Travelers Companies Inc.’s business insurance had renewal premium rate gains of 8 percent for the fourth quarter 2011 and 10 percent for December, said CEO Jay Fishman.
He offered his remarks during the company earnings call held yesterday. Travelers has reported a smaller profit in the fourth quarter compared to one year ago, as it released less money from its reserves than a year earlier. But the company also said it had its biggest rate increases in eight years.
‘Our Franchise Was Strong Enough’
“We believe that our franchise was strong enough that we could seek improved profitability through improved rate terms and conditions without adverse effect to our business…we have proven that to be the case in most of our commercial businesses,” Travelers CEO Fishman said.
The company said the rate on the business insurance it is writing is up significantly in the last six months and is now meaningfully exceeding the current view of loss trend. Renewal premium change of 8 percent for the quarter included pure rate increases of over 6 percent.
This marked the fourth consecutive quarter that Travelers’ business insurance has seen positive rate change on renewed accounts, with the largest increases in workers’ comp and auto.
The company’s December renewal premium change for business insurance was up 10 percent, with pure rate increase of 8 percent for the segment. And from a preliminary look at January business, pure rate gain looks pretty similar to what was achieved in December, Travelers said.
But Fishman assured that his company takes these actions selectively, “where analytics suggest they are warranted, and we try very hard never to be disruptive to our agents or insureds.”
He added that the retention in business insurance for the fourth quarter was at 79 percent. “If you go back to the period in the late ’90s and early 2000s and middle market retention, we struggled to get it above a number that started with a seven. So what’s happening on the business insurance side is just fine.”
“In our judgment, the success we’ve experienced speaks to the value that we bring to agents and customers and the success we’ve had positions the company very well going into 2012. Given our current view of loss trends, we anticipate widening of the underlying underwriting margins in Business Insurance in the first half of 2012.”
The one segment of the business where retention has been lower than others has been in the larger end of ‘Select,'” he said. “You may recall that we define Select as the smallest end, which is highly technological. And then there’s ‘Express Plus,’ which is the larger end of Select,” CEO said.
“That category remains a more challenging pricing environment. It has to do with the way we think that regionals compete and how they view middle-market pricing.”
“They don’t have the technology to really compete effectively at the low end of small commercial. They don’t have the infrastructure to compete effectively at the true middle market business that we define, so they tend to land in that larger end segment,” Fishman said.
“We’ve established our own thresholds for return expectations, and to the extent that we can capture business that meets those return thresholds, we’ll take it, and to the extent somebody else decides they want to take it away from us at a lower price, that’s just fine.”
New Business Pricing Also Rising
New business pricing is also better than it was, CEO Fishman said. “We are comparing new business pricing against the manual rate that we construct. And when you look at that pattern, there are two things that are really encouraging,” he said. One is that there’s clearly lift going on. And two, during the past six-to-eight month, the gap between renewal and new has narrowed.
“And so both of those things give us a pretty good sense of confidence that the pricing for new business is lifting as well.”
Topics Trends Commercial Lines Business Insurance Pricing Trends
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