Title: Friday POW! #326 — Pick of the Week: Travelers (TRV) Source: Haymaker (David Hay's Substack newsletter, PAID) Author: The Haymaker Team (David Hay) Date: 2026-JUN-26 (data as of 6/23 per the post) URL: https://haymaker.substack.com/p/friday-pow-326 Type: Written newsletter (no video / no timestamps). Paid subscriber content saved for personal study. This POW! pick is a STOCK — The Travelers Companies (TRV), a P&C insurer rated a Buy for long-term compounder investors. Note: Written paid Haymaker POW! post; saved as article text for personal study. Verbatim prose (no spoken fillers to strip). Buy List & Holds/Trims lists at the end are published as images and are not text-captured. ================================================================ Friday POW! — Pick of the Week (Haymaker, Jun 26, 2026, PAID) Key Highlights (all data as of this writing on 6/23): - Stock at ~$320; 52-week range $249.19–$321.08, at 52-week high; market cap ~$46B; Dow Jones Industrial Average component - Q1 2026: core income $1.7B; core EPS $7.71 vs. $7.08 estimate (+9% beat); revenue $11.92B vs. $11.11B estimate (+7.4%); ROE 19.7% - Combined ratio 88.6% Q1 2026; underlying combined ratio 85.3%; underlying underwriting gain on $10.6B earned premium - FY2025: net written premiums $43.6B; net income $6.3B (+25.8% YoY); trailing 12-month core ROE 22.7% - Investment portfolio $106B; 90%+ high-quality fixed income; net investment income guided $3.3B after tax in 2026, ramping from ~$800M Q1 to ~$870M Q4 - Dividend raised 14% in Q1 2026; $2.2B returned to shareholders Q1 alone; $1.8B buyback authorized for Q1 2026 - Forward P/E ~10.8x NTM, representing discount to Chubb (12.3x) and Progressive (12.8x) despite superior trailing ROE - Analyst consensus: average price target ~$313; range $252 (low) to $350 (Roth Capital high); Keefe Bruyette $342, Piper Sandler $340, Argus $330 - Barclays downgraded to Underweight June 12, 2026, the primary current bear case; stock at 52-week high suggests market has not followed - Technology investment exceeding $1.5B annually; AI rollout including ChatGPT integration for small business insurance quoting - Next earnings: July 2026 (Q2); full-year expense ratio guidance ~28.5% Some Background The Travelers Companies is one of the oldest and most consistently profitable property-casualty insurers in the United States. It is the second-largest personal lines provider in the country by premium, and the dominant commercial lines underwriter across business insurance, bond and specialty, and personal insurance. It wrote $43.6 billion in net written premiums in fiscal 2025, generated $6.3 billion in net income, and returned $7.4 billion to shareholders over the same period through dividends and buybacks. The stock is trading at approximately $320, up ~91% over three years and 135% over five, in a business that most investors describe as "defensive" but that has been compounding at a rate more consistent with a high-growth technology company. In Q1 2026, Travelers posted core income of $1.7 billion and EPS of $7.71 against consensus of $7.08 (a 9% beat), raised its dividend 14%, returned $2.2 billion to shareholders, and the stock rose less than 1%. When a company posts one of its strongest quarters on record and the market shrugs, the question is whether the current price is the right entry point or if, instead, patience is warranted. The bull case on Travelers is probably most simply explained by the company's structure. This is a business that has spent the last three years repricing its entire book of business after a period of significant catastrophe losses and inflationary pressure on claims costs. And, it has done so with such precision that its trailing 12-month core return on equity is 22.7% (one of the highest in the industry) while simultaneously carrying an underlying combined ratio of 85.3% that leaves meaningful margin for additional profitability as the pricing environment remains favorable. The three-cycle macro regime that we have written about (the debt supercycle unwind, the globalization reversal, and the energy constraint) is more than likely a tailwind for Travelers. Higher inflation keeps earned premiums elevated and energy security and reshoring complexity increase the demand for commercial and specialty insurance. A higher-for-longer rate environment lifts investment income on a $106 billion fixed-income portfolio. The business looks better positioned for the world that is arriving than the one that is leaving. Travelers as an AI Trailblazer? Travelers may be one of the few companies anywhere that can point to AI producing tangible, bottom-line results at scale in actual numbers being reported today. The company's investments in automation, straight-through claims processing, and AI-driven analytics have produced what management described in the 2025 Annual Report as "refined indemnity payouts and significant annual run rate cost savings". More than half of all claims are now eligible for straight-through digital processing with no human intervention, translating directly into reduced claims-handling expense on a business that processed 1.5 million claims in 2025. The expense ratio has been cut 300 basis points since 2016 (worth approximately $430 million annually at current premium volumes) driven in large part by technology and automation compounding over time. Underwriting income for full-year 2025 exceeded $3.4 billion, up more than 40% year-over-year, with management explicitly attributing improved risk selection and pricing precision to AI-enhanced underwriting tools. Travelers has invested $13 billion in technology since 2016 and accumulated 65 billion clean, proprietary data points, which is the training asset that makes its AI better than any new entrant's. CEO Schnitzer called the company "still early in this transformation," which we think means what is already visible in the combined ratio and expense ratio is almost certainly the floor, not the ceiling. The Repricing Cycle and Why It Is Not Over To understand Travelers' current earnings power, it is necessary to grasp the cycle the company has been executing through since 2022. The property-casualty insurance industry entered a period of severe pressure beginning in 2020, driven by three simultaneous forces: catastrophic weather events that elevated property claims, inflation that increased the replacement cost of everything from vehicles to buildings to medical care, and social inflation that expanded litigation costs in liability lines. Travelers, like every P&C insurer, saw its combined ratios (incurred losses plus loss adjustment expenses divided by earned premiums) deteriorate. Unlike some of its peers, it responded with systematic and aggressive repricing across every line of business rather than allowing the losses to compound. That repricing has now reached what management calls "rate adequacy" across virtually every state and line of business. The Q1 2026 earnings call was explicit: renewal premium change in Business Insurance ran at 6.1% overall and approximately 8% excluding property, with retention of 85%. In Personal Insurance, management described having "caught up on insurance to value" and moved coverage limits to appropriate levels. The net result is a book of business that is now priced for the current loss environment rather than the not-so-transitory post-pandemic inflationary era. The Investment Portfolio in a Higher-for-Longer World Travelers' $106 billion investment portfolio is one of the most significant and underappreciated earnings drivers in the current macro environment. Property-casualty (P&C) insurers invest the float generated between when premiums are collected and when claims are paid, and the after-tax return on that float is a direct function of the interest rate environment. The zero-rate decade from 2012 to 2022 was, in this sense, a structural headwind for P&C insurers because the float that would have earned 4% to 5% in a normal rate environment was earning next to nothing. The rate reset that began in 2022 has reversed that headwind into a substantial tailwind, and Travelers' investment portfolio is large enough that even small improvements in yield produce meaningful earnings. The company is earning the risk-free rate on what is effectively the largest bond portfolio run by any property-casualty insurer in the United States. If the three-cycle thesis is correct and higher-for-longer is the structural rate environment, this investment income engine should continue to compound for years. Three-cycle Regime = A Structural Tailwind The globalization reversal we continue to see is the most direct effect on TRV's demand dynamic. Every company reshoring supply chains, reconfiguring manufacturing operations, building new domestic facilities, and navigating the legal and regulatory complexity of new trade relationships is a potential buyer of commercial insurance. Supply chain insurance, product liability, directors and officers coverage, surety bonds for new construction, and workers' compensation for new domestic workforce are all Travelers' lines of business that grow as the reshoring wave builds. The $1.6 trillion in reshoring investment announced since 2020, per the Reshoring Initiative, is generating ongoing premium demand in exactly the lines where Travelers is strongest. In our view, the energy security rethink creates similar demand in the specialty and environmental lines. Oil and gas companies upgrading infrastructure, utilities managing the legal and environmental complexity of grid expansion and nuclear operations, and engineering firms building the physical infrastructure of the energy transition all carry substantial insurance needs that fall within Travelers' commercial lines expertise. We also believe the debt supercycle unwinding creates complexity in the financial sector that drives institutional liability demand. Banks navigating higher credit costs, asset managers dealing with portfolio stress, and corporations managing the complexity of refinancing debt at higher rates all face elevated litigation and regulatory risk that feeds Travelers' specialty lines. Higher interest rates also mean higher investment income on the float generated between premium collection and claims payment. Valuation At ~$320, Travelers trades at approximately 10.8x next-12-months earnings and at a meaningful discount to its two closest publicly traded peers. Chubb trades at 12.3x NTM earnings and Progressive at 12.8x NTM earnings, which are both at premiums to Travelers despite the latter posting a trailing 12-month core ROE of 22.7% that exceeds both peers. The discount is partially explained by the volatility that catastrophe exposure introduces to Travelers' earnings compared to Progressive's more stable personal auto book, and partially by Chubb's international diversification and stronger brand in high-net-worth personal lines. Neither explanation fully accounts for a multiple gap at a time when Travelers' underlying underwriting performance is as strong as it has been in its modern history. As is displayed below, 11 times earnings (i.e., the P/E ratio) is definitely toward the low end of the five-year range. Side note: we'd argue Price/Sales is less important with financial stocks than it is with most other sectors. The book value lens reinforces the undervaluation argument in a pretty big way. Travelers' price-to-book ratio of approximately 2.6x sits between Chubb's 1.64x and Progressive's 3.92x. Progressive's premium multiple reflects its exceptional ROE of approximately 38%. Travelers, generating 22.7% core ROE, deserves a premium to Chubb's 1.64x (which it has), but the gap to Progressive's multiple suggests the market is not yet fully pricing the durability of Travelers' current ROE profile. We think that skepticism is a bit overdone given the rate adequacy the company has achieved, the investment income tailwind from higher rates, and the favorable pricing environment across commercial lines. The capital return story is also a significant factor in the total return argument. Travelers returned $7.4 billion to shareholders in FY2025 and $2.2 billion in Q1 2026 alone, at an annualized rate approaching $9 billion. At a $46 billion market cap, that represents a capital return yield approaching 20% on an annualized basis. TRV is executing this plan via a combination of dividends and buybacks that is reducing share count at a meaningful rate while simultaneously growing the earnings per share base. The 14% dividend raise in Q1 2026 marks the company's 14th consecutive year of dividend growth. Technicals Travelers is trading around its 52-week high as of this writing, and on a pure momentum basis, the trend is unambiguously constructive. The concern with buying at a 52-week high is that it's possible the easy money has been made and the stock has presumably already priced in the good news. The counterargument, which we think is more likely for a business of this quality, is that a stock trading at this level on record earnings, a 9% beat, a 14% dividend raise, and $2.2 billion in buybacks is trading at its high because the business is performing exceptionally well. The next catalyst is Q2 2026 earnings in July, where the setup is similar: rate adequacy is in place, investment income is ramping, and the catastrophe season in Q2 has historically been more benign than Q1. Clearly, TRV's share price has been in a lovely up-trend for years. It's had a series of breakouts to new highs and those have been earnings driven. Based on its trading history a 5% pull-back seems likely before too long. Risk-averse investors might want to wait to enter this name or, perhaps, start with a small position. Using 2022 as the base year and looking at full year 2026 estimates, profits have more than doubled. Undoubtedly, that will be tough to reprise. However, at 11 times earnings, there's very little growth being priced in; that strikes us as too cautious. Arguing the Other Side The Barclays downgrade to Underweight on June 12, 2026, two weeks before this writing, is the most current and credible bear case. While Barclays has not published its full rationale, the downgrade to Underweight at a 52-week high reflects concern that the current valuation has fully discounted the repricing cycle, that catastrophe losses will normalize upward from the benign Q1 levels, and that the multiple premium relative to the historical average is not sustainable as earnings growth moderates. This is the legitimate version of the bear case: not that the business is deteriorating, but that the stock at $315 is appropriately valued or modestly stretched for the earnings trajectory from here. Catastrophe exposure is the most unpredictable element of the insurance model and the one that is most disruptive to otherwise strong quarterly trajectories. One large hurricane, wildfire event, or severe storm season can dramatically swing business performance in a single quarter, producing an EPS miss that has nothing to do with the underlying quality of the company. With a Super El Niño supposedly looming, that could create a heavier than expected loss experience for the P&C industry over the next 12 months. TRV is not immune to catastrophe volatility, but it is very good at managing it over time. We understand these risks are not trivial, but also believe that at 10.8x forward earnings, a 22.7% core ROE, a $106 billion investment portfolio that continues compounding at higher rates, and a capital return yield approaching 20% annually, Travelers is not remotely priced for perfection. In our view, it is priced like a good business at a modest multiple. The Barclays downgrade is a legitimate reason for caution, but is not, in our view, sufficient to kneecap the investment thesis. The Bottom Line Now it's time for our standard query: What are we actually buying here? The second-largest personal lines insurer in the United States and the dominant commercial lines underwriter coming off its strongest quarter on record, having repriced its entire book of business to rate adequacy, with a $106 billion investment portfolio earning $3.3 billion annually in after-tax fixed income and ramping, in the macro regime most favorable to P&C insurance since the early 2000s. To boot, a company that returned $2.2 billion to shareholders in a single quarter while posting a 9% earnings beat and raising its dividend 14% for the 14th consecutive year. A Dow component with 135% five-year total returns that the market describes as defensive but that has compounded like a growth company. The stock is at its 52-week high and a recent Barclays downgrade is the primary near-term headwind, but neither changes the fundamental picture. The repricing cycle has achieved rate adequacy, the investment income is compounding, the commercial lines demand from the reshoring and energy security waves is structural, and the capital return engine is running at a pace that makes the current multiple more attractive with each passing quarter. We recommend TRV as a buy for long-term investors who prefer compounders, and believe that it should re-rate in-line with its peers to roughly 13x forward earnings, a level it has repeatedly hit in recent years. Again, we admit a retracement is probable and we would use that as an opportunity to more aggressively buy up this name. The Haymaker Team Buy List (as of June 26th, 2026) — [published as an image in the post; not text-captured] Holds/Trims (as of June 26th, 2026) — [published as an image in the post; not text-captured]