Travelers Earnings Fall 20% in Q2; Net Premiums Down Slightly

Travelers Cos. Inc. said on Thursday that second quarter earnings fell about 20 percent on lower investment income and underwriting profit.

An increase in premium levels helped Travelers’ net policy sales keep pace with a year earlier, but the company earned less on its investments and lost money on private equity and hedge funds.

The insurer reported net income of $740 million for the quarter ended June 30, 2009, compared to $942 million for the quarter ended June 30, 2008. Operating income in the current quarter was $732 million, compared to $918 million, in the prior year quarter.

Travelers reported net written premiums of $5.605 billion compared to $5.629 billion in the prior year quarter. The insurer also recorded combined ratios in Business Insurance of 89.8 percent; Financial, Professional & International Insurance of 90.9 percent; and Personal Insurance of 99.6 percent. The consolidated GAAP combined ratio was 93.2 percent.

“All of our operating dynamics were strong for the quarter,” said Jay Fishman, chairman and CEO. “Retention generally remained at or near historic highs, and we were successful at continuing to achieve rate gains. Rate change was positive in the quarter across each of our three business segments, offsetting lower coverage demands from existing policyholders due to the economic downturn. New business volumes were strong, particularly in Business Insurance.”

“Our operating performance enabled us once again to generate excess capital and we resumed our share repurchases in the quarter. Results in the quarter, along with a significant increase in net unrealized investment gains, also led to an increase in book value. We are pleased that the company is very well positioned to compete successfully in the current marketplace,” concluded Mr. Fishman.

Quarter Highlights:

• Return on equity and operating return on equity of 11.1 percent and 11.3 percent, respectively.
• Net favorable prior year reserve development of $170 million after-tax ($261 million pre-tax), compared to $340 million after-tax ($526 million pre-tax) in the prior year quarter.
• Catastrophe losses of $130 million after-tax ($200 million pre-tax), compared to $231 million after-tax ($356 million pre-tax) in the prior year quarter.
• The current period underwriting gain reflects a GAAP combined ratio of 94.1 percent, excluding net favorable prior year reserve development and catastrophe losses, as compared to 92.9 percent in the prior year quarter. This increase of 1.2 points primarily resulted from reduced underwriting margins related to pricing and loss cost trends and higher non-catastrophe weather-related losses, partially offset by an $87 million pre-tax reduction in the estimate of TWIA assessments related to Hurricane Ike.
• Net favorable prior year reserve development in the current period resulted from better than expected loss experience in each segment, particularly in Business Insurance. Catastrophe losses in the current period were related to several tornadoes and hail storms. In addition, the current period benefited from the resolution of various prior year tax matters.
• Personal Insurance net written premiums of $1.878 billion increased 2 percent from the prior year quarter. This result was primarily due to continued positive renewal premium changes and strong retention rates. The current quarter underwriting result reflects a GAAP combined ratio of 93.6 percent for personal insurance, excluding net favorable prior year reserve development and catastrophe losses, as compared to 89.9 percent in the prior year quarter. This increase of 3.7 points primarily resulted from higher non-catastrophe weather-related losses and the impact of the company’s recently announced direct to consumer initiative, partially offset by a $14 million pre-tax reduction in the estimate of TWIA assessments relating to Hurricane Ike.
• Business Insurance net written premiums were $2.813 billion in the current quarter, increased slightly from $2.805 billion in the prior year quarter. Retention rates were strong. Premium rate trends continued to improve and overall rate changes were positive in the current quarter. However, renewal premium changes were slightly negative as the impact of the positive rate changes was offset by lower coverage demands from existing policyholders due to general economic conditions. New business volumes increased 13 percent from the prior year quarter driven by strong growth in Commercial Accounts, Industry-Focused Underwriting and Select Accounts.
• The current quarter underwriting gain reflects a GAAP combined ratio of 95.5 percent for business insurance, excluding net favorable prior year reserve development and catastrophe losses, as compared to 93.3 percent in the prior year quarter. This increase of 2.2 points primarily resulted from reduced underwriting margins related to pricing and loss cost trends, partially offset by a lower amount of large property losses and a $12 million pre-tax reduction in the estimate of TWIA assessments relating to Hurricane Ike.
• Financial, Professional & International Insurance net written premiums of $914 million declined 7 percent from the prior year quarter. Adjusting for the impact of changes in foreign exchange rates, net written premiums declined 2 percent primarily due to lower business volumes in the construction surety business in the Bond & Financial Products group. The current quarter underwriting gain reflects a GAAP combined ratio of 92.1 percent, excluding net favorable prior year reserve development and catastrophe losses, as compared to 95.3 percent in the prior year quarter. This improvement of 3.2 points primarily resulted from a lower amount of large losses within International.

Source: Travelers

Topics Trends Catastrophe Profit Loss Pricing Trends Underwriting