported earnings per share of $10.12 that beat the Zacks Consensus Estimate of $9.49, but dipped 0.9% year over year.

Total revenue of $27.6 billion was ahead of the Zacks Consensus Estimate of $26.9 billion. The top line also improved 3% year over year.

Behind the Q4 Headlines

Total revenue of Travelers improved nearly 7% from the year-ago quarter to $7.2 billion. Revenues surpassed the Zacks Consensus Estimate of $6.8 billion.

Net written premiums rose 3.3% year over year to $6.1 billion, primarily due to growth in Personal Insurance.

Net investment income grew approximately 15.9% year over year to $627 million. The upside was driven by higher returns in the non-fixed income portfolio, partially offset by lower returns in the fixed income portfolio.

Travelers' underwriting gains plunged 23.7% to $590 million. Combined ratio deteriorated 340 basis points (bps) year over year to 90.0% due to higher underlying combined ratio, wider catastrophe losses and lower net favorable prior-year reserve development.

At the end of the fourth quarter, statutory capital and surplus was $20.76 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 22.3%. This was within the company's target range of 15-25%.

Adjusted book value per share stood at $80.44 per share, up 6.7% year over year.

Segment Update

Travelers' Business and International Insurance unit reported net written premiums of $3.5 billion, down 0.5% year over year.

Combined ratio improved 60 bps year over year to 89.0%. The improvement was attributable to a lower underlying combined ratio, higher net favorable prior-year reserve development. The upside was partially offset by higher catastrophe losses.

Operating income of $722 million jumped 27.6% due to the settlement of a reinsurance dispute, higher underlying underwriting gain, increased net investment income and better net favorable prior-year reserve development. However, the improvement was partially offset by higher catastrophe losses.

Bond & Specialty Insurance : Net written premiums inched up 0.2% year over year to $505 million, mainly due to rise in new business volume in Surety.

Combined ratio deteriorated 60 bps year over year to 65.7% owing to lower net favorable prior-year reserve development and wider catastrophe losses, partially offset by a lower underlying combined ratio.

Operating income dipped 0.6% year over year to $161 million, owing to lower net favorable prior-year reserve development.

Personal Insurance : Net written premiums increased 11.5% year over year to $2.1 billion.

Combined ratio deteriorated 1150 bps year over year to 98.2% due to a higher underlying combined ratio and net unfavorable prior-year reserve development and more catastrophe losses.

Operating income of $97 million plummeted 56.3% due to lower underlying underwriting gain and net unfavorable prior-year reserve development, partially offset by higher net investment income.

Dividend and Share Repurchase Update

The Zacks Rank #3 (Hold) property & casualty (P&C) insurer returned total capital of more than $3.2 billion to shareholders. This included buy back of 6.6 million shares worth $751 million in the reported quarter. The company is now left with $934 million worth of shares for repurchase under its existing authorization at the end of the fourth quarter.

The company's board of directors declared a quarterly dividend of 67 cents per share in the reported quarter. The dividend is payable on Mar 31, 2017 to shareholders on record at the close of business as of Mar 10, 2017.

Insurance Stocks Worth a Look

Among the other players from the insurance industry that have reported their fourth-quarter earnings so far, the bottom line at Brown & Brown, Inc. BRO and MGIC Investment Corporation MTG beat their respective Zacks Consensus Estimate.

Prudential Financial, Inc. PRU offers financial products and services including life insurance, annuities, retirement-related services, mutual funds, investment management and real estate services. It is likely to report fourth-quarter results on Feb 8. The Zacks Consensus Estimate is currently pegged at $2.31. The stock carries Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

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Brown & Brown, Inc. (BRO): Free Stock Analysis Report

MGIC Investment Corporation (MTG): Free Stock Analysis Report

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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