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Shares of Travelers Companies (TRV – Free Analyst Report) traded slightly higher after the property/casualty (P/C) insurer reported strong results for the September quarter. More specifically, the company's operating earnings per share, which excludes capital gains and losses from the investment portfolio, was $1.81, well above last year's tally of $1.61 and our estimate of $1.38.

The solid bottom-line showing was driven by many factors. First, the combined ratio was profitable during the interim, thanks to solid underwriting results across the board. In total, the ratio came in at 90.6% for the period, which implies the company generated nearly $10 in underwriting income for every $100 in policies that it insured. What's more, though net investment income was lower on a year-to-year basis, it remained healthy relative to historical norms. This can largely be credited to improved cash flow from operations.

The Personal Insurance unit performed well for the quarter, as rate increases outpaced loss-cost trends. In addition, the company retained a good portion of its business in that segment at attractive rates, which helped policies in force increase relative to last year. This solid performance, helped to counteract challenges at the Commercial Insurance business, which is feeling the effects of a slow economic recovery.

Management now looks for full-year operating earnings per share of $5.75-$5.95, compared with its prior guidance of $5.20-$5.45. We are now at the high end of the updated range.

We look for premiums earned to edge higher on a sequential basis, as Travelers likely continues to retain most of its business, with some rate increases probable. Furthermore, the combined ratio should remain in positive territory, as catastrophes have been fairly limited in number and scope thus far in the December quarter. Finally, investment income should be solid relative to the historical average despite low yields on fixed-income securities. (P/C insurers keep the lion's share of their assets in bonds due to their generally conservative nature.)

At the same time, share repurchases will probably continue, which should further enhance the bottom line. Year-to-date, the company has bought back nearly 67 million shares at a cost of $3.4 billion.

About The Company: The Travelers Companies, Inc. (formerly St Paul Travelers) is a leading provider of commercial property/casualty insurance and asset management services. Following the April 1, 2004 acquisition of Travelers, the company is now a leading underwriter of homeowners insurance and automobile insurance through independent agents. USF&G was another notable acquisition, purchased in April of 1998.