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Travelers’ Q1 underwriting result dented by higher cat losses & COVID-19

21st April 2020 - Author: Luke Gallin

The Travelers Companies, Inc. has reported a year-on-year decline in net income to USD 600 million for the first-quarter of 2020, as elevated catastrophe losses and charges related to the ongoing COVID-19 coronavirus pandemic dented the insurer’s underwriting performance in the period.

Travelers Insurance umbrellaNet income fell by almost USD 200 million when compared with the first-quarter of 2019, while core income declined from USD 755 million to USD 676 million in Q1 2020.

According to Travelers, the fall in net income is a result of net realised investment losses in the quarter compared with gains in the prior year. The insurer attributes the dip in core income to the higher catastrophe loss experience of the quarter, with pre-tax cat losses reaching USD 333 million in the period, against USD 193 million in the first-quarter of 2019.

Travelers says that catastrophe losses include tornado activity in Tennessee, and also some other wind storms and winter storms in numerous parts of the U.S.

The decline in core income was somewhat offset by a higher underlying underwriting gain (excluding net prior year reserve development of USD 27 million and catastrophe losses). However, the improved underlying underwriting result was negatively impacted by charges of USD 86 million related to the COVID-19 pandemic and related economic conditions.

Overall, the company has reported an underwriting gain of USD 288 million for the first-quarter of 2020 against USD 395 million a year earlier.

At 95.5%, Travelers’ combined ratio weakened from the 93.7% recorded a year earlier. This includes a positive 0.4 percentage point impact on the combined ratio from favourable prior year reserve development, and a negative 4.6 percentage point impact on the combined ratio from catastrophes, net of reinsurance.

In contrast, the firm’s Q1 2019 combined ratio included a positive impact of 0.7 percentage points from favourable prior year reserve development, and a negative impact of 2.8 percentage points from catastrophes.

Commenting on the impact of the COVID-19 pandemic and the company’s first-quarter 2020 results, Chairman and Chief Executive Officer (CEO), Alan Schnitzer, said: “The events of the last few months have been challenging, and our hearts go out to all those affected by the COVID-19 global pandemic.

“We appreciate the thoughtful actions taken by our government leaders, at all levels, to support individuals and businesses. In addition, we would like to extend our deep gratitude for the heroic efforts of healthcare workers and first responders, as well as the contributions from food, delivery and all other essential workers. I would also like to acknowledge and thank my 30,000 colleagues for their exceptional response to this crisis. Due to their commitment, resourcefulness and compassion, we have continued to seamlessly serve our customers, agent and broker partners and communities.”

“As a company, we are grateful that we are in a position to support those impacted by COVID-19, including through customer billing relief, our Stay-at-Home Auto Premium Credit Program, our Distribution Support Plan accelerating the payment of more than $100 million of commissions for agents and brokers and a direct $5 million pledge to assist hard hit families and communities.

“In addition, consistent with 16 consecutive years of dividend increases and as a reflection of confidence in our business, our Board of Directors declared a 4% increase in our quarterly dividend to $0.85 per share. This dividend payment will put much-needed cash into the hands of millions of individuals who own our shares directly and indirectly through their investments in mutual funds, 401(k) plans and other retirement accounts.

“Turning to our financial results for the first quarter, core income was $676 million, and core return on equity was 11.5%. Underlying underwriting income in the quarter was higher than in the prior year period, benefiting from record first quarter net earned premium of $7.2 billion and an underlying combined ratio which improved to 91.3%.

“These strong underlying results, which included the impact of charges related to the COVID-19 pandemic, were more than offset by higher catastrophe losses. Our high-quality investment portfolio generated net investment income of $519 million after-tax. These results, along with our strong balance sheet, enabled us to return $681 million of excess capital to our shareholders this quarter, including $471 million of share repurchases.”

Net investment income during the quarter reached USD 611 million, which is up on the USD 582 million reported a year earlier. However, the insurer’s net income was adversely impacted by realised investment losses of USD 76 million in Q1 2020, versus realised investment gains of USD 41 million in Q1 2019.

Net written premiums jumped by 4% in the first-quarter of the year to above USD 7.3 billion, and Travelers notes that all business segments contributed to quarterly premium expansion.

“Although there are many uncertainties surrounding COVID-19’s impact on our global economy and on us, it has been in the most challenging circumstances that the strength of our AA-rated franchise and the value we provide to all of our stakeholders shine through. Our balance sheet is extremely strong, our debt-to-capital ratio is comfortably within our target range, our holding company liquidity of $1.6 billion is well above our target level and we have a very high-quality investment portfolio.

“We have the talent, technology, risk management processes and procedures, and, importantly, financial strength to manage through these extraordinary times and to continue to deliver meaningful shareholder value over time,” said Schnitzer.

The insurer is one of the first to announce its financial results for the first-quarter of the year, and also one of the first to reveal any financial implications from the COVID-19 pandemic and related economic fallout.

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