U.S. insurer Travelers Cos Inc (TRV.N) posted a record operating profit that blew 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, has taken the lead in raising prices and has so far insulated itself from a fall in the number of policies.
"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.
While the company's net written premiums have remained nearly flat this year, its underwriting gains jumped 75 percent during the period.
"This is a sign that most property and casualty (P&C) insurers are going to have strong underwriting results for the quarter," BMO Capital Markets analyst Charles Sebaski said.
The company's rivals in the P&C insurance sector, including Chubb Corp (CB.N), AIG (AIG.N) and ACE Ltd (ACE.N), are scheduled to post results in the coming fortnight.
"Travelers has been for some time a leader in trying to implement price increases," Sandler O'Neill & Partners analyst Paul Newsome said.
"Though the company is not pushing a faster pace of rate increases, it appears to be trying to maintain pricing discipline within the industry," he said.
The company said it expects price increases in its renewal business to continue through 2014 as it looks to offset historically low interest rates that have squeezed income from its fixed income portfolio.
But analysts said raising rates over the longer term would not be sustainable, given the industry's cyclical nature.
"I think we'll likely start to see pricing slow in 2014," Sanford C. Bernstein & Co analyst Josh Stirling said.
The auto insurance industry is already showing signs that rates may have peaked. Travelers said in July it would cut jobs and reduce prices in the business.
The company plans to introduce a new auto insurance product with a lower cost structure in about 15 states in the current quarter to tackle increasing competition.
Shares of Travelers, a component of the Dow Jones industrial average .DJI, were trading flat at $86.70. They have risen 21 percent this year.
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.
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.
Net investment income fell about 9 percent to $657 million, mainly due to low interest rates.
Travelers said the $5 billion buyback authorization was in addition to the $759 million that remained from a previous repurchase plan.
(Additional reporting by Tanya Aggarwal; Editing by Saumyadeb Chakrabarty and Sriraj Kalluvila)