2 Insurance Stocks to Buy That Keep About 16 Cents of Every Premium Dollar as Underwriting Profit

Travelers (NYSE: TRV) had an underlying combined ratio of 84.1% in the third quarter of 2026. Chubb (NYSE: CB), a much more diverse insurance company, had a combined ratio of 81.3% in its U.S. business (more on this below). Both companies are generating $0.16 or more per dollar of premiums collected, further enhancing their already strong investment portfolios. If you are a growth-oriented investor, you'll want to take a closer look at each of these industry leaders today.

How do Travelers and Chubb make money?

Running an insurance business is actually far more complicated than you may expect. There are really two distinct things going on at the same time. First, there's the insurance operation, and then there's the investment portfolio.

On the operations front, insurance companies collect premiums and then pay out claims. The goal is to collect more in premiums, which creates an underwriting profit. The key figure on that front is the combined ratio, which looks at a company's operating costs and claims and compares that to its premiums. A figure below 100% indicates a profit.

In the third quarter of 2026, Travelers had an underlying combined ratio of 84.1%. So, for every $1 of premiums it collected, it kept just about $0.16. Chubb's business is far more diverse: in the U.S., it had a combined ratio of 81.3%; its foreign operations, 86.4%; and its reinsurance business, 80.7%. Depending on the business line you look at, Chubb kept $0.16 or more for every dollar of premiums it collected.

These are solid results, and each of these insurance companies is doing fairly well right now. But the real long-term opportunity comes from the float, which is supported by underwriting profits.

The float creates a long-term income stream

Insurance premiums are paid up front, but claims are paid further down the road. In between, insurance companies can invest the money. Travelers' investment portfolio is worth $100 billion. Chubb's portfolio is $172 billion.

Both are fairly conservative with their investment portfolios, with a heavy focus on bonds. That's a near-term issue, since bond prices fall when interest rates and yields rise, as they are today. However, insurance companies often hold bonds to maturity, so this may not be as big a long-term problem as it likely seems right now. Meanwhile, Travelers generated nearly $1.1 billion in investment income in the second quarter of 2026, while Chubb's investment income was over $1.7 billion. While both companies have sizable investment operations, their insurance businesses incur much higher costs. If you take a back-of-the-envelope look, investment income accounted for more than half of each company's net income.

Producing an underwriting profit allows the companies to build their investment portfolios and fully benefit from that income. It gives the companies the wherewithal to further expand their operations, which also helps to grow their investment portfolios. At the end of the day, the investment income Travelers and Chubb generate is the long-term flywheel that makes their businesses so attractive. But the funnel starts with strong underwriting results.

Best suited to growth-minded investors

Wall Street isn't ignoring the success that Travelers and Chubb have achieved. Both companies are trading at price-to-book ratios above their five-year averages. Value investors probably won't be interested. Their dividend yields are also fairly modest, with both offering just a touch over 1%. Income investors should probably look elsewhere, too.

However, given the strong underwriting results of both Travelers and Chubb, their massive investment portfolios, and their impressive investment income streams, growth investors may want to take a closer look. If they can keep their combined ratios well below 100%, the investment income flywheel should continue to grow over the long term.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.