Travelers Cos. (TRV), the only insurer in the Dow Jones Industrial Average, said first-quarter profit beat analysts’ estimates as policy sales increased. The company lifted its quarterly dividend 12 percent.
Net income slipped to $806 million, or $2.02 per share, from $839 million, or $1.92, a year-earlier, when the New York- based company booked a gain tied to the resolution of a tax matter, according to a statement today. Operating profit, which excludes some investment results, was $2.01 a share, beating the $1.52 average estimate of 22 analysts surveyed by Bloomberg.
Chief Executive Officer Jay Fishman, 59, is raising prices for coverage after natural disasters caused record losses last year for the insurance industry and yields fell on the company’s fixed-income holdings. Travelers’ investment income has come under pressure as the Federal Reserve keeps interest rates near zero, making it harder to maintain portfolio returns as bonds mature and proceeds are reinvested.
“What they’re trying to counter it with is to raise prices on the underwriting side,” Cliff Gallant, an analyst at KBW Inc., said in a phone interview before the release.
Travelers rose 2.9 percent to $61.20 at 7:08 a.m. before the start of normal trading in New York. The insurer had gained less than 1 percent this year through yesterday, compared with the 6.7 percent advance for the 30-company Dow.
Policy sales climbed to $5.5 billion from $5.44 billion a year earlier. In the business insurance segment, rates climbed 8 percent for renewing customers.
‘Seeking Price Increases’
Net investment income fell to $593 million from $622 million a year earlier. Lower reinvestment rates on the bond portfolio and a 5.4 percent drop in income from alternative investments, such as private equity, real estate partnerships and hedge funds, contributed to the decline.
“Given that low investment yields and unusual weather patterns have continued, we remain committed to actively, but selectively, seeking price increases and improved terms and conditions in order to continue to improve returns,” Fishman said in the statement.
Catastrophes cost Travelers $109 million in the quarter after tax and net of reinsurance, compared with $122 million a year earlier. The industry faced a record $105 billion in insured losses last year from catastrophes, according to a report from Munich Re, the world’s largest reinsurer. About $25 billion of those costs came from U.S. storms and tornadoes.
Fed policy makers repeated their view that economic conditions warrant “exceptionally low levels for the federal funds rate at least through late 2014,” according to minutes of their March 13 meeting released this month. That’s pushed insurers including Hartford Financial Services Group Inc. (HIG) and Allstate Corp. (ALL) to change asset allocations to improve returns.
Travelers began shifting some of its cash holdings into longer-term investments last year as near-record low yields eroded returns on the company’s investment portfolio, Fishman said at an investor conference in New York in December.
The dividend was raised to 46 cents a share from 41 cents, beating by 3 cents the Bloomberg Dividend Forecast.
Book value per share, a measure of assets minus liabilities, rose to $63.81 from $62.32 at the end of December, as the company bought back $350 million of its own stock in the quarter. Travelers slowed repurchases last year after tornadoes in April and May fueled catastrophe claims that cost the company more than Hurricane Katrina.
Profit in the year-earlier quarter benefited from a gain of about $100 million tied to the resolution of a tax matter, according to the statement.
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