Chubb or Travelers Companies: Which P&C Insurer Has an Edge?
Impact of the coronavirus pandemic and near-zero interest rates continue to affect property and casualty (P&C) insurers. An ‘‘extremely active Atlantic hurricane season’’ weighed on underwriting profitability.
Per Verisk and the American Property Casualty Insurance Association (APCIA), net income of the private U.S. property/casualty insurance industry declined 26% in the first half of 2020, largely attributable to the pandemic. Net underwriting gains too decreased, though net written premiums increased per the report.
However, insurers continue to witness improved pricing. Per Willis Towers Watson’s Commercial Lines Insurance Pricing Survey (CLIPS), U.S. commercial insurance prices significantly increased in the third quarter of 2020. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, all lines should witness price rise next year.
Exposure growth, prudent underwriting, favorable reserve development and sturdy capital level are other tailwinds that should support P&C insurers.
Though a low interest rate and equity market fluctuations will continue to weigh on investment results, a larger invested base should offer some respite.
The industry has declined 5.8% year to date compared with the Finance sector’s fall of 5.2%. In contrast, the Zacks S&P 500 composite has risen 14.2%.
Nonetheless, the property and casualty insurance industry in particular is witnessing the emergence of insurtech — technology-led insurers. This should help cater to demand uninterruptedly while maintaining social distancing norms.
Sturdy policyholders’ surplus will help the industry absorb losses. Also, given a solid capital level, insurers are buying businesses as they look to gain market share and grow in their niche areas. Moreover, industry players are engaging in share buybacks, increasing dividends or paying out special dividends.
Also, non-traditional insurers are gradually entering the insurance space and combining insurance with their core products.
Here we focus on two property and casualty insurers, namely Chubb Limited CB and The Travelers Companies TRV. Chubb provides insurance and reinsurance products worldwide. The Travelers Companies provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United States and internationally. Both the companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these P&C insurers have fared in terms of some of the key metrics.
Price Performance
Travelers has lost 0.2% year to date compared with the industry’s decrease of 5.9% and Chubb’s decline of 1.3%.
Return on Equity (ROE)
Travelers with a return on equity of 8.3% exceeds Chubb’s ROE of 5.3% and the industry average of 5.6%.
Valuation
Price-to-book value is the best multiple used for valuing insurers. Compared with Travelers’ reading of 1.24, Chubb is cheaper with a reading of 1.23. P&C insurance industry’s P/B ratio is 1.22.
Dividend Yield
Travelers dividend yield of 2.5% tops Chubb’s 2% as well as the industry’s average of 0.4%.
Debt-to-Equity
Travelers’ debt-to-equity ratio of 25.3 is lower than the industry average of 25.9 as well as Chubb’s reading of 31.3.
Earnings Surprise History
Chubb outpaced expectations in three of the four trailing quarters, delivering earnings surprise of 4.75%, on average. Travelers surpassed estimates in two of the last four reported quarters, with the average surprise being 0.25%.
Growth Projection
The expected long-term earnings growth of Chubb with a reading of 10% exceeds Travelers’ reading of 7.1% and the industry average of 8.8%
Combined Ratio
Combined ratio is a profitability measure to identify how well an insurer is performing in its daily operations. A ratio below 100% indicates that the company is making an underwriting profit. Travelers’ combined ratio of 94.9 tops Chubb’s reading of 95.2.
VGM Score
VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum. Travelers has a VGM Score of A while Chubb has a VGM Score of B. Travelers thus has an edge.
To Conclude
Our comparative analysis shows that Travelers has an edge over Chubb with respect to price performance, return on equity, dividend yield, leverage, combined ratio and VGM Score. Meanwhile, Chubb scores higher in terms of valuation, earnings surprise history and growth projection.
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