Travelers Sees Improved Insur Pricing As Customers Cut Back
27 Janeiro 2009 - 1:26PM
Dow Jones News
Weaker investment results and customers who are cutting back in
a tough economic environment helped hold back insurer Travelers
Cos.' (TRV) fourth-quarter earnings, though the company is seeing
some welcome signs of better things to come.
"The world seems like a riskier place," said Chief Executive Jay
Fishman, which is helping contribute to the company's efforts to
raise prices, after several quarters of a soft insurance
market.
Travelers, the second-largest U.S. commercial insurer behind
American International Group Inc. (AIG), posted net income of $801
million, or $1.35 a share, down from $1.06 billion, or $1.64 a
share, a year earlier. The latest results include net investment
income of $438 million after tax, compared with $696 million after
tax in the year-earlier quarter. Investment income was hurt by $138
million in net realized investment losses in its non-fixed income
portfolio, compared with net realized gains of $6 million in the
year-earlier quarter.
But the company projected 2009 earnings well below analysts'
estimates, seeing profit excluding investment losses of $4.50 to
$4.90 a share. On average, analysts surveyed by Thomson Reuters
expected $5.59 a share.
Excluding that, earnings fell to $1.58 a share from $1.63 a
share while revenue decreased 6.9% to $6.02 billion. Analysts
expected earnings of $1.46 on revenue of $6.36 billion.
Fishman said Travelers believes it is well-positioned in the
"current uncertain economic environment" because of its strong
balance sheet and debt-to-capital ratio.
CreditSights Inc. analyst Rob Haines said via an email message
that Travelers' strong earnings represent "evidence of a real
turnaround," and that property/casualty insurance is probably "the
only financial sector that has started to rebound."
The combined ratio, the percentage of each dollar the company
collects in premiums it pays out on losses and expenses, rose to
91.8% from 90.5% excluding items such as catastrophes. The ratio
increased on pricing pressures and a small number of large losses
that exceeded expectations.
Net premiums written edged up 0.4% to $5.39 billion. Insurance
prices rose in several lines of commercial coverage, but the price
increases were partially offset by customers who cut back their
coverage due to the weak economic conditions. Return on equity, an
important measure of profitability, slid to 12.8% from 16.1%.
As the insurance sector has been roiled by its exposure to the
troubled stock and debt markets, Travelers has emerged as a company
that, despite also suffering from investment and catastrophe
losses, is seen as one that can take advantage of its rivals'
weaknesses. Sandler O'Neill analyst Paul Newsome said recently that
Travelers was his top pick in the industry because of its light
subprime-mortgage exposure relative to its peers and potential to
win over big commercial insurance accounts from weakened AIG.
The company said it has no investment exposure to Bernard
Madoff, and total insurance exposure of $150 million, net of
reinsurance, mostly in its management liability business, in
accounts with investment losses or other exposures, including
investment advisors, non-profit entities and pension funds. It
expects aggregate losses to be less than $75 million pre-tax.
Overall, Travelers expects its management liability business to be
profitable in 2009.
Travelers' shares were up 6% at $39.82 in recent trading. The
stock is down about 13% this month amid the swoon in financial
stocks, making up the entire drop over the past year.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com
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