Travelers Companies Inc. posted a sharp decline in quarterly profit but still easily beat Wall Street estimates, and the largest publicly traded U.S. property insurer said it was increasingly optimistic its markets would improve this year.
Travelers also said it would increase its share buyback program to $6.5 billion, which would represent a 30 percent expansion on what it bought back in 2010.
Shares of Dow component Travelers rose 2.5 percent in premarket trading to $57, the highest level since mid-November.
Despite deep-seated pessimism about pricing and competition among property and casualty insurers worldwide in 2011, Travelers said things were actually looking up, with pricing "modestly better" in the fourth quarter than the third.
"Given recent experience, we are more optimistic about an improvement in the operating environment in 2011 than we were in previous quarters," Chief Executive Jay Fishman said in a statement.
That stands in sharp contrast to most analysts, who have said they expect little from property insurers this year given decade-low pricing, heavy competition among carriers with excess capital and the ongoing effects of a weak economy.
Valuations reflect that, with most major property insurers currently trading for less than book value. At the peak of the cycle the sector usually trades for two times book.
"It's hard to say how much of that is the company being positive," Morningstar analyst Drew Woodbury said of the outlook, adding that there are few obvious catalysts for pricing to improve.
Travelers reported a net profit of $894 million, or $1.95 per share Tuesday, compared with a year-earlier profit of $1.29 billion, or $2.36 per share.
In the fourth quarter of 2009, Travelers benefited from reserve releases and lower catastrophe losses, making the comparison with the most recent quarter more difficult.
Net investment income also fell slightly year-on-year, as low interest rates hurt the company's fixed income portfolio.
On an operating basis, Travelers said it grew policies in force in both homeowners and auto insurance, and premiums to renew policies rose. The company also wrote more business insurance and continued to retain existing customers.
Operating earnings, which exclude investment gains and losses, were $1.89 per share. Analysts polled by Thomson Reuters I/B/E/S on average expected earnings of $1.67 per share. That estimate had moved somewhat lower in the last month on fears about weak pricing and catastrophe exposures.
"There (were) not too many surprises ... a little bit less negative than expected," Woodbury said.
Travelers, like most property insurers, had predicted catastrophe losses in the fourth quarter would be typically mild. But analysts feared that severe storms, including flooding in California and a blizzard in the Northeast, might disrupt those forecasts.
That was not the case for Travelers, though. The company said catastrophe losses were $55 million after tax, compared with its late October forecast of $90 million. Its biggest exposure in the quarter was to hail and wind storms in Arizona.
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