Travelers Cos. (TRV:US) posted the biggest gain in the Dow Jones Industrial Average after fourth-quarter profit beat estimates on higher income from its investment portfolio, increased sales and a benefit from reserves.
The insurer rose 4.4 percent to $79.65 at 9:31 a.m. in New York. Operating profit, which excludes some investment results, was 72 cents a share, the New York-based company said in a statement today, beating the 14-cent average estimate (TRV:US) of 21 analysts surveyed by Bloomberg.
Chief Executive Officer Jay Fishman, 60, has been boosting the amount Travelers charges customers after storms increased claims costs in recent years and low interest rates reduced income from the company’s bond portfolio. Sandy, the October storm that lashed the U.S. northeast, contributed to higher catastrophe costs in the quarter.
“Given the continued low interest-rate environment and uncertain weather patterns, we will continue to seek improved pricing,” Fishman said in the statement.
Policy sales climbed to $5.39 billion from $5.26 billion a year earlier. The rates paid by renewing customers rose for all segments, including 8 percent in business insurance.
Net investment income rose to $556 million from $541 million a year earlier on gains from private-equity bets, according to a presentation on the insurer’s website. Income from the bond portfolio fell to $501 million from $526 million a year earlier, driven by lower reinvestment rates.
The insurer booked a $146 million gain after determining it had more money set aside than needed for claims on policies sold in prior quarters. That compares with a benefit of $83 million a year earlier.
Profit beat estimates partly because of the “much better than expected reserve development,” Meyer Shields, an analyst at Stifel Nicolaus & Co. said in a note to clients today. Investors should “react positively” to the results, he said.
Full-year profit advanced to $2.47 billion from $1.43 billion in 2011, when the results were hurt by claims from second-quarter tornadoes and Hurricane Irene. Travelers has gained about 29 percent in the past year, more than twice the advance of the 30-company Dow average.
Sandy lashed New York, New Jersey and Connecticut in October, killing more than 100 people, cutting off electricity to millions of customers and damaging homes, vehicles, commercial property and public infrastructure. The storm led Travelers’ $689 million of catastrophe costs in the quarter, after tax and net of reinsurance, and contributed to a decline in net income.
“It was a big hit, but it could have been worse,” Mark Dwelle, an insurance analyst at RBC Capital Markets, said in an interview before results were announced.
Quarterly profit fell to $304 million in the fourth quarter, or 78 cents a share, from $618 million, or $1.51, a year-earlier.
Industrywide, insured losses from natural disasters in the U.S. reached $58 billion in 2012, more than double the average from 2000 to 2011, according to a report this month from reinsurer Munich Re. Sandy was last year’s most costly event.
Federal Reserve policy makers pledged last month to keep interest rates near zero as long as unemployment stays above 6.5 percent and inflation is forecast to be 2.5 percent or less. Unemployment was 7.8 percent in December and has been above the central bank’s target since November 2008.
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