Travelers Q2 Profit Rises 85%; Auto Unit Layoffs Planned

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

Travelers’ Chief Operating Officer Brian MacLean said during the July 23 earnings conference call that his company is notifying approximately 450 employees that their positions are being eliminated. Travelers 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, “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.”

Overall, Travelers showed improved underwriting results. The GAAP combined ratio improved to 94.3 percent for the second quarter, from 100.5 percent a year ago. Catastrophe losses, net of reinsurance, were $340 million, down from $549 million losses a year ago.

Net written premiums were $5.824 billion, down 0.75 percent from $5.868 billion a year ago. Net investment income was $687 million, down from $738 million a year ago.

In Business Insurance, the retention and renewal premium change for the quarter were in line with recent periods, at 80 percent and nearly 9 percent, respectively – while new business volume fell slightly. Business Insurance net written premiums were $3.068 billion, up 1 percent from a year ago. The combined ratio was 96.2 percent.

Personal Insurance net written premiums were $1.907 billion, down 5 percent from a year ago. In auto, the retention was 80 percent and the renewal premium change was over 8 percent, in line with recent periods. Net written premiums and new business volume were down year-over-year. In homeowners, the renewal premium change was over 11 percent. Retention was steady at 83 percent, while the new business volume was down slightly. The Personal Insurance combined ratio was 94.5 percent.

In Financial, Professional & International Insurance, the combined ratio was 86.3 percent. Net written premiums rose 1 percent to $849 million, driven by Bond & Financial Products reflecting higher volumes in construction surety and renewal rate increases in management liability.

Topics Auto Profit Loss