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Travelers Too Expensive to Be Defensive, Goldman Says

Travelers Cos., the only property insurer in the Dow Jones Industrial Average, is too expensive to be a defensive pick for investors, Goldman Sachs Group Inc. said while outlining a “cautious” outlook for the industry.

The insurer’s rating was downgraded to neutral from buy, Goldman Sachs analysts led by Michael Nannizzi wrote in a note to clients today. New York-based Travelers has rallied about 80 percent since September 2011, when it was added to the bank’s list of stocks to buy in the Americas, compared with the Standard & Poor’s 500 Index’s 50 percent gain, the analysts said.

Earnings at property-casualty insurers were helped this year as underwriting margins widened, claims costs from natural disasters fell and reserves proved redundant. Such benefits may be unsustainable, making the industry less attractive after some companies’ stock valuations rose, Goldman Sachs said.

“Leading commercial insurers are at all-time highs,” the analysts wrote. “On a relative-value basis, the sector is simply less defensive than at past market highs when valuations for the group were depressed relative to other industries, which made it a natural defensive choice.”

Travelers fell 1.9 percent to $89 at 4 p.m. in New York, the biggest decline since July. The insurer ended November trading 33 percent above book value, the highest in about six years relative to the measure of assets minus liabilities.

Patrick Linehan, a spokesman for Travelers, declined to comment on the note. Goldman Sachs also downgraded commercial insurer W.R. Berkley Corp. to sell from neutral, citing valuation.

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