(Bloomberg) -- Travelers Cos., the lone property-casualty insurer in the Dow Jones Industrial Average, said first-quarter profit fell 21% as investment income slipped on energy-related bets.
Net income declined to $833 million, or $2.55 a share, from $1.05 billion, or $2.95, a year earlier, the New York-based company said Tuesday in a statement. Operating profit, which excludes some investment results, was $2.53 a share, compared with the $2.52 average estimate of 24 analysts surveyed by Bloomberg. The company announced a $5 billion stock buyback plan and lifted its dividend 11% to 61 cents a share.
Chief Executive Officer Jay Fishman’s company and its peers have been coping with low bond yields. A slump in energy prices has also burdened portfolios.
“Investment income growth will be difficult to generate until interest rates move higher,” Jay Gelb, an analyst at Barclays Plc, said in an April 17 note.
Net investment income fell 20% to $592 million in a portfolio comprised mostly of bonds. Profit from alternative holdings tumbled by more than half to $48 million as the company endured “lower valuations for energy-related investments,” according to the statement. A year earlier, the insurer benefited from better-than-usual results in the non-fixed income part of its portfolio.
Travelers had climbed 0.3% this year through Monday, compared with the 1.2% gain of the Dow Average. The stock advanced 17% in 2014 and 26% the year before.
Policy Sales
Policy sales rose less than 1% to $5.9 billion. Travelers charged domestic business insurance customers 1.4% more at renewal in the three months ending March 31. That compares with an increase of about 4.8% a year earlier. Retention of clients in the segment climbed to 84% from 81%.
“We were particularly pleased that in our domestic business we achieved a record level of retention while posting positive renewal rate change,” Fishman said in the statement.
Fishman, 62, whose company reported profits through the financial crisis, was diagnosed with a neuromuscular condition last year and has cut back on his commitments aside from leading the insurer. He has been CEO since 2004, when he engineered a merger with St. Paul Cos.
Book value, a measure of assets minus liabilities, climbed to $77.96 per share from $77.08 at the end of December. The first-quarter return on equity fell to 13.4% from 16.8% a year earlier.
‘Difficult Winter’
Travelers posted a combined ratio of 88.9%, meaning it retained 11.1 cents of each premium dollar after claims and expenses. That compares with a ratio of 85.7 the previous year. Pretax catastrophe costs increased to $162 million from $149 million a year earlier after a “very difficult winter on the East Coast and prolonged drought on the West Coast,” Fishman said.
The gain from reserves narrowed to $243 million from $294 million a year earlier. Insurers regularly reassess the money they’ve set aside for future claims and can reduce or increase the amount based on revised expectations of losses.
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