Travelers Expects Q2 Loss From Storms, Civil Unrest, Investments; Modest COVID Impact

July 14, 2020

In a preliminary look, The Travelers Companies said it expects to report a net loss for the second quarter, results that will reflect losses from storms, civil unrest and its non-fixed income investment portfolio.

It also reports it has experienced only a modest effect from the pandemic and economic downturn thus far and that it expects PG&E subrogation recoveries to be recognized in the third quarter of 2020.

For the second quarter of 2020, the company expects a net loss per diluted share of $0.16 and a core loss per diluted share of $0.20, resulting from a high level of catastrophe losses and, as expected, losses in the company’s non-fixed income investment portfolio.

The company’s estimate for catastrophe losses is $854 million pre-tax, net of reinsurance. Catastrophe losses primarily resulted from severe storms in several regions of the United States, as well as events related to civil unrest.

The company expects to report net investment income of $268 million pre-tax, which includes investment income from the fixed income portfolio of $511 million pre-tax and losses in the non-fixed income portfolio of $234 million pre-tax. As the company discussed in its first quarter 2020 earnings disclosure, its non-fixed income returns are generally reported on a one-quarter lagged basis and directionally follow the broader equity markets. Based on its composition, the company’s non-fixed income investment portfolio declined less than the broader equity markets during the first quarter.

In terms of underwriting results, the insurer said COVID-19 and related economic conditions had a modest net impact in the quarter. The company said that insurance losses directly attributed to the coronavirus pandemic of $114 million pre-tax and a $63 million pre-tax reduction in the estimate of ultimate audit premiums receivable were approximately offset by initial estimates of favorable frequency from the shelter-in-place environment, primarily in short-tail lines (net of premium refunds) and other items.

Separately, regarding third quarter 2020 results, the company provided an estimate of its subrogation recoveries related to claims against PG&E Corp. and Pacific Gas and Electric Co. resulting from the 2017 and 2018 wildfires in California. In connection with PG&E’s emergence from bankruptcy, which occurred on July 1, 2020, the company will recognize favorable prior year reserve development related to these claims of approximately $400 million, pre-tax and net of expenses and reinsurance, in its third quarter 2020 results.

Travelers will release its full second quarter 2020 results on July 23.

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