It’s no surprise that 2008 was a challenging year for most property/casualty insurers. Between hurricanes and an economic dive, insurers have struggled to maintain good standing with the rating agencies that evaluate their financial health.
So if Travelers Cos.’ third-quarter financial results are any indication of what’s to come for P&C reporting, the industry can breathe a sigh of relief.
Today, the commercial and property insurer boosted its quarterly dividend 10%, and authorized an additional $6 billion share repurchase program. The reason: improved stability in capital markets. The company also raised its full-year earnings outlook. Overall, Travelers said net income more than quadrupled to $935 million, or $1.65 per share, from $214 million, or 36 cents per share, a year ago.
According to the Insurance Information Institute, the lack of hurricane activity in 2009, coupled with some improvements in the stock market, is going to have a positive effect on other carriers’ financials as well.
"We should see significantly improved results,'' Bob Hartwig, president of the Insurance Information Institute, a New York-based industry group, told the Associated Press. "The improvement in investment environment and reduction in catastrophe losses are a welcome turn of events.''
Hurricane Ike created $12.5 billion in insured losses, making it the third-most expensive hurricane in U.S. history, according to Insurance Information Institute data. For Travelers, hurricane-related losses had driven Travelers' third-quarter 2008 profit down 82%.
Most insurers in the P&C and life lines of business saw huge losses as the financial crisis hit last year. Some of their losses came from the soured investments in mortgage-backed securities, and some losses came from the stock market dive. Last year, Travelers had $116 million in investment losses in its third quarter.
But analysts point to the Standard & Poor's 500 index jumping almost 15% in this July-September period, compared with the nearly 9% drop during the same quarter last year.
Under increasing pressure to hold solid capital positions in the marketplace, both P&C and life insurers are vulnerable to rating agency downgrades.
The long tail of life insurance business gives carriers a boost from long-term investment income, but last year’s economic downslide caused some life insurers to watch profits turn into losses. So the July-September recovery has proven to provide some relief for these carriers as well. For example, The Hartford Financial Services Group Inc. stock more than doubled during the July-September period, and shares of Prudential Financial Inc. grew 34%. MetLife is also expected to show improved results, say analysts.
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