It has been about a month since the last earnings report for Travelers (TRV Quick QuoteTRV - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Travelers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Travelers Q4 Earnings & Revenues Top Estimates, Rise Y/Y

The Travelers Companies reported fourth-quarter 2020 core income of $4.91 per share, which beat the Zacks Consensus Estimate of $3.00. The bottom line surged 47.9% year over year.

The improvement was primarily driven by higher underlying underwriting gain, increase in net favorable prior year reserve development, higher net investment income and lower catastrophe losses.   

Behind Q4 Headlines

Travelers’ total revenues increased 3% from the year-ago quarter to $8.4 billion, primarily due to higher premiums and net investment income. Moreover, the top-line figure beat the Zacks Consensus Estimate of $8.1 billion.

Net written premiums increased 3% year over year to $7.3 billion driven by continued strong renewal rate change and retention across all the segments.

Net investment income increased about 9% year over year to $572 million pre-tax, primarily due to increase in income in non-fixed income investment portfolio.

Travelers witnessed underwriting gain of $741 million, up 87.1% year over year.  Combined ratio improved 570 basis points (bps) year over year to 86.7% due to a lower underlying combined ratio, higher net favorable prior year reserve development, and lower catastrophe losses.

At the end of the fourth quarter, statutory capital and surplus were $22.18 billion. Debt-to-capital ratio (excluding after-tax net unrealized investment gains included in shareholders’ equity) was 20.7%, within the company’s target range of 15-25%.

Adjusted book value per share was $99.54, up 7% from year-end 2019.

Core return on equity was 20.5%, up 570 bps year over year. Debt-to-capital ratio was 18.3.

Segment Update

Business Insurance: Net written premiums decreased 2% year over year to about $3.7 billion. The benefits of continued strong retention and higher renewal rate changes were offset by reduced exposure and decrease in new business volume due to COVID-19 and related economic conditions.

Combined ratio improved 770 bps year over year to 89.8% due to higher net favorable prior year reserve developmen, a lower underlying combined ratio and lower catastrophe losses.

Segment income increased 59.2% to $713 million.  The upside was due to higher net favorable prior year reserve development, a higher underlying underwriting gain, lower catastrophe losses and higher net investment income.

Bond & Specialty Insurance: Net written premiums rose 12% year over year to $800 million, primarily driven by continued strong retention and increased levels of renewal premium change in management liability.

Combined ratio deteriorated 230 bps year over year to 80.9% due to higher underlying combined ratio, partially offset by higher net favorable prior year reserve development and slightly lower catastrophe losses.

Segment income dropped 1.8% year over year to $164 million primarily due to lower underlying underwriting gain, largely offset by higher net favorable prior year reserve development.

Personal Insurance: Net written premiums of $2.8 billion increased 7% year over year due to solid performance at Agency Automobile and Agency Homeowners and Other.

Combined ratio improved 440 bps year over year to 84.1% due to lower underlying combined ratio, partially offset by higher catastrophe losses and lower net favorable prior year reserve development.

Segment income of $457 million increased 39.8% from the year-ago quarter’s level, primarily driven by higher underlying underwriting gain and higher net investment income, partially offset by higher catastrophe losses and lower net favorable prior year reserve development.

Full-Year Update

Full-year 2020 core income of $10.48 per share beat the Zacks Consensus Estimate of $8.56. The bottom line increased 9.2% year over year.

Total revenues increased 1% from the year-ago quarter to $32 billion and beat the Zacks Consensus Estimate of $31.6 billion.

Dividend and Share Repurchase Update

This property & casualty insurer returned $1.5 billion in the year. It has $1.161 billion remaining under its authorization.

The company’s board approved a quarterly dividend of 85 cents per share. The dividend will be paid out on Mar 31 to shareholders of record at the close of business as of Mar 10, 2021. 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 13.66% due to these changes.

VGM Scores

At this time, Travelers has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Travelers has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.