Travelers earned $38 a share in core profit over the last year, helped by light storm losses and reserve releases. With normal storms, slowing price increases and growing bond income, I see about $36 a share next year. At 11 times that, the target is $394.28.
Key points
- $38 a share in core profit over four quarters, helped by light storms and $1.2 billion of reserve releases this year.
- 4.1% renewal price change in Business Insurance in the third quarter, down from 9.2% in early 2025.
- 11 times my forward core earnings of $35.80 a share gives a $394.28 target.
The call
The price assumes this year's profits hold. At $389.54 the stock trades near 10 times last year's core earnings, the profit measure that leaves out investment gains and losses. That works only if storm losses stay near this year's low level and old reserves keep being released.
Core earnings per share by quarter, with my 2027 quarterly average ($)Source: Travelers quarterly earnings releases (8-K), Q1 2024 to Q3 2026; 2027E is my estimate
I expect earnings to flatten, not fall. Price increases are slowing toward cost growth, so underwriting profit drifts lower. New bonds yield about 1.2 points more than the portfolio, which adds steady income. Buybacks of about $6 billion a year shrink the share count roughly 7%. Net, earnings per share stay near $34 to $37.
Valuation
| Step | Figure |
|---|
| 2027 core income, normal storms (6.5% of premiums) | $6.5 billion |
| 2027 core earnings per share | $33.50 |
| 2028 core earnings per share | $36.60 |
| Forward earnings a year from now | $35.80 a share |
| Multiple | 11 times |
| Target | $394.28 |
Eleven times sits at the upper end of where quality insurers trade when prices are softening, and it equals about 2.15 times my projected book value excluding bond losses. Upside to 12 times needs another year of light storms; downside to 9.5 times needs a reserve problem. That is balanced, so this is a hold.
My 12-month target at different catastrophe loss levels ($ a share)My arithmetic: 11 times forward core EPS; cat losses as % of earned premium in 2027-28
Risks
- A heavy storm or hurricane season pushes catastrophe losses toward 8% of premiums, worth about $33 off the target; watch quarterly catastrophe reports.
- Liability claims costs outrun pricing, as the $295 million asbestos charge hints; watch for reserve additions in general liability or umbrella.
- Rates rise further, deepening the $6.4 billion unrealized bond loss and pressuring the multiple; watch the five-year Treasury yield above 5%.
What would change my mind
Business Insurance renewal price change holding above 5% with the underlying combined ratio, the cost per premium dollar before storms and reserve changes, staying below 84% through mid-2027 would move me to a buy.
