Travelers Cos., the lone property-casualty insurer in the Dow Jones Industrial Average, said first-quarter profit slipped 17 percent as catastrophe costs climbed and investment income dropped on lower hedge fund returns. Shares fell the most since August.
Net income fell to $691 million, or $2.30 a share, from $833 million, or $2.55, a year earlier, New York-based Travelers said Thursday in a statement. Operating profit was $2.33 a share, missing the $2.55 estimate of 25 analysts surveyed by Bloomberg.
Chief Executive Officer Alan Schnitzer, who took over late last year for longtime leader Jay Fishman, is confronting near-record-low bond yields and uneven results in some of the alternative holdings — such as private equity and hedge funds. Weather also contributes to volatility, including Texas hail storms in the first quarter.
Net investment income declined to $439 million, from $478 million a year earlier. The contribution from the holdings outside of bonds slumped 31 percent to $33 million.
Challenging Markets
“Returns from our non-fixed-income portfolio, which remained positive, were lower than in the prior-year quarter due to challenging capital market conditions,” Schnitzer said in the statement.
Travelers dropped $4.43, or 3.8 percent, to $111.37 at 9:49 a.m. in New York, the worst fall in the Dow average. The decline wiped out the insurer’s gain since Dec. 31.
Schnitzer posted a combined ratio of 92.3, meaning the insurer retained 7.7 cents of every premium dollar, after claims and expenses. That worsened from a ratio of 88.9 in the first quarter of 2015. Catastrophe costs doubled to $207 million from $106 million a year earlier.
Policy sales advanced 4.6 percent to $6.17 billion. The insurer charged domestic business insurance customers 2.2 percent more at renewal in the three months ended March 31. That compares with a 3.7 increase in last year’s first quarter.
“This quarter’s results were mixed,” Charles Sebaski, an analyst at BMO Capital Markets, said in a note. “While the earnings-per-share miss was mainly a catastrophe-loss issue, which we believe investors should look past, the business insurance segment seems to be showing some early signs of strain from the competitive pricing environment.”
Travelers’ rivals include the larger company that was formed by the combination of Chubb Corp. and Ace Ltd. this year.
Share Buybacks
Return on equity slipped in the first quarter to 11.6 percent, from 13.4 percent a year earlier. Travelers’ book value, a measure of assets to liabilities, rose to $82.65 a share from $79.75 at the end of December. The company repurchased $609 million of its shares in the quarter.
Travelers said Thursday that the quarterly dividend was increased almost 10 percent to 67 cents a share. That compares with the Bloomberg estimate of 63 cents.
“Our results from time to time will be impacted by higher levels of catastrophe losses, as they were this quarter,” Schnitzer said. “But the strength of our franchises, our meaningful and sustainable competitive advantages and our relentless execution have enabled us to deliver industry-leading returns over time.”
The insurer had seven straight annual advances in New York trading through Dec. 31, tied for the longest streak in the 30-company Dow average.
Progressive, Allstate
Schnitzer previously ran the business-and-international insurance segment, and worked with Fishman to improve margins by raising rates on the least-profitable accounts. Fishman kept his role as the insurer’s chairman, yielding the CEO job as he fights amyotrophic lateral sclerosis.
Progressive Corp., the first major U.S. property insurers to report results, also was hurt by Texas hail storms in the early part of this year. First-quarter net income fell 13 percent to $258.2 million, the Mayfield Village, Ohio-based company said last week.
Allstate Corp., the largest publicly traded U.S. home and auto insurer, said Thursday that catastrophe losses were about $538 million in the first quarter, led by costs tied to hail in southern states. The Northbrook, Illinois-based company’s stock dropped 1.5 percent. The insurer is scheduled to report complete results on May 4. Click here for related story.