Will Travelers Earnings Move the Dow?

With dozens of companies having already reported quarterly results, we're in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk decision.

Let's turn to Travelers (TRV -0.78%). With its 25% gain ranking it among the top performers in the Dow Jones Industrials (^DJI 0.43%) in 2012, the property and casualty insurance company bounced back strongly from a disaster-plagued 2011. But with Hurricane Sandy having hit during the fourth quarter, investors are nervous about the impact the storm will have on earnings. 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 next Tuesday morning.

Stats on Travelers

Source: Yahoo Finance.

Will Travelers move the markets?
Projections for Travelers' fourth-quarter earnings plunged immediately after Hurricane Sandy hit at the end of October, and since then they've sunk further as the extent of the damage has become more apparent. Yet even with Sandy weighing down the company, the stock has risen by about 8% since mid-October.

As bad as Sandy was, though, it wasn't as bad for Travelers as it could have been. Because much of the damage was flood-related, it wasn't covered under traditional policies, instead being subject to federal flood-insurance programs. Moreover, in the aftermath of Hurricane Irene in 2011, Travelers and its peers had boosted premiums, and that built up a cash cushion that came in handy when Sandy hit. Company management said in early December that its estimate of Sandy-related damage would come in around $650 million.

But Sandy wasn't the only bad news for Travelers during the fourth quarter. News of increased costs owing to asbestos-related injury claims has also hit the company. Hartford Financial (HIG -2.64%), Berkshire Hathaway (BRK.A -0.52%) (BRK.B -0.44%), and Travelers will likely have to cover the biggest portions of an estimated $11 billion in extra damages.

One interesting move Travelers made during the quarter was to increase its stake in Brazilian surety joint venture J. Malucelli. With UnitedHealth also having turned to Brazil for expansion, Travelers is considering that geographical diversification can only be good for the company.

All eyes will be on Sandy's impact when Travelers releases quarterly earnings. More important, though, will be comments on whether Travelers can further boost premiums and increase profits in 2013 and beyond.

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