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The Travelers Companies, Inc. : Travelers Loses Customers, Promises It's All According To Plan

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04/19/2012 | 09:30pm CEST
   By Erik Holm 

Travelers Cos. (TRV) told investors Thursday it is selling less new coverage and hanging onto fewer of its existing customers as it continues to raise prices. And that means everything is going according to plan.

The customers the insurer has been losing in its business-insurance segment, in many cases, have been the ones that were the least profitable, according to Travelers Chief Operating Officer Brian MacLean. The company's effort to raise rates on those clients has driven some into the arms of competitors that are offering the coverage at prices that would have resulted in poor returns for Travelers, he said.

Investors applauded the news along with company's quarterly results Thursday, sending shares up 4.7% to $62.24 by mid-afternoon. The shares now stand at a nearly one-year high.

Travelers has been pushing through the price increases for over a year, partly in response to a rise in natural disasters and a decline in interest rates that have damped returns in its investment portfolio. The price hikes it has reported to investors have frequently outpaced the industry averages compiled by a variety of surveys.

In the first quarter, returning business-insurance customers saw premiums rise by 9% on average. Mid-sized businesses faced an 11% increase, the most since 2003.

That resulted in a 22% decline in new business and caused client retention to fall to 79% from 84% in last year's first quarter. Travelers had long cautioned that retention rates in the mid-eighties weren't sustainable.

"We are very comfortable with this volume and profitability trade-off," MacLean said on a conference call with analysts and investors after the company released first-quarter results. "If we're retaining our best business and retention is softening in the weaker business because we can't get the price increases we think we need, we're going to be perfectly fine with that."

MacLean characterized the 79% retention rate as "solid." In last year's fourth quarter, the rate was 78%.

"It's an active decision" to take actions that push down the number of returning customers, Chief Executive Jay Fishman said. "It's not a passive reaction."

Josh Stirling, an insurance analyst at Sanford C. Bernstein & Co., said he was "impressed" with the company's aggressiveness at raising prices and its "chasing away" of undesirable customers. The company has the expertise and data to "make reliably intelligent underwriting decisions," he said in a note to clients.

Travelers has also been raising rates at a smaller unit that sells coverage to consumers. In that segment, renewal premiums for auto insurance sold through agents rose 4% in the first quarter while the segment that includes home insurance saw 10% increases. The company said it was raising deductibles on its home-insurance policies and still working with state regulators to raise rates further in several states in response to "the potential for continued unusual weather patterns."

Travelers said the number of drivers with auto policies purchased through agents declined 1%. Home-insurance policies-in-force also "decreased slightly" from last year's first quarter. New-business volumes decreased in both lines of business.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; [email protected]

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Financials ($)
Sales 2017 25 900 M
EBIT 2017 2 783 M
Net income 2017 2 591 M
Debt 2017 -
Yield 2017 2,22%
P/E ratio 2017 13,84
P/E ratio 2018 12,94
Capi. / Sales 2017 1,38x
Capi. / Sales 2018 1,34x
Capitalization 35 751 M
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The Travelers Companies Technical Analysis Chart | TRV | US89417E1091 | 4-Traders
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Mean consensus HOLD
Number of Analysts 20
Average target price 121 $
Spread / Average Target -5,3%
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Alan D. Schnitzer Chief Executive Officer & Director
Brian William MacLean President & Chief Operating Officer
John H. Dasburg Chairman
Jay S. Benet Vice Chairman & Chief Financial Officer
Madelyn Lankton Chief Information Officer-Enterprise Operations
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1st jan.Capitalization (M$)
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