On Aug 28, 2014, we issued an update research report on
The Travelers Companies, Inc
Travelers reported a mixed second quarter with operating earnings
missing the Zacks Consensus Estimate and year also results while
top line surpassing both parameters.
Higher-than-expected catastrophe losses were largely responsible
for the earnings underperformance. However, higher net written
premiums and net investment income backed the revenue
The company's focus on implementation of pricing actions drive
better returns. Successful pricing actions helped the company to
effectively revamp its portfolio with better performing business
classes. By virtue of its operational strength, the company has
continuously registered better returns on equity than the industry
average. Travelers aims for ROE in the band of 14-16% over the long
Written rate gains continue 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. Its inorganic growth story also remains impressive.
In its effort to improve underwriting margins and come up with more
competitively priced products, Travelers is focused on reducing
operating expenses and acquisition costs. When fully implemented,
the cost cut should lead to an annualized savings of $140 million
Travelers remain committed to enhance its shareholders' value via
share repurchases and dividends. The company has grown its dividend
at a 10-year CAGR of 9.6%. Its dividend yield also betters the
industry average. Travelers in total returned about $1.9 billion of
excess capital in the first half. The property and casualty insurer
also continually engages in share buyback and has $3.23 billion
remaining under its authorization.
However, exposure to catastrophe events always remains a headwind
for property and casualty insurers. While underwriting income
declined 8.5%, combined ratio deteriorated 80 basis points in the
In addition, management expects lower reinvestment yields from the
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, the Zacks Consensus estimate
for 2014 moved down 0.5% to $9.23 as 9 of 16 estimates moved south
in the last 60 days. For 2015, the same moved up 0.9% to $9.14 as 8
of 18 estimates moved north over the same time frame.
Other Stocks to Consider
Travelers carries a Zacks Rank #3 (Hold). Better-ranked property
and casualty insurers worth considering are Global Indemnity plc (
), AmTrust Financial Services, Inc. (
) and Endurance Specialty Holdings Ltd. (
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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