Travelers Says Private Equity Slumps After Hedge Fund Woes

  • Company made a fraction of expected return, Heyman says
  • Insurer’s second-quarter profit fell to lowest since 2012

Travelers Cos., the lone property-casualty insurer in the Dow Jones Industrial Average, said second-quarter private equity returns failed to meet the company’s target, adding pressure to a portfolio that was hurt in the prior three months by hedge fund results.

Private equity generated “a few million dollars, and we would have expected about $50 million pretax,” Chief Investment Officer Bill Heyman said on an earnings conference call Thursday.

Low interest rates have squeezed investment income at insurers, an industry that holds trillions of dollars in assets, mostly in bonds, to back obligations to policyholders. While hedge funds offered the potential for better returns, those holdings have faltered in recent periods, pushing insurers such as American International Group Inc., MetLife Inc. and Lincoln National Corp. to shift to property bets or private equity. Travelers said real estate partnership returns were also lower in the second quarter.

Travelers’ quarterly profit fell to the lowest since 2012 on declining investment income and high catastrophe costs, led by claims from wildfires in Western Canada. Investment income from beyond the bond portfolio fell by more than half to $38 million.

“Hedge funds were below what we expected, but positive,” Heyman said. “And the big variable was private equity, where the portfolio was almost flat.”

Travelers fell 0.2 percent to $116.72 as of 4:15 p.m. in New York. That narrowed its advance for the year to 3.4 percent, trailing the 6.3 percent gain of the 30-company Dow average.

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