Travelers Beats the Bears and Smashes Earnings Expectations

Plant Money

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Travelers Cos. (NYSE:TRV) climbed as much as 2 percent during Tuesday morning trading after reporting strong third-quarter earnings. The insurance company reported net written premiums (a proxy for revenue) of $5.71 billion, effectively flat with last year and slightly below analyst expectations of $5.74 billion. Total revenues declined 1 percent on the year to $6.45 billion. Net income increased 4 percent on the year to $2.30 per diluted share, smashing the mean analyst estimate of of $2.07 per share. Operating earnings came in at $2.35 per share.

Travelers Cos., one of the largest insurance companies in the United States, reported an operating return on equity of 15.2 percent in the third quarter, down slightly from 15.5 percent in the year-ago period but up 2 percentage points year t0 date. Total operating income increased 2 percent on the quarter to $883 million, and is up 20 percent to $2.6 billion for the nine months ended September 30.

“The current quarter benefited from earned rate increases exceeding loss cost trends in each segment, largely the result of the pricing strategy we have been pursuing since the middle of 2010, low weather-related losses and meaningful net favorable prior year reserve development,” said Chairman and CEO Jay Fishman.

“We continue to be pleased with the execution of our granular pricing strategies in our commercial lines businesses,” Fishman continued in the report. “Retention and renewal rate change levels remained strong and consistent with recent quarters, while new business was up slightly from the prior year quarter. We intend to stay the course on this strategy as our expectations of more volatile weather patterns and continued low interest rates have not changed.”

Travelers authorized an additional $5 billion share repurchase program and declared a quarterly dividend of 50 cents per share.

American International Group (NYSE:AIG), a larger insurance company with a slightly more dramatic history than Travelers, will report earnings on October 31. Analysts are expecting revenue to fall about 1.4 percent on the year to $8.63 billion and for earnings to decline to 94 cents per share from $1. These estimates are approximately in line with the type of year-on-year declines analysts expected from Travelers.

Both companies have performed well on the stock chart this year to date, but AIG has had better relative performance. AIG stock is up 42 percent this year to date with fairly consistent growth, while Travelers has climbed 19 percent and has floundered over the past few months. AIG has become a favorite pick among hedge fund managers now that the dust of the financial crisis is mostly settled.

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