Jul 23, 2008 12:42 pm US/Central
Travelers 2Q Profit Down On Premiums
NEW YORK (AP) ―
Property and casualty insurer The Travelers Cos. Inc. said Wednesday its second-quarter profit declined 25 percent as it wrote fewer premiums, took higher catastrophe losses and recorded fewer investment gains.
For the April to June period, Travelers reported net income of $942 million, or $1.54 per share, compared with a year-earlier profit of $1.25 billion, or $1.86 per share.
On an operating basis, the St. Paul, Minn.-based company said it earned $1.50 per share.
Analysts polled by Thomson Financial, on average, expected earnings per share of $1.45 in the quarter. The estimates typically exclude one-time items. Its shares rose more than 2 percent.
Net written premiums declined 1 percent to $5.63 billion, while net premiums earned rose modestly to $5.36 billion from $5.33 billion.
Catastrophe losses jumped to $231 million from $26 million a year earlier, primarily due to tornadoes, hail storms and floods in various parts of the U.S., the company said. Catastrophe losses in the company's commercial segment were a result of a small number of large property losses that exceeded expectations. The events run the gamut of a June fire at Universal Studios that destroyed part of the back lot to an explosion at a sugar plant, said Brian MacLean, president and chief operating officer, during a conference call with analysts.
"Our assessment is that this is not a result of our underwriting or pricing decision," MacLean said in reference to the property losses. "We don't see this as a trend, but we are watching it very closely."
The company's combined ratio for the quarter rose 1.5 points to 89.3 percent. Combined ratios measure the amount of money insurers pay out in claims and expenses compared with how much they receive from writing new business. A ratio above 100 means the insurer pays out more in claims and expenses than it takes in from writing new premiums.
Net investment income fell 18 percent to $624 million from $758 million a year ago, due mostly to smaller gains in its non-fixed income portfolio and lower short-term interest rates, the company said.
Overall, Travelers said retention rates continued to be strong and renewal price changes were generally consistent with recent quarters. International retention rates dropped to 77 percent from 84 percent, due to the intentional nonrenewal of some policies in Canada and Ireland, the company said.
New business volumes increased from the prior-year quarter, driven primarily by growth in the company's international and personal insurance lines. New business volume in commercial insurance declined, however, due to increased competition in the market.
Travelers reaffirmed its full-year earnings guidance in a range of $5.55 to $5.85 per share. Analysts polled by Thomson Financial expect a profit of $5.97 per share. The guidance assumes total catastrophe losses of $510 million, or 84 cents per share.
Keefe, Bruyette & Woods analyst Cliff Gallant subsequently raised his 2008 profit estimate to $6.20 from $6, noting that the quarter's catastrophe losses were lighter than he expected.
Gallant maintained his "Outperform" rating and $60 target price on the stock.
Sandler O'Neill & Partners analyst Paul Newsome also maintained a "Buy" rating on the shares. His 12-month target price is $59. Newsome estimates full-year earnings of $5.77 per share.
Of particular interest to analysts and investors is the company's acquisition strategy going forward. Travelers has been rumored to be among the bidders for Royal Bank of Scotland's insurance business. While the company declined to comment on any specific companies, Travelers said it will only consider deals that it is convinced will increase shareholder value.
Travelers shares rose 93 cents, or 2.1 percent, to $45.59 in midday trading. Shares have traded between $41.26 and $55.84 in the past 12 months.
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