Travelers Sinks After Missed Earnings

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Travelers Companies Inc. (NYSE: TRV) reported its first-quarter financial results before the markets opened on Thursday. The company said that it had $2.16 in earnings per share (EPS) and $6.5 billion in revenue, versus consensus estimates from Thomson Reuters that called for earnings of $2.35 per share and revenue of $6.32 billion. In the same period of last year, Travelers posted EPS of $2.33 and $6.17 billion in revenue.

During the most recent quarter, net and core income in both the current and prior year quarters were affected by significant catastrophe losses of $226 million after-tax ($347 million pretax) and $207 million after-tax ($318 million pretax), respectively. The decreases from the prior-year quarter were primarily driven by lower net favorable prior year reserve development.

Also the current quarter benefited from a $39 million resolution of prior year income tax matters, while the prior-year quarter benefited modestly from the favorable settlement of a claims-related legal matter. Per diluted share amounts benefited from the impact of share repurchases.

In terms of its business segments the company reported:

  • Segment income for Business and International Insurance was $468 million after-tax, a decrease of $8 million, primarily driven by a decrease in net favorable prior year reserve development due to a $51 million after-tax ($62 million pretax) increase in reserves related to the recent Ogden discount rate adjustment.
  • Bond & Specialty Insurance segment income was $129 million after-tax, a decrease of $15 million, due to lower net favorable prior year reserve development, partially offset by the current quarter benefit from a $17 million resolution of prior year income tax matters.
  • Personal Insurance was $79 million after-tax, a decrease of $60 million, primarily driven by a lower underlying underwriting gain as explained below, higher catastrophe losses and no net prior year reserve development compared to net favorable prior year reserve development in the prior-year quarter.

Alan Schnitzer, CEO, commented:

Core income of $614 million and core return on equity of 10.8% reflected unusually high first quarter catastrophe losses that arose from a record number of tornado and hail events. We were pleased with our underlying underwriting results and that loss trends were stable and consistent with our expectations for all of our businesses, including personal auto. We were also pleased with our investment results this quarter. Net investment income, which benefited from strong private equity returns, increased 9% on an after-tax basis over the prior year quarter. Our results enabled us to return $476 million to shareholders, including $286 million in share repurchases, while adding additional holding company liquidity to build flexibility for the funding of the Simply Business acquisition. In recognition of our strong financial position, the Board of Directors declared a 7.5% increase in our quarterly cash dividend to $0.72 per share and authorized an additional $5.0 billion of share repurchases.

Shares of Travelers closed Wednesday at $120.40, with a consensus analyst price target of $121.79 and a 52-week trading range of $103.45 to $125.49. Following the release of the earnings report, the stock was down about 1.2% at $119.00 in early trading indications Thursday.