The Travelers Companies Inc. (TRV) has reported first quarter earnings of $1.22 per share, missing the Zacks Consensus Estimate of $1.38. The company had earned $1.34 in the prior-year period.
The miss primarily stemmed from significant catastrophe losses in the reported quarter from severe winter, wind and hail storms in the eastern United States and the earthquake in Chile. Travelers incurred catastrophe losses of $312 million after-tax, or 61 cents per share, compared with $54 million after-tax or 9 cents in prior-year quarter.
However, the company experienced a significant increase in investment income and favorable prior years’ reserve development. It has also reaffirmed its 2010 operating earnings guidance.
Including the impact of realized investment gains, Travelers reported a net income of $647 million compared with $662 million in the year-ago quarter. However, on a per share basis, the company reported $1.25 versus $1.11 in the prior-year period as a result of the reduction in share count in the reported quarter.
Travelers reported a slight increase in premium writings. Net premiums written were $5.3 billion, up 1% year-over-year. While Personal Insurance segment and Financial, Professional & International Insurance segment reported growth in premiums, it was partially offset by a decrease in the Business Insurance segment, which is attributable to lower levels of economic activity in recent quarters. Retention rates remained high and the company has experienced a slight increase in new business volumes.
However, Travelers reported an after-tax underwriting gain of $80 million, compared with $353 million in the prior-year period. Combined ratio deteriorated to 96.4% from 90.6% reported in the prior-year quarter. The decline reflected significant catastrophe losses in the reported quarter, partially offset by favorable reserve development from prior years.
Travelers reported an after-tax investment income of $610 million, compared with $474 million in the year-ago quarter. This was primarily driven by positive returns in the non-fixed income portfolio in the reported quarter, compared to negative returns in the year-ago quarter, and is mainly due to private equity performance.
Net realized investment gains after-tax were $16 million, compared to realized losses of $137 million in the prior-year period, reflecting significant impairments in the prior-year quarter.
Book value per share was $53.50, up 19% from $45.12 reported a year ago. Adjusted book value per share was $49.60, up 12% from $44.19 reported in the prior-year period. While the statutory surplus was $21.6 billion, the company’s debt-to-capital ratio was 20.9%.
Travelers also remains committed to returning wealth to its investors. The company increased its quarterly dividend by 9% from the prior quarter to 36 cents. This dividend is payable Jun 30, 2010, to shareholders of record as of the close of business Jun 10, 2010.
It has also bought back 27.0 million of its common shares under its share repurchase authorization for a total cost of $1.4 billion. At the end of the first quarter, the company had an unutilized balance of $5.1 billion under its share repurchase authorization.
Outlook 2010
Travelers has reaffirmed its guidance for 2010 operating earnings of $5.20 to $5.55 per share. This forecast includes catastrophe losses of $975 million pre-tax ($640 million after-tax), no additional prior-year reserve development, share repurchases worth $3.5 billion to $4.0 billion for the full year and a low-single-digit percentage decrease in average invested assets.
Travelers is better positioned than many of its peers with a conservative balance sheet and high retention rates. Also, it has survived the economic downturn relatively well. However, the rate of premium growth remains restricted and underwriting margins are under pressure.
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