Banking, finance, and taxes

The Drivers Behind Travelers Earnings

Paul Ausick

Published: October 18, 2018 7:45 am

Last Updated: January 11, 2020 4:16 pm

The Travelers Companies Inc. (NYSE: TRV) reported third-quarter 2018 results before markets opened Thursday. The insurance provider reported diluted earnings per share (EPS) of $2.62 on revenues of $7.72 billion. In the same period a year ago, Travelers reported EPS of $1.05 on revenues of $7.33 billion. Third-quarter results also compare to the consensus estimates for EPS of $2.26 on revenues of $7.00 billion.

Net income totaled $709 million, up 5% year over year, and core (adjusted) income rose 172%, from $253 million a year ago to $687 million. Core EPS rose from $0.91 to $2.54. Core income before income taxes increased primarily due to a decrease in catastrophe losses of $436 million and an increase in net investment income of $58 million.

Core income also benefited from a lower U.S. corporate income tax rate. Quarterly income tax expense rose 84% to $90 million, but year-to-date tax expense is down 12%.

Board Chair and Chief Executive Alan Schnitzer commented:

Net earned premiums increased by 6% to a record $6.9 billion, which, together with our strategic focus on productivity and efficiency, resulted in an expense ratio of 29.7%, a terrific result. Net investment income of $646 million pre-tax was very strong, increasing by 10% over the prior year quarter due to higher returns in both our fixed income and private equity portfolios. In terms of capital management, we returned $607 million of excess capital to our shareholders this quarter, including $400 million through share repurchases, bringing total capital returned to shareholders year to date to approximately $1.8 billion.

The company did not provide guidance with its announcement, but analysts estimate fourth-quarter EPS at $3.31 on revenues of $6.75 billion. For the full year, analysts are looking for EPS of $9.85 and revenues of $27.7 billion.

Travelers stock closed at $126.44 on Wednesday, up about 1.4%, in a 52-week range of $120.74 to $150.55. Shares traded up about 0.2% in Thursday’s premarket session. The consensus price target on the stock is $138.47 and the dividend yield is 2.44%.