This Top Insurance Company Shines in a Tried-and-Tested Industry

These are some of the best businesses in the world...

They play a pivotal role in today's economies... and show tremendous resilience.

These businesses bounced back even after the costliest events in insurance history... the terrorist attacks of September 11, 2001 and the devastation of Hurricane Katrina in August 2005.

Longtime Stansberry Research readers know that we're talking about the property and casualty (P&C) insurance industry.

Globally, the insurance industry generates more than $5 trillion in annual revenue. The P&C component represents $1.6 trillion in insurance premiums... That's one-third of the entire insurance industry.

But before we get to this week's Stock of the Week, let's first go over what makes P&C insurance companies so special...

P&C insurers are the only businesses that enjoy a positive cost of capital. In fact, these insurers get paid to hold other people's money. In every other industry, companies must take on debt to grow their businesses and pay interest on those loans.

You see, the top P&C insurers are great "underwriters." That means they can accurately estimate what they'll have to spend on claims, based on financial risk. And they only accept business that adequately compensates them for the risk. So, good P&C insurers consistently bring in more in premiums than they pay out in claims.

But that's not the only area where P&C insurance companies shine...

While they hold insurance premiums, and before they pay out claims, P&C insurers can invest this money, which is called "float." They get to keep all of the investment income in the form of interest, dividends, and capital gains.

Today, we're highlighting one of the top P&C insurers in the world...

Travelers (NYSE: TRV) is one of the oldest insurance companies in the U.S. It provides a wide range of commercial and personal P&C insurance products to businesses, governments, and individuals, including auto, home, and business insurance.

With its long history in the insurance industry, Travelers has built a great reputation with investors. And its latest earnings report shows us why...

Travelers reported third-quarter core earnings per share ("EPS") of $2.60 versus the $1.83 estimate. Revenue for the quarter was $8.81 billion, beating the expectation of $8.17 billion. The company also reported net premiums written of $8.32 billion, which exceeded the $8.28 billion estimate.

Once again, CEO Alan Schnitzer highlighted Travelers' outstanding underwriting track record. The company reported a combined ratio of 98.6% in the quarter, with an underlying combined ratio – which strips out catastrophe losses – of 91.4%. The underlying combined ratio is down slightly from 91.5% in the same quarter last year.

The combined ratio measures an insurance company's ability to consistently record underwriting profits. With this metric, the lower the number, the better. Anything less than 100 means the company collected more in premiums than it paid out in claims.

Travelers has recorded an underwriting profit in 11 of the past 12 years. And it's on track to post another one in 2021. Through the first three quarters of this year, Travelers has a combined ratio of 96.8%. That's down from 97.6% in the first nine months of 2020. The underlying combined ratio for that same period sits at 90.8% (down from 91.6%).

So not only is Travelers continuing its track record of strong underwriting, it's actually improving its underwriting.

With results like these, it's easy to see why Travelers consistently ranks near the top of Stansberry Research's proprietary Insurance Value Monitor. This quarter's results are more proof that our ratings are spot-on.

Even better, the company is trading cheaply right now...

Travelers currently has a market cap of about $40 billion. So it's trading at a 53% discount to its float plus book value ($85 billion). When a top-10 company in the Insurance Value Monitor trades for a discount of more than 50% to its float plus book value, we consider it a great buying opportunity.

And this is great for Travelers' shareholders...

The company's stock is up more than 75% from its March 2020 low... It sits within touching distance of an all-time high.

But capital appreciation isn't the only way Travelers rewards shareholders... The company returned $821 million to shareholders in the third quarter of 2021, $601 million of which came from share buybacks. The rest arrived in the form of dividend payments.

Stansberry Research founder Porter Stansberry has long called P&C insurance the best business in the world. And Travelers continues to show why it's still one of the top companies in that industry.

This should all continue to drive gains for investors in the years to come.

Sometimes investing is simple.