* Q2 oper EPS $1.26 vs Street view $1.35
* Disaster losses down from last year but higher than normal
* Prices rise again across insurance lines
* Shares fractionally lower in early trading
By Ben Berkowitz
July 19 Travelers Cos Inc 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 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 and Hartford Financial. On Thursday,
shortly after Travelers' report, Allstate said its own
pre-tax disaster losses in the quarter came to some $820
"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
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
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.