Travelers Earnings Should Surprise the Skeptics

Travelers (NYSE: TRV  ) is scheduled to release its quarterly earnings report on Tuesday, and in the absence of some of the massive disasters that the company has had to endure in previous years, all signs point to positive results for the insurance giant. As Travelers earnings start climbing higher, though, investors want to know how long the good times can last.

In the wake of major storms hitting the mid- and upper-Atlantic coast in each of the past two years, insurance companies have endured bad loss experience. In response, premium rates have risen, boosting income even as claim losses have finally had a reasonable good year. Will the company keep playing its role in helping the Dow Jones Industrials (DJINDICES: ^DJI  ) rise to record highs recently. Let's take an early look at what's been happening with Travelers over the past quarter and what we're likely to see in its quarterly report.

Stats on Travelers

Analyst EPS Estimate

$1.61

Change From Year-Ago EPS

28%

Revenue Estimate

$5.97 billion

Change From Year-Ago Revenue

1.8%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Why Travelers earnings are stronger than the storm
Analysts have had mixed views on Travelers earnings lately, as they've reduce their June-quarter estimates by about $0.06 per share but have boosted their full-year 2013 calls by a much more significant $0.30 per share. The stock, though, has been volatile, remaining essentially unchanged since mid-April but with some big swings in both directions over the past three months.

Travelers enjoyed big share-price gains after announcing a strong first quarter back in April, and really all it took to make investors happy was for the company to get through the quarter without a massive loss event. With an 11% jump in earnings and record operating profits, Travelers reaped the rewards of strong pricing power in the insurance industry as a result of its adverse catastrophic events in recent years.

Since then, a few losses have hurt shares of Travelers and its peers. A huge tornado hit Oklahoma in May, and industry estimates put possible losses at $2 billion to $6 billion. Meanwhile, big wildfires in the western U.S. created widespread devastation. The question will be the extent to which losses center on homes or on businesses, as rival Allstate (NYSE: ALL  ) has greater market share in homeowners insurance than Travelers, but Travelers leads the commercial-property side of the business, according to figures from Moody's.

To protect itself from such adverse events, Travelers hasn't hesitated to look for some other opportunities outside the U.S. market. Last month, the company announced to it would buy Dominion of Canada General Insurance, boosting Travelers' presence in the country. By diversifying across geographical areas, Travelers can spread its risk and broaden its pool of assets from which to benefit from different conditions affecting various parts of the world.

In the Travelers earnings report, watch for the company to discuss the impact of rising bond rates on its investment income. It'll take time for greater income to work its way through to Travelers' bottom line, but eventually, more lucrative bond yields should provide yet another leg up for Travelers earnings and potentially its share price as well.

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