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Wells Fargo sees positive backing for commercial insurers from Travelers print

Oct. 21, 2020 6:57 PM ETAIG, PGR, ALL, CB, HIG, ACGL, TRVBy: Jason Aycock, SA News Editor
  • Read-throughs from yesterday's Q3 earnings from Travelers (NYSE:TRV) are giving Wells Fargo confidence about its bullish view on commercial-lines insurance - the side of the business increasingly filling with its top ideas.
  • That's due to a couple of factors bolstered by the Travelers report: It's confirmation of a pricing environment that's firming up, with renewal rates up 8.2% in business insurance (vs. 7.4% in Q2). That's positive for commercial insurers including AIG, Chubb (NYSE:CB) and Hartford Financial Services (NYSE:HIG) - particularly AIG and Chubb, where workers' comp makes up a smaller portion of the book.
  • And the report also reinforced the potential for property and casualty insurers to see a good amount of underlying margin improvement next year. Travelers said earned rate exceeded loss trend by about one point in business insurance - a reflection of strong pricing, and another positive for the commercial lines.
  • Wells Fargo also sees positive laterals for Travelers peers in commentary around COVID-19 losses, personal auto frequency, NII and capital return. Travelers saw $133M of pretax losses tied to COVID-19 but noted those were more than offset by low losses in personal auto, and from fewer (non-COVID-19) workers' comp and general liability claims amid lower economic activity. Hartford took a portion of the favorable frequency in Q2, while AIG and Chubb have yet to.
  • Personal auto is still benefiting from lower miles driven though those numbers are rebounding off lows. The Personal Auto segment's underlying margin improved almost 12 points to 81% - which Wells Fargo believes is a positive lateral for auto insurers Allstate (NYSE:ALL), Progressive (NYSE:PGR) and Hartford (within its auto business) who should continue to benefit from the frequency trends.
  • Overall, Wells Fargo's top ideas are Overweight-rated names Chubb, Hartford and Arch Capital Group (NASDAQ:ACGL). It's most bullish on Chubb into earnings (set for Oct. 27 after close) as "they have less comp exposure than HIG, so should see greater margin improvement in both 2020 and 2021."

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