On Mar 6, 2015, we issued an updated report on The Travelers Companies Inc. TRV.
Travelers’ bottom line in the fourth quarter outperformed the Zacks Consensus Estimate and improved year over year on higher net favorable prior-year reserve development and increased underlying underwriting gain. Lower net investment income and an increase in other expense limited the upside.
With respect to the earnings trend, this Zacks Rank #2 (Buy) property and casualty insurer delivered surprises in three of the last four quarters with an average beat of 18.04%.
The successful implementation of pricing actions, helped the company to effectively revamp its portfolio with better performing classes of business. This is in turn continuously helping it to deliver solid performances. Over a period of 10 years, Travelers’ annual operating ROE averaged 13.3%. In the fourth quarter of 2014, Travelers generated a record ROE of 17.7% on the strength of solid investment and underwriting performance. Travelers is also striving for ROE in the band of 14–16% over the long term.
With its focus on reducing operating expenses and acquisition costs, the company already had $100 million savings from expense reduction in 2014 and is on track to realize the remaining $40 million in 2015.
Travelers’ solid performance over a period of 10 years has helped it to lower share count by more than 61% and return about $30.7 billion to its shareholders. Importantly, the amount exceeded the then market capitalization. Travelers still has about $1.5 billion remaining under its authorization.
Nonetheless, exposure to catastrophe events always remains a headwind for property and casualty insurers.
Though 2014 witnessed a slight improvement in investment income, we wait to see if the momentum continues.
Nevertheless, positives at the company have prompted the Zacks Consensus Estimate to move up for 2015 and 2016 as most of the estimates were raised over the last 60 days. The same increased 2.3% to $9.52 in 2015 (10 of 15 estimates were raised) and 4.3% to $9.69 for 2016 (6 of 15 estimates were raised). The expected long-term earnings growth rate is pegged at 7.7%.
Other Stocks to Consider
Investor’s interested in this industry can take a look at Allied World Assurance Company Holdings, AG AWH, AmTrust Financial Services, Inc. AFSI and Arch Capital Group Ltd. ACGL. All these sport a Zacks Rank #1 (Strong Buy).
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