How Travelers Will Fare in Tomorrow's Report

On Tuesday, Travelers (TRV 0.31%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to have an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

For Travelers, the only property and casualty insurance company in the Dow Jones Industrial Average (^DJI 0.05%), no news is generally good news. Admittedly, the winter months weren't entirely free of incident, with some substantial snowstorms hitting various areas of the country, but the losses didn't rival the impact of Hurricane Sandy. 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

Source: Yahoo! Finance.

Will Travelers ensure shareholders' success this quarter?
Analysts have become a whole lot more optimistic about Travelers and its earnings prospects recently. They've raised their estimates for the just-completed quarter by $0.17 per share and boosted their full-year 2013 estimates by more than twice that amount. The stock has also performed well, rising 13% since mid-January.

The insurance industry has gone through tough times in recent years, and Travelers has suffered its share of problems. In particular, the company lost more than $1 billion due to Hurricane Sandy, adding on to previous losses from Hurricane Irene and other major storms. But this quarter, fate has smiled on Travelers with a relatively quiet quarter from a loss standpoint.

The key to Travelers' success has been strong underwriting practices and efficient claims-handling. As painful as high-loss periods are, they weed out weaker competitors. Once the industry thins itself out, survivors like Travelers can boost their premiums and enhance their profits.

One interesting trend that could help Travelers do even better in the future is usage-based insurance, which involves insurance companies monitoring their customers' driving habits in order to judge risk more accurately. Rival Progressive (PGR -0.70%) pioneered the program and argues that it has helped the company pick and choose its customers better, targeting safer and more profitable drivers while letting competitors handle riskier customers. Both Travelers and Allstate (ALL -1.25%) have jumped on the bandwagon as well in order to avoid getting blindsided by high-risk drivers, with Allstate even offering discounts just for enrolling.

In Travelers' quarterly report, watch for signs on whether the company plans to make any major strategic moves. As other insurance companies give up less profitable lines of business to concentrate on property and casualty insurance, Travelers may see heightened competition, but the new entrants could also give Travelers a chance to go after promising buyout targets.

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