Travelers Companies' Scale And Analytical Advantages Make It Attractive, Analyst Says

Keefe, Bruyette & Woods analyst Meyer Shields upgraded the rating on the shares of Travelers Companies Inc TRV from Market Perform to Outperform and raised the price forecast from $275 to $286.

The analyst’s GAAP reserve analysis for year-end 2024 suggests that TRV’s GAAP loss and ALAE reserves were overestimated by approximately $1.388 billion (compared to $324 million at YE23E).

This primarily reflects excess reserves in workers’ compensation, personal lines, and fidelity and surety, which exceeded the deficiencies in general liability, particularly within the Bond & Specialty sector.

TRV’s reserve development for the 2024 calendar year was mainly driven by substantial releases in workers’ compensation and personal lines (across all reported accident years), along with strong releases in fidelity and surety (for all accident years except 2023).

These were partially counterbalanced by reserve increases in the BI segment’s general liability and commercial multi-peril for the most recent accident years, said the analyst.

After TRV’s significant general liability reserve increase, the analyst’s main concern was that its substantial workers’ compensation reserve releases might slow down. While this still seems plausible, the analyst is more optimistic about the current reserve “cushion.”

There are notable differences between the general liability portfolios of the Business Insurance and Bond & Specialty segments. The analyst understands that the latter has more claims-made policies with shorter tails, which is why its paid claims converge more quickly to ultimate incurred amounts.

The analyst is slightly concerned that TRV’s release of 2023 commercial auto reserves aligns with its strengthening of accident years 2021-2022 for the same line.

However, the ratios of paid to incurred losses for recent accident years are at or near long-term lows, and the IBNR-to-total-reserve ratios are at or near long-term highs, which gives confidence in the segment’s reserves despite the continued social inflation.

The analyst raise 2025E/2026E reserve releases to $392 million/$292 million from $315 million/$199 million, which boosts 2025E/2026E EPS to $19.30/$24.90 from $19.05/$24.60.

The analyst notes TRV’s scale and analytical advantages make it a valuable long-term holding for investors but expects increasing earnings volatility and declining reserve releases to limit near-term upside.

Price Action: TRV shares are trading higher by 1.56% at $242.12 at the last check Wednesday.

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