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The Travelers Companies Inc. (TRV - Analyst Report) continues to benefit from its strong market position and economies of scale. The company spent more for buying back shares supported by a lower level of catastrophe loss and balance sheet strength. It also scores strongly with the credit rating agencies.

However, these positives are somewhat dwarfed by soft market conditions and reduced underwriting margins. We thus retain our “Neutral” rating on the company.

Travelers has small and mid-sized commercial accounts focus, balanced personal lines book and its lack of exposure to large-account casualty business. Its personal insurance delivered record earned premium and policies in force in 2010.

Moreover, new business growth increased significantly over the prior year, which coupled with solid retention lead to a 2% increase in policies in force from a year ago.

The company has continuously increased dividends for the past few years. Based on the strength of its financial position, the company hiked its quarterly dividend by 14%. Travelers has a dividend yield of 2.64%, more than the industry average of 2.14%.

Further, its board of directors has approved a share repurchase authorization that added an additional $5 billion of repurchase capacity to the $1.51 billion of capacity remaining. In the first quarter of 2011, Travelers spent $1.1 billion to buy back 18.9 million shares.

Recently, A.M. Best affirmed the issuer credit rating and senior debt ratings of  “a” of the company on the back of Travelers' solid operating, strong risk-adjusted capitalization and favorable market profile.

On the flip side, premium growth remains reduced as a result of the adverse impact of soft market conditions. Given the challenging economic environment and a slow recovery, we expect top-line growth to remain muted though lower exposures. Travelers also continues to face reduced underwriting margins related to pricing and loss cost trends.

Travelers reported first quarter earnings exceeding the Zacks Consensus Estimate, as well as the year-ago earnings largely due to higher underwriting gains, favorable resolution of prior-year tax matters, lower catastrophe losses and a lower number of outstanding shares.

The Zacks Consensus Estimates for second-quarter 2011 is $1.29 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $6.27 and $6.30 per share.

The quantitative Zacks #3 Rank (short-term Neutral rating) for the company indicates no clear directional pressure on the stock over the near term.

Based in New York, The Travelers Companies, through its subsidiaries, provide a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and in select international markets. It competes with Hartford Financial Services Group Inc. (HIG - Analyst Report) and W.R. Berkley Corporation (WRB - Analyst Report).

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