Key Highlights

● Net investment income reached a record $1.098 billion in the third quarter.

● Travelers repurchased $1.508 billion of stock and returned $1.769 billion to shareholders.

● Catastrophe losses rose to $538 million while revenue slipped slightly to $12.412 billion.

● Book value per share was $141.48 and adjusted book value per share was $172.47.

Capital at work

Travelers (NYSE:TRV) drew attention on the Dow Jones Industrial Average on Friday after a third-quarter report that highlighted the earning power of its investment portfolio and its willingness to return cash to shareholders. Net investment income reached a record $1.098 billion, according to the insurer's press release filed with the SEC. The company repurchased $1.508 billion of its stock, about 4.0 million shares at an average price near $376, and returned $1.769 billion to shareholders in total.

Those figures came alongside a core earnings beat. Core income was $1.947 billion, or $9.18 a share, up from $8.14 a year earlier, the release showed. Consensus estimates varied by source, with figures of $7.25, $7.39 and $7.43 cited. Net income was $1.917 billion, or $9.04 a diluted share.

Why investment income matters

Property and casualty insurers such as Travelers collect premiums upfront and pay claims later, investing the money in between, largely in bonds. When interest rates rise, the income from that portfolio tends to rise as well as older holdings mature and are reinvested at higher yields.

That backdrop has been in place for some time. The Federal Reserve raised rates by a quarter point in September, its first hike in three years, and the 10-year Treasury yield topped 5.3 earlier in October, its highest since 2002, before easing to finish the week near 5.1, according to market data.

The offsetting pressure

Not everything in the report was positive. Pre-tax catastrophe losses rose to $538 million, mainly from wind and hail, from $402 million a year earlier, according to the release and market reports. Total revenue of $12.412 billion was slightly below the prior year's $12.470 billion, and net written premiums were flat at $11.480 billion. Personal Insurance premiums declined, while Business Insurance and Bond and Specialty grew.

The shares fell before the bell, but reports suggest they recovered, and the stock ended higher. Chairman and CEO Alan Schnitzer said, "We are pleased to report excellent third quarter results." Truist raised its price target on the stock to $435 after the report, per a published headline.

A balance sheet snapshot

Book value per share was $141.48 and adjusted book value per share was $172.47, according to the release. Net favorable prior-year reserve development totaled $234 million, including a $295 million addition to asbestos reserves.

The market around it

Travelers' report landed on a day of sharp rotation. The Dow slipped 175.28 points to 52,002.41, far less than the Nasdaq Composite's 572.99-point slide to 26,140.03, as investors moved out of technology and into financials, energy, utilities and staples, according to market commentary. The S&P 500 fell 84.62 points to 7,659.44. Visa (NYSE:V) and Mastercard (NYSE:MA), also financial names, hit intraday records, per market reports.

Berkley and Chubb Test Travelers' Yield Story

Rates remain central to the story: the Federal Reserve's decision on October 28 and the PCE inflation report on October 29 could shift Treasury yields, which feed into how much insurers earn on their portfolios. The next read on the insurance group arrives quickly, with W.R. Berkley (NYSE:WRB) reporting October 19 after the close and Chubb (NYSE:CB) on October 20 after the close. Investors will compare catastrophe trends and investment income across insurers.