The Travelers Companies today reported net income of $925 million for its 2013 second quarter, an 85 percent jump from $499 million net income posted a year ago. The insurer credited lower catastrophe losses and continued improvement in underlying underwriting margins.

The net income for the first six months of 2013 came in at $1.821 billion, up 40 percent from $1.305 billion a year ago.

Travelers also announced today its plan to cut auto insurance rates and steps to lower operating expenses at its auto unit — including layoffs — in the face of increasing competition.

Travelers’ Chief Operating Officer Brian MacLean said during an earnings conference call this morning that his company will notify approximately 450 employees this week that their positions are being eliminated. The company will also reduce positions through attrition.

“We expect to reduce our claim and other insurance expenses, such that we realize a savings of $140 million, pretax, when fully implemented,” MacLean said. “This represents about a 10 percent reduction in our unallocated claim and other insurance-expense base in personal insurance.” The company will begin realizing some savings immediately and they will be fully realized in 2015, MacLean said.

CEO Jay Fishman commented during the conference call that in personal insurance, “we have also had the strategy of improving profitability through higher pricing.”

But, Fishman added, “What has become apparent to us in the auto insurance line is that the combination of the rapid adoption of the comparative rater technology in independent agent offices — which now is the source of a substantial amount of the quotes that we issue — and the changing consumer expectations for this product has impacted our new business volume meaningfully.”

“Consequently,” Fishman said, “we have concluded that to improve profitability and to create long-term value, we must have a more competitively priced product.”

“By leveraging technology and taking other actions, we will make substantive changes to our business processes that we expect will allow us to meaningfully reduce cost without impacting service or quality,” he said. “Through these actions, we expect to be able to more competitively price our product and improve our profitability.”

Travelers said the personal Insurance net written premiums of $1.907 billion for the second quarter represent a 5 percent decrease from a year ago. The company said the decline was mostly due to lower new business volumes in both automobile and homeowners and other — largely as a result of the company’s pricing strategy, increasing deductibles and other profitability improvement initiatives. In the agency auto segment, which represents auto businesses sold through agents, brokers and other intermediaries and excludes direct to consumer, net written premiums for the latest quarter were $834 million, a 7 percent decline from a year ago.

Travelers’ Q2 Results

Overall, Travelers showed improved underwriting results. The company said the GAAP combined ratio improved to 94.3 percent for the 2013 second quarter, down 6.2 percentage points from 100.5 percent one year ago. For the first six months of 2013, the GAAP combined ratio was 91.4 percent, improving 4.9 percentage points from 96.3 percent a year ago.

The insurer reported underwriting gain of $281 million, pre-tax, for the second quarter, improving from an underwriting loss of $62 million a year ago. Catastrophe losses, net of reinsurance, were $340 million for the second quarter, down from $549 million loss a year ago.

The underwriting gain for the first six months of the 2013 came in at $883 million, pre-tax, up from $331 million. Catastrophe losses for the first half of 2013 were $439 million, falling from $717 million one year ago.

The net written premiums for the latest quarter fell slightly to $5.824 billion, down 0.75 percent from $5.868 billion a year ago. The net written premiums for the first six months of 2013 were $11.421 billion, up 0.49 percent from $11.365 billion one year ago.

Net investment income for the second quarter was $687 million, down from $738 million one year ago. For the first half of 2013, net investment income was $1.357 billion, falling from $1.478 billion reported a year ago.

“Results for the quarter were very strong, with net income of $925 million and return on equity of 14.6 percent,” commented CEO Jay Fishman. He said operating return on equity was 14.2 percent for the quarter and 15.0 percent on a year-to-date basis.

He described it as “a significant improvement over prior year results primarily due to lower catastrophe losses and continued improvement in our underlying underwriting margins.”

Fishman added, “We are very pleased with the pricing levels we achieved, which once again exceeded expected loss cost trends in all segments, while maintaining solid retentions.”

“Across our commercial insurance businesses, our ability to segment, price and select risk positions us well to continue to improve profitability. In Personal Insurance, our strategy of seeking price increases and improved terms and conditions has improved profitability, but it has continued to negatively impact premiums,” Fishman said.

He said that given Travelers’ focus on improving profitability, the underwriting results over recent quarters are gratifying.

However, he added, “given the environment of low interest rates and volatile weather patterns, we will continue to seek higher margins. With improved returns as well as our strategy of returning excess capital to shareholders, we remain well positioned to deliver shareholder value.”

Fishman also commented on Travelers’ recent agreement to acquire The Dominion of Canada. “In June, we reached an agreement to acquire The Dominion of Canada General Insurance Company, part of our strategy of making targeted investments in attractive markets outside the United States,” he said. “The Dominion will significantly improve Travelers’ market position and scale in Canada, and we are very enthusiastic about this opportunity.”