Low rates push Travelers to raise premiums further

Reuters

* Third-quarter operating earnings/shr $2.35 vs est $2.05

* Board authorizes additional $5 bln share repurchaseprogram

* Results bode well for other insurers: analysts

By Aman Shah

Oct 22 (Reuters) - U.S. insurer Travelers Cos Inc posted a record operating profit that blew past Wall Streetestimates and said it expects to keep raising premiums tocounter low interest rates and potential losses from naturaldisasters.

Travelers, which also announced a $5 billion share buybackplan on Tuesday, has taken the lead in raising prices and has sofar insulated itself from a fall in the number of policies.

"We intend to stay the course on this strategy as ourexpectations of more volatile weather patterns and continued lowinterest rates have not changed," Chief Executive Jay Fishmansaid in a statement.

While the company's net written premiums have remainednearly flat this year, its underwriting gains jumped 75 percentduring the period.

"This is a sign that most property and casualty (P&C)insurers are going to have strong underwriting results for thequarter," BMO Capital Markets analyst Charles Sebaski said.

The company's rivals in the P&C insurance sector, includingChubb Corp, AIG and ACE Ltd, arescheduled to post results in the coming fortnight.

"Travelers has been for some time a leader in trying toimplement price increases," Sandler O'Neill & Partners analystPaul Newsome said.

"Though the company is not pushing a faster pace of rateincreases, it appears to be trying to maintain pricingdiscipline within the industry," he said.

The company said it expects price increases in its renewalbusiness to continue through 2014 as it looks to offsethistorically low interest rates that have squeezed income fromits fixed income portfolio.

But analysts said raising rates over the longer term wouldnot be sustainable, given the industry's cyclical nature.

"I think we'll likely start to see pricing slow in 2014,"Sanford C. Bernstein & Co analyst Josh Stirling said.

The auto insurance industry is already showing signs thatrates may have peaked. Travelers said in July it would cut jobsand reduce prices in the business.

The company plans to introduce a new auto insurance productwith a lower cost structure in about 15 states in the currentquarter to tackle increasing competition.

Shares of Travelers, a component of the Dow Jones industrialaverage, were trading flat at $86.70. They have risen 21percent this year.

STRONG UNDERWRITING RESULTS

Travelers reported flat third-quarter net income of $864million. On a per share basis, earnings increased to $2.30 from$2.21 per share a year earlier.

The company reported operating earnings of $2.35 per share.Analysts on average had expected earnings of $2.05 per share,according to Thomson Reuters I/B/E/S.

Catastrophe losses, net of reinsurance, rose to $99 million from $91 million a year earlier.

The company's combined ratio, the percentage of premiumrevenue an insurer has to pay out in claims, fell to 88.9percent from 90.3 percent last year.

A combined ratio of under 100 indicates an underwritingprofit.

Net investment income fell about 9 percent to $657 million,mainly due to low interest rates.

Travelers said the $5 billion buyback authorization was inaddition to the $759 million that remained from a previousrepurchase plan.

View Comments (0)