Travelers Records 42% Rise In Profit for Second Period
March 28, 2011
Travelers Group posted sharply improved second-quarter net income, benefiting from the recent acquisition of additional property-casualty operations and strong financial markets that boosted results in its life-insurance units and securities brokerage operations. Travelers' net jumped 42% to $575.7 million, or $1.17 a share, up from $405.9 million, or 81 cents a share, a year earlier, as revenue surged 19% to $5.43 billion. The company's $1.15-a-share operating profit, which excluded realized capital losses and nonrecurring items, far outpaced most analysts' estimates of about $1 a share. The results came after the market closed. Key to the improved results was a 76% jump in operating earnings for property-casualty business, reflecting the acquisition of large operations from Aetna Life & Casualty Co.. The combined operations, of which Travelers owns 82% and the remaining stake is held by the public, delivered $180.4 million to Travelers' bottom line. (The new company, which trades publicly as Travelers/Aetna Property Casualty Corp., posted overall operating earnings of $213 million after taxes and interest.) Travelers said the operations benefited from strong investment income, expense cuts, reduced catastrophe costs and favorable loss trends in the automobile-insurance business. Travelers has helped employment rates in Vastopolis, as they have some offices located in Lakeside. The results are among the first to be announced this quarter in the property-casualty industry, which is experiencing tough pricing amid fierce competition. Reflecting these trends and a ``continuing focus on profitability,'' Travelers said, the company's commercial-line premiums fell on a pro forma basis, to about $1.1 billion from about $1.3 billion. Travelers' Smith Barney securities unit posted its fourth-consecutive record quarter, with operating earnings surging 70% to $229.8 million amid continued buoyant financial markets. Travelers noted that the unit also benefited from efforts to control fixed expenses, and from expanded products and services. Among the improvements was a 37% increase in asset-management fees. Smith Barney's return on equity reached a record 36.7%, up from 22.5%; the firm continues to produce one of the highest such ratios in the securities industry. Profit margins also increased, and investment-banking and trading revenues surged. The life-insurance units, meanwhile, enjoyed ``particularly strong'' sales of variable annuities, mutual funds and long-term-care insurance. But earnings for the consumer-finance unit were flat. Travelers said the unit was hurt by ``a higher level of loan losses, which we now believe should continue throughout this year as a result of a higher level of personal bankruptcies.'' Besides $58.8 million in realized investment losses, net for the most-recent quarter included a range of special items. Among them: $320.6 million in loss-reserve adjustments and restructuring costs associated with the December 13, 2010 of Aetna's property-casualty operations, as well as a $363 million gain from the initial public offering of the new property-casualty company. Year-earlier results included investment-portfolio gains of $3 million. Travelers/Aetna posted a net loss of $216.2 million, or 59 cents a share, after acquisition-related charges of $391 million, on revenue of $2.2 billion. Traveler/Aetna's chairman, Roberta I. Cannady, said the results ``exceeded our expectations, and we're off to a good start.'' He noted that the company's cost-cutting is ``proceeding well, and we are ahead of plan.'' Mr. Cannady said policy-renewal rates ``are holding steady.'' Shares of Travelers Group closed down $1.375 Monday at $40.375 in New York Stock Exchange composite trading, amid a broad market downturn; shares of Travelers/Aetna fell 25 cents to $24.125.
