With net income of $2.95 per share reported for the first
quarter of 2014,
The Travelers Companies Inc
) has successfully managed to keep its positive surprise streak
alive. The property and property casualty insurer's earnings
outperformed the Zacks Consensus Estimate by 38%. Moreover,
earnings improved 28% year over year.
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The outperformance was driven by improvement in underlying
underwriting gains, higher net investment income and higher net
favorable prior-year reserve development. Lower share count also
boosted the bottom line. Higher catastrophe losses limited the
Shares of Travelers gained about 0.14% in the pre-market session,
indicating that the market has taken this release positively.
Behind the Headlines
Net written premiums of Travelers during the quarter were $5.87
billion, up 5% year over year. The improvement stemmed from
inclusion of The Dominion of Canada General Insurance Company
(Dominion) within Financial, Professional & International
Insurance coupled with higher net written premiums in Business
Insurance. However, lower net written premiums in Personal
Insurance were a partial offset.
Net investment income of Travelers improved 9.8% year over year
to $736 million during the quarter. The upside was attributable
to strong returns in non-fixed income portfolio.
Total revenue of Travelers in the quarter under review was $6.71
billion, improving 6% from the comparable year-ago period.
Revenues surpassed the Zacks Consensus Estimate of $6.38 billion.
Travelers posted underwriting gains of $791 million, improving
31% year over year. Combined ratio improved 280 basis points
(bps) year over year to 85.7% in the reported quarter. The
improvement was owing to higher underlying underwriting margins
and higher net favorable prior-year reserve development, somewhat
offset by higher catastrophe losses.
: Net written premium increased 1% year over year to $3.30
billion in the quarter, largely driven by higher renewal rate.
Combined ratio improved 170 bps year over year to 87.7%, owing to
higher underwriting margins.
Operating income increased 11% year over year to $653 million,
attributable to improved underlying underwriting gains and higher
net investment income. However, lower net favorable prior-year
reserve development and higher catastrophe losses limited the
Financial, Professional & International
: Net written premium in the quarter under review improved 47%
year over year to $950 million, primarily reflecting favorable
change in a reinsurance program as well as continued strong
retention rates and renewal rate increases in management
liability along with accretion from the Dominion acquisition.
Combined ratio deteriorated 150 bps year over year to 83.8% in
Operating income improved 20% year over year to $195 million
driven by better underlying underwriting gains in Bond &
Financial Products, the inclusion of Dominion and higher net
favorable prior-year reserve development.
: Net written premium descended 4% year over year to $1.62
Combined ratio improved 580 bps year over year to 83.6% in the
first quarter, largely driven by higher net favorable prior-year
reserve development and higher underlying underwriting margins.
Operating income was $268 million, up 36% year over year. The
upside came on the heels of higher net favorable prior year
development, higher underlying underwriting gains and higher net
Dividend and Share Repurchase
Travelers spent $705 million to buy back 8.5 million shares
during the quarter. The company has $4.109 billion remaining
under its authorization.
Additionally, the board of Travelers approved a 10% increase in
dividend to 55 cents, payable on Mar 31, 2014 to shareholders of
record as of Mar 10, 2014. The recent approval marks the 10th
straight year of increase with a CAGR of 9.6%
Travelers has successfully carried forward its trend of
delivering positive earnings surprises. This marks the seventh
consecutive quarter of a positive surprise aided by sustained
improvement in underwriting results. Travelers Companies 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 other
positives, which will likely support Travelers Companies' growth
performance going forward.
It is also worth noting that Travelers' new lower cost,
lower-priced Auto insurance product Quantum 2.0 helped in writing
Furthermore, the company's inorganic story seems impressive. Net
written premiums at the Financial, Professional &
International Insurance, in the reported quarter, benefitted from
the inclusion of Dominion.
Moreover, Travelers Companies' consistent share buyback strategy
has a positive impact on earnings per share. This, along with
dividend hikes, bolsters shareholder value.
Travelers presently carries a Zacks Rank #3 (Hold). Other
top-ranked property & casualty insurers worth reckoning are
RenaissanceRe Holdings Ltd.
). All these stocks sport a Zacks Rank #1 (Strong Buy).