TRV or PGR: Which P&C Insurance Industry Player Has an Edge?

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.

Nonetheless, a benign catastrophe environment coupled with better pricing and exposure growth will likely help maintain underwriting profitability.

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

The industry has declined 20.2% year to date, compared with the Zacks S&P 500 composite’s decrease of 1.4% and the Finance sector’s decline of 20.2%.

The property and casualty insurance industry in particular is witnessing the emergence of insurtech — technology-led insurers. This should help cater to demand even during the pandemic that has led to remote working.

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 Progressive Corporation PGR.

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, Progressive provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. 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

Progressive has outperformed both Travelers and the industry year to date. While shares of Progressive have gained 7.4%, those of Travelers have lost 19.7%.

Return on Equity (ROE)

Progressive with a return on equity 26.8% exceeded Travelers’s ROE of 9.6% and the industry average of 6.4%.

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 Progressive’s reading 3.3, Travelers is cheaper with a reading of 1.1.

Dividend Yield

Travelers with dividend yield of 3.1% betters Progressive’s 0.5% 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 Progressive’s reading of 27.3.

Earnings Surprise History

Progressive outpaced expectations in three of the four trailing quarters, delivering average positive surprise of 15.58%. Travelers surpassed estimates in only one of the last four quarters with, the average negative surprise being 14.29%.

Progressive 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. Progressive’s combined ratio of 86.9 betters Travelers’ reading of 95.5.

To Conclude

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

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