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Strong investment result & lower cat losses boost Travelers in Q2

20th July 2021 - Author: Luke Gallin

The Travelers Companies, Inc. has reported a significantly improved net income of $934 million for the second-quarter of 2021 on the back of lower catastrophe losses, favourable reserve development, and a vastly improved investment result.

Travelers Insurance umbrellaNet income of $934 million compares with a net loss of $40 million for the second-quarter of 2020, a period which saw Travelers book catastrophe losses, net of reinsurance, of a huge $854 million.

This year, Travelers has recorded Q2 cat losses, net of reinsurance, of just $475 million, which, combined with favourable prior year reserve development of $182 million ($2mn for Q2 2020), contributed to an underwriting gain of $324 million for Q2 2021.

This marks a solid improvement from the $280 million underwriting loss reported by Travelers for the second-quarter of 2020.

Higher net favourable reserve development and lower cat losses helped to strengthen the insurer’s combined ratio, which improved year-on-year by 8.4 percentage points to 95.3%.

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Alongside the better underwriting performance, Travelers has also reported an improvement on the asset side of the balance sheet for Q2 2021, when compared with the prior year period.

Year-on-year, net investment income spiked by $550 million to end Q2 2021 at $818 million, against a gain of $268 million in 2020.

For the quarter, net written premiums increased by 11%, year-on-year, to more than $8.1 billion in Q2 2021.

Although a lower Q2 cat load will be welcomed by Travelers after the carrier suffered a cat bill of $835 million in Q1 2021, the total does take its H1 2021 cat loss total, net of reinsurance, to $1.31 billion, which is actually $123 million higher than what the firm reported for H1 2020.

However, net favourable prior year reserve development only reached $29 million during the first six months of 2020, whereas so far this year that figure stands at $499 million.

All in all, this sees Travelers report an underwriting gain of $541 million for H1 2021 against profit of just $8 million for the same period in 2020.

The combined ratio for H1 2021 stands at 95.9%, which represents an improvement from the 99.5% posted for H1 2020.

Furthermore, net investment income has jumped by a massive $640 million in H1 2021, year-on-year, to more than $1.5 billion for Travelers.

This means that for the first-half of 2021, the firm has reported net income of roughly $1.67 billion, compared with net income of $560 million for H1 2020.

For the six month period in 2021, net written premiums increased by 6% to $15.64 billion, compared with $14.69 billion for the prior year period.

Alan Schnitzer, the company’s Chairman and Chief Executive Officer (CEO), commented: “We are very pleased to report excellent underwriting and investment results, generating second quarter core income of $879 million, or $3.45 per diluted share, and core return on equity of 13.7%.

“Higher underlying underwriting income and net favorable prior year reserve development, as well as a lower level of catastrophe losses, all contributed to higher core income compared to the prior year quarter. Underlying underwriting income benefited from record net earned premiums and a strong underlying combined ratio of 91.4%. Our high-quality investment portfolio generated net investment income of $682 million after-tax, reflecting very strong returns in our non-fixed income portfolio. These results, together with our strong balance sheet, enabled us to return $625 million of excess capital to shareholders this quarter, including $401 million of share repurchases.

“For the quarter, net written premiums grew 11%, or 8% adjusting for the auto premium refunds in the prior year quarter, with each of our three segments contributing. In Business Insurance, net written premiums grew by 5%, with renewal premium change of 9.5% near an all-time high, driven by continued strong renewal rate change and higher insured exposures reflecting higher levels of U.S. economic activity. At the same time, retention was higher reflecting stability in the pricing environment and we grew new business by 9%. In Bond & Specialty Insurance, net written premiums increased by 16%, driven by record renewal premium change of 12.7% in our management liability business, while retention remained strong. In Personal Insurance, net written premiums increased by 16%, or 8% adjusting for the auto premium refunds in the prior year quarter. Policies in force in both Auto and Homeowners are at record levels driven by continued strong retention and growth in new business.

“Our excellent top and bottom line results this quarter and for the first half of the year demonstrate the continued successful execution of our strategy to grow the top line at attractive returns, as well as the effectiveness of our well-defined and consistent investment philosophy. Our focused innovation agenda has been an important contributor to the growth and profitability we have achieved, and we will continue to relentlessly pursue our priorities of extending our lead in risk expertise, providing great experiences to our customers, distribution partners and employees, and improving productivity and efficiency. With the momentum we have and the best talent in the industry, we are well positioned to continue to create meaningful shareholder value over time.”

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