(Bloomberg) -- Travelers Cos., the only property-casualty insurer in the Dow Jones Industrial Average, said second-quarter profit advanced 19 percent as natural-disaster costs dropped.
Net income climbed to $812 million, or $2.53 a share, from $683 million, or $1.95, a year earlier, the New York-based company said Tuesday in a statement. Operating profit, which excludes some investment results, was $2.52 a share, beating the $2.12 average estimate of 25 analysts surveyed by Bloomberg.
Chief Executive Officer Jay Fishman has focused in recent years on buying back shares rather than pursuing large takeovers. That contrasts with the approach of Ace Ltd., which announced a deal this month to buy Chubb Corp. for more than $28 billion.
Travelers is “probably better off being a big cash cow” than pursuing megadeals, Paul Newsome, an analyst at Sandler O’Neill & Partners, said in an interview before results were announced. “It’s not terribly exciting perhaps, but it can lead to very good long-term shareholders’ value.”
Travelers climbed 2.3 percent to $105 in early trading at 7:36 a.m. in New York. The insurer had slipped 3.1 percent from Dec. 31 through Monday, after rallying at least 17 percent for three straight years.
The operating return on equity was 14.2 percent, compared with 11.4 percent in the second quarter of 2014. Book value, a measure of assets minus liabilities, slipped to $77.51 a share from $77.96 at the end of March.
Flat sales
Policy sales were $6.17 billion and little changed from a year earlier. Travelers charged domestic business insurance customers 1 percent more at renewal in the three months ended June 30. That compares with an increase of about 1.3 percent in the first quarter and 3.7 percent in last year’s second quarter.
The insurer posted a combined ratio of 90.8, meaning it retained 9.2 cents of each premium dollar after claims and expenses. That improved from a ratio of 95.1 percent in the previous year’s second quarter. Catastrophe costs were $221 million before tax, compared with $436 million a year earlier when hail and windstorms pounded the U.S. from the Rocky Mountains to the Tennessee Valley.
Energy investments
The gain from reserves widened to $207 million pretax from $183 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 their expectation of losses.
Net investment income fell to $632 million from $695 million a year earlier. The company, which allocates most of its portfolio to bonds, had lower reinvestment rates on the securities and worse results in the non-fixed-income assets, fueled by lower valuations of energy-related holdings.
Travelers repurchased $801 million of its own stock in the second quarter.
Fishman, 62, who 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.
--With assistance from Sonali Basak in New York.
Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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