Best Insurance stock - Travelers insurance earnings surpassing the Zacks Consensus : The Travelers Companies , Inc. (TRV - Analyst Report) 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.
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 animo 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.
source - Zacks.com