Travelers Companies (TRV)
The winds from Hurricanes Irma have died down, and the storm tides have receded. I’m happy to report that our Florida offices and my family and home largely escaped the storm’s wrath.
But unfortunately, that wasn’t the case for many other parts of Florida and the Caribbean. So, if you haven’t already contributed to the many hurricane relief efforts underway related to Irma or Harvey, please consider some of the organizations listed here and here.
As for the markets, we’re now at the point where you can “do well by doing good” – investing in the companies that are helping homeowners, businesses, and others to get back on their feet.
Right now, for instance, adjusters and claims specialists are fanning out across Texas, Louisiana, Florida, and Georgia. Their singular goal? To help accurately assess storm damages – and get reimbursement funds into the hands of people who need it.
One company that’s leading the charge is New York-based Travelers Companies (Weiss Rated “A-”), and I believe it’s a worthy investment to consider. Known for its iconic red umbrella logo, Travelers offers a wide range of insurance to both business and personal customers – including homeowner’s, automobile, management and corporate liability, surety, property, and workers compensation coverage.
No one knows yet what the total cost of repairing and rebuilding in the wake of Hurricanes Harvey and Irma will be. Early third-party estimates run anywhere from tens of billions of dollars on up to $100 billion or more.
But we do know that a significant chunk of those costs will be borne by the federally backed National Flood Insurance Program (NFIP). Others will be covered by state-backed “insurers of last resort” such as the Texas Windstorm Insurance Association or Citizens Property Insurance Company in Florida. Private companies, and the reinsurance companies who back them, will be responsible for the rest.
For its part, Travelers offered up a preliminary estimate of $245 million to $490 million (after-tax) for Harvey alone. I have no doubt that Irma will also pack a sizable punch, and I’m not surprised that Travelers temporarily suspended share buybacks as a result. They had totaled $328 million so far in the third quarter.
But it’s not like Travelers was struggling financially before the storms hit. Far from it. The company earned $595 million, or $2.11 per share, in the second quarter alone. Net investment income rose 9% before tax from a year earlier, while net written premiums rose 5% to a record $6.64 billion.
Its component insurance companies also rank highly on our proprietary Weiss Ratings scale. That means TRV should be able to ride out the wave of storm-related claims without too much trouble.
What’s more, history suggests that buying on storm-related dips can prove extremely profitable. Take Hurricane Katrina in August 2005. Its inflation-adjusted losses totaled a staggering $50 billion. In the week leading up to the strike and its immediate aftermath, Hartford Financial Services Group (HIG) (Weiss Rated “B”)
But as tragic and severe as Katrina was from both a financial and human perspective, the damage to insurance stocks mostly proved short-lived. If you had bought the post-strike low in Travelers and held through year-end 2005, for instance, you would have made almost 9%. You could’ve racked up more than 20% gains on HIG doing the same thing, or 23% on CB.
Throw in a solid 2.3% dividend yield and a top-notch “A-” (Buy) investment grade from our Weiss Ratings system, and you can see why TRV might be a great stock for the next phase of America’s recovery efforts. Consider giving it a look.
Mike Larson is a senior analyst at Weiss Ratings and editor of High Yield Investing.
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