(Adds analyst comment in paragraphs 9 & 10, updates shares in paragraph 2)
April 16 (Reuters) – Insurance bellwether Travelers’ first-quarter profit exceeded analysts’ expectations on Wednesday, as strong underwriting gains helped soften the hit from over $2 billion of catastrophe losses driven by the Los Angeles wildfires.
Shares rose 4%, extending a recovery after tariff-related market turmoil drove them to a three-month low last week.
The results shed a light on the fallout from one of the costliest natural disasters in California’s history, which claimed several lives and destroyed property, with some estimates pegging the economic losses at $250 billion.
Travelers’ catastrophe losses, net of reinsurance, touched a record $2.27 billion for the quarter ended March 31, compared with $712 million a year earlier.
But pre-tax underlying underwriting income grew 32% to $1.58 billion, as demand for insurance coverage stayed resilient.
“We are pleased to report a substantial profit for the quarter despite the devastating January California wildfires,” CEO Alan Schnitzer said.
The company reported a core profit of $443 million, or $1.91 per share, compared with $1.1 billion, or $4.69 per share, last year. Earnings per share were also helped by stock buybacks.
Analysts were expecting a profit of 78 cents per share, according to estimates compiled by LSEG.
“Travelers is enjoying tailwinds across its business,” Morningstar’s senior equity analyst Brett Horn wrote in a note.
However, the company’s shares are “modestly overvalued (as) the market is extrapolating favorable industry conditions too far into the future.”
Insurers in recent years have been battered by natural disasters, especially as events related to extreme weather become more frequent. Some, including Travelers, have tried to reduce exposure to high risk areas.
The industry has often complained of stringent regulation in California, which requires them to seek the state regulator’s nod before raising prices for most policies.
Insurers say this limits their flexibility to adjust prices according to the risk they take on. Coupled with this, the frequent wildfires make the state an “uninsurable” market, some have said.
“Regulatory policies that disconnect pricing and terms from actual risk drive insurers out of the market, reducing competition and limiting consumer choice,” Schnitzer wrote in a LinkedIn post last month.
Still, critics argue that tight controls are necessary to prevent expenses from ballooning in a state where the hidden costs of homeownership — which include taxes, insurance and other bills — are among the highest.
Insurers are also facing potential disruption from tariffs, which could inflate the cost of building materials and auto parts and drive up repair costs. The policy providers will either have to absorb the additional costs or pass them on to consumers through higher premiums.
Since President Donald Trump unveiled sweeping tariffs on April 2, Travelers shares have fallen 5.6%. (Reporting by Niket Nishant in Bengaluru; Editing by Shailesh Kuber)
