The Travelers Companies, Inc.
(
TRV
) reported earnings of 72 cents per share in the fourth quarter
of 2012, surpassing the Zacks Consensus Estimate of 4 cents per
share. However, results plunged 51% from $1.48 earned in the
year-ago quarter. Operating income of $278 million dipped 54% the
reported quarter.
The year-over-year downside was largely attributable to higher
catastrophe losses mostly due to Hurricane Sandy. However, higher
underlying underwriting margins and higher net favorable
prior-year reserve development limited the downside to some
extent.
Cat loss in the quarter was $689 million or $1.78 per share.
Including net realized investment gains of $26 million or 6 cents
per share, the company reported net income of $304 million or 78
cents per share, comparing unfavorably with net income of $618
million or $1.51 a share. The year-ago quarter included net
realized investment gains of $9 million.
Operational Update
Net written premiums during the quarter were $5.4 billion, up 2%
year over year.
Net investment income increased 5.7% year over year to $689
million during the quarter, largely attributable to better
performance at non-fixed income portfolio, partly muted by
reduction in fixed income returns.
Travelers posted underwriting loss of $338 million, comparing
unfavorably with profit of $187 million in the year-ago quarter.
Combined ratio deteriorated 950 basis points year over year to
105.4% in the reported quarter. The deterioration was due to
higher catastrophe losses, partially muted by higher underwriting
margins and higher net favorable prior-year reserve development.
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. Revenues surpassed the
Zacks Consensus Estimate of $6.3 billion.
Full Year Highlights
Operating earnings of $6.21 per share outpaced the Zacks
Consensus Estimate of $5.56 and year ago earnings of $3.28.
The upside stemmed from a combination of lower catastrophe
losses, higher underwriting margins and higher net favorable
prior-year reserve development.
Including net realized investment gains of 9 cents, the company
reported net income of $6.30 per share, surging from $3.36 a
share earned in 2011.
Total revenue increased 1% year over year to $25.7 billion. It
also outperformed the Zacks Consensus Estimate of $25.2 billion.
Underwriting gains of $296 million reversed the year-ago loss of
$745 million. Combined ratio improved 800 basis points.
Segment Update
Business Insurance
: Net written premium increased 6% year over year to $2.78
billion in the quarter, largely driven by increases in renewal
rate change.
The combined ratio deteriorated 770 basis points year over year
to 103.5%, mainly due to higher catastrophe losses.
Operating income slid 27% year over year to $326 million in the
fourth quarter of 2012, primarily attributable to higher
catastrophe losses.
Financial, Professional & International
Insurance
: Net written premium in the quarter under review improved 2%
year over year to $808 million, driven by a 6% increase in net
written premiums in the International business.
The combined ratio deteriorated 100 basis points year over year
to 80.2% in fourth quarter 2012, attributable to higher
catastrophe losses.
Operating income descended 13.8% year over year to $131 million,
attributable to higher catastrophe losses, partly offset by
higher underlying underwriting margins
Personal Insurance
: Net written premium skidded 3% year over year to $1.79 billion,
primarily due to lower new business volumes.
The combined ratio deteriorated 1540 basis points year over year
to 89.7% in the fourth quarter of 2012, largely driven by higher
catastrophe losses.
Operating loss of $114 million compared unfavorably with profit
of $77 million in the year-ago quarter largely due to higher
catastrophe loss. However, higher underlying underwriting
margins and higher net favorable prior-year reserve development
limited the downfall.
Dividend and Share Repurchase
Travelers spent $400 million to buyback 5.4 million shares in the
quarter, taking the tally to $1.45 billion spent to buyback 22.4
million shares in 2012. The company is still left with $2.159
billion remaining under its authorization.
The company also paid $178 million in dividends.
Additionally, the board approved a quarterly dividend of 46
cents, payable Mar 29, 2013, to the shareholders of record as of
Mar 8, 2013.
Our Take
Travelers continues with the trend of delivering positive
earnings surprise.
Though its exposure to cat loss weighs on the results, prudent
underwriting practices and favorable prior-year reserve
development managed to limit the adverse affect.
High retention rate, pricing gains, positive renewal rate
changes, and a strong capital position are among the other
positives, which are likely to support Travelers perform better
going forward.
Travelers' continuous share buyback strategy has a positive
impact on earnings per share and also bolsters shareholder value.
Further, Travelers recently increased its stake in J. Malucelli
Participações em Seguros e Resseguros S.A., a market leader in
the surety insurance business in Brazil. Further, it made
some useful investments to augment its technology platform. It
scores strongly with the rating agencies as well.
Travelers presently carries a Zacks Rank #2 (Buy). Among other
property & casualty insurers carrying a favorable Zacks Rank
#1 (Strong Buy),
Cincinnati Financial Corp.
(
CINF
) is scheduled to release its fourth-quarter results on Feb 7,
before the opening bell, while
Fidelity National Financial, Inc.
(
FNF
) will report on Feb 19, after the closing bell.
First American Financial Corporation
(
FAF
) is scheduled to release its fourth-quarter results on Feb
21.
CINCINNATI FINL (CINF): Free Stock Analysis
Report
FIRST AMER FINL (FAF): Free Stock Analysis
Report
FIDELITY NAT FI (FNF): Free Stock Analysis
Report
TRAVELERS COS (TRV): Free Stock Analysis
Report
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