Third-Quarter Report Shows Profits Recovering at Travelers

Travelers Companies Inc. reported $864 million in net profits for its third quarter, as the insurer saw a steep dive in losses from catastrophes, higher revenues and steady customer retention.

In a conference call with investors, Travelers chairman and CEO Jay S. Fishman said he was “very pleased” with financial results that showed “a very strong third quarter.”

The quarterly profits signify a whopping 159 percent boost compared with the same period last year, when the insurance carrier reported $333 million in profits.

A sharp drop in catastrophe-related losses was a chief reason for the strong financial results. While the third quarter of 2011 saw $394 million in losses due to serious natural disasters, this year’s third quarter saw only $59 million.

Fishman said that “benign weather” throughout this year’s third quarter, along with a “low-interest rate environment” is shaping its future financial strategy.

The company increased third-quarter investment income in 2012 compared with 2011, jumping from $32 million to $61 million.

Retention Key in Auto Lines

Retention was a bright spot for auto insurance. Retention rates held steady throughout the year for auto policies, hovering from 82 percent in the first quarter to 81 percent in the latest quarter.

“Retention rates remained strong and generally consistent with recent quarters,” the insurance provider stated in its financial report.

In 2011, customer retention in that line of business stayed at 83 percent throughout the year.

Pricing Plans Drive Growth, Insurer Says

Rates for personal coverage of all kinds rose, with auto premiums jumping 8.7 percent for renewing customers this quarter, an increase of 3.3 percentage points compared with the second quarter. The rate of premium increases accelerated this year compared with last year, when rate increases rose less than 1 percentage point from the second to third quarter.

With low interest rates and a mild weather season leaving an opening for further profitability, the insurance carrier said it would conduct “business as usual” and take advantage of price increases across the board.

“We remain committed to continuing to improve profitability through a strategy of actively, but selectively, seeking price increases and improved terms and conditions, given historically low interest rates and uncertain weather patterns,” said Fishman during the conference call.

Brian MacLean, Travelers’ president and CFO, said that rate increases are “pretty broad-based,” with worker’s compensation and auto lines seeing the most hikes. However, he said, the range of increases across all lines was 6 to 10 percent for the quarter.

“By and large, it’s been across the board with our products,” he told investors.

An upward trend in bodily injury costs has driven up the costs of both commercial and personal auto lines, according to MacLean.

The pricing strategy has made it more difficult to attract new customers throughout all lines of business, including auto. Travelers saw $103 million in new auto policies in the third quarter, dropping from $107 million in the second quarter and $135 million in the first quarter. It was significantly less compared with the same quarter last year, when the insurer reported $161 million in new auto business.

However, MacLean said the insurance carrier was satisfied with its pricing plans and that investors should not expect it to be a “one-size-fits-all strategy.”

“Over time, pricing on the new business we have written has improved,” he said. “Given our strategy to improve margins, we are very comfortable with the volume trade-off.”

Travelers Holds Ninth-Highest Place in Market

Travelers remains one of the top 10 personal auto insurance companies in terms of market share, according to the most recent data from the National Association of Insurance Commissioners (NAIC). The NAIC rankings show that Travelers holds a little over 2 percent of the market, putting it ninth in the listings. Travelers is trailed by American Family, which has 1.8 percent of the market, and is behind Nationwide, which has a little over 4 percent of the market.

Progressive, which holds the fourth-highest market share in the NAIC rankings, also reported a strong financial showing for its third quarter after liquidating more than $500 million in stocks. Liberty Mutual, which has the seventh-highest market share, will release its third quarter earnings report next week.

To read about the experiences of current and former Travelers policyholders, readers can find user-submitted Travelers auto insurance reviews online.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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