Property and casualty insurer Travelers Cos. Inc.’s quarterly earnings fell short of analysts’ estimates as hail and wind storms in the United States increased catastrophe losses.
The company, a Dow Jones Industrial Average component, said net income fell to $683 million, or $1.95 per share, in the second quarter ended June 30, from $925 million, or $2.41 per share, a year earlier.
Operating earnings of $1.93 per share missed the average estimate of $2.07, according to Thomson Reuters I/B/E/S.
The company’s shares were down 1.9 percent at $93.47 in premarket trading on Tuesday. Up to Monday’s close, the stock had risen 10.75 percent since it last reported results in April.
Travelers’ earnings often differ substantially from Wall Street estimates as the company does not provide forecasts.
As one of the first insurers to report results, the company’s results are seen as a bellwether for the industry.
Severe storms pounded parts of the central United States in early June, producing baseball-sized hail. There were also several tornado touchdowns other dangerous wind storms.
The company’s pre-tax catastrophe losses, net of reinsurance, rose to $436 million from $340 million. Net written premium rose 6 percent to $6.16 billion.
The company’s combined ratio, the percentage of premium revenue an insurer has to pay out in claims, rose to 95.1 percent in the quarter from 94.3 percent. A combined ratio of under 100 indicates an underwriting profit. Revenue rose 2 percent to $6.79 billion.
[Underwriting gains, pre-tax, for the 2014 second quarter came in at $257 million, down 8.5 percent from $281 million a year ago. Underwriting results for the latest quarter included net favorable prior year reserve development of $183 million, pre-tax, and $436 million pre-tax catastrophe losses, net of reinsurance.
Travelers also reported its net investment income for the second quarter came in at $695 million pre-tax, up from $687 million a year ago. The company said it benefited from strong private equity returns, partially offset by lower reinvestment rates in the fixed income portfolio.
Commenting on latest earnings results, Travelers Chairman and CEO Jay Fishman said in a statement that in Business Insurance, “the cumulative effect of the price increases we have achieved over the last several years, combined with our highly analytic approach to risk selection, has resulted in a product portfolio that is achieving meaningfully improved and attractive returns.”
“That said, we are not declaring mission accomplished,” he said. “There remains opportunity to further improve the product portfolio by continuing to take appropriate action on those accounts or classes of business that still do not meet our return thresholds and by achieving additional rate increases for those accounts that continue to experience unusual weather volatility.”
CEO Fishman said that in Personal Insurance, while there is still more work to do to improve returns, “we have made considerable progress in both Auto and Homeowners.” The market response of Quantum 2.0, Travelers’ new auto product, is particularly encouraging, he said. Financial, Professional & International Insurance posted record operating income, he added.
He said Travelers’ second quarter operating income of $673 million and operating return on equity of 11.4 percent were strong, particularly given the relatively high level of catastrophe losses experienced in this quarter. He said Travelers’ strong earnings in recent quarters enabled the company to return over $1 billion of capital to shareholders in the current quarter, including $876 million of share repurchases.
“In summary, we will continue to execute on our long-held financial strategy of building and sustaining meaningful competitive advantages, delivering superior profitability and returns, and returning excess capital to shareholders,” Fishman said. “As a consequence, we remain well positioned to continue to deliver compelling shareholder value over time.”]
Reporting by Amrutha Gayathri; Editing by Ted Kerr
Travelers CEO Fishman Eyes Potential Foreign Acquisitions
Travelers CEO: Will Insurers Outperform More Regulated Banks?
Best Upgrades Travelers and Most Subs Ratings; Outlooks Stable