Shares of insurance companies Travelers Companies (NYSE:TRV), Chubb Limited (NYSE:CB), and American International Group (NYSE:AIG) jumped by double-digit percentages in October, according to data provided by S&P Global Market Intelligence.
Travelers and Chubb saw similar share-price growth of 11.6% and 11.9%, respectively, while AIG shares soared 14.4% during a month when the overall S&P 500 declined by 2.8%.
All three companies notched big gains on Oct. 20, when Travelers -- a Dow Jones Industrial Average component -- became the first major insurance company to report Q3 2020 earnings. Travelers is usually considered an industry bellwether, ordinarily reporting results before its peers. And those results were much better than expected, providing a boost to the entire insurance industry.
A combination of lower costs, higher premiums, and improving returns on investments helped Travelers more than double its net income over Q3 2019, to $827 million in Q3 2020. This was due, in large part, to a one-time gain of $403 million from Pacific Gas and Electric's emergence from bankruptcy. But even without that credit, net income improved by about 7%. Per-share earnings of $3.12 beat analysts' estimates of $3.03/share.
Investors also seemed to appreciate Chubb's Q3 earnings, which came out on October 28. Even though the company missed analysts' earnings estimates by about 7%, the company beat on revenue. AIG's earnings didn't come out until Nov. 6 and were overshadowed somewhat by the focus on the presidential election and the retirement of the company's CEO Brian Duperreault.
Essentially, all three companies were able to increase their premiums -- particularly casualty premiums -- to their business' benefit, but beyond Travelers' big windfall from the Pacific Gas & Electric situation, there wasn't much in the way of thesis-altering news. (It's not like we would've expected any -- insurance tends to be a fairly unexciting sector.)
One item insurance investors should keep an eye on is the amount of catastrophe losses the various companies are incurring. For example, Travelers announced pre-tax catastrophe losses of $397 million in Q3 2020, a 64.7% increase from the prior-year quarter. These losses came, in large part, from major disasters, like the derecho windstorm in the Midwest, wildfires in the West, and hurricanes and tropical storms in the Southeast. Investors should keep an eye on how well insurers are adjusting premiums to reflect these mounting losses.
Big insurance companies, in particular, are generally most interesting for income investors looking at the dividends they pay. While Travelers and Chubb have consistently upped their dividends every year for at least the last 10 years, AIG -- which has comparatively underperformed -- has held its dividend steady. Nothing in these companies' reports seems likely to alter that situation, which makes Travelers and Chubb more attractive to dividend investors.