A month has gone by since the last earnings report for Travelers (TRV Quick QuoteTRV - Free Report) . Shares have lost about 0.2% in that time frame, outperforming 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 catalysts.

Travelers Beats Q1 Earnings Estimates, Raises Dividend

The Travelers Companies reported first-quarter 2021 core income of $2.73 per share, which beat the Zacks Consensus Estimate of $2.44. The bottom line increased 4% year over year.

The improvement was primarily driven by higher net favorable prior year reserve development, a higher underlying underwriting gain and higher net investment income. However, higher catastrophe losses were partial offsets. Shares of the company gained 3.6% in the pre-market trading session to reflect the outperformance.

Behind Q1 Headlines

Travelers’ total revenues increased 5.1% from the year-ago quarter to $8.3 billion, primarily due to higher premiums and net investment income. Moreover, the top-line figure beat the Zacks Consensus Estimate of $8.2 billion. Net written premiums increased 2.2% year over year to $7.5 billion driven by continued strong renewal rate change and retention across all the segments.

Net investment income increased 14.7% year over year to $701 million pre-tax, primarily due to increase in income in non-fixed income investment portfolio. Travelers witnessed underwriting gain of $217 million, down 24.7% year over year.  Combined ratio deteriorated 110 basis points (bps) year over year to 96.6 due to higher catastrophe losses, partially offset by higher net favorable prior year reserve development and a lower underlying combined ratio.

At the end of the first quarter, statutory capital and surplus were $22.4 billion. Debt-to-capital ratio (excluding after-tax net unrealized investment gains included in shareholders’ equity) was 20.5%, up 20 basis points and within the company’s target range of 15-25%. Adjusted book value per share was $101.21, up 9% year over year. Core return on equity was 11%, down 50 bps year over year.

Segment Update

Business Insurance: Net written premiums decreased 2% year over year to about $4.1 billion. The benefits of continued strong retention and higher renewal rate changes were offset by lower net written premiums in the workers’ compensation product line.

Combined ratio deteriorated 130 bps year over year to 103.5 due to higher catastrophe losses, partially offset by a lower underlying combined ratio and higher net favorable prior year reserve development. Segment income increased 9.7% to $317 million.  The upside was due to higher underlying underwriting gain, higher net favorable prior year reserve development and higher net investment income, partially offset by higher catastrophe losses.

Bond & Specialty Insurance: Net written premiums rose 9% year over year to $723 million, primarily driven by continued strong retention and increased levels of renewal premium change in management liability.

Combined ratio improved 70 bps year over year to 85.2 due to due to higher net favorable prior year reserve development and a lower underlying combined ratio, partially offset by higher catastrophe losses. Segment income improved 16.3% year over year to $107 million, primarily due to higher underlying underwriting gain and net favorable prior year reserve development, partially offset by higher catastrophe losses.

Personal Insurance: Net written premiums of $2.7 billion increased 7% year over year due to solid performance at Domestic Automobile and Domestic Homeowners and Other.

Combined ratio deteriorated 210 bps year over year to 90.3 due to higher catastrophe losses and a higher underlying combined ratio, partially offset by higher net favorable prior year reserve development. Segment income of $254 million decreased 13.9% from the year-ago quarter’s level, primarily attributable to higher catastrophe losses and a lower underlying underwriting gain, partially offset by higher net favorable prior year reserve development and higher net investment income.

Dividend and Share Repurchase Update

This property & casualty insurer returned $613 million in the reported quarter. It bought back shares worth $397 million. The board of directors approved a $5 billion share repurchase program. This is in addition to the $805 million that remained from previous authorizations as of Mar 31, 2021. The company’s board also approved a 4% increase in quarterly dividend to 88 cents per share. The dividend will be paid out on Jun 30 to shareholders of record at the close of business as of Jun 10, 2021. 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 11.33% due to these changes.

VGM Scores

At this time, Travelers has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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. Notably, Travelers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.