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Travelers' (TRV) Premium Growth Impresses, Cat Loss a Woe

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The Travelers Companies, Inc. (TRV - Free Report) , being a leading provider of property-casualty (P&C) insurance for auto, home as well as business, has been benefiting from its strong market position and reaping economies of scale. The company remains focused on implementing pricing and other actions to continue boosting returns and more importantly, improving profitability.

Travelers’ commercial business has been witnessing a favorable performance, driven by its stable operating markets as well as execution of wise strategies. Further, riding on the strength of agency auto and homeowners business, the insurer expects its personal lines business to display a better-than-expected performance in the upcoming quarters.

Further, the company is anticipated to deliver higher premiums in the near term on the back of growth in each of its business segments.

Benefiting from rising interest rates, the company has been experiencing better investment results over the past few years and the same is likely to improve, courtesy of a better interest rate environment as well as expected higher private equity returns. Notably, for 2019, Travelers projects about $20-$25 million of higher after-tax net investment income on a quarterly basis compared with the same in 2018.

Banking on a steady premium increase and improved investment results, the company has been exhibiting top-line growth over a considerable period of time and we expect this upside to further accelerate its overall progress.

Notably, the company delivered a positive earnings surprise in two of the last four quarters with an average beat of 38.94% and has a favorable VGM Score of B.

Underlying underwriting margin is a measure to assess the company’s as well as its segmental performances. On the back of inherent strengths, Travelers estimates higher underlying underwriting margins for the remainder of 2018 across its Business Insurance, Bond & Specialty Insurance and Personal Insurance than the recorded tally in 2017.

A strong capital position further aids the company to return value to its shareholders via dividend hikes and buybacks. While its dividend yield of 2.39% is better than the sector yield of 2.29%, it has $3.9 billion left under its existing share repurchase authorization.

Shares of this Zacks Rank #3 (Hold) player have gained 8.4% in a year’s time, underperforming the industry's rally of 16.7%. However, we expect the aforementioned strengths to turn the stock around in the near term.

Being a P&C insurer, the company has been suffering catastrophe loss for a considerable period of time, thus rendering volatility to its earnings.

Nonetheless, the company’s underlying combined ratio is likely to trend lower for Business Insurance and Personal Insurance segments for the remainder of 2018 compared with the reported figures in 2017. With respect to Bond & Specialty Insurance, the metric is expected to remain consistent for the next two quarters with the levels recognized during the same period of 2017. For the final quarter of 2018, the company predicted the combined ratio to be lower year over year, attributable to a charge for a single international surety loss during fourth-quarter 2017.

Stocks to Consider

Some better-ranked stocks from the same space are Alleghany Corporation (Y - Free Report) , RenaissanceRe Holdings Ltd. (RNR - Free Report) and The Navigators Group, Inc. (NAVG - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered positive surprises in three of the trailing four quarters with an average beat of 17.61%.

RenaissanceRe Holdings provides reinsurance and insurance coverages in the United States and globally. The company pulled off positive surprises in three of the previous four quarters with an average positive surprise of 31.16%.

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States as well as globally. The company came up with positive surprises in three of the preceding four quarters with an average earnings surprise of 19.54%.

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