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Travelers’ Q4 net income rises 50% to record high of $1.3bn

21st January 2021 - Author: Luke Gallin

The Travelers Companies, Inc. has today reported record net income of $1.3 billion for the fourth-quarter of 2020, driven by an improved underwriting gain, higher favourable reserve development and investment income, and a reduction in catastrophe losses.

TravelersAt just over $1.3 billion, the insurer’s net income increased by a significant $437 million from the same period in 2019.

Contributing to the year-on-year improvement is higher net investment income of $677 million in Q4 2020, as well as a $442 million rise in its underwriting gain to $955 million.

The underwriting gain includes net favourable prior year reserve development of $180 million against $60 million in Q4 2019, and catastrophe losses, net of reinsurance, of just $29 million, compared with $85 million a year earlier.

Net written premiums also improved for Travelers in Q4, reaching an impressive $7.28 billion which signals growth of 3% from the $7.08 billion reported a year earlier.

Overall, Travelers has reported a combined ratio of 86.7% for the fourth-quarter of 2020 against 92.4% for the same period in 2019. Catastrophe losses, net of reinsurance, contributed just 0.4 percentage points to the Q4 combined ratio, compared with 1.1 percentage points in Q4 2019.

Alan Schnitzer, the company’s Chairman and Chief Executive Officer (CEO), commented: “We are very pleased to report fourth quarter core income of $1.3 billion, or $4.91 per diluted share, and core return on equity of 21%.

“The results benefited from strong underlying underwriting income, driven by record net earned premiums of $7.5 billion and an underlying combined ratio which improved 3.4 points from the prior year quarter to an excellent 88.7%. That brings full year core income to $2.7 billion, or $10.48 per diluted share, and full year core return on equity exceeding 11%, a terrific result in a challenging economic and operating environment.

“Full year core income includes record underlying underwriting profit of $2 billion. Our high-quality investment portfolio also performed well, generating net investment income of $572 million after-tax. Our operating results, together with our strong balance sheet, enabled us to grow adjusted book value per share by 7% during the year, after returning $1.5 billion of excess capital to shareholders, including $672 million of share repurchases, which we resumed in the fourth quarter.”

For the full-year 2020, Travelers has reported a 3% rise in net income to roughly $2.7 billion, supported by a $469 million increase in its underwriting gain for the year to $1.3 billion. This includes favourable prior year reserve development of $351 million against unfavourable development of $60 million in 2019. Although, this was somewhat offset by a $727 million rise in catastrophe losses, net of reinsurance, to more than $1.6 billion.

As noted by the insurer in Q3 2020, catastrophe and non-catastrophe weather-related losses triggered a full $280 million recovery under the firm’s Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.

Alongside elevated catastrophe losses, net investment income also declined in 2020 by $241 million to $2.23 billion. While net written premiums increased by 2% to more than $29.7 billion, against $29.2 billion in 2019.

All in all, Travelers has reported a combined ratio of 95% for 2020 compared with 96.5% a year earlier. This includes a 2.4 percentage point rise in the contribution of catastrophe losses, net of reinsurance, to 5.5 percentage points, somewhat offset by favourable prior year reserve development.

“Our ability to deliver strong results over this past year in the face of an historic pandemic, a record number of PCS catastrophe events and historically low interest rates reflects the value of underwriting excellence, our leading data and analytics, the dedication of our highly engaged and talented workforce and the significant value we bring to our customers and distribution partners.

“Looking forward, we believe we are well positioned to capitalize on the opportunities ahead as the economy reopens and to continue to deliver meaningful shareholder value over time,” said Schnitzer.

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