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Travelers Posts $499 Million Profit; Disaster Costs Fall

Travelers Cos. Chief Executive Officer Jay Fishman
Chief Executive Officer Jay Fishman has been raising prices for coverage as near record-low interest rates put pressure on investment income and U.S. storms fuel claims. Photographer: Joshua Roberts/Bloomberg

Travelers Cos., the lone insurer in the Dow Jones Industrial Average, posted a second-quarter profit on lower costs tied to natural disasters.

Net income was $499 million, or $1.26 per share, compared with a loss of $364 million, or 88 cents, a year earlier, the New York-based insurer said today in a statement. Operating profit, which excludes some investment results, was $1.26 per share, missing the $1.31 average estimate of 22 analysts surveyed by Bloomberg.

Chief Executive Officer Jay Fishman, 59, has been raising prices for coverage as near record-low interest rates put pressure on investment income and U.S. storms fuel claims. Tornadoes in last year’s second quarter cost Travelers more than Hurricane Katrina, the 2005 storm that led to widespread flooding in New Orleans and killed about 1,200 people.

“The year-ago quarter was the worst second quarter ever for U.S. losses,” Mark Dwelle, an analyst with RBC Capital Markets, said in a phone interview before the results were announced. “This quarter lacked some of the severity, but there was a reasonable amount of frequency” of storms and other events that caused insurance claims, he said.

Catastrophes cost Travelers $357 million in the quarter after tax and net of reinsurance, compared with $1.09 billion a year earlier. The losses were primarily the result of wind and hailstorms in the U.S., the costliest of which struck Illinois, Indiana, Kentucky, Missouri and Texas in April.

Book Value

Travelers’ book value per share, a measure of assets minus liabilities, rose to $64.90 from $63.81 at the end of March. The insurer has climbed 8.2 percent this year to $64 through yesterday in New York trading, compared with the 5.7 percent rise in the 30-company Dow average.

Policy sales climbed to $5.87 billion from $5.82 billion a year earlier, as the insurer continued to lift rates and change policy terms. Prices paid by renewing customers in Travelers business insurance segment climbed by more than 7 percent.

Travelers is “actively and selectively seeking rate and improvements in terms and conditions given the persistent low interest rate environment and continuing unusual weather patterns,” Fishman said in the statement.

Property-casualty insurers increased rates by 4 percent in the second quarter from a year earlier, according to MarketScout data compiled by Bloomberg. Natural disaster losses and low interest rates on investments led underwriters to charge higher prices in 2011, reversing six years of declines.

Investment Income

Net investment income fell to $589 million from $606 million a year earlier. Falling yields for fixed-income securities have hurt insurers’ returns as proceeds from maturing bonds are reinvested at lower rates. Ten-year Treasuries fell below 1.5 percent for the first time on June 1.

Chubb Corp., an insurer of commercial property and high-end homes, said pretax losses from catastrophes in the quarter could reach $240 million. Hartford Financial Services Group Inc. projected its claims at as much as $300 million. Both insurers report full quarterly results in the next two weeks.

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