Travelers Beats Earnings Est, Ups Dividend - Analyst Blog

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The Travelers Companies ( TRV ) reported earnings of $2.31 per share in the first quarter of 2013, surpassing the Zacks Consensus Estimate of $1.99 per share. Moreover, results increased 15% from $2.01 earned in the year-ago quarter. Operating income of $887 million improved 10.7% the reported quarter.

Favorable results came on the back of higher underwriting margins and lower catastrophe losses, which more-than-offset lower net investment income and lower net favorable prior-year reserve development.

Including net realized investment gains of $9 million or 2 cents per share, Travelers reported net income of $896 million or $2.33 per share, comparing favorably with net income of $806 million or $2.02 a share. The year-ago quarter included net realized investment gains of $5 million or 1 cent.

Operational Update

Net written premiums of Travelers during the quarter were $5.6 billion, up 2% year over year.

Net investment income decreased 8.6% year over year to $542 million during the quarter, attributable to lower real estate partnership and private equity returns in the non-fixed income portfolio and lower reinvestment rates in the fixed income portfolio.

Travelers posted underwriting gain of $385 million, up 55% year over year. Combined ratio improved 370 basis points year over year to 88.5% in the reported quarter. The improvement was due to higher underwriting margins and lower catastrophe losses. However, lower net favorable prior-year reserve development was a partial offset.

Total revenue of Travelers in the quarter under review was $6.33 billion, decreasing 1% year over year, induced by lower net investment income. However, revenue surpassed the Zacks Consensus Estimate of $6.31 billion.

Segment Update

Business Insurance : Net written premium increased 5% year over year to $3.26 billion in the quarter, largely driven by increases in renewal rate change.

Combined ratio improved 20 basis points year over year to 89.4%, mainly due to higher underwriting margins and lower catastrophe losses, mostly offset by lower net favorable prior-year reserve development.

Operating income slid 4% year over year to $590 million in the first quarter of 2013, largely due to lower net favorable prior-year reserve development and lower net investment income, partially offset by higher underwriting margins and lower catastrophe losses.

Financial, Professional & International Insurance : Net written premium in the quarter under review improved 7% year over year to $647 million, driven by better results at Bond & Financial Products.

Combined ratio improved 550 basis points year over year to 82.3% in first quarter 2013, attributable to higher underwriting margins and higher net favorable prior-year reserve development.

Operating income improved 9% year over year to $163 million, attributable to higher underwriting margins and higher net favorable prior-year reserve development, somewhat offset by lower net investment income.

Personal Insurance : Net written premium descended 6% year over year to $1.69 billion, primarily due to lower new business volumes.

Combined ratio improved 840 basis points year over year to 89.4% in the first quarter of 2013, largely driven by higher underwriting margins, higher net favorable prior-year reserve development and lower catastrophe losses.

Operating income was $197 million, up 82% year over year, largely due to higher underwriting margins, lower catastrophe losses and higher net favorable prior-year reserve development, partially offset by lower net investment income.

Dividend and Share Repurchase

Travelers spent $300 million to buyback 3.7 million shares in the quarter. The company has $1.859 billion remaining under its authorization.

Additionally, the board of Travelers approved a 9% increase in quarterly dividend. The increased dividend of 50 cents is payable on Jun 28, 2013, to shareholders of record as of Jun 10, 2013.

Our Take

Travelers continues with the trend of delivering positive earnings surprise. The quarter marked the third consecutive quarter of positive surprise as well as the highest quarterly operating income per share since Travelers' initial public offering in 2002.

High retention rate, pricing gains, positive renewal rate changes and a strong capital position are among the other positives, which are likely to support Travelers perform going forward.

Travelers' continuous share buyback strategy has a positive impact on earnings per share and bolsters shareholder value.

Travelers presently carries a Zacks Rank #2 (Buy). Among other property & casualty insurers carrying a favorable Zacks Rank #1 (Strong Buy), W.R. Berkley Corporation ( WRB ), Montpelier Re Holdings Ltd . ( MRH ) and PartnerRe Ltd. ( PRE ) will report their results shortly.



MONTPELIER RE (MRH): Free Stock Analysis Report

PARTNERRE LTD (PRE): Free Stock Analysis Report

TRAVELERS COS (TRV): Free Stock Analysis Report

BERKLEY (WR) CP (WRB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: MRH , PRE , TRV , WR , WRB

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