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Travelers Boosts Dividend As First-Quarter Profit Exceeded Expectations, Insurance Prices Rising

Source: WSJ - Erik Holm

Posted on 19 Apr 2012

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Travelers Cos. boosted its dividend Thursday as first-quarter operating profit exceeded analyst expectations and the company continued to raise prices.

Net income fell 3.9% to $806 million but rose when measured on a per-share basis to $2.02 a share, Travelers said in a statement Thursday. The company earned $839 million, or $1.92 a share, in last year's first quarter.

Operating profit of $2.01 a share beat the consensus expectation of analysts surveyed by Thomson Reuters TRI -0.46% by 49 cents as underwriting income and revenue improved. Operating profits exclude some investment results.

Last year's first quarter included a $104 million benefit from the resolution of a tax matter in the company's favor. Ongoing measures of the company's financial results, including revenues, reserve adjustments and catastrophe losses, improved from a year earlier.

The company raised its dividend by five cents to 46 cents per share.

Travelers shares rose 3.8% in early trading to $61.72.

Travelers has been pushing through price increases for more than a year, partly in response to a rise in natural disasters and a decline in interest rates that have damped returns in its investment portfolio. But the latest results may be a sign of the consequences of the move: The number of business-insurance customers that renewed their policies declined from last year's first quarter, the number of consumers with Travelers home- and auto-insurance policies dropped, and new business volumes decreased in both segments.

Chief Executive Jay Fishman said the company was "extremely pleased with the pricing gains," and characterized customer retention as "strong and stable."

The price increases and other positive trends helped boost premium revenue 2.8% to $5.52 billion. Among the favorable factors: an improved economy meant that business-insurance clients had more to insure.

The company said its business-insurance segment, its largest unit, raised rates on returning customers by 8% in the first quarter, up from 6% in the fourth. It was the fifth consecutive quarter that the company raised rates, and the biggest increase to date.

Travelers' retention rate, a measure of how many customers renewed their policies, fell "modestly" in the first quarter at its business-insurance segment, the company said. Travelers said the decline was "consistent" with its effort to raise prices and improve returns.

For consumers, renewal premiums for auto insurance sold through agents rose 4% while the segment that includes home insurance saw 10% increases. The company said it was raising deductibles on its home-insurance policies and still working with state regulators to raise rates further in several states in response to "the potential for continued unusual weather patterns."

Travelers said the number of drivers with auto policies purchased through agents declined 1%. Home-insurance policies-in-force also "decreased slightly" from last year's first quarter. New-business volumes decreased in both lines of business.

Overall, Mr. Fishman said customer retention was "generally consistent" with last year's fourth quarter, while down from last year's first quarter.

The company earned an underwriting profit of $248 million, down less than 1% from the same period a year earlier. The company paid out $109 million on catastrophe claims, tied in part to tornadoes and hail storms in the Midwest and Southeast U.S. The disaster costs were down from last year's $122 million.

Last year's underwriting profit included much of the benefit from the tax issue.

Investment income declined 4.7% to $593 million as the company earned less in its fixed-income portfolio.