Travelers Profit Rises 17% on Investments, Margin Expansion

Apr 22, 2014 11:14 am ET

(Updates shares in the 10th paragraph.)

April 22 (Bloomberg) -- Travelers Cos., the only property- casualty insurer in the Dow Jones Industrial Average, said profit climbed 17 percent to a record in the first quarter on investments and expanding margins.

Net income rose to $1.05 billion, or $2.95 a share, from $896 million, or $2.33, a year earlier, the New York-based company said today in a statement. Operating profit was also $2.95 a share, beating the $2.16 average estimate of 26 analysts surveyed by Bloomberg.

Chief Executive Officer Jay Fishman, 61, has been selectively raising insurance rates to boost profitability as claims from storms pressure returns. He’s also been cutting costs to help increase the company’s return on equity, which climbed to about 17 percent in the first quarter from 14 percent a year earlier.

“Our very deep agent, broker and customer relationships, highly segmented pricing strategies and expense discipline continued to deliver strong and improving underwriting results,” Fishman said in the statement. Travelers is “well positioned to deliver on our goal of producing a mid-teens operating return on equity over time.”

Travelers made 14 cents for every premium dollar it collected in the first quarter, compared with 11 cents a year ago. Net investment income rose to $736 million from $670 million, driven by gains in private equity and real estate partnerships.

Catastrophe Costs

Those increases helped mute $149 million of costs associated with catastrophes in the quarter, compared with $99 million a year earlier. Industrywide, winter weather in the U.S. caused $2.6 billion in insured losses as of March 31, insurance broker Aon Plc said in a report this month.

Burst pipes, falling trees and roof collapses fueled costs for property insurers. Slick roads, potholes and impaired visibility led to auto accidents.

“It was just kind of cold and sloppy for the better part of 2 1/2 months,” Mark Dwelle, an analyst at RBC Capital Markets, said in an interview before results were announced.

Travelers’ book value, a measure of assets minus liabilities, rose 4.1 percent to $73.06 per share.

The insurer was little changed at $86.43 at 10:44 a.m. in New York, bringing its decline this year to to 4.5 percent. That compares with the 0.4 percent drop in the 30-company Dow since Dec. 31.

Fishman has been diversifying beyond U.S. commercial coverage, the insurer’s largest business. The company will seek more international deals after expanding last year by purchasing a business in Canada and in 2012 by increasing its stake in a Brazilian venture, he wrote in a letter to investors this month. The CEO said on a conference call today that Travelers is looking for other opportunities in South America.

The Canada acquisition helped boost policy sales to $5.87 billion in the first quarter from $5.6 billion a year earlier. Travelers also increased its quarterly dividend to 55 cents a share from 50 cents.