Travelers Manages Q4 Profit Despite Wildfires, Tax Hit

Property/casualty insurance giant Travelers Companies Inc. reported net income of $551 million for the quarter ended December 31, 2017, a 42 percent drop compared to $943 million in the prior year quarter. The drop was attributable to claims from California’s wildfires and a charge stemming from the new federal tax law.

Net income in the quarter reflected a charge of $129 million related to the passage of the Tax Cuts and Jobs Act of 2017 along with investment gains of $70 million compared to $35 million in the prior year quarter.

Alan Schnitzer, chairman and chief executive officer, said that in a year of high catastrophe losses, the company’s full year results including core income of $2 billion and core return on equity of 9.0 percent demonstrate the value of the company’s franchise and capital management strategy.

“From a position of strength, we continue to invest in our competitive advantages, focusing on extending our lead in risk expertise, improving the experience for customers, agents and brokers, and enhancing productivity and efficiency,” he said. “We are encouraged by the pricing environment, the opportunities afforded by a more level playing field for domestic insurers as a result of corporate tax reform and the prospect of a strengthening economy. We remain well positioned to continue to deliver shareholder value.”

Travelers commercial business continued to perform well and results in personal auto improved due to pricing and underwriting actions begun a year ago.

Overall net written premiums grew by 6 percent in the quarter, including 5 percent in commercial businesses and 8 percent in personal lines. In Business Insurance, domestic renewal premium change was 4 percent, the highest level in three years, and rate increases were implemented broadly across products while maintaining high retention levels. In Bond & Specialty Insurance, domestic surety premiums increased 13 percent. In Personal Insurance, the insurer saw double-digit renewal premium change in auto and continued growth in its homeowners business.

The company’s investment portfolio generated net investment income of $467 million after-tax, enabling the return of $549 million of excess capital to shareholders this quarter. For the full year, Travelers returned more than $2.2 billion to shareholders.

Fourth Quarter Underwriting

Compared to the fourth quarter of last year, the combined ratio of 95.5 for the fourth quarter of 2017 showed an increase of 5.5 points due to higher catastrophe losses (5.3 points) and a higher underlying combined ratio (0.4 points), partially offset by higher net favorable prior year reserve development (0.2 points). The underlying combined ratio remained at 92.4.

Net favorable prior year reserve development occurred in all segments. Catastrophe losses in the fourth quarter of 2017 included $656 million pre-tax ($426 million after-tax) arising out of wildfires in California, partially offset by favorable development of $157 million pre-tax ($102 million after-tax) primarily related to the third quarter 2017 hurricanes.

Full Year Underwriting

The full year 2017 combined ratio of 97.9 increased 5.9 points due to higher catastrophe losses (4.0 points), a higher underlying combined ratio (1.0 point), and lower net favorable prior year reserve development (0.9 points).

Net favorable prior year reserve development occurred in all segments. Catastrophe losses in 2017 primarily resulted from wildfires in California, Hurricanes Harvey, Irma and Maria, and several winter, wind and hail storms throughout the United States.

Record net written premiums of $26.219 billion increased 5 percent.

Business Insurance

The fourth quarter Business Insurance combined ratio of 88.6 was consistent with the prior year quarter. Net written premiums of $3.437 billion increased 5 percent and benefited from higher renewal premium change, continued strong retention and an increase in new business.

The full year Business Insurance combined ratio of 97.8 increased 3.7 points due to higher catastrophe losses (2.6 points) and a higher underlying combined ratio (1.1 points).

Net written premiums of $14.270 billion increased 3 percent for the ear in Business Insurance.

In Business Insurance for the year there was better than expected loss experience in workers’ compensation, general liability product line (excluding an increase to asbestos and environmental reserves) and commercial multi-peril product line for liability coverages, partially offset by an increase to asbestos reserves and higher than expected loss experience in commercial automobile.

Personal Insurance

The fourth quarter loss for Personal Insurance of $50 million after-tax compared to segment income of $107 million in the prior year quarter. The change was due to significantly higher catastrophe losses. The Personal Insurance fourth quarter combined ratio of 108.7 increased 10.7 points due to higher catastrophe losses (15.8 points).

Net written Personal Insurance premiums of $2.381 billion increased 8 percent for the quarter. Agency Automobile net written premiums grew 11 percent, driven by renewal premium change of 11 percent. Agency Homeowners & Other net written premiums grew 4 percent, benefiting from policies in force growth of 5 percent year-over-year and positive renewal premium change.

The full year Personal Insurance combined ratio of 103.1 increased 7.3 points due to higher catastrophe losses (6.8 points). Net written premiums of $9.590 billion increased 9 percent.