Travelers Shows Stability on Fundamentals - Analyst Blog

The Travelers Companies, Inc. TRV is witnessing solid bottom-line growth fueled by its robust operational strategies. Moreover, the company is also engaged in enhancing its shareholders' value through consistent share repurchase and dividend payments.

Travelers exited 2013 with the bottom line for both the fourth quarter and the full year 2013 surpassing the respective Zacks Consensus Estimate. The fourth quarter witnessed improvement in underlying underwriting gains aided by benign catastrophe activities. Travelers also witnessed higher net investment income and higher net favorable prior-year reserve development. Lower share count, at the same time, boosted the bottom line. Travelers reported record earnings for 2013.

Travelers is focused on reducing operating expenses and acquisition costs in order to improve underwriting margins and enable itself to come up with a more competitively priced product.  The company's expense reduction initiatives include the announcement of a plan to cut down on certain claim and other insurance expenses with the majority of the impact in the Agency Automobile line of business. This, when fully implemented, should lead to an annualized savings of $140 million in 2015.

Travelers remains upbeat about its new product Quantum 2.0. It expects this lower cost, lower-priced Auto insurance product to help it improve volumes at attractive returns. Also, the company remains focused on implementing pricing actions that should continue to result in improved returns. With successful implementation of pricing actions, the company effectively revamped its portfolio with better performing classes of businesses.

With respect to enhancing shareholders value, Travelers returned about $27 billion since mid 2006 via share repurchases and dividends. The company noted the amount is nearly reaching its market capitalization. While over the last 5 years, the company increased dividend at a CAGR of 10.8%, its dividend yield of 2.39% betters the industry average of 2.12%. The company also has a new $5 billion share repurchase authorization.

It is also noted that 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.

However, exposure to catastrophe events always remains a headwind for property and casualty insurers and Travelers is no exception.

Nonetheless, the solid fundamentals are reflected in the company's Zacks Rank. Travelers currently sports a Zacks Rank #2 (Buy).

With respect to estimate revisions, the company has witnessed a positive movement. For 2014, the Zacks Consensus Estimate moved north by 1.7% to $8.21 per share and for 2015, the same moved up by 6.0% to $8.59 over the last 60 days.

Other Stocks to Consider

Some other stocks worth mentioning in the property and casualty insurance industry are Alleghany Corporation Y, AmTrust Financial Services, Inc. AFSI and Fidelity National Financial, Inc. FNF. All these stocks sport a Zacks Rank #1 (Strong Buy).