Travelers Cos., the only property-casualty insurer in the Dow Jones Industrial Average, said fourth-quarter profit fell 17 percent as investment income declined on low bond yields and valuations for energy-related holdings.
Net income dropped to $866 million, or $2.83 a share, from $1.04 billion, or $3.11, a year earlier, when the company had a greater benefit tied to reserves, the New York-based insurer said Thursday in a statement. Operating profit, which excludes some investment results, was $2.90 a share, beating the $2.66 average estimate of 26 analysts surveyed by Bloomberg.
The insurer posted a combined ratio of 86.6, meaning it retained 13.4 cents of each premium dollar after claims and expenses. That worsened from a ratio of 85 in the fourth quarter of 2014. Catastrophe costs were $46 million before tax, compared with $41 million a year earlier.
Alan Schnitzer is reporting earnings for the first time since taking over as chief executive officer for Jay Fishman, who steered the company through the financial crisis then stepped down early last month while fighting amyotrophic lateral sclerosis. Schnitzer has been confronting a decline in investment income after near-record-low bond yields pressured results. In his previous role at Travelers, he ran the business- and-international insurance segment, and worked with Fishman to improve margins by raising rates on the least profitable accounts.
Investment income slumped 14 percent to $440 million. The contribution from non-fixed-income holdings plunged to $25 million from $67 million, “primarily impacted by lower valuations for energy-related investments,” the company said. More than 90 percent of the portfolio is in fixed income.
Travelers fell 2.1 percent in the past year through Wednesday, compared with a 10 percent drop of the 30-company Dow Average. Book value, a measure of assets minus liabilities, climbed to $79.75 a share from $79 on Sept. 30.
The return on equity in the fourth quarter was 14.5 percent, compared with 16.6 percent in the last three months of 2014. ROE for the year dropped to 14.2 percent, from 14.6 percent in 2014. Annual net income slipped 6.9 percent to $3.44 billion.
Net written premiums of $5.864 billion were about on par with the same period in 2015. Travelers said the results benefited from from positive renewal premium increases, strong retention and increases in new business volumes in each segment, offset by the impact of changes in foreign currency exchange rates.
Policy sales were $5.86 billion in the fourth quarter, little changed from a year earlier. Travelers charged domestic business insurance customers 2.4 percent more at renewal in the three months ending Dec. 31, according to a slide presentation. That compares with an increase of about 3.2 percent in the third quarter.
The gain from reserves narrowed to $292 million pretax from $351 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.
Travelers repurchased $1 billion of its own stock in the fourth quarter and $3.22 billion in the year.
*Carrier Management added additional material to this story concerning net written premiums.