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Travelers (TRV) Down 2.4% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Travelers (TRV - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Travelers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
The Travelers Companies reported fourth-quarter 2022 core income of $3.40 per share, which matched the Zacks Consensus Estimate. The bottom line decreased 35% year over year.
The Travelers’ results reflect lower net investment income and wider catastrophe losses, partially offset by higher premiums and higher net favorable prior year reserve development.
Behind Q4 Headlines
Travelers’ total revenues increased 7.5% from the year-ago quarter to about $9.6 billion, primarily driven by higher premiums and fee income. The top-line figure beat the Zacks Consensus Estimate by 0.2%.
Net written premiums increased 10% year over year to $8.8 billion driven by strong renewal premium change and retention as well as higher levels of new business, strong production in surety and strong renewal premium change, higher pricing in both Domestic Automobile and Domestic Homeowners and Other. The figure was higher than our estimate of $8.6 billion.
Net investment income decreased 15.8% year over year to $625 million, primarily due to a decline in income in the non-fixed income investment portfolio, which can be attributed to lower private equity partnership returns. The figure was lower than our estimate of $672.7 million.
Catastrophe losses totaled $459 million pre-tax, wider than $36 million pre-tax in the prior-year quarter. Catastrophe losses primarily resulted from a significant winter storm that impacted most of the United States and parts of Canada.
Travelers witnessed an underwriting gain of $449 million, down 51.5% year over year. The combined ratio deteriorated 650 basis points (bps) year over year to 94.5 due to higher catastrophe losses and a higher underlying combined ratio. It was partially offset by higher net favorable prior year reserve development.
Segment Update
Business Insurance: Net written premiums increased 11% year over year to about $4.3 billion, benefiting from strong renewal premium change and retention as well as higher levels of new business.
The combined ratio deteriorated 250 bps year over year to 89.5 due to higher catastrophe losses. It was partially offset by higher net favorable prior year reserve development and a lower underlying combined ratio.
Segment income of $725 million decreased 16.3% year over year. The decrease was because of higher catastrophe losses and lower net investment income. It was partially offset by higher net favorable prior year reserve development and a higher underlying underwriting gain. The figure was higher than our estimate of $476.8 million.
Bond & Specialty Insurance: Net written premiums rose 2% year over year to $924 million, reflecting strong production in surety and strong renewal premium change, retention and new business in management liability. The figure was higher than our estimate of $892.9 million.
The combined ratio improved 460 bps year over year to 76.9 attributable to higher net favorable prior year reserve development, a lower underlying combined ratio and lower catastrophe losses.
Segment income of $221 million increased 30% year over year, primarily driven by a higher underlying underwriting gain and higher net favorable prior year reserve development. The figure was higher than our estimate of $152 million.
Personal Insurance: Net written premiums of $3.5 billion increased 13% year over year driven by higher pricing in both Domestic Automobile and Domestic Homeowners and Other. The figure was higher than our estimate of $3.4 billion.
The combined ratio deteriorated 140 bps year over year to 105.3 due to higher underlying combined ratio and higher catastrophe losses, partially offset by net favorable prior year reserve development.
Segment loss was $61 million against the segment income of $327 million in the year-ago quarter. The loss was due to higher catastrophe losses, a lower underlying underwriting gain and lower net investment income.
Full-Year Highlights
Full-year 2022 core income of $12.42 per share missed the Zacks Consensus Estimate of $12.49. The bottom line decreased 11% year over year.
Total revenues increased 6% from the year-ago quarter to $36.9 billion. It missed the Zacks Consensus Estimate of $37 billion.
TRV reported record net written premiums of $35.4 billion, up 11% year over year. The underlying combined ratio deteriorated 170 basis points year over year.
At the end of the fourth quarter, statutory capital and surplus was $23.7 billion.
The debt-to-capital ratio (excluding after-tax net unrealized investment gains included in shareholders’ equity) was 21.6, within the company’s target range of 15-25.
Adjusted book value per share was $114, up 4% year over year.
Core return on equity was 11.3%, contracting 240 basis points year over year.
Dividend and Share Repurchase Update
This property & casualty insurer returned $721 million in the reported quarter. It bought back shares worth $501 million. It had about $2 billion of capacity remaining under its share repurchase authorization as of Dec 31, 2022.
The board also approved a 93 cents per share quarterly dividend. The dividend will be paid out on Mar 31 to shareholders of record at the close of business as of Mar 10, 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
Currently, Travelers has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Travelers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Travelers (TRV) Down 2.4% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Travelers (TRV - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Travelers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Travelers Q4 Earnings Meet Estimates, Decrease Y/Y
The Travelers Companies reported fourth-quarter 2022 core income of $3.40 per share, which matched the Zacks Consensus Estimate. The bottom line decreased 35% year over year.
The Travelers’ results reflect lower net investment income and wider catastrophe losses, partially offset by higher premiums and higher net favorable prior year reserve development.
Behind Q4 Headlines
Travelers’ total revenues increased 7.5% from the year-ago quarter to about $9.6 billion, primarily driven by higher premiums and fee income. The top-line figure beat the Zacks Consensus Estimate by 0.2%.
Net written premiums increased 10% year over year to $8.8 billion driven by strong renewal premium change and retention as well as higher levels of new business, strong production in surety and strong renewal premium change, higher pricing in both Domestic Automobile and Domestic Homeowners and Other. The figure was higher than our estimate of $8.6 billion.
Net investment income decreased 15.8% year over year to $625 million, primarily due to a decline in income in the non-fixed income investment portfolio, which can be attributed to lower private equity partnership returns. The figure was lower than our estimate of $672.7 million.
Catastrophe losses totaled $459 million pre-tax, wider than $36 million pre-tax in the prior-year quarter. Catastrophe losses primarily resulted from a significant winter storm that impacted most of the United States and parts of Canada.
Travelers witnessed an underwriting gain of $449 million, down 51.5% year over year. The combined ratio deteriorated 650 basis points (bps) year over year to 94.5 due to higher catastrophe losses and a higher underlying combined ratio. It was partially offset by higher net favorable prior year reserve development.
Segment Update
Business Insurance: Net written premiums increased 11% year over year to about $4.3 billion, benefiting from strong renewal premium change and retention as well as higher levels of new business.
The combined ratio deteriorated 250 bps year over year to 89.5 due to higher catastrophe losses. It was partially offset by higher net favorable prior year reserve development and a lower underlying combined ratio.
Segment income of $725 million decreased 16.3% year over year. The decrease was because of higher catastrophe losses and lower net investment income. It was partially offset by higher net favorable prior year reserve development and a higher underlying underwriting gain. The figure was higher than our estimate of $476.8 million.
Bond & Specialty Insurance: Net written premiums rose 2% year over year to $924 million, reflecting strong production in surety and strong renewal premium change, retention and new business in management liability. The figure was higher than our estimate of $892.9 million.
The combined ratio improved 460 bps year over year to 76.9 attributable to higher net favorable prior year reserve development, a lower underlying combined ratio and lower catastrophe losses.
Segment income of $221 million increased 30% year over year, primarily driven by a higher underlying underwriting gain and higher net favorable prior year reserve development. The figure was higher than our estimate of $152 million.
Personal Insurance: Net written premiums of $3.5 billion increased 13% year over year driven by higher pricing in both Domestic Automobile and Domestic Homeowners and Other. The figure was higher than our estimate of $3.4 billion.
The combined ratio deteriorated 140 bps year over year to 105.3 due to higher underlying combined ratio and higher catastrophe losses, partially offset by net favorable prior year reserve development.
Segment loss was $61 million against the segment income of $327 million in the year-ago quarter. The loss was due to higher catastrophe losses, a lower underlying underwriting gain and lower net investment income.
Full-Year Highlights
Full-year 2022 core income of $12.42 per share missed the Zacks Consensus Estimate of $12.49. The bottom line decreased 11% year over year.
Total revenues increased 6% from the year-ago quarter to $36.9 billion. It missed the Zacks Consensus Estimate of $37 billion.
TRV reported record net written premiums of $35.4 billion, up 11% year over year. The underlying combined ratio deteriorated 170 basis points year over year.
At the end of the fourth quarter, statutory capital and surplus was $23.7 billion.
The debt-to-capital ratio (excluding after-tax net unrealized investment gains included in shareholders’ equity) was 21.6, within the company’s target range of 15-25.
Adjusted book value per share was $114, up 4% year over year.
Core return on equity was 11.3%, contracting 240 basis points year over year.
Dividend and Share Repurchase Update
This property & casualty insurer returned $721 million in the reported quarter. It bought back shares worth $501 million. It had about $2 billion of capacity remaining under its share repurchase authorization as of Dec 31, 2022.
The board also approved a 93 cents per share quarterly dividend. The dividend will be paid out on Mar 31 to shareholders of record at the close of business as of Mar 10, 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
Currently, Travelers has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Travelers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.