Key Points
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Travelers’ stock is up 15% year to date and has recently hit a new record high.
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The company benefits from higher interest rates, which boost its net investment income.
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It has also demonstrated disciplined underwriting, leading to solid profit growth in the first quarter.
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This year, technology stocks have dominated headlines, with the tech-heavy Nasdaq Composite up 12% since the start of the year. The strong performance is driven largely by memory and semiconductor stocks as hyperscalers invest heavily in building out their AI infrastructure.
While tech stocks are grabbing the headlines, insurance stock Travelers (NYSE: TRV) is trading near a record high, underscoring its resilience and fundamental strength. The stock has also increased 15.4% since the start of the year.
Can it continue to rally? Let’s dive into what’s driving the stock to find out.
Travelers’ stellar growth is driven by higher interest rates and underwriting discipline
Travelers has reached record heights, fueled by a robust business model that demonstrates disciplined insurance underwriting while reaping rewards from elevated interest rates through its investment portfolio.
Unlike cyclical financial stocks, such as banks, Travelers benefits from higher-for-longer interest rates. That’s because insurers invest premium float before claims are paid, and elevated bond yields translate directly into growing net investment income, providing growth independent of insurance premiums.
In the first quarter, Travelers’ net investment income rose 8% to $1 billion, up from $930 million last year. This solid growth was driven by its fixed maturity portfolio and higher long-term reinvestment yields on its invested assets.
Net written premium growth was down 2% year over year in the first quarter; however, a large portion of this was due to Travelers’ divestment from its Canadian insurance business. When adjusting for this change, the company’s premiums grew modestly year over year. Its slower premium growth reflects the softening of the insurance market after years of inflation and hard-market conditions. With that said, insurance underwriters continue to maintain pricing power to offset inflationary pressures.
What stood out for Travelers was its improving profitability, with net income surging 333% to $1.7 billion. The company benefited from easier year-over-year comparisons to 2025, which was punished by the California Palisades and Eaton wildfires.
Travelers’ combined ratio, which represents underwriting profitability by dividing claims costs and expenses by total premiums earned, was a stellar 88.6%. This, coupled with favorable reserve developments and growth in interest income, boosted earnings.
Data by YCharts.
Looking ahead, catastrophe expectations look favorable for property insurers like Travelers. Forecasts from NOAA’s National Weather Service predict a below-average hurricane season, which would limit large catastrophe losses if projections are accurate.
Travelers is a smart stock that can provide diversification
Travelers’ stock is trading near all-time highs and priced cheaply at around 11.8 times forward earnings. Insurance stocks tend to trade at low multiples, but the stock remains attractively priced despite its new highs. Looking ahead, the company stands to benefit if Treasury yields remain elevated while also having pricing power to adapt if inflationary pressures persist.
The company continues to post stellar underwriting results, and its future performance hinges on maintaining underwriting discipline, as growing interest income isn’t guaranteed. With this in mind, Travelers’ stock is more defensive and an excellent choice for investors looking to diversify away from volatile technology stocks.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
