The company has been on a secondary watchlist, remembered that Mr. Buffett took a position around 2009, noticed that he recently re-initiated a position in TRV, decided to take a look and noticed right before putting this up that a fellow member had put a nice summary on the Board on January 26, 2017, in the "what are you buying section".
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I have opened a position in The Travelers Companies (TRV):
Average annual operating return on equity over the last 10 years: 13.8%
CARG in BVPS over the last 10 years: 9.7%
BVPS in 2008: +5%
CAGR in dividends over the last 10 years: 10.1%
Total return to shareholders for the last 10 years: 250%
Dividend Yield: 2.2%
Payout Ratio: 25%
Debt/Equity: 0.26
Price/BVPS: 1.4
P/E: 12
This is imo an outstanding company selling at an attractive price.
The change in management that occured last year might constitute a source of uncertainty. Anyway, Mr. Schnitzer already was CEO of Business and International Insurance, and seems to know the company very well and to be perfectly alligned with its culture.
Cheers,
Gio
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I don't have much to add.
Short summary: Very long history, underwriting bumps in the early 2000's, fusion of St-Paul and Travelers in 2004 and since then, mostly under the leadership of Jay Fishman, incredibly steady and profitable operations.
The potential negatives (apart from the usual):
-Capital allocation has been very strong, including a large amount of free cash flow devoted to share repurchases but the price/intrinsic value decision IMO has started to become neutral to negative (P/B has gone from 1.14 (end 2007) to 1.49 (end 2017).
-They have been unusually focused on profitable lines (unusual but good) but things may have started to change (NWP/equity recently up from 0.84 to 1.1 and reserve releases going down pretty much along industry averages). Still, avg CR, in last 10 years: 92.5%, in the last 5 years: 91.4%.
-Total investments per share has grown at 8.7% per year in the last 12 years. This has been driven essentially by share repurchases and rising float per share in the future remains to be defined.
Valuation
Really depends on one's hurdle rate.
In the last 12 years, BV has grown at 8.2% per year. Share price growth for the same period came at 9.0% and estimation of dividend yield corresponds to pretty much 2% resulting in total return at around 11%. So, whatever interest rate scenario, long term expectations of a 10% yearly return are reasonable.
A way to assess the potential drivers of return, it is useful to decompose into two components:
1-ROE of 7-9% on investment return from the float - interest expense on debt, depending on level of interest rates (since 2006, net investment income without realized gains/losses has come down from 4.9% to 3.3%).
2-ROE based on underwriting profit with a base case scenario at CR 92.5 producing ROE of about 6% with today's underwriting leverage
There may be temporary market reactions to interest rate changes especially if there is a "regime" change but the portfolio is solidly positioned to withstand "shocks". One day, the value of the portfolio under the helm of Mr. Buffett may warrant some kind of control premium.
The market value may be slightly ahead of itself but, long term wise, this looks to be a solid, boring and "safe" compounder.
For now, I'm not planning to buy but have put it on a list for the fiduciaries in case I die suddenly (I also should prepare in case of senility but count on writser to settle the record straight in due course).