Travelers or Chubb: Which P&C Insurer is Better Placed?

Property and casualty insurers are facing operational challenges arising due to the pandemic. The resultant increase in unemployment and furlough adversely impacted new sales in property and casualty insurance space.

Claims are likely to increase. A low interest rate and equity market fluctuations might weigh on investment results.

The industry has declined 19.4% year to date, compared with the Zacks S&P 500 composite’s decrease of 4.7% and the Finance sector’s decline of 19.6%.

The property and casualty insurance industry in particular is witnessing the emergence of insurtech — technology-led insurers — creating competition for existing players.

Nonetheless, better pricing and exposure growth will likely help maintain underwriting profitability. Sturdy policyholders’ surplus will help the industry absorb losses. Also, given a sturdy capital level, insurers are buying businesses as they look to gain market share and grow in their niche areas.

Here we focus on two property and casualty insurers, namely The Travelers Companies TRV and Chubb Limited CB

While Travelers 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, Chubb provides insurance and reinsurance products worldwide. Both these stocks 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 outperformed both Chubb and the industry year to date. While shares of Travelers have lost 15.2%, Chubb has lost 16.2%.

Return on Equity (ROE)

Travelers with a return on equity of 9.6% exceeded Chubb’s ROE of 8.7% and the industry average of 6.5%.

Valuation

Price to book value is the best multiple used for valuing insurers. Compared with the P&C insurance industry’s P/B ratio of 1.2 and Travelers’s reading of 1.2, Chubb is cheaper with a reading of 1.1.

Dividend Yield

Travelers with dividend yield of 2.9% betters Chubb’s 2.3% as well as the industry’s average of 0.5%.

Debt-to-Capital

Travelers’ debt-to-capital ratio of 20.7 is lower than the industry average of 21.8 as well as Chubb’s reading of 23.7.

Earnings Surprise History

Chubb outpaced expectations in three of the last four trailing quarters, delivering positive average surprise of 3.58%. Travelers surpassed estimates in only one of the last four trailing quarters with, the average negative surprise of 14.29%.

Chubb has an edge in this respect.

Combined Ratio

Combined ratio is a profitability measure for insurers 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. Chubb’s combined ratio of 89.1 betters Travelers’ reading of 95.5.

To Conclude

Our comparative analysis shows that Travelers has an edge over Chubb with respect to price performance, return on equity, dividend yield and leverage. Meanwhile, Chubb scores higher in terms of valuation, earnings surprise history and combined ratio.

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