Travelers Invests in Brazil - Analyst Blog

Last week, TheTravelers Companies, Inc. (TRV) inked a joint venture deal with J. Malucelli Participações em Seguros e Resseguros S.A., a market leader in the surety insurance business in Brazil. As per the deal, Travelers will invest $370 million for a 43% stake in the Brazilian company. The deal also entails an option to increase its stake up to 49.9% within 18 months.

The transaction is expected to close in the first half of 2011 pending Brazilian regulatory approvals and other customary closing conditions. Travelers expects the acquisition to be accretive to earnings in the first year.

With the investment from Travelers, the capital level of J. Malucelli will likewise increase. The company already has more than 30% of market share. 

­­­­­­­­­­­­­­­­­­­­­­New York-based Travelers is of the opinion that the Brazilian insurance markets are growing at a faster pace and its joint venture with J. Malucelli leverages its position there. Through the venture the company will be able to tap new surety business as well as explore the growing property and casualty market.

Travelers' net written premiums during the second quarter increased 2% year over year to total $5.5 billion. However, net written premiums at Financial, Professional & International Insurance suffered a 7% year-over-year decline. We expect the current joint venture would reverse the decline in the upcoming quarters.

Travelers reported strong third-quarter 2010 results aided by solid underwriting across segments as well as a lower count of shares outstanding. During the conference call, the company raised the earnings guidance for full year 2010 to a range of $5.75 to $5.95 per share from $5.20 to $5.45 previously.

The Zacks Consensus Estimate for fourth-quarter 2010 is $1.70 per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $6.04 per share and $6.03 per share.

We maintain our Neutral recommendation on The Travelers Companies over the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

The Travelers Companies, through its subsidiaries, provides a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and in selected international markets. The company also meets insurance needs in more than 90 countries worldwide through its network of insurers.