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Travelers Profit Rises 60%, Gives Cautious View

Source: WSJ

Posted on 26 Jan 2010

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Travelers Cos. Inc. fourth-quarter earnings jumped 60% to its highest quarterly profit since going public in 2002. In early trading, the insurer's shares rose 3.7% to $50.72 as results handily topped analysts' expectations and the company also projected a 2010 profit of $5.20 to $5.55 a share. That compares with the $5.56 mean estimate from a survey of analysts by Thomson Reuters.

Insurers have been struggling to raise prices, but Travelers said Tuesday its pricing dynamics are generally better than recent industry surveys indicate. "Our retention rates remained high and the impact of renewal rate changes on premiums remained positive across all three of our business segments," noted Chairman and Chief Executive Jay Fishman.

Property/casualty insurers have generally come through the financial crisis better than other financial institutions, and results at Travelers, the second-largest property-casualty insurer behind troubled American International Group Inc., have held up well especially compared with its larger rival. It joined the Dow Jones Industrial Average last year on the back of that strength and has since posted sharply higher profit because of lower catastrophic losses and better investment returns.

Travelers posted a profit of $1.29 billion, or $2.36 a share, from $801 million, or $1.35 a share, a year earlier. Operating income, which excludes net realized investment gains and losses, increased to $2.12 a share from $1.58 a share. Revenue was up 11% to $6.46 billion.

Analysts surveyed by Thomson Reuters predicted earnings of $1.49 on $5.26 billion in revenue.

Net premiums fell just 1.7% to $5.34 billion, and the drop was more than offset by investment income surging more than two-thirds to $813 million.

Combined ratio, the percentage of each dollar a company collects in premiums if it pays out on losses and expenses, fell to 78.8% from 85.7%.

Travelers is one of a handful of insurers that has returned to buying back its shares, a testament to its capital strength. In the most recent period, it accelerated its buybacks to $1.55 billion from $1 billion in the third quarter. It expects to buy back $3.5 billion to $4 billion this year after $3.3 billion in 2009.