Will Catastrophe Losses Impact Travelers' (TRV) Q3 Earnings?
Zacks Investment Research | Oct 16, 2017 09:48PM ET
The Travelers Companies, Inc. (NYSE:TRV) is slated to report third-quarter 2017 results on Oct 19, before the market opens. Last quarter, the company delivered a negative earnings surprise of 7.25%. Let’s see how things are shaping up for this announcement.
We expect a high level of losses arising from catastrophic events like Hurricanes Harvey, Irma and Maria and Mexico earthquakes. These calamities are likely to leave a significant impact on the underwriting results of the company, which in turn is anticipated to weigh heavily on the property and casualty (P&C) insurer’s overall performance.
Travelers has projected a pre-tax catastrophe loss between $375 million and $750 million or $245 million and $490 million after-tax. This will weigh on underwriting profitability and lead to deterioration in the combined ratio. The Zacks Consensus Estimate is currently pegged at 96%.
Further, the company is expecting to witness a fall in net investment income in the soon-to-be-reported quarter, owing to the still low interest rate environment. Travelers estimates about $15-$20 million of lower after-tax net investment income on a quarterly basis compared with 2016. Travelers has provided this estimate on the basis of the current interest rate environment and the specific securities, scheduled to mature in 2017. The Zacks Consensus Estimate for net investment income is currently pegged at $558 million, a 6.7% decline on a sequential basis.
Nonetheless, the company expects to see improvement in its premiums to drive its top-line growth. The Zacks Consensus Estimate for the third quarter of 2017 is $7.1 billion that represents an increase of 1.5% from the prior-year quarter.
Business Insurance segment, which contributes majorly to the overall premiums, have likely witnessed higher premiums primarily fueled by strong production results in select and middle markets, thereby boosting the company’s revenues. The Zacks Consensus Estimate for Business Insurance revenues is $4.1 billion, which comes in line with that of the previous quarter.
Further, Travelers’ premium growth will primarily be fueled by improving premiums across each business segment. The Zacks Consensus Estimate for net written premiums is currently pegged at $6.41 billion, indicating nearly 1% rise on a sequential basis.
Additionally, the company expects to experience improved profitability in auto business at its Personal Insurance segment owing to implementation of favorable pricing and underwriting actions. Also, the company is on track to achieve a double-digit renewal premium change on a written basis in the third quarter.
Earnings Whispers
Our proven model does not conclusively show that Travelers is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Zacks Investment Research
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