Travelers Companies' Scale And Analytical Advantages Make It Attractive, Analyst Says

Core Viewpoint - Keefe, Bruyette & Woods analyst upgraded Travelers Companies Inc (TRV) from Market Perform to Outperform and raised the price target from $275 to$286, indicating a positive outlook based on reserve analysis [1] Group 1: Reserve Analysis - The GAAP reserve analysis for year-end 2024 indicates that TRV's GAAP loss and ALAE reserves were overestimated by approximately $1.388 billion, compared to$324 million at year-end 2023 [1] - Excess reserves were identified in workers' compensation, personal lines, and fidelity and surety, which outweighed deficiencies in general liability, particularly in the Bond & Specialty sector [2] - Reserve development for 2024 was driven by significant releases in workers' compensation and personal lines, along with strong releases in fidelity and surety for all accident years except 2023 [2] Group 2: Concerns and Optimism - The analyst expressed concerns regarding the potential slowdown of substantial workers' compensation reserve releases, although there is optimism about the current reserve "cushion" [3] - Differences in general liability portfolios between Business Insurance and Bond & Specialty segments were noted, with the latter having more claims-made policies that converge more quickly to ultimate incurred amounts [3] - Concerns were raised about TRV's release of 2023 commercial auto reserves aligning with the strengthening of accident years 2021-2022, but confidence remains due to low ratios of paid to incurred losses and high IBNR-to-total-reserve ratios [4] Group 3: Earnings Projections - The analyst raised reserve release estimates for 2025E and 2026E to $392 million and$292 million, respectively, from $315 million and$199 million, which increased EPS estimates for those years to $19.30 and$24.90 from $19.05 and$24.60 [5] - Despite the positive long-term outlook due to TRV's scale and analytical advantages, increasing earnings volatility and declining reserve releases are expected to limit near-term upside [5] - TRV shares were trading higher by 1.56% at $242.12 at the last check [5]