Travelers’ Profit Up 6% for Q3 on Investment Income, Lower Cat Losses

October 21, 2014

The Travelers Companies Inc. today reported net income of $919 million for the quarter ended Sept. 30, 2014, up more than six percent compared to net income of $864 million in the prior year quarter.

Operating income in the current quarter was up one percent to $893 million, compared to $883 million in the same quarter last year.

Total revenues of $6.886 billion increased seven percent and net written premiums of $6.033 billion increased six percent from the prior year quarter primarily due to the acquisition of Dominion of Canada in November 2013, the insurer said.

The insurer attributed the increases in net and operating income primarily to higher net investment income and lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a slightly lower underlying underwriting gain, which was hit by higher non-catastrophe weather-related losses.

The insurer paid $83 million for catastrophes in the quarter compared to $99 million for the same quarter last year.

“We are very pleased with our results this quarter,” said Jay Fishman, chairman and chief executive officer, citing underwriting performance across all of business segments as reflected in the consolidated combined ratio of 90.0, and higher investment returns driven by private equity performance.

Fishman praised the company’s production for the quarter, citing improved retention within Business and International insurance segments even as the insurer increased rates as well as improved profitability in Bond and Specialty insurance where it also hiked premiums.

He also praised the results in the Personal Auto insurance line, where net written premiums were up three percent from the prior year quarter and policies in force were up one percent from the most recent quarter “as a result of the very successful introduction” of Quantum 2.0 beginning last fall.

He also reaffirmed the company’s pricing and underwriting strategy.

“As we continue to face persistently low interest rates and uncertain weather patterns, we remain focused on delivering superior profitability and returns on equity,” he said. “Consequently, we remain committed to our highly segmented pricing and underwriting strategies, executing on an account by account or class by class basis.”

Q3 Consolidated Underwriting Results

Consolidated underwriting results for the quarter showed that:

  • The combined ratio increased 1.1 points to 90.0 as the benefit of lower catastrophe losses (0.3 points) was more than offset by lower net favorable prior year reserve development (0.9 points) and a higher underlying combined ratio (0.5 points).
  • The underlying combined ratio increased 0.5 points to 90.5 as the benefit of earned pricing that exceeded loss cost trends was more than offset by higher non-catastrophe weather-related losses.
  • Net favorable prior year reserve development occurred in all segments. Catastrophe losses were primarily due to wind and hail storms in several regions of the United States, as well as increases in estimated losses related to wind and hail storms that occurred in the second quarter.

Net investment income of $568 million after-tax ($719 million pre-tax) increased due to strong private equity performance, partially offset by lower reinvestment rates in the fixed income portfolio.

Net written premiums of $6.033 billion increased six percent primarily due to the inclusion of Dominion and domestic business insurance growth within Business and International Insurance.

Q3 Business and International Insurance

For the quarter for Business and International Insurance, net written premiums of $3.560 billion increased 10 percent primarily driven by the inclusion of Dominion. Domestic net written premiums of $3.079 billion increased two percent driven by renewal premium increases..

For the quarter, underwriting results for Business and International Insurance showed that the combined ratio increased 2.5 points to 95.2 as the benefit of lower catastrophe losses (0.9 points) was more than offset by a higher underlying combined ratio (1.7 points) and lower net favorable prior year reserve development (1.7 points).

Bond & Specialty Insurance underwriting results for the quarter showed that the combined ratio improved 12.5 points to 66.9 primarily due to higher net favorable prior year reserve development (8.4 points), an improved underlying combined ratio (4.0 points) and lower catastrophe losses (0.1 points).

Bond & Specialty Insurance third quarter net written premiums increased one percent.

For Personal Insurance for the quarter, operating income of $239 million after-tax decreased $23 million, or nine percent, as the benefit of a higher underlying underwriting gain was more than offset by lower net favorable prior year reserve development and higher catastrophe losses.

The Personal Insurance third quarter combined ratio increased 1.4 points to 86.1 as an improved underlying combined ratio (1.3 points) was more than offset by lower net favorable prior year reserve development (1.9 points) and higher catastrophe losses (0.8 points).

Personal Insurance net written premiums of $1.917 billion were slightly above the prior year period, due to increased new business from the company’s new auto product, Quantum 2.0.

Year-to-Date 2014 Consolidated Results

Net income of $2.654 billion after-tax decreased $31 million, or one percent, due to lower net realized investment gains. Operating income of $2.618 billion after-tax increased $32 million, or one percent, driven by higher net investment income and a higher underwriting gain.

Consolidated underwriting results year-to-date showed that the combined ratio improved 0.3 points to 90.3.

Year-to-date net written premiums of $18.068 billion increased five percent primarily due to the inclusion of Dominion and domestic business insurance growth within Business and International Insurance.

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