Cat losses weigh on Travelers stock as earnings season gets underway

Shares in The Travelers Cos. Inc.'s stock dipped this week after first-quarter earnings revealed unexpectedly elevated catastrophe losses in contrast to some other sector heavyweights.

The insurer reported first-quarter net income of $1.12 billion, up from $975 million during the same period in 2023. However, the insurer's catastrophe losses also rose due to severe wind and hailstorms in the central and eastern regions of the US, hitting $712 million pretax, up from $535 million in 2023.

Travelers' stock closed at $223.12 on Tuesday, the day before the company reported its first-quarter earnings, and was trading at $212.94 by noon on Friday, a 4.56% decline.

The insurer's earnings resulted in an earnings miss, according to Piper Sandler analyst Paul Newsome, who emphasized that it was a generally good quarter for catastrophe losses.

"The elevated catastrophe losses are interesting because Progressive has already reported catastrophe losses that were lower than normal for the quarter and Allstate has reported January and February catastrophe losses that were also low," Newsome said. "It is possible Travelers is an outlier, and we will have to see when more companies report results."

Reserve development

Another potential concern for investors is Travelers' lower net favorable reserve development for the quarter of 0.9 percentage point compared to 1.2 percentage points for the same period in 2023.

"This could translate into lower expected earnings because analysts typically assume that companies like Travelers will have sustained favorable reserve development," Newsome said. "This is mostly an issue for commercial insurers since that is where we find most of the casualty reserves."

Travelers did not respond to a request for comment.

By the end of trading on Thursday, Travelers' stock was down 4.8% from the previous Friday, while during the same period fellow property & casualty insurers The Allstate Corp. and The Progressive Corp. were up 1.4% and 4.3%, respectively.

Travelers' decline was largely in line with the S&P 500 index, which declined 2.19% from 5,123.41 on April 12 to 5,011.12 by close of trading Thursday. The S&P 500 Insurance index fared better during the same period, rising by 0.29%.

Medicare Advantage costs on the mend

UnitedHealth Group Inc. and Elevance Health Inc. stocks have been trading up this week following the release of first-quarter results that showed a rise in earnings despite ongoing issues surrounding the insurers' government-subsidized health plans and losses from a cyberattack.

All eyes were on UnitedHealth following a widely publicized first-quarter cyberattack on its digital health subsidiary Change Healthcare Inc.

The impacts of the cyberattack cost about $870 million, or 74 cents a share, according to comments made by President and CFO John Rex during a Tuesday earnings call. UnitedHealth expects the full-year impact to grow to between $1.15 and $1.35 a share.

Of the $870 million, about $595 million was from costs due to the clearinghouse platform restoration and other response efforts, including medical expenses directly relating to the temporary suspension of some care management activity, Rex said.

Despite the attack, UnitedHealth leadership pointed to revenue growth for the quarter year over year and a stabilizing of its medical costs, which jumped for many insurers in the fourth quarter of 2023 due to higher use of medical services by seniors on government-subsidized Medicare Advantage plans.

"[Second-quarter] results will be critical to affirming UnitedHealth's utilization/medical cost assumptions, but we are positive that at a minimum, it doesn't appear utilization trends have gotten any worse, which should incrementally improve confidence in 2024 guidance," said J.P. Morgan analyst Lisa Gill in a research note.

Facing similar Medicare Advantage woes as UnitedHealth, Elevance leadership said during a Thursday earnings call that it was planning to take a disciplined approach to Medicare Advantage bids, balancing both growth and margin when presenting states with rates.

UnitedHealth's and Elevance's stock values increased from the week prior, rising by 12.3% and 5.6%, respectively, by close of trading Thursday.