The Travelers Companies
(
TRV
) reported earnings of $2.22 per share in the third quarter of
2012, outshining the Zacks Consensus Estimate of $1.61 per share.
Results surged 181% from 79 cents earned in the year-ago quarter.
Operating income in the reported quarter was $867 million,
improving 161% year over year.
Lower catastrophe losses and sturdy underwriting results fueled
the outperformance.
Including net realized investment losses of $3 million or 1 cent,
the company reported net income of $864 million or $2.21 per
share, comparing favorably with net income of $333 million or 80
cents a share. The year-ago quarter included net realized
investment gains of $1 million.
Operational Update
Net written premiums during the quarter were $5.7 billion, almost
flat with the year-ago level.
Net investment income increased 4.6% year over year to $722
million during the quarter, largely attributable to better
performance at non-fixed income portfolio.
Travelers posted underwriting gain of $327 million, rebounding
from a loss of $185 million in the year-ago quarter. Combined
ratio improved 1420 basis points year over year to 90.3% in the
reported quarter. The improvement stemmed from lower catastrophe
losses and higher underwriting margins.
Total revenue in the quarter under review was $6.5 billion,
increasing 2% year over year, driven by the augmentation in
premiums earned and net investment income. Revenue surpassed the
Zacks Consensus Estimate of $6.3 billion.
Segment Update
Business Insurance:
Net written premium increased 5% year over year to $2.96 billion
in the quarter, largely driven by increases in renewal rate
change.
The combined ratio improved 1210 basis points year over year to
103%, mainly due to elevation in underwriting margins and
decrease in catastrophe losses.
Operating income augmented to $543 million in the third quarter
of 2012 from $294 million in the year-ago quarter, attributable
to improvement in underwriting results driven by better
underwriting margins and lower catastrophe losses.
Financial, Professional & International
Insurance:
Net written premium in the quarter under review declined 10% year
over year to $729 million.
The combined ratio deteriorated 400 basis points year over year
to 80.2% in third quarter 2012, attributable to lower net
favorable prior year reserve development, partially offset by
higher underlying underwriting margins.
Operating income descended 14.7% year over year to $180 million,
attributable to lower underwriting gain.
Personal Insurance:
Net written premium skidded 2% year over year to $2 billion,
primarily due to lower new business volumes in Automobile.
The combined ratio improved 2530 basis points year over year to
89.7% in the third quarter of 2012, largely driven by lower
catastrophe losses and higher net favorable prior year reserve
development.
Operating income of $206 million reversed the loss of $108
million in the year-ago quarter largely due to lower catastrophe
losses and higher net favorable prior year reserve development.
Dividend and Share Repurchase
Travelers spent $350 million to buyback 5.4 million shares in the
quarter. The company also paid $179 million in dividends.
Additionally, the board approved a quarterly dividend of 46
cents, to be paid on December 31, to the shareholders of record
as of December 10.
Our Take
Travelers' continuous share buyback strategy has a positive
impact on earnings per share and also bolsters shareholder value.
Based on a high retention rate, pricing gains, positive renewal
rate changes, favorable prior-year reserve development, prudent
underwriting practices and a strong capital position, Travelers
is poised to perform better going forward. It also scores
strongly with the credit rating agencies.
We have a Neutral recommendation on The Travelers Companies. The
quantitative Zacks # 2 Rank (short-term Buy rating) for the
company indicates upward boost on the shares over the near term.
Hartford Financial Services Group Inc.
(
HIG
), which competes with Travelers, is scheduled to release its
third quarter results on November 1 after the bell while
W.R. Berkley Corporation
(
WRB
) is scheduled to release its third quarter results on October 22
after the bell.
HARTFORD FIN SV (HIG): Free Stock Analysis
Report
TRAVELERS COS (TRV): Free Stock Analysis
Report
BERKLEY (WR) CP (WRB): Free Stock Analysis
Report
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