Travelers Profit Down But Pricing Rebounds Sharply

January 24, 2012

Travelers Companies Inc reported a smaller profit for the fourth quarter, as it released less money from its reserves than a year earlier, though it also reported its biggest rate increases in eight years as the industry returned to pricing power.

Dow component Travelers on Tuesday said renewal prices in its commercial insurance operations rose 8 percent in the quarter, the best since 2003, following gains in the third quarter as well.

Those in turn followed years of weakness that had left some insurance rates at decade-long lows. Travelers was one of the first large insurers to report that it had regained the ability to raise prices on renewing customers, as a series of devastating natural disasters last year soaked up excess capital in the industry.

Travelers reported a profit of $618 million, or $1.51 per share, compared with a year-earlier profit of $894 million or $1.95 per share.

The current quarter underlying underwriting gain, which excludes net favorable prior year reserve development and catastrophe losses, reflected a combined ratio of 96.4 percent, as compared to 95.5 percent in the prior year quarter. This increase of 0.9 points primarily resulted from higher losses in both the automobile and homeowners and other personal lines of business.

Operating earnings were $1.48 per share. Analysts polled by Thomson Reuters I/B/E/S on average expected earnings of $1.53 per share.

The company said reserve releases declined by more than $200 million in the quarter, making up much of the decrease in operating earnings. After many quarters of consistent reserve releases, analysts expect most insured companies to be done or nearly done with such maneuvers.

Travelers also said it has “largely completed” a process of freeing up extra capital and returning it to shareholders with dividends and buybacks. In the future, the company said in a statement, buybacks will be driven by earnings.

Its shares rose to $60.48 in premarket trading from a $60.29 close on Monday. The stock is up 1.9 percent so far in 2012, underperforming a 6.5 percent rally in the broader S&P insurance index.

(Reporting By Ben Berkowitz; Editing by Maureen Bavdek)

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