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Travelers Profit Beats Estimates as Fishman Pushes Rate

Travelers Cos. Chief Executive Officer Jay Fishman
Travelers Cos. Chief Executive Officer Jay Fishman began raising prices for coverage and changing some policy terms as low interest rates pressured income from his company’s bond portfolio and natural disasters boosted claims costs in recent quarters. Photographer: Joshua Roberts/Bloomberg

Travelers Cos., the lone property-casualty insurer in the Dow Jones Industrial Average, posted third-quarter profit that beat estimates as Chief Executive Officer Jay Fishman increased rates for coverage. The company boosted its share buyback plan by $5 billion.

Net income was $864 million, or $2.30 a share, compared with $864 million, or $2.21, a year earlier, the New York-based insurer said today in a statement. Operating profit, which excludes some investment results, was $2.35 a share, 26 cents higher than the average estimate of 24 analysts surveyed by Bloomberg.

Fishman, 60, began raising prices for coverage and changing some policy terms as low interest rates pressured income from his company’s bond portfolio and natural disasters boosted claims costs in recent quarters. The strategy has helped the insurer expand its margins and contributed to a 51 percent gain in the share price in the two years through yesterday.

“They’ve been able to raise pricing and keep retention rates in a good place,” Brian Meredith, an analyst at UBS AG who recommends buying Travelers’ stock, said in an interview before the results were announced.

The share repurchase authorized today is in addition to the $759 million that remained in previous programs as of Sept. 30. Buybacks were $800 million in the third quarter.

Book Value

Repurchases helped increase book value per share, a measure of assets minus liabilities, to $68.15 from $66.65 at the end of June. The figure is used by analysts and investors to gauge how much insurers are worth. Travelers slipped 0.1 percent to $86.71 at 4:15 p.m. in New York.

The insurer made an underwriting profit of 11.1 cents for every premium dollar it collected in the quarter, compared with 9.7 cents a year earlier. Policy sales were little changed at $5.7 billion, as the company boosted premiums from its business insurance and financial, professional and international segments, while reporting lower results from its personal insurance unit.

The Federal Reserve has held its benchmark lending rate near zero since December 2008 to help stimulate the economy and has also expanded its balance sheet to more than $3.8 trillion by buying bonds. The efforts have lowered borrowing costs for governments, companies and individuals, and hurt investors that rely on fixed-income securities.

Net investment income fell to $657 million before tax from $722 million a year earlier. Falling bond yields have pressured insurers’ returns as proceeds from maturing bonds are reinvested at lower rates.

Catastrophe Costs

Travelers and other U.S. property insurers have benefited from calmer weather after tornadoes and other natural disasters caused claim costs to surge in past quarters. Catastrophes cost Travelers $99 million in the quarter pretax and net of reinsurance, compared with $91 million a year earlier.

“It was a light catastrophe quarter,” Paul Newsome, an analyst at Sandler O’Neill & Partners LP, said in an interview before results were announced.

Lower claims costs allowed Travelers to buy back more stock, Fishman said at a conference last month. The company has typically limited repurchases in the third quarter should it need to pay claims from natural disasters.

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