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The Travelers Companies, Inc. (NYSE:TRV) is engaged in providing a range of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals. The company reported earnings before the market opened on 21Jan14 and on the surface everything looked excellent with the company reporting fourth quarter earnings of $2.70 per share (beating analysts' estimates by $0.54!) on revenue of $6.73 billion (beating analysts' estimates by $1.28 billion). What I'd like to at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Net Written Premiums

Net Written Premiums (millions)

4Q13

3Q13

4Q12

Q/Q

Y/Y

Business Insurance

$ 2,873

$ 3,032

$ 2,784

-5%

3%

Financial, Professional & International Insurance

$ 1,043

$ 770

$ 808

35%

29%

Personal Insurance

$ 1,717

$ 1,911

$ 1,793

-10%

-4%

Net Written Premiums

$ 5,633

$ 5,713

$ 5,385

-1%

5%

Net written premiums increased by 5% year over year, mainly due to the acquisition of The Dominion of Canada General Insurance Company back in November. The thing to notice was that Financial, Professional & International Insurance [FPII] segment premiums increased by an astounding 29% (in large part to the Dominion acquisition)! FPII accounts for roughly 19% of Travelers' total premiums. On a quarter over quarter basis total net premiums declined by 1% which I personally don't like to see, but the main things to note are that FPII premiums increased an astounding 35%! On a sour note Personal Insurance [PI] decreased 10% from 3Q13. I believe it's easy to say that FPII is acting very strong for the company.

Income Statement

Revenues (in millions)

4Q13

3Q13

4Q12

Q/Q

Y/Y

Premiums

$ 5,851

$ 5,666

$ 5,639

3%

4%

Net Investment income

$ 702

$ 657

$ 689

7%

2%

Fee income

$ 109

$ 107

$ 90

2%

21%

Net realized investment gains (losses)

$ 11

$ (22)

$ 39

-150%

-72%

Other revenues

$ 64

$ 44

$ 20

45%

220%

Total Revenues

$ 6,737

$ 6,452

$ 6,477

4%

4%

Revenues increased by 4% year over year and quarter over quarter, which are good signs. Specifically though, fee income increased 21% year over year while net realized investment gains decreased 150% quarter over quarter and 72% year over year. Other revenues increased 45% quarter over quarter and 220% year over year.

Claims and Expenses (values in millions)

4Q13

3Q13

4Q12

Q/Q

Y/Y

Claims and claim adjustment expenses

$ 3,327

$ 3,297

$ 4,167

1%

-20%

Amortization of deferred acquisition costs

$ 970

$ 953

$ 977

2%

-1%

General and Administrative expenses

$ 977

$ 934

$ 929

5%

5%

Interest expense

$ 92

$ 91

$ 93

1%

-1%

Total Costs and Expenses

$ 5,366

$ 5,275

$ 6,166

2%

-13%

As a shareholder I love to see that total costs have decreased by 13% on a year over year basis, which was due in large part to claims and claim adjustment expenses decreasing by 20%!

 

4Q13

3Q13

4Q12

Q/Q

Y/Y

Income before income taxes

$ 1,371

$ 1,177

$ 311

16%

341%

Income tax expense

$ 383

$ 313

$ 7

22%

5371%

Net Earnings

$ 988

$ 864

$ 304

14%

225%

      

Diluted Shares

363.4

372.9

385.3

-3%

-6%

Operating earnings - diluted earnings per share

$ 2.70

$ 2.30

$ 0.72

17%

275%

As can be seen from the table above, income before taxes and net earnings are up and up big on a year over year and quarter over quarter basis. Share count is down and earnings are up huge. I don't see what there's not to like about the company from a year over year and quarter over quarter perspective.

Balance Sheet

Assets

4Q13

3Q13

4Q12

Q/Q

Y/Y

Fixed maturities, available for sale, at fair value

$ 63,956

$ 62,102

$ 65,393

3%

-2%

Equity securities, available for sale, at fair value

$ 943

$ 708

$ 645

33%

46%

Real estate investments

$ 938

$ 917

$ 883

2%

6%

Short term securities

$ 3,882

$ 5,379

$ 3,483

-28%

11%

Other investments

$ 3,441

$ 3,425

$ 3,434

0%

0%

Total Investments

$ 73,160

$ 72,531

$ 73,838

1%

-1%

From assets on the balance sheet perspective we see that equity securities available for sale have increased dramatically on a year over year and quarter over quarter basis. Short term securities increased 11% but decreased 28% on a quarterly perspective.

Assets

4Q13

3Q13

4Q12

Q/Q

Y/Y

Cash

$ 294

$ 295

$ 330

0%

-11%

Investment income accrued

$ 734

$ 673

$ 752

9%

-2%

Premiums receivable

$ 6,125

$ 6,113

$ 5,872

0%

4%

Reinsurance recoverables

$ 9,713

$ 9,544

$ 10,712

2%

-9%

Ceded unearned premiums

$ 801

$ 1,015

$ 856

-21%

-6%

Deferred acquisition costs

$ 1,804

$ 1,802

$ 1,792

0%

1%

Deferred taxes

$ 303

$ 321

$ -

-6%

#DIV/0!

Contractholder receivables

$ 4,328

$ 4,450

$ 4,806

-3%

-10%

Goodwill

$ 3,634

$ 3,365

$ 3,365

8%

8%

Other intangible assets

$ 351

$ 347

$ 381

1%

-8%

Other assets

$ 2,565

$ 2,229

$ 2,234

15%

15%

Total Assets

$ 103,812

$ 102,685

$ 104,938

1%

-1%

Going line by line we see that cash on the balance sheet has decreased by 11% a yearly basis and ceded unearned premiums have decreased a dramatic 21% quarter over quarter. Contractholder receivables have decreased 10% year over year and other assets have increased 15% both on a quarterly and yearly basis.

Liabilities

4Q13

3Q13

4Q12

Q/Q

Y/Y

Claims and claim adjustment expense reserves

$ 50,895

$ 49,153

$ 50,922

4%

0%

Unearned premium reserves

$ 11,850

$ 11,716

$ 11,241

1%

5%

Contractholder payables

$ 4,328

$ 4,450

$ 4,806

-3%

-10%

Payables for reinsurance premiums

$ 298

$ 438

$ 346

-32%

-14%

Deferred taxes

$ -

$ -

$ 338

#DIV/0!

-100%

Debt

$ 6,346

$ 6,346

$ 6,350

0%

0%

Other liabilities

$ 5,299

$ 5,771

$ 5,530

-8%

-4%

Total liabilities and equity

$ 79,016

$ 77,874

$ 79,533

1%

-1%

Contractholder payables have decreased by 10% from last year and payables for reinsurance premiums have decreased 32% on a quarterly basis and 14% on a yearly basis. Total liabilities have decreased over the past year but have increased from last quarter.

Conclusion

The company reported earnings which were 275% higher than a year before on slightly more revenue while the share price was up 11.39% in the past year excluding dividends. The share count has decreased slightly for the entire year. I definitely love that both earnings per share and revenue were up year over year while liabilities decreased for the entire year. I don't like that assets decreased for the entire year but I believe it should be stemmed going forward. On a fundamental basis this insurer is inexpensive with respect to 2014 earnings. The company reported fabulous results but investors were spooked by margin pressures. I for one don't think the huge quarter should be overlooked because margins were squeezed for now. I believe it is still a buy and will be doing so in the near future.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Travelers' Earnings Increase 275% Year Over Year, But Is It A Buy?