(TRV) The Travelers Companies Analyst Maintains Neutral on Shares

The Travelers Companies Inc. (TRV) continues to benefit from its strong market position and economies of scale. The company spent a higher amount in buying back shares supported by its balance sheet strength. It also scores strongly with the credit rating agencies.

However, these positives are somewhat dwarfed by the exposure to catastrophe losses and lower net investment income. We thus retain our Neutral recommendation on the company.

Travelers has small and mid-sized commercial accounts focus, balanced personal lines book and its lack of exposure to large-account casualty business.

Business Insurance continued to deliver positive trends in net written premiums on the back of larger exposure in auto premiums coupled with  a better rate. Also, retention and new business were at improved levels. The company also announced the offering of three new coverages to health care providers.

Based on the strength of its financial position, Travelers continues to buy back shares and pay dividends. To date, Travelers spent $1.71 billion to buy back 30.1 million shares. The company expects the share buyback during the fourth quarter to total $1 billion.

Also the company paid $503 million in dividends to date. It has a dividend yield of 2.76%, more than that of its nearest peers, Hartford Financial Services Group Inc. (HIG) with a yield of 2.08% and W. R. Berkley Corp (WRB) yielding 0.92%.

On the flip side, Travelers continues to suffer from exposure to catastrophe losses. Cat losses incurred largely due to Hurricane Irene and Tropical Storm Lee increased nearly fourfold in the third quarter from the year-ago level.

Travelers continue to post lower net investment income, marking the second consecutive quarter of decline in net investment income. A drop of 6% in the third quarter was largely due to lower long-term reinvestment yields along with lower average levels of long-term fixed maturity invested assets due to share repurchases.

Travelers’ third quarter earnings of $0.79 per share lagged the Zacks Consensus Estimate by $0.20. Results were far behind earnings of $1.81 in the prior-year quarter primarily due to underwriting losses stemming from higher catastrophe losses.

The Zacks Consensus Estimate for fourth-quarter 2011 is $1.57 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $3.38 and $5.85.

The quantitative Zacks #3 Rank (short-term Neutral rating) for the company indicates no clear directional pressure on the stock over the near term.

Based in New York, The Travelers Companies, through its subsidiaries, provides a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and in selected international markets.

HARTFORD FIN SV (HIG): Free Stock Analysis Report

TRAVELERS COS (TRV): Free Stock Analysis Report

BERKLEY (WR) CP (WRB): Free Stock Analysis Report

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