This article is from WeChat's “Stansberry Berry Research.” The views in this article are based on public market information and are not intended as direct investment advice.

Focus of this issue

1. After TRV's revenue and earnings per share have increased, the future can still be anticipated

2. The origin and development of TRV

3. TRV's business is developing rapidly, book data is struggling, and stock price valuations are cheap.

Travelers Property Insurance Group (TRV.US)'s stock price has recently risen again. What are the main factors supporting its rise? Is it still time to get hold of it?

1. After revenue and earnings per share increased, TRV's stock price rose, and the future can still be expected

Property and liability insurance giant Travelers Insurance's stock price recently rose 3.5% to 115.75 yuan after receiving better-than-expected earnings per share and revenue.

TRV has reported its third-quarter earnings of $3.05 per share, which is expected to be $3.23, compared to last year's earnings of $1.50 per share.

Its revenue for the same period was $8.28 billion, compared to the previous estimate of $8.11 billion.

TRV attributed the increase in earnings per share to the favorable development of reserves, which were less efficient than the previous year's development. Its higher underwriting earnings and net return on investment also contributed to the situation.

CEO Alan Schnitzer pointed out that TRV's net premiums hit a new quarterly high. He said that the loss ratio benefited from strict underwriting, and TRV's return on core equity was 13.5% compared to the expected 11.5%.

Alan Schnitzer stated that TRV's net premiums increased 3% this quarter, driven by a high retention rate across all business units, a “high percentage renewal rate,” and a solid customer mix. The premiums for TRV's homeowner agency business also rose by 8.2%, reaching the highest level since 2014.

TRV did not repurchase any shares during the quarter; currently, it still has a credit line of US$1.36 billion remaining.

Bryan Beach, an analyst at Berry, once emphasized that insurance companies are among the most valuable companies in the world to hold, and they return patient investors with stable cash flow. They may or may not be subject to the assessment risk of premium charges, which allows for great flexibility in pricing and can bring huge profits.

Currently, TRV premiums are rising, and its prospects are very promising. As its CEO said, TRV's underwriting standards are becoming more stringent, which means its policies are less risky, which will lead to greater profits in the future.

Analyst Bryan Beach believes that this year's crisis period is the best time to buy shares of these companies.

Berry first shared TRV's investment opportunities on April 22. At the time, it was advising bullish travelers. First post: As of last Friday, TRV's increase has reached 26%. Currently, TRV is priced at 199 US dollars.

2. The origin and development of TRV

In 1891, in Ohio City, Ohio, James William Lambert's single-cylinder gasoline car lost control and hit a street sign. It was the first car accident in the world. The accident was caused by a protruding tree root. It almost certainly sparked the world's first debate about car liability.

Lambert is an innovator and engineer in Ohio's booming automotive industry, and he later received hundreds of automobile-related patents. As it turns out, his accident was the first one to occur in Ohio and surrounding areas. At the time, Ohio was a “zero place” for cars, and many drivers went back and forth in towns like Dayton and Cleveland. In a world where there are no stop signs, no driver training, and no concept of the right of way, accidents are bound to happen.

In 1897, another Ohio automaker, Gilbert Loomis, made history by purchasing the world's first car insurance for his steam-powered car. The policy was written by Travellers Company (Travelers Company), which at the time mainly insured railway passengers.

Today, 123 years later, Travelers still insures businesses, governments, and individuals, and a range of commercial and personal property insurance products. It is now one of the largest and best-operating insurance companies in the world. Its history dates back to 1853, has more than 30,000 employees, and a market value of around $23 billion. About 94% of the company's revenue comes from the US.

3. TRV business is developing rapidly, book data is resistant, and stock price valuations are cheap.

Among travelers, you can also see an expression of this insurance model.

Like W.R. Berkley, travelers maintained underwriting discipline during the first mid-decade soft pricing cycle of the 21st century and were willing to get out of bad business. This enabled the company to achieve underwriting profits for 34 of the past 40 quarters, a feat that even Berkshire Hathaway could not match.

In 2019, travelers earned $2.5 billion by investing in their working capital and assets and collected $28 billion in premiums, yet only 67% of that amount was used for claims. This is much better than the average insurance company.

Over the past 10 years, Travelers Group's balance of tradable shares has more than doubled, and the book value per share has more than tripled. And Travelers is one of the biggest companies we track, so these huge percentage increases are even more impressive. Obviously, the larger the company, the more difficult it is to achieve high growth.

Travellers have accumulated a large amount of tradable stock and book value income over the past 10 years, and have also returned more than $32 billion to shareholders in the form of dividends and repurchases. When you add it all up, it's easy to see why travelers always rank in the top ten.

From a valuation perspective, TRV's tradable shares and book value have soared to 78 billion US dollars, but the company's current stock price is 119 US dollars, which is a 70% discount on tradable shares plus book value. This price is unbelievably cheap. In comparison, the average discount for travelers last year was 52%.

In March, market panic caused stock prices to fall almost to an all-time low, then Berry first recommended bullish travelers in April. (Edit: mz)