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Travelers’ net income up, combined ratio weakens on non-cat weather losses

23rd July 2019 - Author: Luke Gallin

The Travelers Companies, Inc. has recorded net income growth in both the second-quarter and half-year of 2019, while its underlying combined ratio weakened slightly, partly as a result of an increase in non-catastrophe weather-related losses and lower favourable prior year reserve development.

TravelersAt $557 million, the U.S. domiciled insurer’s net income jumped from the $524 million recorded a year earlier, in Q2 2018. For the half-year, the firm’s net income increased by $160 million to roughly $1.4 billion, year-on-year.

According to Travelers, the increase in core income is mostly a reflection of lower catastrophe losses and higher net investment income.

However, while large catastrophe losses declined for the firm in 2019 when compared with last year, elevated non-cat weather-related losses, primarily driven by wind storms across parts of the U.S., meant that the company’s underlying combined ratio weakened to 94.9% in Q2 and 93.3% in H1, compared with 93.6% and 93% in 2018, respectively.

The firm produced a consolidated underwriting gain of $74 million in Q2 2019 and $469 million for the first-half of the year, which is up on both periods in 2018.

Alan Schnitzer, Chairman and Chief Executive Officer (CEO) of Travelers, said: “We are pleased to report solid second quarter core income of $537 million, an increase of 9% over the prior year quarter, and core return on equity of 9.2%.

“The increase in earnings was driven by the successful execution of our strategy to profitably grow our top line and thoughtfully manage our expenses, along with strong performance from our investment portfolio, partially offset by lower favorable prior year reserve development. While catastrophe losses were lower than in the prior year quarter, all-in weather losses were modestly higher, due to higher non-catastrophe weather-related losses which adversely impacted the underlying combined ratio of 94.9% by nearly two points compared to the prior year quarter.

“In addition and to a lesser degree, the change in the underlying combined ratio in the quarter was impacted by a number of favorable items, including lower large losses and improved expense leverage, partially offset by a modest impact from continuing challenges in the tort environment. In terms of capital management, we returned $593 million of excess capital to our shareholders this quarter, including $376 million through share repurchases, bringing the total capital returned to shareholders so far this year to more than $1.2 billion.”

Net of reinsurance, catastrophes totalled $367 million in the quarter and $560 million for the first-half of the year, which is lower than the $488 million and $842 million recorded a year earlier, respectively.

The firm explains that catastrophes had a 5.3% impact on its combined ratio in the quarter, which is down by 2% on the same period last year.

But while the impact of catastrophe was lesser on the combined ratio than in 2018, the firm notes that the combined ratio was negatively impacted by lower net favourable prior year reserve development and also its new catastrophe reinsurance treaty, effective January 1st, 2019.

Impressively, the insurer posted record net written premiums of $7.45 billion for the second-quarter, which reflects growth in all business segments.

The Travelers net investment income, which supported core income growth in the period, reached $648 million in Q2 2019, which is up 9% on the same period in 2018.

“We remain extremely pleased with our performance in the marketplace. We grew net written premiums by 4% to a record $7.5 billion, marking the tenth consecutive quarter in which we generated premium growth in all three of our business segments,” said Schnitzer.

Adding: “Our performance this quarter and year-to-date reflect both the successful execution of our long-term strategy and our relentless execution in the marketplace every day. In an environment of persistently low interest rates, ongoing uncertainty surrounding weather-related losses and a more challenging tort environment, we will continue to leverage the power of our franchise to meet our return objectives, including by selectively and thoughtfully seeking price and improved terms and conditions.

“With leading data and analytics in the hands of our frontline underwriters, the best talent in the industry and deep relationships with our agents and brokers, we remain well positioned to continue to generate industry-leading returns and deliver shareholder value over time.”

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