Wall Street Applauds Asbestos Charge at Travelers

The asbestos bug is taking a big bite out of fourth-quarter earnings at Travelers Property Casualty(TAP.A - Cramer's Take - Stockpickr), as the insurer is taking a $1.3 billion after-tax charge to boost its reserves to pay for asbestos-related claims.

The charge will wipe out all of Travelers earnings for last year and result in a loss of $793 million, or 79 cents a share, in the fourth quarter. For the year, the company will post a net loss of $27 million, or 3 cents a share.

But Wall Street's initial take on the hefty charge is that it's good news for Travelers. The Street sees the charge as an attempt by the Connecticut-based property-and-casualty firm to come to grips with its potential exposure in a wave of asbestos cases now clogging the state and federal courts. Shares of Travelers at midday were up 84 cents, or 5%, to $16.68 -- the highest the stock has traded since last August.

Travelers, spun off last March by Citigroup(C - Cramer's Take - Stockpickr) in a monster $3.5 billion initial public offering, has long traded well below its $18.50 offering price, in part because of the uncertainty of the insurer's asbestos exposure.

"The single worst thing for any stock is uncertainty, and this eliminates a huge level of uncertainty that was overhanging Travelers stock," said Michael Paisan, a Legg Mason insurance analyst, who long has had a buy recommendation on Travelers' stock.

Travelers announced the charge after conducting a three-month review of its potential asbestos liability by reviewing the outcome in past settlements and reviewing the claims pending against 1,100 of its policyholders.

The Travelers action comes at a time when a number of companies, including Halliburton(HAL - Cramer's Take - Stockpickr) and Honeywell(HON - Cramer's Take - Stockpickr), have announced billion-dollar settlements in pending asbestos lawsuits. Halliburton, for instance, is paying $4 billion to settle 300,000 asbestos cases, with much of that coming from the oil service company's insurers.