Travelers Soothes Investors; Cites Opportunities in AIG Debacle

By | October 22, 2008

Large property insurer Travelers Cos. Inc. said some potential business
opportunities have arisen from the troubles at its rival American International Group Inc., and that the rates it can charge for insurance may also harden partly as a result.

Chief Executive Jay Fishman, in a post-earnings call with investors, said there had been an increase in requests for quotations on business from current AIG customers. He added that the company was in a good position to respond to requests from midsized companies — an area where Travelers
specializes.

The company is also seeing signs that insurance rates, which have dropped sharply in recent years, could be heading higher after large catastrophe losses and investment losses from the credit crisis, and restrained capacity after large mortgage losses pushed AIG near the brink of bankruptcy last month.

Travelers’ shares jumped 4.6 percent to $38.00 on the New York Stock Exchange, even as the S&P 500 Index fell nearly 3.5 percent on mounting recession concerns.

Since January, Travelers’ stock had fallen about 30 percent, compared with a drop of nearly 60 percent in the Standard & Poor’s insurance index .

The company earlier Wednesday posted an 82 percent drop in net income, mostly from a rise in catastrophe claims from hurricanes Dolly, Gustav and Ike. Investment losses also took a toll.

“We view TRV as undervalued given what we view as a relatively conservative balance sheet and underwriting practices, and our view that the company is well-positioned to leverage opportunities amid turmoil at other firms,” said Standard & Poor’s analyst Catherine Seifert in a research note.

BUYING AIG ASSETS?

Fishman assured investors that the company was treading carefully amid “unprecedented … market dislocation.”

The company said it is vetting acquisition opportunities when they arise but did not directly answer a question on being a potential buyer for AIG’s personal lines business, which could complement its existing operations.

AIG is selling off much of the company to repay a massive government loan, including its U.S. personal lines business. It has said it was in advance talks with a buyer for part of that business.

Fishman stressed the company’s business plan was not dependent on acquisitions, echoing comments from the past.

He added that the company was acutely aware that raising capital in the current environment would be costly.

“We have a healthy regard for the cost of equity — we get it, we are all owners,” Fishman told investors.

Amid $682 million in catastrophe losses from hurricane damage earlier this year, Travelers cut its operating income forecast for 2008 to a range of $4.90 to $5.10 per share, from $5.50 to $5.85 previously.

Analysts polled by Reuters Estimates on average forecast full-year operating earnings of $5.21 per share.

“Barring the catastrophe losses, everything else is pretty stable, it’s a pretty defensive company,” said Alan Devlin, analyst at Atlantic Equities in London.

Quarterly net realized investment losses were $116 million after tax, offset by $210 million in released reserves previously set aside for possible claims.

The company said it had impairments of $44 million from securities issued by Lehman Brothers, which declared bankruptcy in September.

(Additional reporting by Elinor Comlay; editing by John Wallace and Matthew Lewis)

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