Bloomberg News

Travelers Profit Slips on Lower Investment Income, Reserves

January 25, 2012

(Updates shares in the fifth paragraph.)

Jan. 24 (Bloomberg) -- Travelers Cos., the only insurer in the Dow Jones Industrial Average, said fourth-quarter profit fell on lower investment income and a smaller reserve benefit, capping the company’s least profitable year since 2004.

Net income slipped 31 percent to $618 million, or $1.51 per share, from $894 million, or $1.95, a year-earlier, the New York-based company said today in a statement. Operating profit, which excludes some investment results, was $1.48 a share, missing the $1.52 average estimate of 22 analysts surveyed by Bloomberg.

Travelers, led by Chairman and Chief Executive Officer Jay Fishman, has increased rates for customers as near record-low interest rates eroded investment income from the company’s bond portfolio and losses from storms led the insurer to assess whether its models understated risk in the U.S. Full-year net income was $1.43 billion, the lowest for the company since 2004, the year of the merger with St. Paul Cos. The figure compares with net income of $3.22 billion in 2010.

“The story for the full year, of course, was the remarkable weather,’ Fishman, 59, said today on a conference call with analysts to discuss results. ‘‘Weather losses were far and away the worst in our history.’’

Travelers fell 3.8 percent to $58 at 4 p.m. in New York, the insurer’s biggest one-day drop since October. The firm has fallen 2 percent this year, compared with the 30-company Dow’s 3.8 percent gain.

Investment Income

Net investment income fell to $541 million in the fourth quarter from $644 million a year earlier. A decline in income from alternative investments, such as private equity, real estate partnerships and hedge funds, fueled the drop.

Insurers’ investment income has come under pressure as higher-yielding bonds mature and proceeds are reinvested at lower rates. The Federal Reserve, led by Chairman Ben S. Bernanke, repeated its view last month that economic conditions warrant ‘‘exceptionally low levels for the federal funds rate at least through mid-2013.”

That’s pushed insurers, including Allstate Corp. and Hartford Financial Services Group Inc., to shift asset allocations to improve returns.

Travelers booked an $83 million gain in the quarter after determining it had more money set aside than needed for claims on policies sold in prior quarters. That compares with a benefit of $228 million a year earlier.

Policy Sales

Policy sales climbed to $5.26 billion from $5.23 billion a year earlier. Renewal premiums for business customers, excluding national accounts, rose 8 percent.

“We are pleased with the results of the pricing and underwriting actions that we have taken,” Fishman said in the statement.

The insurer spent 95.9 cents of every premium dollar on claims and expenses, up from 90.6 cents a year earlier. An October snowstorm struck states from West Virginia to Maine, knocked out power to millions and added to record natural disaster claims in 2011. Catastrophes worldwide led to $105 billion in insured losses last year, according to a report from Munich Re, the world’s largest reinsurer.

About $25 billion of those costs came from U.S. storms including the tornado that leveled parts of Joplin, Missouri, in May. Hurricane Irene in August caused $7 billion in insured losses, Munich Re data show.

Travelers’ book value per share, a measure of assets minus liabilities, rose to $62.32 from $60.98 at the end of September, as the company repurchased $1.2 billion of stock in the fourth quarter.

--Editors: Dan Kraut, Steve Dickson

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 in New York at dkraut@bloomberg.net.


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