Few Ill Winds Boost Travellers Third Quarter

A sharp decline in catastrophe losses combined with higher insurance premium income blew The Travellers Companies, Inc.

third quarter results way past analyst expectations. Shares are trading nearly 4% higher at 74.23 at mid-morning. Catastrophe losses usually peak during the third quarter hurricane and tornado season but, this year, after tax catastrophe losses were only $59 million compared to the $394 million after tax loss recorded in the third quarter of 2011. Management pointed out that the company's combined ratio, a measure of insurance company profitability that excludes investment returns, improved by 14.2 points to 90.3%. (A combined ratio below 100% indicates that a company's insurance business is profitable on a stand-alone basis. A number above 100% indicates that the insurance business lost money—losses and expenses exceeded premium income—during the period under consideration.) Travellers has been successful in pushing for higher premiums to cover increased losses and lower investment returns in the current zero interest rate environment. Retention rates were either stable or improved across all of the company's lines, Business Insurance, Financial Professional & International Insurance and Personal Insurance, despite the higher premiums charged for renewals. Overall, Travellers reported a $514 million underwriting gain during the third quarter, reflecting higher premiums, strong retention rates and lower losses. “We remain committed to continuing to improve profitability through a strategy of actively, but selectively, seeking price increases and improved terms and conditions, given historically low interest rates and uncertain weather patterns,” said Chairman and Chief Executive Officer Jay Fishman. Net investment income declined slightly during the third quarter due to lower reinvestment rates in the long-term fixed income portfolio, which forms the vast bulk of Travellers' investment assets. During the third quarter, the return on the non-fixed income portion of investment assets doubled to $84 million compared to the third quarter of 2011 but was down slightly from the second quarter. Management attributed this to the strong performance of hedge funds and real estate partnerships during the period. Travellers was the first major insurer to report third quarter earnings. Given that catastrophe losses were so light for Travellers, it bodes well for other insurers, including Chubb

, Allstate

and CNA Financial

.