The Travelers Co.'s record third-quarter net-income result wasas much a product of a disciplined underwriting strategy as thebenign catastrophe season, company executives say.

Discussing Travelers' third-quarter net income of $864 million, an increase of $531million from the same period last year, Jay Fishman, Travelers'chairman and chief executive officer, says earnings were driven by“superior underwriting results as well as solid investmentincome.”

The result was a combination of “lower weather-related losses,net favorable prior year reserve development as well as thecumulative effect of rate gains that we have achieved over nearlytwo years,” Fishman adds

Discussing rate increases on business insurance, excludingnational accounts, he says written rates rose nearly 8 percent andretention stood at 81 percent.

Turning to personal-lines insurance, auto insurance rates rose 9percent, while homeowners rates rose 12 percent and retentionsremained stable. Fishman adds that in addition to rate increases,the company is seeing improvement in terms and conditions onhomeowners insurance.

“While we are experiencing lower new business volumes, we aretaking the right actions in order to improve our profitability onreturns,” says Fishman.

Fishman went on to explain that while the company is obtainingrate increases, the more important aspect of its performance is its“granularity” in underwriting, taking the time to understand “whichaccounts are in need of improvement and which ones meet or exceedour expectations.”

Fishman notes, “Mother Nature is increasingly unpredictable andwe believe the low interest-rate environment will continue toimpact our business for the foreseeable future. Therefore, we willcontinue to seek improved pricing and take those underwriting stepsnecessary to improve profits and produce higher returns on capital.This remains business as usual for us.”

Brian W. MacLean, president and chief operating officer, saysthe increases insureds are seeing are “broad based” but “auto isseeing a little more heat. We need the rate there. But, by andlarge, it has been across the board with our products.”

He says while retentions have been healthy despite theincreases, what the company is “obsessing about” is that it keepsthe right accounts—accounts where the combination of underwritingand losses still keep the book profitable.

Examining underwriting profitability, Travelers reports athird-quarter combined ratio of 90.3, 14.2 points lower than thesame period last year. For the first nine months of this year, thecombined ratio stands at 94.3, 13.9 points lower than lastyear.

Fishman says he does not believe Travelers' loss in new businessis so much rate driven as it is losing an account because it doesnot fit its underwriting appetite.

“It is more important that we do it right than fix it as we goalong,” says Fishman.