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Investment income decline hits Travelers profit

Investment income decline hits Travelers profit

A major decline in net investment income adversely affected Travelers Cos. Inc.'s fourth-quarter and full-year 2015 earnings, the insurer reported Thursday, but analysts saw stability in the quarterly results.

Net income in the fourth quarter of 2015 declined by 16.6%, to $866 million compared with the same period in 2014 due to decreased operating income and net realized investment losses, according to the company's earnings statement, published Thursday morning.

Net investment income in the fourth quarter of $440 million after tax decreased 14.2 from the fourth quarter of 2014 primarily due to lower returns in both the insurer's nonfixed income and fixed income portfolios, with nonfixed income returns mainly affected by lower valuations for energy-related investments, according to the insurer's statement.

Travelers reported $5.86 billion in net written premiums for the quarter, a nearly flat increase of 0.5% over the prior-year quarter.

The insurer's combined ratio deteriorated to 86.6% in the fourth quarter from 85% in the prior-year quarter, primarily due to lower net favorable prior year reserve development and a higher underlying combined ratio caused by higher noncatastrophe weather-related losses, according to the insurer's statement.

“Our underwriting results across the board remain strong,” Alan Schnitzer, who assumed the role of CEO on Dec. 1, said during the company's earnings conference call on Thursday.

Mark Dwelle, Richmond, Virginia-based director of insurance equity research for RBC Capital Markets L.L.C., said the firm was “very impressed” with the results, particularly in the small-market portion of Travelers' business insurance division.

A research note published by Nomura Securities International Inc. analyst Cliff Gallant in San Francisco called the fourth-quarter results “generally stable.”

“Growth is tough, but profitability is being maintained,” Mr. Gallant said.

Mr. Dwelle called the investment income losses the “biggest negative” as the energy-related investment figures were weaker than expected, a weakness likely to continue in 2016.

Full-year results

Net income of $3.44 billion in the full year of 2015 decreased 6.9%, according to the statement.

Net written premiums for 2015 were $24.12 billion, an increase of 0.9% over 2014.

The full-year combined ratio improved to 88.3% from 89.0% due to lower catastrophe losses and partially offset by a slightly higher underlying combined ratio, according to the statement.

“The full-year numbers were also excellent, and they certainly benefitted from modest (catastrophes) and good reserving,” Mr. Dwelle said.

Mr. Schnitzer was asked about the evolution of the insurance industry, namely in the form of mergers and acquisitions such as the one between merged rivals Ace Ltd. and Chubb Corp., now operating as Chubb Ltd.

“We're very aware and deeply engaged,” he said. “As we think of everything that's got the potential to change in this marketplace, nothing is going to change overnight. What we've got great confidence in is our positioning to manage all of them. We've got the power. We've got the resources. We've got a deep understanding of risk and reward. We've got no distractions. We see more opportunity than we do risk.”

Chubb and American International Group Inc. are not major competitors for Travelers' customer base, Mr. Dwelle said.

“Travelers' bread and butter has always been the small and middle market,” he said. “Travelers can probably benefit by doing what it does best and meeting the needs of its customers.”

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