Travelers Earnings Fall Short of Investor Expectations

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Travelers Companies Inc. (NYSE: TRV) reported its third-quarter financial results before the markets opened on Thursday. The company posted $2.40 in earnings per share (EPS) and $6.39 billion in revenue, versus the consensus estimates from Thomson Reuters of $2.31 in EPS on revenue of $6.37 billion. The same period of last year reportedly had EPS of $2.93 and $6.19 billion in revenue.

Overall, management noted that it was encouraged by the market stability. In its commercial businesses, the firm is pleased with its historically high levels of retention and positive renewal premium change.

These results were due to the successful execution of account retention, especially for accounts that met return thresholds, not to mention the improved profitability on those accounts.

Personal insurance, growth in auto and homeowners, which were driven by the success of the Quantum Auto 2.0 product, benefited from the firm’s ability to offer a compelling account solution to customers and agents, resulted in record net written premiums of over $2.2 billion for the quarter.

While Travelers experienced a somewhat higher-than-expected level of bodily injury claim severity across the auto product portfolio, it believes this was attributable to environmental factors and was not product-specific. Accordingly, management continues to believe that growth from Quantum Auto 2.0 is adding meaningful economic value, and the product remains positioned to generate appropriate returns over time.

Alan Schnitzer, CEO of Travelers, commented:

We were pleased with our third quarter operating income of $701 million and operating return on equity of 12.5%, which brings our year-to-date operating return on equity to 12.2%. Underwriting results for the quarter reflected lower net favorable prior year reserve development, higher non-catastrophe weather-related losses and higher-than-expected losses associated with auto bodily injury but nonetheless remained strong as reflected in our 92.9% combined ratio. While returns from our high-quality fixed income portfolio declined in line with our expectations due to the continued low interest rate environment, returns from our non-fixed income portfolio improved from recent quarters and were comparable to the prior year quarter. In terms of capital management, we returned $755 million of excess capital to shareholders, including $562 million of share repurchases. Year to date, we have returned nearly $2.3 billion to shareholders, including over $1.7 billion in share repurchases.

Shares of Travelers were trading down 3% at $112.75 Thursday morning, with a consensus analyst price target of $116.19 and a 52-week trading range of $101.23 to $119.32.

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