Why Is Travelers (TRV) Down 1.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Travelers (TRV). Shares have lost about 1.9% in that time frame, outperforming 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 (TRV) Q1 Earnings Beat, Rise Y/Y, Dividend Up

The Travelers Companies, Inc. reported first-quarter 2022 core income of $4.22 per share, which beat the Zacks Consensus Estimate by 14%. The bottom line increased 54.6% year over year.

The increase was attributable to higher net written premiums and a higher underwriting gain, partially offset by lower net investment income.

Behind Q1 Headlines

Travelers’ total revenues increased 6.8% from the year-ago quarter to $8.8 billion, primarily due to higher premiums and fee income. The top-line figure however missed the Zacks Consensus Estimate by 1%.

Net written premiums increased 11% year over year to $8.4 billion, driven by strong retention rates, higher new business premiums and positive renewal premium changes across all the segments. Net investment income decreased 9.1% year over year to $637 million pre-tax, primarily due to a decrease in income from the non-fixed income investment portfolio.

Underwriting gain of $659 million increased three-fold year over year in the reported quarter.  The combined ratio improved 530 basis points (bps) year over year to 91.3 due to lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a higher underlying combined ratio.

At the end of the first quarter, statutory capital and surplus were $24.2 billion. The debt-to-capital ratio (excluding after-tax net unrealized investment gains included in shareholders’ equity) was 21.3% and within the insurer’s target range of 15-25%. Adjusted book value per share was $112.19, up 11% year over year. Core return on equity was 15.5%, up 440 bps year over year.

Segment Update

Business Insurance: Net written premiums increased 9% year over year to about $4.5 billion. The upside was due to strong renewal premium change and retention as well as higher levels of new business.

The combined ratio improved 1260 bps year over year to 90.9 due to lower catastrophe losses and a lower underlying combined ratio. It was partially offset by lower net favorable prior year reserve development.

Segment income increased two-fold to $669 million.  The upside was due to lower catastrophe losses and a higher underlying underwriting gain. It was partially offset by lower net investment income and lower net favorable prior year reserve development.

Bond & Specialty Insurance: Net written premiums rose 22% year over year to $882 million, primarily driven by higher renewal premium change, continued strong retention and growth in new business in management liability business, as well as increased production in surety business.

The combined ratio improved 720 bps year over year to 78 due to lower catastrophe losses, higher net favorable prior year reserve development and lower underlying combined ratio.

Segment income improved 58.4% year over year to $217 million, primarily due to higher underlying underwriting gain, lower catastrophe losses and higher net favorable prior year reserve development.

Personal Insurance: Net written premiums of $2.9 billion increased 12% year over year due to higher renewal premium change in both Auto and Homeowners.

The combined ratio deteriorated 500 bps year over year to 95.3 due to a higher underlying combined ratio and lower net favorable prior year reserve development. It was partially offset by lower catastrophe losses.

Segment income of $225 million decreased 28.3% from the year-ago quarter’s level, primarily attributable to lower underlying underwriting gain and lower net favorable prior year reserve development. It was partially offset by lower catastrophe losses.

Dividend and Share Repurchase Update

This property & casualty insurer returned $773 million in the reported quarter. It bought back shares worth $560 million. It had about $3.5 billion of capacity remaining under its share repurchase authorization as of Mar 31, 2022.

Travelers’ board also approved a 6% increase in the quarterly dividend to 93 cents per share. The dividend will be paid out on Jun 30 to shareholders of record at the close of business as of Jun 10, 2022.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -9.68% due to these changes.

VGM Scores

At this time, Travelers has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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 A. 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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