Travelers Companies: Evenly Poised - Analyst Blog

On May 9, 2014, we issued an update research report on The Travelers Companies, Inc. TRV.

With net income of $2.95 per share reported for the first quarter of 2014, Travelers Companies outperformed the Zacks Consensus Estimate by 38% and improved 28% year over year. The outperformance was driven by improvement in underlying underwriting gains as well as higher net investment income and net favorable prior-year reserve development. Lower share count also boosted the bottom line. First-quarter results helped it to keep the positive surprise streak alive.

Travelers remains upbeat about its new product Quantum 2.0. This low cost, lower-priced Auto insurance product helped it to improve volumes at attractive returns and is expected to retain the momentum.

Written rate gains continued to exceed expected loss cost trends in all segments. High retention rate, pricing gains, positive renewal rate changes and a strong capital position are among the positives for this Zacks Rank #2 (Buy) insurer. Its inorganic growth story also remains impressive with strategic acquisitions.

In its effort to improve underwriting margins and come up with more competitively priced product, Travelers is focused on reducing operating expenses and acquisition costs. When fully implemented, should lead to an annualized savings of $140 million in 2015.

Travelers remain committed to enhance its shareholders' value via share repurchases and dividends. With the recent hike of 10% in quarterly dividend, over the last 10 years, Travelers increased dividend at a CAGR of 9.6%. Its dividend yield also betters the industry average. The property and casualty insurer also continually engages in share buyback and has $4.109 billion remaining under its authorization.

However, exposure to catastrophe events always remains a headwind for property and casualty insurers. In addition, management expects lower reinvestment yields from fixed maturity portfolio to lower net investment income from that portfolio by $25 million in each of the remaining quarters of 2014. It also estimates investment income from the non-fixed maturity portfolio in 2014 to be lower than the 2013 level.

With respect to estimate revisions, Travelers has witnessed a positive movement as most of the estimates were revised higher. For 2014, the Zacks Consensus Estimate moved north by 9.7% to $9.01 per share and for 2015, the same moved up by 3.4% to $8.88 over the last 30 days.

Other Stocks to Consider

Some other stocks worth mentioning in the property and casualty insurance industry are Allied World Assurance Company Holdings, AG AWH, AmTrust Financial Services, Inc. AFSI and Aspen Insurance Holdings Ltd. AHL. All these stocks sport a Zacks Rank #1 (Strong Buy).