Travelers Cos. (TRV): Downgrade to Sell Following Strong 2Q as Share Price Fully Appreciates Current Operating Strength

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Travelers Cos. (TRV): Downgrade to Sell Following Strong 2Q as Share Price Fully Appreciates Current Operating Strength

Goldman Sachs Travelers Cos. (TRV)

persistent favorable experience (2pp benefit vs. 1.5pp Old). These favorable updates

are the primary drivers of 1pp/1pp/70bps improvements in our modeled

2026/2027/2028 BI underlying loss ratio (58.6%/59.3%/60.0%). We have also lowered

our claim cost inflation assumption by 50bps for 2026-2028 to ~5% (vs. 5.5% prior),

which was offset by a similar reduction in earned pricing expectations and modestly

higher mix shift pressure. We have considered that TRV could remove more excess

conservatism from the loss ratio, as our estimate for 2pp (~$500mn) reduced

conservatism represents only 1/3 of our estimated AY2025 long-and-medium tail

commercial reserve redundancy of $1.5bn (~1.75bn after considering incremental

Special Property Bulk & IBNR booked in AY2025). However, we think our estimate

appropriately considers 1) that TRV will hold a portion of the AY2025 conservatism into

future modeled years to allow for future favorable reserve development, and 2) that

current 8% renewal premium increases (ex-Property) would indicate that TRV and the

market is not confident that this longer-tail business has no downside risk to $1.5bn

reserve redundancy.

Growth & Capital Deployment: Following earnings, we have increased our 2028

buyback assumption by ~15% to $18bn (90% of operating earnings), while

increasing the 3-year CAGR of organic NPW growth (2025-2028) to 2.1% vs. 1.4%

prior. We model for TRV to deploy over 100% of operating earning into buybacks and

dividends, with our 90% buyback assumption at a peak historical level for a multi-year

period. Despite a historically challenging backdrop for growth in Personal Lines, given