Travelers Earnings: Strong Quarter Despite Catastrophes and Ongoing Issues in Personal Auto

Travelers’ TRV results remained somewhat mixed in the first quarter, as the company continued to see tailwinds on the commercial side of its business partially offset by headwinds on the personal side. Additionally, the insurer experienced a relatively high level of catastrophe losses in the quarter, due to severe wind and hail storms across multiple states. Still, we see the annualized core return on equity of 15% as a good result for the narrow-moat firm, and this level suggests that, on balance, the operating environment is favorable for Travelers. We will maintain our $194 per share fair value estimate.

Results on the commercial side remained strong. Travelers saw net written premiums increase 15% year over year, as the company continued to push through pricing increases and has maintained good retention rates. The reported combined ratio increased year over year, but that was almost entirely due to the higher level of catastrophe losses reported for the quarter. The company’s underlying combined ratio improved to 89.6% from 91.8% in the prior year’s period but was basically flat when compared with the last two quarters. We’ve seen underwriting profitability start to flatten out at peers as well, and we don’t expect the hard market to drive significant improvement from here. Still, with underwriting profitability at an attractive spot, the outlook for this business remains quite positive in the near term.

Meanwhile, the personal side of the business, particularly personal auto, remains the weak point for Travelers. The combined ratio for personal auto was 104.7%, compared with 99.3% last year. The combined ratio did improve sequentially, suggesting results might be starting to stabilize and perhaps even improve, but the company continues to record significant underwriting losses for the segment.