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Travelers Beats 3rd-Quarter Consensus as Disaster Costs Plummet

Source: WSJ - Erik Holm

Posted on 18 Oct 2012 by Neilson

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Travelers profitsTravelers Cos., one of the first major insurers to report third-quarter results, said profit jumped dramatically and the company beat Wall Street expectations thanks to a remarkable absence of costly natural disasters.

Net income of $864 million, or $2.21 a share, more than doubled from the $333 million, or 79 cents a share in the same period a year earlier, the company said in a statement Thursday.

Operating profit of $867 million equated to $2.22 a share, setting a per-share record for the company and beating the average estimate of analysts surveyed by Thomson Reuters by 61 cents.

Operating profit excludes some investment results.

Hurricane Isaac grabbed headlines in August and a severe drought across large swaths of the U.S. caused worry all summer, but neither event turned out to be very costly to insurers. Travelers pegged its catastrophe tally at $59 million after taxes, a massive drop from $394 million in last year's third quarter.

By coming in so far above Wall Street consensus and with so few catastrophe claims, the Travelers result will likely cause investors to re-examine their earnings assumptions for other property-casualty companies still to report. Chubb Corp. and Ace Ltd, the next major insurers to disclose results, are scheduled to release earnings next week.

Travelers shares were up 1.9% to $72.70 in the first minutes of pre-market trading after the earnings were released.

The lack of costly weather-related expenses in the quarter offered a rare respite for Travelers and other U.S. insurers, who have faced rising claims costs from tornadoes, hailstorms and other severe weather in recent years. Travelers has been among the companies that has pushed for price increases over the past several quarters, in part because of the increasing cost of natural disasters.

A decline in interest rates, which have put a damper on returns in the investment portfolios of insurers, has also helped fuel the price increases.

Travelers said it continued to raise rates in all three of its major business units, which sell coverage to both consumers and businesses. Even without factoring in the drop in catastrophe claims, profit margins "improved meaningfully," the company said.

Net written premiums, a measure of the value of policies sold in the quarter, were essentially flat at $5.67 billion.

Net investment income rose 3% to $578 million amid gains on the non-fixed-income portion of Travelers' massive investment portfolio.

During the quarter, the company repurchased 5.4 million of its own shares for a total cost of $350 million. Including dividends, the company has returned $1.5 billion to shareholders so far this year.