Travelers Posts $364 Million Loss in First Unprofitable Period Since 2004

Travelers Cos., the lone insurer in the Dow Jones Industrial Average, posted its first loss in seven years as U.S. tornadoes fueled catastrophe claims that cost the company more than Hurricane Katrina.

The second-quarter net loss of $364 million, or 88 cents per share, compares with a profit of $670 million, or $1.35, a year earlier, the insurer said today in a statement.

Chief Executive Officer Jay Fishman scaled back share repurchases as catastrophe claims swelled for New York-based Travelers. U.S. property-casualty insurers including Allstate Corp. (ALL) and State Farm Mutual Automobile Insurance Co. took losses on a U.S. tornado season that killed more than 150 people in Joplin, Missouri, and leveled parts of Tuscaloosa, Alabama.

“There were two events that really produced the great majority” of losses, Mark Dwelle, an analyst at RBC Capital Markets, said in an interview before Travelers announced earnings. “A lot of the losses were commercial, not just the routine residential losses that we normally see.”

Catastrophes cost the company $1.67 billion before taxes in the three months ended June 30, compared with $439 million a year earlier. Travelers posted $1.52 billion in pretax losses in the third quarter of 2005 on claims tied to Hurricanes Katrina and Rita. Travelers writes the majority of its policies for commercial customers.

Policy sales climbed 2.3 percent to $5.82 billion from $5.69 billion on higher rates for some business clients, including those buying workers’ compensation coverage.

Rate Increases

Insurers “have to make money from something,” said Dwelle. “If you can’t make it from investments, you eventually have to start working on price to start making it from underwriting.”

Travelers climbed 63 cents, or 1.1 percent, to $57.69 at 4:15 p.m. in New York Stock Exchange composite trading. The insurer had said last month that it would post an operating loss for the period. The company has gained 3.6 percent this year, compared with the 9.9 percent rise in the 30-company Dow average.

Travelers’ book value, a measure of assets minus liabilities, fell to $59.62 per share from $59.91 at the end of March as the company scaled back share repurchases to guard capital. Fishman bought back $237 million in shares in the quarter, compared with $1.4 billion in the same period in 2010.

Travelers lost 25 cents per premium dollar in the second quarter, compared with a gain of 4.8 cents a year earlier on increased catastrophe losses. Storms in the U.S. contributed to $14.7 billion in direct insured losses to property in the second quarter, ISO, a unit of Verisk Analytics Inc., said June 22.

U.S. Tornadoes

“These losses for us were larger than those we incurred from Hurricane Katrina in 2005 and the equivalent of losses we would expect from a 1-in-100 year hurricane,” Fishman said in the statement.

More than 1,600 tornadoes have been reported this year, compared with 1,282 in all of 2010, according to the National Oceanic and Atmospheric Administration. The tornado that tore through Joplin on May 22 was the single deadliest U.S. storm in at least 60 years. Homes and businesses in Tuscaloosa were flattened as tornadoes touched down in six states in the U.S. Southeast on April 27.

Travelers booked a $168 million gain by withdrawing funds from reserves after determining it had more money set aside than needed for claims on policies sold in prior quarters. That compares with a benefit of $384 million a year earlier.

Private Equity

Net investment income fell to $606 million after tax from $617 million in the same period a year ago on lower returns from fixed-income holdings. Alternative investments, including private-equity funds, real-estate partnerships and hedge funds, produced an $84 million gain, compared with a gain of $58 million a year earlier.

Fishman, 58, avoided losses in 2008 and 2009 by keeping the fixed-income portfolio in municipal bonds, as rivals such as American International Group Inc. (AIG) posted losses on mortgage- backed securities. Travelers held about $39 billion of municipal debt as of June 30, according to a filing.

“It is encouraging that more states are dealing with their own financial situations, building foundations for an improved fiscal outlook,” Fishman said today on a call with investors.

State and local government bonds gained 4.5 percent in the second quarter, including invested interest, their biggest advance since the three months ended Sept. 30, 2009, according to Bank of America Merrill Lynch’s Municipal Master Index.

To contact the reporters on this story: Noah Buhayar in New York at ndoss@bloomberg.net; Brooke Sutherland in New York at bsutherland5@bloomberg.net

To contact the editor responsible for this story: Dan Kraut in New York at dkraut@bloomberg.net.