Drop in Catastrophe Losses Leads Travelers to Strong Underwriting Gain

Article

Travelers Companies Inc., the No. 1 publicly-traded U.S. property/ casualty insurer, said its quarterly profit more than quadrupled, strongly beating expectations, as a dearth of costly catastrophes left the company with strong underwriting gains.

The New York-based insurer raised its full-year earnings outlook, approved a 10 percent dividend increase, and authorized a $6 billion share buyback.

Shares rose 4 percent in premarket trading to $50, not far off a year-high of $50.77.

Third-quarter net income was $935 million, or $1.65 a share, compared with $214 million, or 36 cents a share, in the year-ago period.

Travelers was helped in the quarter by a $524 million underwriting gain. In the year-earlier quarter, the company posted a $288 million loss from catastrophe claims, after hurricanes Dolly, Ike and Gustav hammered the Southeast coast of the United States.

The lack of costly U.S. catastrophes in the latest quarter was a shot in the arm for Travelers.

“It certainly was an important component,” said Paul Newsome, an analyst in Chicago with Sandler O’Neill. “And they also had reserve releases this quarter, and they had improvement in investment income.”

Excluding investment gains and losses, Travelers had an operating profit of $914 million, or $1.61 a share. On that basis, analysts on average had forecast earnings of $1.31 a share, according to Thomson Reuters I/B/E/S.

The company said that the current quarter underwriting combined ratio was 92.5 percent, compared to 91.8 percent in the prior year quarter.

In the latest quarter, Travelers recorded a $309 million release in reserves set aside in prior years for potential losses. And net investment income was more than 6 percent higher at $763 million.

These factors helped offset a 3 percent decline in net written premiums to $5.3 billion.

Chief Executive Jay Fishman attributed the contraction in policy sales to “declining economic activity in recent quarters.”

Travelers increased its full-year operating earnings outlook range to between $5.30 a share and $5.50 a share. The company had previously expected full-year operating earnings of $4.80 a share to $5.05 a share.

Analysts on average have expected the company to post an operating profit in 2009 of about $5.28 a share.

Travelers does not include any estimates for potential reserve increases or decreases in its earnings forecast.

Shares of the insurer, added to the Dow industrial average in June, have risen nearly 40 percent in the past year. The Standard & Poor’s insurance index , which includes Travelers, has risen about 25 percent over the same period.

(Reporting by Lilla Zuill in New York, with additional reporting by Sakthi Prasad in Bangalore; Editing by Gerald E. McCormick and Derek Caney)