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Travelers (TRV) Surpasses Q3 Earnings, Revenue Estimates

The Travelers Companies Inc.TRV posted operating earnings of $2.93 per share in the third quarter of 2015, beating the Zacks Consensus Estimate by 32.6%. Earnings improved 12.3% year over year.

The Travelers Companies Inc. - Earnings Surprise | FindTheBest

Sturdy underwriting results across all segments coupled with higher net favorable prior-year reserve development backed the quarter's outperformance.

Including net realized gain of 4 cents, net income was $2.97 per share, up 10.4% year over year.

Behind the Headlines

Net written premiums of Travelers were $6.2 billion, up 3% year over year. The quarter experienced positive renewal premium changes, solid retention in each business segment as well as considerable increase in new business in Personal Insurance. Foreign currency exchange rates continued to act as a dampener.

Net investment income of Travelers declined about 14.6% year over year to $614 million. The downside was due to lower fixed and fixed income returns.

Total revenue of Travelers was $6.8 billion, down 1.3% from the comparable year-ago quarter. Revenues beat the Zacks Consensus Estimate of $6.6 billion.

Travelers' underwriting gains improved 34.6% to $759 million. Combined ratio improved 310 basis points (bps) year over year to 86.9% on, higher net favorable prior-year reserve development and a 170-bp improvement in underlying combined ratio.

Segment Update

Business and International Insurance : Net written premium increased 1% year over year to $3.59 billion in the quarter, largely driven by positive renewal premium changes and an increase in retention rates.

Combined ratio improved 300 bps year over year to 92.2% attributable to lower catastrophe losses and higher net favorable prior-year reserve development.

Operating income of $546 million decreased 1.1% on lower investment income. However, higher underlying underwriting gain and higher net favorable prior-year reserve development limited the downside.

Bond & Specialty Insurance : Net written premium decreased 2% to $565 million in the quarter.

Combined ratio improved 980 bps year over year to 57.1% due to lower underlying combined ratio and higher net favorable prior-year reserve development.

Operating income increased 18.8% year over year to $196 million due to higher underlying underwriting gain and higher net favorable prior-year reserve development.

Personal Insurance : Net written premium increased 6% year over year to $2 billion.

Combined ratio improved 100 bps year over year to 85.1% on lower catastrophe losses, higher net favorable prior-year reserve development. Higher underlying combined ratio were partial offset.

Operating income of $241 million inched up 0.8% on higher net favorable prior-year reserve development and lower catastrophe losses. However, lower net investment income and a lower underlying underwriting gain limited the upside.

Dividend and Share Repurchase

Travelers returned $939 million to its shareholders in the third quarter.

Travelers spent $750 million on buying back 7.3 million shares during the quarter, taking the year-to-date tally to 21.5 million shares bought back for $2.2 billion. Travelers has $4.3 billion worth shares remaining under its authorization.

The board also approved a dividend of 61 cents per share payable on Dec 31, 2015, to shareholders of record as of the close of business on Dec 10.

Our Take

A high retention rate, pricing gains, positive renewal rate changes, a strong product portfolio, strategic acquisitions and a strong capital position should support Travelers Companies' growth going forward.

Its inorganic story remains impressive with strategic buyouts. However, a soft interest rate environment was a dampener in the quarter.

Travelers also remains committed to enhance its shareholders' value via continued share buyback and uninterrupted dividend payouts.

Currently, Travelers carries a Zacks Rank #1 (Strong Buy).

Performance of Other Insurers

The bottom line at Progressive Corp. PGR and RLI Corp. RLI have outperformed their respective Zacks Consensus Estimate in the reported quarter. The Chubb Corp. CB sporting a Zacks Rank #1 (Strong Buy) is slated to report its results today after the market closes.

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TRAVELERS COS (TRV): Free Stock Analysis Report

RLI CORP (RLI): Free Stock Analysis Report

CHUBB CORP (CB): Free Stock Analysis Report

PROGRESSIVE COR (PGR): Free Stock Analysis Report

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Zacks Investment Research

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


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

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