Travelers Profit Falls 23% in Fourth-Straight Quarterly Dropby
Shares fall most in Dow average, erasing gain for the year
Investment income slips, pressured by low interest rates
Travelers Cos., the sole property-casualty insurer in the Dow Jones Industrial Average, posted its fourth-straight profit decline as weather-related costs climbed and investment income slipped. The stock fell the most since April.
Third-quarter net income dropped 23 percent to $716 million, or $2.45 a share, from $928 million, or $2.97, a year earlier, New York-based Travelers said Thursday in a statement. Operating profit was $2.40 a share, beating the $2.36 average estimate of 21 analysts surveyed by Bloomberg.
Alan Schnitzer is yet to post a profit increase since taking over in December for Jay Fishman as chief executive officer. Insurers have been pressured this year by low interest rates, higher-than-expected costs on auto policies and elevated claims from North American catastrophes. Travelers’ second-quarter profit fell to the lowest since Superstorm Sandy in 2012 as wildfires fueled claims in Canada. Then flooding damaged homes in Louisiana in August, and Hurricane Hermine struck Florida last month.
“By Travelers high standards, this was a sub-par result,” John Heagerty, an analyst at Atlantic Equities, wrote in a note. “Bodily injury claims inflation in personal auto was the main culprit, but commercial insurance also suffered from loss cost trends.”
Schnitzer reported a third-quarter combined ratio of 92.9, meaning the insurer retained 7.1 cents of every premium dollar after claims and expenses. That worsened from a ratio of 86.9 percent a year earlier.
Travelers dropped $6.71, or 5.8 percent, to $109.52 at 4:15 p.m. in New York, erasing the stock’s gain for the year. The drop was the steepest in the 30-company Dow. The insurer said that costs from this month’s Hurricane Matthew were probably at least $75 million before tax.
Policy sales advanced 3.2 percent to $6.39 billion. The insurer charged domestic business insurance customers 2.7 percent more at renewal in the three months ended Sept. 30, according to a presentation on the company’s website. That compares with a 1.9 percent increase in the second quarter.
“In our commercial businesses, we are pleased with our historically high levels of retention and positive renewal premium change,” Schnitzer said in the statement. “These results were due to the successful execution of our strategy to retain those accounts that meet our return thresholds and to take appropriate measures to improve profitability on those accounts that do not, while also seeking attractive new business opportunities.”
The gain from reserves narrowed to $39 million pretax from $199 million. Insurers regularly reassess the money they’ve set aside for future claims and can scale back or raise the amount based on their expectation of losses.
Return on equity fell in the third quarter to 11.6 percent, from 15.4 percent a year earlier. Book value, a measure of assets to liabilities, rose to $86.04 a share from $85.73 at the end of June. The company repurchased $562 million of its shares in the third quarter.
Net investment income declined to $472 million, from $484 million a year earlier. The contribution from the holdings outside of bonds was $69 million compared with $68 million in last year’s third quarter.
Fishman’s career was cut short by amyotrophic lateral sclerosis, or ALS. The executive, who steered Travelers through the financial crisis, died in August at age 63. John Dasburg replaced him as chairman.