Travelers Cos. (TRV) led a rally of property-casualty insurers after reporting that profit more than doubled on lower claims costs tied to natural disasters.
Travelers advanced 3.7 percent to $74.05 at 9:45 a.m. in New York, the biggest gain in the 30-company Dow Jones Industrial Average. Operating profit, which excludes some investment results, was $2.22 a share, beating the $1.60 average estimate of 24 analysts surveyed by Bloomberg.
The insurer beat estimates on “better-than-expected core underwriting margins, catastrophe losses, and net investment income,” said Meyer Shields, an analyst at Stifel Nicolaus & Co., in a note to investors today. “Travelers’ low catastrophe losses likely bode well” for rivals such as Allstate Corp., which haven’t yet reported third-quarter results.
Travelers Chief Executive Officer Jay Fishman, 59, has bought back shares, raised rates for coverage and changed policy terms to improve shareholder returns as near record-low interest rates pressure income from the investment portfolio. Property- casualty insurers have benefited from fewer natural disasters this year after record losses in 2011.
The insurer’s third-quarter net income advanced to $864 million, or $2.21 per share, from $333 million, or 79 cents, a year earlier, the New York-based company said today in a statement. Catastrophes cost Travelers $91 million in the quarter before tax and net of reinsurance, compared with $606 million a year earlier when Hurricane Irene struck the U.S.
Allstate, the largest publicly traded U.S. home and auto insurer, advanced 1.5 percent. Chubb Corp., which competes with Travelers selling commercial coverage, jumped 2.5 percent. Ace Ltd. gained 2.3 percent.
Return on Equity
Travelers’ operating return on equity climbed to 15.5 percent from 5.9 percent a year earlier. Fishman has said he’s targeting a mid-teens return on equity over time even as more severe weather and low interest rates make that goal less realistic in the short term.
“We remain committed to continuing to improve profitability through a strategy of actively, but selectively, seeking price increases and improved terms and conditions, given historically low interest rates and uncertain weather patterns,” Fishman said in the statement.
The insurer said it charged higher rates in all units. At its commercial accounts, the renewal premium change was a gain of 9.8 percent. Policy sales were little changed as the company retained a lower percent of clients than a year earlier in most of its reporting segments.
Travelers’ book value per share, a measure of assets minus liabilities, rose to $67.81 from $64.90 at the end of June. The company repurchased $350 million of stock in the third quarter and expects to exceed that amount in the fourth quarter, Chief Financial Officer Jay Benet said on a conference call today.
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