What’s the Secret to Travelers Success in the Insurance Space?

Published by Darron Toy on


Chris Hill: Travelers’ third quarter profit
and revenue came in higher than expected. You clearly know this company
much better than I do. But on paper, on the surface, this looks like
a really good quarter, and this looks like the most important numbers are moving in the
right direction for them, which leads me to ask, why is this stock down today?
And, why is it basically flat for the year? Jason Moser: It’s anybody’s guess as to why
a stock moves on any given day. You hear that buy the rumor
and sell the news, whatever. The stock market is generally
taking a beating today anyway. To your point, I think that when you go through this
release, clearly, it was a good quarter on all fronts. Now, perhaps the market is thinking a little
bit forward about the catastrophic losses that might come from Michael and anything
else that may come down the pike. Man, when I came to The Fool from Travelers
back in 2010, Travelers shares were around $50. Today, we’re seeing then trading
around $125, up about 150%. And, it actually recently hit
a recent high of $150. So, I just like to feel like I left the company
in a good place. You guys are welcome. I miss you, but hey. In all seriousness, I often wonder, in all
of my time here — and, I have shot this across the radar before, early on in my days here
— I don’t understand why this is a business that’s never been in one of our services,
to be frank, because it’s a very good business. We seem to like insurers here. Obviously, we latch onto Berkshire Hathaway
and Markel, and Progressive is a company that gets bandied about here from time to time.
Travelers, to me, is a good operator. I can tell you from my time working there,
it was less about conservatism, it was more about, let’s go ahead and pay what we owe,
minimize the cost on the claims side, avoid subrogation at all costs, whether it’s on
the auto side or the home side or whatever. The general mentality there was, let’s pay
what we owe and let’s keep this business moving forward and do right by our customers. I think the benefit there is that they
maintain a pretty loyal customer base. And now, we’re seeing them partnering up with
Amazon, which I think is really fascinating. I don’t know that I would look for Amazon
to get in the insurance game. I don’t know what they could do to be better
at insurance than anyone else, other than maybe giving you insurance for a lower price,
and maybe covering more. But insurance is a pretty difficult bounce there.
I don’t suspect to see Amazon getting into that. But to partner up with something
like Travelers, to me, is fascinating. Hill: You mentioned Markel. Markel, certainly from a stock perspective
but also from a business perspective, it’s an interesting business.
They get into specialty insurance. Some of it gets pretty esoteric. Do you think, maybe, in a small way, what
works against Travelers is, there isn’t anything particularly sexy about them?
That’s how I think about Travelers. They’re a good operator. They’re steady-eddy.
There’s nothing particularly exciting about them. Moser: Yeah, I think the red umbrella is probably
the sexiest thing about the business. Let’s be clear, I’m not saying that ought
to get your motor running, either. I think your point is spot-on, it’s a very
boring business. They’re an insurer. They’re not doing anything terribly special.
Their investment portfolio is primarily fixed income. But they do a very good job, of writing a
strong book, of doing right by their customers, and that keeps those net
premiums coming in. Net premiums are a good way to gauge the growth
of the business, that was up 6% for the quarter, which is good. I think it’s always interesting, when we look
at combined ratios to get a better idea of how they’re writing those premiums. They offer up the combined ratio, but then they
offer up what they call the underlying combined ratio. The underlying is essentially excluding catastrophic
losses, because those are a little bit more difficult to time and understand. Last year,
their combined ratio was a little bit over 103%. That’s not good. We want
to see that number below 100%. Combined ratio this year was 96.6%,
and underlying combined ratio of 93%. That’s all to say they’re writing good business. I think that when you have a company like
Travelers that continues to write good business, the business is in great financial shape, you get what
we’ve seen here — a nice, steady-eddy, boring business. But if you’ve bought and held shares of this
company over the past decade, you’re feeling really good about that. Frankly, I just think there’s
more of that to come.