U.S. insurer Travelers posts profit beat on underwriting, investments

© Reuters. FILE PHOTO: The logo of Dow Jones Industrial Average stock market index component Travelers Companies is seen in Los Angeles, California, United States, April 27, 2016. REUTERS/Lucy Nicholson

(Reuters) - U.S. property and casualty insurer Travelers (NYSE:TRV) Cos Inc smashed second-quarter profit expectations on Tuesday, helped by higher premiums, lower catastrophe losses and a surge in returns from investments.

The New York-based company, seen as a bellwether for the sector, beat analysts' average earnings per share forecast by more than $1.00, or about 44%.

The company suggested strong profitability would continue, as its ability to raise prices in commercial lines would exceed the rise in losses, or payouts, in the months ahead.

"We expect pricing to outpace loss trends for some time," Alan Schnitzer, Travelers CEO, said on a conference call, referring to the company's business insurance and bond & specialty insurance units.

But a weaker result in Travelers' auto insurance business reflected higher costs and altered driving habits as Americans emerge from COVID-19 isolation. Not only are people driving less at rush hours and more at other times, they tend to be more distracted, Piper Sandler analyst Paul Newsome said.

Travelers noted the soaring cost of used cars had meant higher payouts for accidents.

Travelers shares were down about 0.5% at $150.57 on Tuesday, after rising sharply over the last few weeks.

Travelers' results suggest other insurers will post strong investment returns for the second quarter. Travelers' pre-tax net investment income more than tripled to $818 million, as higher returns on its non-fixed income investments countered weakness in the mainstay fixed-income assets that have struggled due to record-low interest rates.

Travelers said net written premiums, a measure of revenue, jumped 11% to $8.14 billion.

Its adjusted, or core, income totaled $879 million, or $3.45 per share, for the three months ended June 30, far more than the $2.39 analysts had expected, according to Refinitiv IBES data.

In the year-ago period, the insurer reported a loss of $50 million, or 20 cents a share, due to severe storms and claims related to civil unrest.

The reopening of economies with the rollout of COVID-19 vaccinations has provided some respite to insurers, helping Travelers retain customers and expand its auto and homeowners-focused businesses.

The company posted underwriting gains of $324 million for the quarter, compared with a loss of $280 million a year ago.

Catastrophe losses fell to $475 million in the latest quarter from $854 million a year ago.

Total revenues rose 17% to $8.69 billion, and the company said it bought back $401 million worth of shares in the quarter.