Decline in Travelers Profit Continues

By Jordyn Holman | October 20, 2016

Travelers Cos., the sole property/casualty insurer in the Dow Jones Industrial Average, posted its fourth-straight profit decline as weather-related costs climbed and investment income slipped.

Third-quarter net income fell 23 percent to $716 million, or $2.45 a share, from $928 million, or $2.97, a year earlier, New York-based Travelers said Thursday in a statement. Operating profit was $2.40 a share, beating the $2.36 average estimate of 21 analysts surveyed by Bloomberg.

Alan Schnitzer is yet to post a profit increase since taking over in December for Jay Fishman as chief executive officer. Insurers have been pressured this year by low interest rates and elevated costs from North American catastrophes. Travelers’ second-quarter profit fell to the lowest since Superstorm Sandy in 2012 as wildfires fueled claims in Canada. Then flooding damaged homes in Louisiana in August, and Hurricane Hermine struck Florida last month.

“Higher non-catastrophe weather-related losses and higher-than-expected losses associated with auto bodily injury” weighed on results, Schnitzer said in the statement. “While returns from our high-quality fixed-income portfolio declined in line with our expectations due to the continued low interest rate environment, returns from our non-fixed income portfolio improved from recent quarters.”

Schnitzer reported a third-quarter combined ratio of 92.9, meaning the insurer retained 7.1 cents of every premium dollar after claims and expenses. That worsened from a ratio of 86.9 percent a year earlier.
Policy Sales

Policy sales advanced 3.2 percent to $6.39 billion. The insurer charged domestic business insurance customers 2.7 percent more at renewal in the three months ended Sept. 30, according to a presentation on the company’s website. That compares with a 1.9 percent increase in the second quarter.

The gain from reserves narrowed to $39 million pretax from $199 million. Insurers regularly reassess the money they’ve set aside for future claims and can scale back or raise the amount based on their expectation of losses.

Travelers has gained 3 percent this year in New York trading, trailing the 4.5 percent advance of the Dow average. Already in the fourth quarter, Hurricane Matthew struck the U.S.

Return on equity fell in the third quarter to 11.6 percent, from 15.4 percent a year earlier. Book value, a measure of assets to liabilities, rose to $86.04 a share from $85.73 at the end of June. The company repurchased $562 million of its shares in the third quarter.

Net investment income declined to $472 million, from $484 million a year earlier. The contribution from the holdings outside of bonds was $69 million compared with $68 million in last year’s third quarter.

Fishman’s career was cut short by amyotrophic lateral sclerosis, or ALS. The executive, who steered Travelers through the financial crisis, died in August at age 63. John Dasburg replaced him as chairman.

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