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We retain our Outperform recommendation on The Travelers Companies Inc. (TRV - Analyst Report) as the sustained improvement in underwriting results, high retention rates and acquisition strategies are expected to help the company deliver impressive growth in the upcoming period.  

Why the Reiteration?

Travelers’ second-quarter earnings came in at $2.13 per share, much ahead of the Zacks Consensus Estimate of $1.158 as well as the year-ago level of $1.23. Over the past four quarters, Travelers has delivered positive surprise with an average beat of 147.12%.  Over the last 30 days all the estimates moved north to increase the Zacks Consensus Estimate by 8.4% to $8.09.

Being the second-largest auto and homeowners’ insurance writer and the sixth largest U.S. property and casualty insurer Travelers continues to benefit from its strong market position and reaps economies of scale. Travelers have also been maintaining stable retention rates across most of its segments.

Additionally, Travelers exercises mergers and acquisitions to grow inorganically. One of the biggest instances in this regard is its merger with Brazilian surety insurance market leader, J.Malucelli Participacoes em Seguros e Resseguros which helped the company to foray into the Brazilian Surety market and reap benefits from the same. During the second quarter of 2013, Travelers entered into an agreement to acquire The Dominion of Canada General Insurance Company from E–L Financial Corporation Limited to strengthen its foothold in Canada. With solid financial strength and flexibility we expect Travelers to continue its strategic acquisitions and partnerships thereby generating impressive growth going forward.

The company’s focus on reducing operating expenses and acquisition costs to improve underwriting margins is also a matter that draws optimism. Through its latest cost reduction plan, Travelers expects to generate an annual savings of $140 million in 2015.

Moreover, the continuous effort on part of the company to return capital to shareholders through is another positive factor that inspires our confidence on the stock. During the second quarter, Travelers returned in total $491 million to shareholders in the form of share buybacks and dividends. Going forward, the strong capital position is expected to help Travelers return more capital to its shareholders uninterruptedly. This property and casualty insurer currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Among other insurers, Berkshire Hathaway Inc. (BRK.B - Analyst Report), EMC Insurance Group Inc. (EMCI - Snapshot Report) and Everest Re Group Limited (RE - Analyst Report) carry a favorable Zacks Rank #1 (Strong Buy) and are worth considering.

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