Travelers Profit Soars to $864M in Q3 as Catastrophe Losses Fall

October 18, 2012

The Travelers Companies Inc. reported today $864 million net profit for the third quarter — up 159 percent from the same period a year ago when the insurer posted a $333 million profit.

Travelers’ latest earnings were boosted by lower catastrophe (CAT) losses as well as continued premium rate increases and higher underlying underwriting results.

Net written premiums for the quarter came in at $5.697 billion, essentially unchanged from $5.672 billion reported one year ago.

The CAT losses for the quarter were $59 million after-tax — a significant drop from the $394 million CAT losses after-tax reported during the prior-year quarter — despite some industry-wide concerns for events such as Hurricane Isaac this past August.

The GAAP combined ratio for the quarter was 90.3 percent, improving from 104.5 percent one year ago. This improvement of 14.2 points in the combined ratio was mostly due to lower CAT losses (9.2 points) and higher underlying underwriting margins (4.9 points), the insurer said. CAT losses in the current quarter were primarily driven by increases in estimated losses related to wind and hail storms that took place in the second quarter 2012.

Net investment income rose to $722 million — up from $690 million a year ago — thanks to strong returns from non-fixed asset investments.

The company said renewal rate gains continued across all segments and that retention rates remained strong across each segment and were generally consistent with recent quarters.

But Travelers said new business volumes were lower than the prior-year quarter in all segments — largely as a result of the company’s pricing strategy.

Return on equity for the quarter was 13.6 percent, up from 5.3 percent a year ago.

Travelers CEO Jay Fishman said the company is “very pleased” with the results. “Our underwriting performance reflected a GAAP combined ratio of 90.3 percent, which benefited from lower weather-related losses as well as the rate gains we have achieved during the past year. Net investment income benefited from strong results in our non-fixed income portfolio,” Fishman said.

“We are also very pleased with our continued execution in the marketplace, noting in particular that we once again achieved written rate gains across each of our segments.”

In the Business Insurance segment, Fishman said, the insurer is continuing to leverage its data and analytics to achieve targeted rate gains to drive profitability. “Our results this quarter demonstrate our success in this strategy as our underlying combined ratio improved meaningfully,” he said.

In the Financial, Professional and International Insurance segment, (surety and financial liability coverages, as well as P/C products marketed in the United Kingdom, Canada and Ireland, and on an international basis through Lloyd’s), renewal rate change improvements from recent quarters were driven by the management liability business, which reported rate gains of more than 6 percent, Fishman added.

In the Personal Insurance segment, Travelers again achieved strong increases in renewal premium change, which includes “rate as well as changes in exposure, across the segment,” as well as targeted changes in terms and conditions within Agency Homeowners & Other, the CEO said.

“We remain committed to continuing to improve profitability through a strategy of actively, but selectively, seeking price increases and improved terms and conditions, given historically low interest rates and uncertain weather patterns,” Fishman said.

Looking at financial results for individual segments:

The Business Insurance segment posted underwriting gain of $117 million, in contrast to an underwriting loss of $110 million one year ago. The CAT loss, net of reinsurance, was $33 million, down from $127 million loss one year ago. Net favorable prior year reserve development was $27 million, compared to $17 million one year ago.

The Business Insurance segment’s net written premiums were $2.962 billion for the third quarter, up 5 percent from the prior-year quarter.

This net favorable prior year reserve development follows better-than-expected loss experience in property-related coverages largely for accident years 2009-2011 and in the general liability product line for accident years 2003-2009. These improvements were partially offset by a $108 million after tax increase to asbestos reserves — consistent with the prior year quarter.

The GAAP combined ratio for the Business Insurance segment was 93.3 percent, improving from 105.4 percent.

The Financial, Professional & International Insurance segment reported underwriting gain of $97 million, down from $126 million one year ago. The combined ratio for this segment was 80.2 percent, compared to 76.2 percent one year ago. This increase of 4.0 points in the combined ratio was due to lower net favorable prior year reserve development (7.8 points), partially offset by higher underlying underwriting margins (3.5 points). The Financial, Professional & International Insurance segment’s net written premiums were $729 million, down 10 percent from the prior-year quarter.

The Personal Insurance segment reported underwriting gain of $113 million, improving from an underwriting loss of $201 million one year ago. The CAT loss, net of reinsurance, was $26 million — down dramatically from one year ago when the CAT loss was $265 million. The net favorable prior year reserve development was $42 million, up from $3 million during the prior-year quarter. The GAAP combined ratio for the Personal Insurance segment was 89.7 percent, improving from 115.0 percent a year ago.

This improvement of 25.3 points in the combined ratio in the Personal Insurance segment was mostly due to lower catastrophe losses (19.2 points) and higher net favorable prior year reserve development (3.1 points). The net favorable prior year reserve development in the latest quarter resulted from better-than-expected loss experience in Homeowners & Other attributable to weather-related losses incurred in 2011 and in the umbrella product line for accident years 2007-2010. The Personal Insurance segment’s net written premiums were $2.006 billion — down 2 percent from the prior-year quarter because of lower new business volumes in the automobile business.

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