Bloomberg News

Travelers Reduces Buybacks as U.S. Tornadoes Wipe Out Profit

June 10, 2011

(Updates share decline in sixth paragraph.)

June 10 (Bloomberg) -- Travelers Cos., the insurer added to the Dow Jones Industrial Average in 2009, said it’s scaling back share repurchases as about $1 billion in catastrophe costs will probably wipe out second-quarter operating profit. The company dropped the most since November in New York trading.

U.S. disaster costs “relate to the very, very severe tornadoes and hailstorms that we experienced in places like Tuscaloosa and Joplin,” Chief Financial Officer Jay Benet said today at the New York-based insurer’s annual investor day. “The implication of all that is that for the second quarter we are expecting to have an operating loss.”

The insurer expects share buybacks to be less than $250 million in the second quarter, Travelers said in a statement today. That compares with $1.4 billion in the same period last year. Catastrophes cost the firm between $1 billion and $1.05 billion in April and May including the storms in Tuscaloosa, Alabama, and Joplin, Missouri.

U.S. insurers including State Farm Mutual Automobile Insurance Co. and Allstate Corp. face costs tied to an above- average number of tornadoes. Industrywide, insured losses to homes, businesses and cars from U.S. storms in the week ended May 27 may be $4 billion to $7 billion, risk modeler AIR Worldwide said this week. U.S. storms in the week ended April 28 cost $3.7 billion to $5.5 billion, AIR said last month.

“The losses are probably a little higher than we had anticipated,” said Mark Dwelle, an analyst with RBC Capital Markets. “Catastrophe losses naturally lead to a lower buyback.” Dwelle rates the stock “outperform.”

Shares Decline

Travelers slipped $1.87, or 3.1 percent, to $59.21 at 4 p.m. in New York Stock Exchange composite trading. The company has gained 6.3 percent this year, beating the 3.2 percent rise in the 30-company Dow.

Book value per share, a measure of assets minus liabilities, will be “slightly higher” on June 30 than the $58.47 a share at the end of last year, according to the statement. The forecast assumes no change in unrealized investment gains this month. The figure was about $59.91 at the end of March.

Chief Executive Officer and Chairman Jay Fishman said in January that the board authorized $5 billion in share repurchases. The company bought back $1.1 billion of its shares in the first quarter and raised its dividend as policy sales increased.

Joplin Tornado

A tornado that tore through Joplin on May 22 killed at least 125 people, making it the single deadliest U.S. storm in at least 60 years. The National Oceanic and Atmospheric Administration said that 1,439 tornadoes were reported in the U.S. this year through June 7, up from 1,282 in all of 2010.

State Farm paid $916 million in claims from storms in the current quarter, the policyholder-owned insurer said May 27. Catastrophes, including tornadoes in Alabama, cost Allstate $1.4 billion in April, the Northbrook, Illinois-based company said before the Joplin storms.

--Editors: Dan Kraut, William Ahearn

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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