Travelers Grew Q4 Profit Despite California Wildfire, Hurricane Michael Losses

January 22, 2019

Travelers Cos. reported that despite catastrophe losses from the California wildfires and Hurricane Michael, it boosted its profit in the fourth quarter of 2018 thanks to growth in premiums and investment income.

Net income rose to $621 million from $551 million for the prior year quarter.

The insurer reported $453 million in pre-tax catastrophe losses from the wildfires and $158 million due to Hurricane Michael in the quarter.

Net written premiums for the quarter rose four percent to $6.69 billion, reflecting growth in all segments. Retention remained high and new business increased across all segments.

Net investment income came in at $630 million, a five percent improvement.

The combined ratio of 97.5 percent compared with 95.5 percent a year earlier.

For the full year 2018, compared to full year 2017, net income of $2.523 billion increased $467 million due to higher core income and a $129 million charge in the prior year related to the passage of the trump tax cut. The combined ratio for the year of 96.9 improved 1.0 points due to lower catastrophe losses (1.3 points). Net investment income of $2.474 billion pre-tax ($2.102 billion after-tax) increased three percent for the year.

Record net written premiums of $27.708 billion increased six percent for the full year.

Travelers returned $375 million of excess capital to shareholders in the fourth quarter, including $170 million of share repurchases. For the full year, it returned more than $2.1 billion of excess capital to shareholders, including $1.3 billion in share repurchases.

“These results demonstrate the strength of our franchise. We continue to pursue our ambitious innovation agenda and identify opportunities to leverage our long-standing competitive advantages in a rapidly changing world,” said Alan Schnitzer, chairman and chief executive officer, in prepared remarks.

Business Insurance Segment

Income for the Business Insurance segment for the quarter was $391 million after-tax, a decrease of $246 million compared to last year’s quarter. A lower underlying underwriting gain was primarily driven by higher loss estimates in the domestic commercial automobile line for bodily injury liability coverages. The quarter’s Business Insurance combined ratio of 99.4 increased 10.8 points.vNet written premiums of $3.533 billion increased three percent.

Business Income for the full year 2018 reported income of $1.638 billion after-tax, an increase of $25 million. A lower underlying underwriting gain was primarily driven by higher loss estimates in the domestic commercial automobile line for bodily injury liability coverages. The combined ratio of 99.1 increased 1.3 points. Net written premiums of $14.956 billion increased five percent .

Bond and Specialty Segment

Fourth quarter income for Bond & Specialty Insurance was $220 million after-tax, an increase of $108 million. The combined ratio of 64.8 improved 18.9. Net written premiums of $657 million increased eight percent.

For the full year 2018, income for Bond & Specialty Insurance was $793 million after-tax, an increase of $237 million. A higher underlying underwriting gain primarily resulted from a charge for a single international surety loss in 2017 and higher business volumes. The combined ratio of 69.0 improved 8.4 points. Net written premiums of $2.528 billion increased seven percent.

Personal insurance

Fourth quarter income for Personal Insurance was $32 million after-tax, compared to a loss of $50 million in the prior year quarter. The quarter benefited from a higher underlying underwriting gain, lower catastrophe losses, higher net favorable prior year reserve development and higher net investment income. The higher underlying underwriting gain was primarily driven by earned pricing that exceeded loss cost trends in Agency Automobile, partially offset by higher non-weather related losses in Agency Homeowners & Other. The combined ratio of 102.6 improved 6.1 points. Net written premiums of $2.501 billion increased five percent.

For the full year, income for Personal Insurance was $297 million after-tax, an increase of $169 million. Income benefited from a higher underlying underwriting gain, higher net favorable prior year reserve development, higher net investment income and lower catastrophe losses. The higher underlying underwriting gain was primarily driven by earned pricing that exceeded loss cost trends in Agency Automobile, partially offset by higher non-catastrophe weather-related losses and non-weather related losses in Agency Homeowners & Other. The combined ratio of 100.6 improved 2.5 points. Net written premiums of $10.224 billion increased seven percent.

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