Posted on 19 Jul 2012 by Neilson
Travelers Cos., one of the largest insurers of U.S. businesses, posted a $499 million second-quarter profit, reversing from a year-earlier loss as the cost of natural-catastrophe claims fell.
But the improved results still fell short of the most-widely cited number used to reflect Wall Street's expectations. Several earnings projections included in the Thomson Reuters consensus figure appeared not to reflect the violent late-June storm that caused widespread losses across the Midwest and mid-Atlantic.
Operating profit of $495 million, or $1.26 per share, missed the average estimate of analysts surveyed by Thomson Reuters by nine cents. Operating profits exclude some investment results.
While less than last year's $1.1 billion in catastrophe losses, Travelers still incurred $357 million in disaster claims in the second quarter after taxes, well above average for the second quarter. Catastrophes in the quarter included wildfires in Colorado, flooding in Florida and powerful hailstorms in Texas.
Companies including Hartford Financial Services Group Inc. (HIG) and Chubb Corp. (CB) pre-announced estimates of their disaster claims in recent days, causing some analysts to lower their earnings estimates for Travelers and other property-casualty companies. Yet, in the case of Travelers, other estimates remained unchanged: 10 of the 25 estimates used by Thomson Reuters hadn't been altered in the past month through Wednesday.
The company's net income of $499 million, or $1.26 a share, compared with a net loss of $364 million, or 88 cents, in the same period a year earlier. Catastrophe losses in last year's second quarter set a record after massive tornadoes struck several U.S. states.
"While much lower than in the prior year quarter," catastrophe claims "were considerably higher than we would have expected based on historical experience," Chief Executive Jay Fishman said in a statement.
Travelers reported a combined ratio, a measure of underwriting results, of 100.5%, compared with 125% a year earlier. Figures over 100% indicate an underwriting loss.
Travelers has been raising rates across all its business segments for more than a year, partly in response to the rise in natural disasters. A decline in interest rates, which have damped returns in the company's investment portfolio, have also fueled the increases.
In the latest quarter, Fishman said rates on renewing customers in its business-insurance segment, the company's largest, rose 7%. In its consumer segment, premiums paid by renewing auto policyholders who buy coverage through agents rose 6% and rose 11% in its homeowner line.
Still, both segments reported underwriting losses, while the company's financial, professional and international unit posted a $99 million underwriting gain.
Net investment income fell 2.8% to $589 million as the company reinvested its fixed-income assets at lower rates.
During the quarter, the company repurchased 5.6 million of its own shares for a total cost of $350 million.