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Travelers Reports Second-Quarter Loss of $364 Million Due to Record Losses

Source: WSJ - Erik Holm, Melodie Warner


Posted on 21 Jul 2011

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Even after warning Wall Street last month it was facing record catastrophe costs, Travelers Cos. reported a second-quarter loss of $364 million and missed analyst estimate.

The insurer said widespread tornado outbreaks in April and May, combined with other disasters, cost $1.09 billion in the quarter after taxes. That marks the three months ending June 30 as the costliest for natural disasters in the company's history, exceeding even the $1.01 billion it faced in the third quarter of 2005, when hurricanes Katrina and Rita slammed the U.S.

Katrina remains the single costliest insurance event in U.S. history, but Travelers Chief Executive Jay Fishman last month sounded the alarm about the severity and expense of the tornadoes and said he expected industry-wide losses would wind up near the high end of early estimates of the costs.

Despite the warning, Travelers' operating loss of 91 cents a share still missed the average estimate of a 64-cent loss among analysts surveyed by Thomson Reuters, seemingly because of additional weather-related expenses that weren't included in the company's June profit warning.

The loss of $364 million, or 88 cents a share, compares with a profit of $670 million, or $1.35 a share, in the same period a year earlier, the company said in a statement early Thursday. In last year's second quarter, catastrophe costs were $285 million. At the time, the catastrophe tally was the highest of any second quarter for the insurer since it took its current form after a merger in 2004.

The catastrophe losses were offset slightly by $111 million in reserve decreases as Travelers reduced its estimate for how much it expected to pay in claims it incurred in prior years.

Across the industry, insurers have generally been able to help earnings for several years by pulling from their reserves, and Travelers has benefitted from such prior-year reserve releases for 22 consecutive quarters. But its latest decrease was the smallest since 2007, which may provide fuel to those in the industry who have long expected insurers will soon have to start adding to reserves instead of taking from them.

Travelers executives had also warned in June that they had to curtail share buybacks as they prepared to pay out on the disaster claims. The company said Thursday it spent $237 million on stock repurchases in the quarter, in line with the June estimate that it would spend less than $250 million. The company spent $1.4 billion on buybacks in the same period a year earlier.

Still, the company sounded a positive note on pricing, saying it had managed to raise prices in all three of its business segments. The price increase in its largest segment, its business insurance operation, was led by a rise in workers' compensation rates, the company said in the statement.

Net written premiums, a measure of the value of policies sold in the quarter, rose 2% to $5.82 billion, in part because of the rate increases, the company said. Premiums also rose because its business-insurance segment had an increase in exposures, or the value of assets and employees that existing business clients insured when they renewed their policies. It was the third straight quarter of improvement after several periods of decline when the economy was souring.

Book value per share, a measure of assets minus liabilities, fell less than a percent in the three-month period to $59.62. It had been $59.91 at the end of the first quarter.


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