Travelers Cos., the only insurer in the Dow Jones Industrial Average, said fourth-quarter profit fell 51 percent as Superstorm Sandy boosted claims costs. The stock gained in early trading as profit beat estimates and the insurer said it was charging policyholders more for coverage.
Net income declined to $304 million, or 78 cents a share, from $618 million, or $1.51, a year-earlier, the New York-based company said Tuesday. Operating profit, which excludes some investment results, was 72 cents a share, beating the 14-cent average estimate of 21 analysts surveyed by Bloomberg.
Sandy lashed New York, New Jersey and Connecticut in October, killing more than 100 people, cutting off electricity to millions of customers and damaging homes, vehicles, commercial property and public infrastructure. The storm may cost the insurance industry as much as $25 billion, according to modeler Risk Management Solutions Inc., making it one of the most expensive natural disasters in U.S. history.
“It was a big hit, but it could have been worse,” Mark Dwelle, an insurance analyst at RBC Capital Markets, said in an interview before results were announced.
Travelers gained 2.7 percent to $78.40 at 7:31 a.m. before the start of regular trading in New York. The company had climbed 24 percent in the 12 months through Jan. 18, beating the 7.3 percent advance for the 30-company Dow average.
Full-year profit advanced to $2.47 billion from $1.43 billion in 2011, when the results were hurt by claims from second-quarter tornadoes and Hurricane Irene. Book value per share, a measure of assets minus liabilities, fell to $67.31 in the fourth quarter from $67.81 at the end of September, the company said in a statement.
Catastrophes cost Travelers $689 million in the quarter after tax and net of reinsurance, compared with $68 million a year earlier, as Sandy boosted claims costs. The insurer spent $1.05 per each premium dollar on claims and expenses in the second quarter, compared with 96 cents a year earlier.
Policy sales climbed to $5.39 billion from $5.26 billion a year earlier. The rates paid by renewing customers rose for all segments, including 8 percent in business insurance.
Chief Executive Officer Jay Fishman, 60, has been boosting the amount Travelers charges customers after storms increased claims costs in recent years and low interest rates reduced income from the company’s bond portfolio.
“Given the continued low interest rate environment and uncertain weather patterns, we will continue to seek improved pricing,” Fishman said in the statement.
Net investment income rose to $556 million from $541 million a year earlier on gains from private-equity bets, according to a presentation on the insurer’s website. Income from the bond portfolio fell to $501 million from $526 million a year earlier, driven by lower reinvestment rates.
The insurer booked a $146 million gain after determining it had more money set aside than needed for claims on policies sold in prior quarters. That compares with a benefit of $83 million a year earlier.
Industrywide, insured losses from natural disasters in the U.S. reached $58 billion in 2012, more than double the average from 2000 to 2011, according to a report this month from reinsurer Munich Re. Sandy was last year’s most costly event.
Federal Reserve policy makers pledged last month to keep interest rates near zero as long as unemployment stays above 6.5 percent and inflation is forecast to be 2.5 percent or less. Unemployment was 7.8 percent in December and has been above the central bank’s target since November 2008.
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