Property/Casualty insurer Travelers (TRV - Free Travelers Stock Report) reported strong results for the fourth quarter of 2016. On point, operating share net, which excludes capital gains and losses from investments, clocked in at $3.20. This figure was markedly above our $2.57 estimate and the previous-year tally of $2.90. For the full year, Traveler's bottom line came in at $10.13 a share.
Net premiums earned climbed 4.2%, to $6.277 billion, which is no small feat, given the increasingly competitive conditions in the broader insurance market. Management notes that on the Commercial side of the ledger it has seen stability, which has enabled Travelers to effectively execute its strategies. Retention levels have remained at attractive levels, while positive renewal price increases have also been a plus. The company maintains a stringent discipline in that segment, underwriting only those policies that meet its risk/return characteristics, while exiting those that no longer measure up.
Regarding Personal Insurance, homeowners and auto registered accelerating gains in policies in force and net written premiums over the course of 2016. However, though homeowners margins remained healthy, the underwriting results in personal auto weren't up to snuff. The company is taking pricing and other measures in order to shore up results in that unit.
Net investment income turned the corner during the December period, climbing 15.9%, to $627 million. This was the only quarter of year-over-year improvement in that line item. This doesn't come as a surprise to us, given the low interest-rate environment, which constrained bond yields. The increase during the quarter reflected stronger results in the non-fixed income portion of the portfolio. Indeed, equities, in general, performed quite well following the November election of Donald Trump for President.
Though the combined ratio increased 3.4%, year over year, to 90%, the line item remained solidly in profitable territory. This figure implies that Travelers generated $10 in pretax income for every $100 in policies insured. The uptick in the combined ratio compared to the previous year reflected higher weather-related catastrophes, along with an uptick in bodily injury losses in the Personal Auto division.
Looking to full-year 2017, we have left intact our earnings-per-share target at $9.60 and our net premiums earned forecast at just north of $25.9 billion. The latter implies decent, though unspectacular advances at the top line. Competitive conditions in the broader insurance market remain fierce and a lack of large-scale catastrophes has made rate increases difficult to come by. Regarding the bottom line, we look for a pullback owing to a forecasted increase in the loss ratio. This item has been below its historical average over the past few years. Hence, we think it will move closer to its long-term mean over the next couple of years.
Travelers remains a solid selection for conservative-minded investors seeking a presence in the P/C insurance industry. Though gains potential over the pull to 2019-2021 is somewhat unexciting, a decent divided yield, Highest (1) Safety score, and excellent (100 out of 100) Stock Price Stability indicator should help put risk-averse investors' minds at ease.
About The Company: The Travelers Companies, Inc. (formerly St. Paul Travelers) is a leading provider of commercial property/casualty insurance and asset management services. Following the April 1, 2004 acquisition of Travelers, the company is now a leading underwriter of homeowners insurance and automobile insurance through independent agents. USF&G was another notable acquisition, which was purchased in April of 1998.
