Travelers Reports Catastrophe Losses Hurt Profits in Q1

April 23, 2010

The Travelers Cos. Inc. reported net income for the first quarter 2010 dropped just $15 million, to $647 million in Q1 2010, compared to $662 million in Q1 2009. Operating income in the current quarter declined as well to $631 million compared to $799 million in the prior year quarter.

In an unusually high catastrophe quarter for the insurer, the combined ratio rose to 96.4 percent in the first quarter 2010, compared to 90.6 percent in the prior year quarter.

Even with significant catastrophe losses in the first quarter, Travelers reported net income per diluted share of $1.25, return on equity of nearly 10 percent and growth in book value per share of 2 percent from year-end 2009, said Jay Fishman, chairman and CEO.

“The impact of the catastrophes in the quarter was largely offset by favorable prior year reserve development and other favorable items, and as a consequence, our operating income of $1.22 per diluted share was consistent with our expectation going into the quarter as well as our full year guidance,” Fishman said in a statement. “Our underwriting fundamentals were strong, as evidenced by retention rates continuing at high levels, positive renewal rate changes on premiums and non-weather-related loss trends remaining within expectations.”

Operating income of $631 million after-tax in the current quarter decreased $168 million from the prior year quarter.

Net written premiums of $5.251 billion in the current quarter increased 1 percent from the prior year quarter.

Retention rates remained high and the impact of renewal rate changes on premiums remained positive. New business volumes increased slightly from the prior year quarter due to Personal Insurance and Financial, Professional & International Insurance, partially offset by a slight decrease in Business Insurance.

The current quarter underwriting gain excluding net favorable prior year reserve development and catastrophe losses reflected a GAAP combined ratio of 93.0 percent, as compared to 93.9 percent in the prior year quarter.

After-tax net investment income increased 29 percent from the prior year quarter.

“The insurance market remains broadly consistent with the expectations we had at the beginning of the year and available investment returns have remained at relatively low levels,” Fishman said. “Consequently, our strategy continues to be to seek premium rate gains where needed and to aggressively return excess capital.”

Business Insurance

Brian MacLean, president and chief operating officer, reported that the Business Insurance segment results in the quarter reflected an operating environment that was fairly similar to fourth quarter 2009.

“Renewal rate gains were fairly similar to last quarter, retention rates remained at high levels and the flow of new business opportunities increased, all speaking positively to the value we provide to the market,” he said. “Loss cost trends remained within our expectations and continued to modestly outpace earned rate increases, consistent with our view for full year 2010.”

Operating income in the current quarter of $567 million after-tax increased $20 million from the prior year quarter.

The decrease in the underwriting gain in the current quarter reflected a GAAP combined ratio of 91.4 percent, as compared to 89.0 percent in the prior year quarter.

The current quarter underwriting gain excluding net favorable prior year reserve development and catastrophe losses reflected a GAAP combined ratio of 95.5 percent, as compared to 95.2 percent in the prior year quarter.

Business Insurance net written premiums of $2.834 billion in the current quarter decreased 4 percent from the prior year quarter.

Retention rates remained strong and were higher than recent quarters. The impact of renewal rate changes on premiums remained positive, while new business volumes decreased slightly from the prior year quarter.

Select Accounts

  • Net written premiums of $702 million decreased 4 percent from the prior year quarter.
  • Retention rates remained generally consistent with recent quarters.
  • Renewal premium changes remained positive and were higher than recent quarters as renewal rates continued to improve.
  • New business volumes decreased from the prior year quarter mostly due to lower volumes from larger risks served by Select Accounts. New business volumes remained strong from TravelersExpress for smaller businesses.

Commercial Accounts

  • Net written premiums of $706 million decreased 1 percent from the prior year quarter.
  • Retention rates remained strong and increased from the most recent quarter.
  • Renewal premium changes were slightly negative as the impact of positive renewal rate changes on premiums was offset by reduced insured exposures due to lower levels of economic activity.
  • New business volumes were strong and increased from the prior year quarter due to various product and customer initiatives.

National Accounts

  • Net written premiums of $226 million decreased 13 percent from the prior year quarter.

Industry-Focused Underwriting

  • Net written premiums of $569 million decreased 8 percent from the prior year quarter primarily due to market conditions that impacted the company’s Construction and Oil & Gas business units.

Target Risk Underwriting

  • Net written premiums of $412 million decreased 2 percent from the prior year quarter primarily due to market conditions that impacted the company’s Ocean Marine and Inland Marine business units.

Specialized Distribution

  • Net written premiums of $215 million decreased 3 percent from the prior year quarter primarily due to reduced insured exposures resulting from lower levels of economic activity.

Financial, Professional & International Insurance

Travelers reported production was strong across the Financial, Professional & International Insurance segment.

“Strong contributions from our Construction Surety business within Bond & Financial Products and our Lloyd’s operations within International also contributed to production,” MacLean said.

The current and prior year quarters included the following:

Operating income in the current quarter of $86 million after-tax decreased $62 million from the prior year quarter.

The decrease in underwriting results in the current quarter reflected a GAAP combined ratio of 98.9 percent, as compared to 90.2 percent in the prior year quarter.

The current quarter underwriting gain excluding net favorable prior year reserve development and catastrophe losses reflected a GAAP combined ratio of 92.7 percent, as compared to 91.6 percent in the prior year quarter.

Financial, Professional & International Insurance net written premiums of $681 million increased 21 percent from the prior year quarter.

Bond & Financial Products

  • Net written premiums of $362 million increased 8 percent from the prior year quarter.
  • Retention rates were strong and remained consistent.
  • Renewal premium changes were slightly positive.
  • New business volumes decreased from the prior year quarter.

International

  • Net written premiums of $319 million increased 39 percent from the prior year quarter.
  • Retention rates were consistent with the most recent quarter.
  • Renewal premium changes were positive and improved from recent quarters.
  • New business volumes increased from the prior year quarter primarily due to the personal lines business in Ireland.

Personal Insurance

The insurer reported that Personal Insurance results were impacted by the multiple severe storms in the eastern half of the United States in first quarter 2010.

MacLean noted that policies in force in the automobile business grew quarter to quarter for the first time in five quarters, a result of actions taken during the past year. “We believe these actions will continue to provide benefits throughout 2010.”

The current and prior year quarters included the following:

Operating income in the current quarter of $59 million after-tax decreased $95 million from the prior year quarter.

The decrease in underwriting results in the current quarter reflected a GAAP combined ratio of 102.6 percent, as compared to 93.3 percent in the prior year quarter.

The current quarter underwriting results excluding net favorable prior year reserve development and catastrophe losses reflected a GAAP combined ratio of 89.6 percent, as compared to 92.9 percent in the prior year quarter.

Personal Insurance net written premiums of $1.736 billion increased 4 percent from the prior year quarter.

Agency Automobile

  • Net written premiums of $913 million approximated the prior year quarter.
  • Policies in force, which decreased 2 percent from the prior year quarter, increased quarter to quarter.
  • Retention rates were strong and renewal premium changes remained positive.
  • New business volumes increased from the prior year quarter.

Agency Homeowners and Other

  • Net written premiums of $803 million increased 7 percent.
  • Policies in force increased 3 percent from the prior year quarter.
  • Retention rates were strong and renewal premium changes remained positive, both generally consistent with recent quarters.
  • New business volumes increased from the prior year quarter primarily driven by distribution and geographic expansion.

Source: Travelers, www.travelers.com.

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