Travelers profit misses estimates on disaster losses

Thu Jul 19, 2012 10:34am EDT

(Reuters) - Travelers Cos Inc (TRV.N) reported lower-than-expected quarterly profit on Thursday as the insurer's catastrophe losses fell from a year ago but were still higher than historical norms.

Travelers executives said they believe the industry lost more than $10 billion on natural disasters in the April-June period, making it one of the worst quarters ever. Chief Executive Jay Fishman, on a call with analysts, said the company lost more in the quarter than it would normally lose in a full year not that long ago.

To deal with the losses, Travelers said it is continuing to push for higher prices where it can and also tightening up on terms and conditions -- for example, refusing to insure houses with roofs of a certain age.

Travelers, a Dow Jones industrial average .DJI component, said commercial insurance pricing had risen more than 7 percent in the quarter. The company was one of the first in the industry to push and sustain price increases after years of weakness. Prices also rose in personal and professional lines, and retentions were steady.

The industry endured one of its worst years ever in 2011, suffering record-breaking losses caused by tornadoes in the United States. This year has been somewhat more mild, and Travelers said its after-tax catastrophe losses fell to $357 million in the second quarter from $1.09 billion a year earlier.

Still, the figure was "considerably higher" than the company would have expected. A number of Travelers' peers have pre-announced significant disaster losses as well, among them Chubb Corp (CB.N) and Hartford Financial (HIG.N). On Thursday, shortly after Travelers' report, Allstate (ALL.N) said its own pre-tax disaster losses in the quarter came to some $820 million.

"Given recent earnings pre-announcements by others concerning heavy catastrophe losses, we believe the quarter will represent a sigh of relief" for Travelers, Larry Greenberg, an analyst at Janney Capital Markets unit Langen McAlenney, said in a note to clients.

Travelers shares fell 53 cents, or 0.8 percent, to $63.47 in early trading.

SWUNG TO PROFIT

Travelers reported a second-quarter net profit of $499 million, or $1.26 per share, compared with a year-earlier loss of $364 million, or 88 cents per share.

On an operating basis, Travelers earned $1.26 a share. Analysts polled by Thomson Reuters I/B/E/S had on average expected $1.35.

Because Travelers does not make forecasts, it is customary for the company's earnings to differ substantially from Wall Street estimates. Over the prior eight quarters, according to Thomson Reuters data, the average difference - either positive or negative - between the company's actual result and the mean estimate was almost 24 cents.

Travelers reported an underwriting loss for the second quarter as the disaster losses overwhelmed another quarter of reserve releases. Insurance analysts have been closely watching reserves, amid suspicions that companies were close to running out of excess reserves to release.

Net investment income was nearly flat as weakness in the bond portfolio was offset by other investments.

Travelers said that given the weak interest rate environment and what it called "continuing unusual weather patterns," it would keep pushing for rate increases and tighter terms on insurance policies, a strategy that has cost it some new business in recent quarters.

Fishman also warned that while the company still has a goal to achieve return on equity in the mid-teens over time, those sorts of returns are unlikely in the current environment.

(Reporting By Ben Berkowitz; Editing by Maureen Bavdek and John Wallace)

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