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TRANSCRIPT
9-22-15
The Travelers Companies (TRV)Efficiency in InsuranceDirector: Dylan JamesSenior Analyst: Anurag BansalSenior Analyst: Jack Butler
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Investment ThesisOutline
Industry Position Efficient financial metrics (Combined ratio, RoE)
Cheap Valuation Lowest P/E of DJIA, stable & consistent growth
Rising Rates Poised to benefit from rising rate environment
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Industry OverviewThe P&C Industry
Property losses to your business, home or car Legal liability from injury/damage to property of others
HOMEOWNERS
AUTO
The relationship between interest rates and insurance companies is linear and straightforward, meaning the higher the rate, the greater the growth
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Industry OverviewThe Business Model
Insurance Company
$1000 $950Fixed
Income Investments
$1000$900
Profit: $1000 + $50 - $900
=$150 Start with 0 [Balance $0] +$1000 premiums [Balance $1000] Keep $50 reserve, invest $950 [Balance $1000] Earn $50 investment income [Balance $1050] Pay out $900 in claims [Balance $150]
Policyholder
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Industry Overview
Combined
Ratio
Incurred Losses + ExpensesEarned Premium
COMBINED RATIO - A measure of profitability used by an insurance company to indicate how well it is performing in its daily operations
Combined
Ratio 100% Efficient
Management
Key Metrics
Retention Rate – The percentage of prior period premiums, accounts or policies available for renewal in the current
period and were renewed
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Operating Return on
Equity
Operating IncomeShareholders’ Equity
Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested
Management believes that analysis of operating ROE enhances understanding of the efficiency with which the company deploys its capital
Return on
Equity
Net IncomeShareholders’ Equity
Industry OverviewKey Metrics
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Company Overview
Founded in 1853 Diversified P&C Insurer Component of DJIA Rated A by S&P
Summary
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Company Overview
Business & International Insurance Bond & Specialty Insurance Personal Insurance
Business Model
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Company Overview
Provides P&C insurance to wide range of businesses
Worker comp, property, general liability
14.5B revenue (61%)
Business Insurance
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Company Overview
Range of P&C insurance for individual risks
Auto, homeowners, identify theft, personal property, etc.
$7.1B earned premiums (30%)
Personal Insurance
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Company Overview
Financial risk management, management liability, commercial surety, etc…
$2.1B earned premiums (9%)
Bond & Specialty
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Company OverviewData Drive Analytics
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Company OverviewManagement
Alan D. SchnitzerCEO, The Travelers Companies, Inc.
w.e.f. December 1, 2015
BSE, Accounting and Finance from The Wharton School
Doctor of Law (JD) from Columbia University
CEO of Travelers’ Business and International Insurance
Vice Chairman of The Travelers Companies, Inc.
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Expanded ThesisIndustry Position
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Expanded ThesisIndustry Position
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Expanded ThesisIndustry Position
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Expanded ThesisIndustry Position
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Expanded ThesisAttractive Valuation
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Expanded ThesisPoised to Benefit from Rising Interest Rate Environment
Fed lowers rates Portfolio Yields Profits
Fed raises rates Portfolio Yields Profits
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ValuationExpanding Margins & Attractive Multiples
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Risks & Mitigants
Catastrophe losses could increase loss ratios
Softening premiums market can impact top line growth
Stagnant interest rates delay increase in fixed income portfolio
Unpredictable and industry-wide risk offset by portfolio returns
Competent management team able to optimize underwriting standards
Management able to keep operating ROE high despite rate environment
Risks Mitigants
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ConclusionQuestions?