January 22, 2019 / 4:07 PM / 7 months ago

UPDATE 3-Insurer Travelers beats fourth-quarter profit estimates

(Adds details about wildfire risk, new business in California and rate increases, paragraphs 9-10; updates share price, final paragraph)

By Bharath ManjeshR and Suzanne Barlyn

Jan 22 (Reuters) - Insurer Travelers Cos Inc reported better-than-expected fourth-quarter profit on Tuesday, as growth in premiums and investment income offset catastrophe losses related to the California wildfires

U.S. property and casualty insurers have been grappling with losses arising from the California wildfires and Hurricane Michael in October, the fiercest storm to hit Florida in 80 years.

The industry, including Travelers, is also struggling with growing losses in commercial auto insurance. The problem has been acute for several years and is worsening as more plaintiffs’ lawyers jockey to represent accident victims, said Travelers executives during a call with analysts.

Travelers is fielding commercial auto claims for more severe bodily injuries than anticipated, said business insurance head Gregory Toczydlowski. Travelers will seek rate increases as a result, Toczydlowski said.

Travelers recorded quarterly pre-tax catastrophe losses of $453 million related to the wildfires and $158 million due to Hurricane Michael.

Brokerage RBC Capital Markets was expecting catastrophe losses of $450 million from the California wildfires and $200 million from Hurricane Michael in the quarter.

At least eight brokerages cut their earnings per share estimate for the fourth quarter on Travelers after the California wildfires, according to Refinitiv Eikon data.

Insurance claims from the wildfires, including one ranked as the most deadly and destructive in state history, topped $9 billion in December and are expected to grow.

In 2017, Travelers began restricting its underwriting of new business in California due to wildfire risk. Travelers is revamping underwriting procedures, including adding tougher inspections, in hopes that it will reduce the amount of risky new properties it insures, said Michael Klein, who heads Travelers’ personal insurance unit.

The company is also dropping coverage for some policyholders and is speaking to California’s insurance commissioner about rate increases, Klein said.

New York-based Travelers, often seen as a bellwether for the insurance sector, said net written premiums rose 4.2 percent to $6.69 billion.

Net investment income rose 5 percent to $630 million, due to higher returns from its fixed income and private equity portfolio business.

The company reported a combined ratio of 97.5 percent, compared with 95.5 percent a year earlier. A ratio below 100 percent means the insurer earns more in premiums than it pays out in claims.

Net income rose to $621 million, or $2.32 per share, in the fourth quarter ended Dec. 31, from $551 million, or $1.98 per share, a year earlier, that was hit by a one-time charge related to changes in the U.S. tax laws.

On a core basis, the company earned $2.13 per share while analysts were expecting $2.05 per share, according to IBES data from Refinitiv. Total revenue rose 4.6 percent to $7.80 billion.

The company has beaten earnings per share estimates in five out of at least eight quarters, including the latest quarter, according to Refinitiv Eikon data.

Shares of the insurer, a Dow component, have fallen 9.7 percent to $124 in the past year, while the Dow Jones Index has fallen 5 percent in the same period.

Travelers shares were down .65 percent, to $123.20, on Tuesday afternoon. (Reporting by Bharath Manjesh in Bengaluru and Suzanne Barlyn; Editing by Shounak Dasgupta and David Gregorio)

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