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Travelers (TRV) Rides on New Business Growth, Cat Loss Hurts

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Travelers Companies (TRV - Free Report) is well-poised for growth driven by inorganic growth, prudent underwriting practices, high retention rate, pricing gains, positive renewal rate changes and strong capital position.

Travelers is one of the leading writers of auto and homeowners’ insurance along with commercial U.S. property-casualty insurance. The company is optimistic about its personal lines of business as evident from the progress and growth at the auto and homeowners business. To increase returns and improve profitability, the company focuses on implementing better pricing and other strategic actions.

Shares of Travelers gained 18.4% in the first nine months, outperforming the industry’s increase of 4.5%. The company’s policy to ramp up its growth profile and capital position should continue to drive shares higher.


Underlying underwriting margins, a measure to indicate segmental performance, of the Business Insurance and the Personal Insurance segments are estimated to be higher in 2019 than in 2018.

The company has an impressive inorganic growth story. Strong financial strength and flexibility should continue to support strategic buyouts.

Travelers has a decent history of beating estimates in three of the last four quarters with the average being 3.38%.

The company’s solid balance sheet and steady cash flow aid in efficient capital deployment through dividend hikes and share buybacks. It has a record of hiking dividend for 15 straight years at a CAGR of more than 9%.

However, exposure to cat loss induces underwriting volatility. For 2019, the company’s underlying combined ratio is anticipated to be lower than 2018 at the Business Insurance segment and broadly consistent with 2018 at Bond & Specialty Insurance as well as Personal Insurance. The company also has a new catastrophe reinsurance treaty for 2019.

Also, a high debt level induces increase in interest expense, which weighs on margin expansion.

Stocks That Warrant a Look

Some other insurance industry players include Hallmark Financial Services (HALL - Free Report) , Palomar Holdings (PLMR - Free Report) and RenaissanceRe Holdings (RNR - Free Report) .

Hallmark Financial underwrites markets, distributes and services property and casualty insurance products in the United States. The company came up with average four-quarter positive surprise of 97.50%.

Palomar Holdings provides personal and commercial specialty property insurance products. The company delivered average four-quarter positive surprise of 25.00%.

RenaissanceRe Holdings provides insurance and reinsurance products in the United States and internationally. The company pulled off an average four-quarter positive surprise of 141.77%.

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