What happened

Shares of Travelers (TRV -0.97%) rose 20.4% in October, according to data provided by S&P Global Market Intelligence.

The insurer reported earnings on Oct. 19 and beat estimates for revenue and earnings per share by 5% and 20% -- leading to price target upgrades from analysts covering the company. The company has held up well this year despite inflationary pressures and rising interest rates. Here's why.

So what

In the third quarter, Travelers' premiums came in at $8.6 billion, up 10% from last year and a record level for the insurer. Premium growth was steady across its three segments -- business, bond & specialty, and personal insurance. The insurer saw strong customer retention, with 86% of customers renewing their business insurance and 89% continuing their bond & specialty coverage. 

Insurance companies mainly make money from premiums, but they also put their extra cash to work in investments to produce additional returns. Travelers' net investment income was $593 million in the third quarter. While this was down 23% from last year, it is a positive sign that the company is still making money despite weakness across asset markets. 

Even better, the company expects its investment portfolio to deliver meaningfully higher levels of fixed income going forward. That's because insurers benefit from rising interest rates in the long run.

The past decade of ultra-low interest rates has made it difficult for insurers to generate good risk-adjusted returns on these investments. With the 10-year Treasury yielding over 4%, insurers can now put their money to work into safer, higher interest-earning products. Travelers raised its outlook for its fixed-investment income to $500 million in the fourth quarter and $540 million on average per quarter in 2023. 

Following its earnings, analysts at Raymond James Financial, Barclays, Royal Bank of Canada, and Citigroup raised their price targets for the insurer, which now range from $178 to $200. 

Now what

Last year, rising repairs and labor costs resulted in insurers seeing elevated losses. Insurers must adapt to these rising costs by raising the premiums charged when customers renew their policies. Travelers has grown its total premiums by 11% through the first three quarters of this year -- making it a solid hedge against inflationary pressures in the economy. 

Not only that, but the company benefits from rising interest rates, which allow it to put money to work in safer assets that can deliver a higher yield than in previous years. Travelers has held up quite well this year and is in a solid position to keep doing so.