Oct. 19 (Bloomberg) -- Travelers Cos. posted the largest gain in the Dow Jones Industrial Average after the insurer reported an increase in third-quarter policy sales and said it was raising rates for clients.
The insurer advanced $2.86, or 5.6 percent, to $54.32 at 10:05 a.m. in New York Stock Exchange composite trading, the biggest jump since August.
Chief Executive Officer Jay Fishman is charging more for coverage as the insurer copes with higher catastrophe costs and near record-low interest rates crimp investment income. Net income slipped to $333 million, or 79 cents a share, from $1.01 billion, or $2.11, a year earlier, the New York-based insurer said today in a statement.
“It is all about rate,” Fishman said on a conference call with analysts today.
Third-quarter policy sales climbed to $5.67 billion from $5.46 billion a year. Renewing clients at the commercial accounts segment paid 5 percent more in premium in the period, compared with a 1 percent decline a year earlier, the company said in a presentation on its website.
Catastrophes, led by Hurricane Irene, cost Travelers $394 million in the three months ended Sept. 30 after tax and net of reinsurance, compared with $77 million a year earlier.
The insurance industry faced about $70 billion of losses from natural disasters and man-made catastrophes in the first half, according to Swiss Re, the world’s second-largest reinsurer. That makes 2011 already the second-most costly year for insurers, surpassed by 2005, when Hurricane Katrina contributed to $120 billion in claims.
‘Additional Rate Increases’
“By incorporating the last two years of actual experience into our long-term averages, our expectations of weather losses in this business has increased,” Chief Operating Officer Brian MacLean said on the call. “In response we will be driving for additional rate increases as well as adjusting terms and conditions and looking for higher deductibles.”
Net investment income fell to $561 million from $597 million a year earlier. Industrywide, portfolio returns are under pressure as higher-yielding bonds mature and proceeds are reinvested at lower rates, said Mark Dwelle, an analyst at RBC Capital Markets. The Federal Reserve, led by Chairman Ben S. Bernanke, has said that it may keep benchmark rates near zero through mid-2013 as long as unemployment remains high and the inflation outlook stays “subdued.”
Insurers are facing a “reinvestment problem,” said Dwelle, who has an “outperform” rating on Travelers. “Clearly it will remain a challenge for at least 18 more months if Mr. Bernanke has it right.”
--With assistance from Maryellen Tighe in New York. Editors: Dan Kraut, Rick Green
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