Travelers reported 4Q earnings last week that handedly beat expectations by delivering both solid underwriting and investment performance. Given the favorable macro trends that have been highlighted during the quarter in this report, specifically strong equity markets and tepid inflation, the investment and underwriting results should not be a surprise.
Travelers’ 4Q results, this week’s event, provide an example of an insurance company that produced income from the industry’s two core businesses: underwriting income by effectively managing risk in its insurance operations and investment income from its business of managing assets by investing policyholder premiums in securities that range from venture capital to common stock and government securities.
Reports throughout the quarter highlighted a macro environment favorable to insurance companies. Two macro trends were highlighted: strong equity markets were identified as a tailwind that could fuel investment income (red box on the FactSet Macro Tracker below / S&P 500), and low inflation (two blue boxes on Macro Tracker below / CPI and PPI) was cited as an important factor in pricing business and controlling claim costs to support underwriting income (see Inflationary Pressure Drops and Other Positive Signals for Homeowners Insurance).
Investment income and underwriting income powered Travelers’ 4Q results last week, and they are almost always the two key drivers—both up and down—of insurance company earnings. This week’s report introduces basic functionality available on the FactSet workstation to begin digging into underwriting income and investment income.
Our Macro Tracker table lists key economic data relevant to insurance company earnings. The right-hand column ties macro trends to the potential impact on company earnings.
Deep Sector data and functionality shown in this report are available through the FactSet Workstation.
Before we delve into the workstation data and functionality, the FactSet workstation pulls publicly available earnings-related data into one report: Earnings (in the red box at the bottom of the left-hand pane below). The report shown below contains Travelers’ earnings-related documents from last week, such as the press release, investor slides, the conference call transcript, and the financial supplement. Documents for prior periods can be surfaced by selecting the appropriate year and quarter in the horizontal box to the right. This report will focus on the workstation data and functionality rather than the publicly available data.
Workstation source: Company/Security - Earnings - FactSet
Shifting to the workstation data and functionality, a user would likely analyze the investment portfolios that produce Travelers’ investment income. A starting point might be the summary investment schedule, shown on the next page, for The Travelers Indemnity Co., which is Travelers’ largest subsidiary, ranked by premiums earned and total assets, net.
The summary investment schedule of the subsidiary provides a basic attribution of the portfolio by asset class. In the case of Travelers Indemnity, the report shows that the portfolio is split with about 80% invested in bonds and about 15% invested in common stocks. Within the summary report, the major asset classes are subdivided into smaller subgroups. For example, Long Term Bonds are subdivided into US Governments and Industrial and miscellaneous. The summary investment schedule provides a good starting point to begin analysis of investment income.
Workstation source: Company/Security - Summary Investment Schedules - FactSet
A user interested in reviewing specific securities held within each asset class of the portfolio can access the Investment Schedules report (left-hand pane in the red box on left), which provides access to a drop-down menu with the subsidiary’s list of schedules containing security-level detail for each reported asset class (red box at bottom).
Workstation source: Company/Security - Investment Schedules - FactSet
The workstation provides data to understand Travelers’ underwriting by business line and by state. For example, users can view a good overview of Travelers’ total book of premiums and underwriting results by accessing the State/Line report shown below (red box in the left-hand pane).
The report shows that Travelers’ personal business produces a different level of profitability than Travelers’ other businesses, such as commercial. The data also shows the weighting of each business line’s premiums relative to other businesses. This weighting is important, as a line of business may be very profitable for the period shown, but the line is not a material portion of Travelers’ book of business so will not impact earnings for the period.
Workstation source: Company/Security - State/Line - Exhibit of Prems/Losses - FactSet
Users can analyze additional underwriting detail, such as paid losses and number of claims presented by line of business, using the data from the Schedule P report (red box in the left-hand pane).
Workstation source: Company/Security - Sch P - Reserves - FactSet
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.