The third-quarter results of the insurance giant displayed remarkable performance.
As of 2:09 p.m. ET on Thursday, shares of The Travelers Companies (TRV) had seen a 7.6% increase after the company released results before the market opened, surpassing expectations significantly.
Traveler’s Profits Increase
In the third quarter, Travelers experienced a 10% increase in net written premiums, reaching $10.7 billion. This resulted in an outstanding 102% rise in earnings to $5.24 per share, far exceeding the consensus estimate of $3.59 per share. The substantial earnings beat was driven by a strong quarter in underwriting, reflected in a combined ratio of 93.2%, in addition to a net favorable development of $126 million. This combined ratio marked an improvement of 7.8 percentage points compared to Q3 2023, showcasing significant progress in underwriting results over the past year. Furthermore, net investment income grew by 17.6% due to higher bond yields, and the core return on equity stood at a robust 15.9% over the past 12 months.
Insurance Industry Benefits from Market Conditions
The insurance sector has been able to enhance its profitability in recent years, as increasing catastrophes and inflation prompted some insurers to reduce their underwriting capacity and withdraw from certain markets. This shift allowed remaining companies to increase prices. Additionally, insurers have broadly gained from higher bond yields over the past two years as older bonds matured and were replaced with higher-yield options. Travelers appears to be benefiting from these favorable conditions, which is reflected in its strong financial performance. Following the impressive results and Thursday’s market gains, the company’s stock has risen by 56.4% for the year.
Travelers is currently trading at 16.6 times its trailing earnings and about 2 times its adjusted book value per share. While these figures do not make the stock overly expensive for an insurance company, they are not particularly cheap either. However, considering Travelers’ premium business insurance brand and the positive conditions prevalent in the industry, the stock might still be worth considering.
