Property insurer Travelers Cos Inc blew past Wall Street earnings estimates for the first quarter and raised its dividend 12 percent as natural disaster losses declined and insurance rates continued to rise after years of weakness.
The company's shares closed up 3.7 percent at $61.70 after touching their highest level since May 2011. Analysts said the results would be seen positively.
"Incorporating the first-quarter results, our 2012 estimate is very likely to increase," Larry Greenberg, an analyst at Janney Capital Markets unit Langen McAlenney, wrote in a note to clients. He said he was optimistic on property insurers and that Travelers was a preferred "buy" within that group.
Travelers, a Dow component, said commercial insurance rates rose an average 8 percent in the quarter. On a conference call with analysts, the company indicated that strength has continued.
"We feel good about what we're seeing in the second quarter and ... feel the momentum is continuing," Chief Operating Officer Brian MacLean said.
Rates rose in other lines as well, including 4 percent in auto and 10 percent in homeowner policies. Chief Executive Jay Fishman, on the conference call, said Travelers was in some places raising deductibles and placing tighter terms on personal policies in order to improve profitability.
The company has been among the most aggressive in the industry about raising rates in recent months, after a years-long period of excess capital forced companies to compete on price. Analysts have been watching closely to see whether Travelers could maintain the momentum, which bodes well for other insurers.
Pretax catastrophe losses declined to $168 million in the first quarter from $186 million a year earlier. The year-earlier period was marked by severe winter weather in the United States and devastating earthquakes in the Asia-Pacific region.
NET DOWN ON INVESTMENTS
Travelers reported a first-quarter net profit of $806 million, or $2.02 per share, compared with a year-earlier profit of $839 million, or $1.92 per share. Per-share earnings rose because of a decrease in share count.
Net profit fell largely because of lower net investment income, and because of a one-time tax benefit last year that boosted underwriting results.
The company also increased its reserve releases, to $200 million after tax from $155 million a year earlier. During the years of weak pricing, reserve releases were a major profit booster for insurers, though most analysts expect that well to start running dry soon.
Operating earnings came in at $2.01 per share. Analysts polled by Thomson Reuters I/B/E/S on average had expected $1.52.
There was a broad range of estimates, and because Travelers does not give an outlook it is normal for its results to differ sharply from the Wall Street forecast. Even so, earnings were nearly 40 cents above the highest analyst estimate.
The company raised its quarterly dividend by 5 cents, to 46 cents per share. It spent $350 million on share buybacks during the quarter.
PEERS ALSO REPORT
Allstate, the largest publicly traded home and auto insurer in the country, said its own catastrophe losses were $260 million in the latest quarter, mostly in March. JMP Securities raised its earnings estimates for the quarter, saying the losses were about 10 percent less than expected.
After the market closed on Thursday, property insurer Chubb also easily beat estimates, reporting operating earnings of $1.70 per share compared with the analysts' consensus of $1.52.
Chubb also saw an 8 percent increase in average renewal rates in its commercial unit, while catastrophe losses fell sharply.
(Reporting By Ben Berkowitz; Editing by Gerald E. McCormick, Maureen Bavdek, John Wallace and Bernard Orr)