Travelers Cos. (TRV:US), the lone insurer in the Dow Jones Industrial Average, said its goal of mid-teens return on equity isn’t realistic in the near term as disasters fuel claim costs and low bond yields hurt investment income.
“Achieving mid-teens ROE is not currently achievable in the short term,” Chief Executive Officer Jay Fishman said on a conference call today. “That means right now, and likely for the immediate future.”
Fishman has said his goal is to meet the target “over time,” and that the standard is unachievable every quarter because of fluctuations in weather-related claims. Still, the New York-based company has fallen short for years, with average annual operating ROE of about 12.9 percent from Jan. 1, 2005 through June 30 of this year, the company said in a presentation today. The figure was 11.8 percent for the first half.
Fishman, 59, has been increasing rates charged to clients for coverage after weather claims exceeded historical norms, including damage from hurricanes, tornadoes and hail storms. Insurers are increasingly relying on underwriting as near record-low yields limit returns from bond portfolios. Travelers’ second-quarter investment income fell to $589 million from $606 million a year earlier, the company said today.
“We continue to embrace our long-term financial objective as an aspirational goal,” Fishman said today. “And in that regard we will continue to take the steps necessary to meet that goal, as it is stated, over time.”
Travelers slipped 0.8 percent to $63.47 at 9:48 a.m. in New York. The company has advanced about 7.3 percent this year.
Net income was $499 million, or $1.26 per share, compared with a loss of $364 million, or 88 cents, a year earlier, the insurer said today. Operating profit, which excludes some investment results, was $1.26 per share, missing the $1.31 average estimate of 22 analysts surveyed by Bloomberg.
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