U.S. insurer Travelers Cos Inc (TRV.N) posted a record operating profit that breezed past Wall Street estimates and said it expects to keep raising premiums to counter low interest rates and potential losses from natural disasters.
Travelers, which also announced a $5 billion share buyback plan on Tuesday, took the lead in raising prices as the industry struggled with low interest rates that squeezed interest incomes.
"We intend to stay the course on this strategy as our expectations of more volatile weather patterns and continued low interest rates have not changed," Chief Executive Jay Fishman said in a statement.
Travelers expects interest rates to remain at historically low levels at least until 2016, a company executive said on a post-earnings conference call.
Shares of Travelers, a component of the Dow Jones industrial average .DJI, were up 1 percent at $87.68 in early trading. They have risen 21 percent this year.
Fishman said third-quarter results benefited mainly from rate increases and low weather-related losses.
"We believe these are excellent results with Travelers continuing to show it can manage the pricing environment," BMO Capital Markets analyst Charles Sebaski said in a client note.
Travelers said it planned to introduce a new auto insurance product with a lower cost structure in about 15 states in the current quarter to tackle increasing competition.
The company said in July it would cut jobs and reduce prices in its auto insurance business, an indication that rate hikes could have reached a peak amid increasing competition.
STRONG UNDERWRITING RESULTS
Travelers reported flat third-quarter net income of $864 million. On a per share basis, earnings increased to $2.30 from $2.21 per share a year earlier.
The company reported operating earnings of $2.35 per share. Analysts on average had expected earnings of $2.05 per share, according to Thomson Reuters I/B/E/S.
Catastrophe losses, net of reinsurance, rose to $99 million from $91 million a year earlier.
Travelers said the $5 billion buyback authorization was in addition to the $759 million that remained from a previous repurchase plan.
The company's combined ratio, the percentage of premium revenue an insurer has to pay out in claims, fell to 88.9 percent from 90.3 percent last year.
A combined ratio of under 100 indicates an underwriting profit.
"This is a sign that most P&C insurers are going to have strong underwriting results for the quarter," BMO's Sebaski told Reuters.
Net investment income fell about 9 percent to $657 million, mainly due to low interest rates.
(Reporting by Aman Shah in Bangalore; Editing by Saumyadeb Chakrabarty and Sriraj Kalluvila)