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Travelers reports $40mn Q2 net loss as catastrophe hit rises to $854mn

23rd July 2020 - Author: Luke Gallin

The Travelers Companies, Inc. has fallen to a net loss of $40 million for the second-quarter of 2020 as catastrophe losses spiked to $854 million (pre-tax) and net investment income declined year-on-year.

Travelers Insurance umbrellaThe insurer’s Q2 net loss of $40 million compares with net income of $557 million in the same period in 2019, with the company also reporting a core loss of $50 million this year, versus core income of $537 million in the prior year quarter.

Catastrophe losses jumped by a significant 133% year-on-year to $854 million, and were impacted by a relatively high frequency of PCS-designated events. At the same time, Travelers states that the net impact of COVID-19 and related economic conditions on underwriting results in Q2 2020 was modest.

Also impacting the firm’s performance in the second-quarter of the year was lower net investment income of $268 million (pre-tax), versus $648 million in the second-quarter of 2019. Additionally, the firm booked lower net favourable prior year reserve development in the quarter, somewhat offset by a higher underlying underwriting gain.

Travelers has reported an underwriting loss of $280 million in Q2 2020 against an underwriting gain of $74 million in the prior year quarter.

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Overall, Travelers has reported a consolidated combined ratio of 103.7% for Q2 2020 and an improved underlying combined ratio of 91.4%. This compares with a consolidated combined ratio of 98.4% and an underlying combined ratio of 94.9% in Q2 2019.

Alan Schnitzer, Chairman and Chief Executive Officer (CEO), commented: “Our second quarter results reflect an improved underlying underwriting gain that was more than offset by a high level of catastrophe losses and, as expected, losses in our non-fixed income investment portfolio.

“Our underlying combined ratio improved by 3.5 points to a very strong 91.4%, with favorable contributions from both Business Insurance and Personal Insurance. The net impact of COVID-19 and related economic conditions on our underlying results was modest, reflecting a culture of disciplined underwriting and management of terms and conditions.

“Catastrophe losses this quarter were impacted by a relatively high frequency of PCS-designated catastrophe events. Results in our non-fixed income investment portfolio are reported on a lagged basis, and the losses we reported this quarter arose out of the disruption in global financial markets that took place in the first quarter.”

Turning to premiums, and the insurer has reported a 1% decline in net written premiums in Q2 2020 to $7.346 billion, as 3% growth in Bond & Specialty Insurance was more than offset by a 3% decline in Business Insurance, and a 1% dip in Personal Insurance.

“Investments we have made over recent years as part of our innovation agenda to put digital tools in the hands of our colleagues, customers and distribution partners have proven particularly valuable as we effectively manage our business through the pandemic. We will continue to invest to advance our innovation priorities and ensure that those capabilities and our other competitive advantages remain relevant and differentiating.

“Our steady performance through these difficult times demonstrates the value of underwriting excellence and the strength and resilience of our franchise. With a strong balance sheet, our proven ability to execute on our marketplace strategies and the best talent in the industry, we remain well positioned to continue to deliver meaningful shareholder value over time,” said Schnitzer.

On a more positive note, Travelers has revealed that following the emergence of PG&E Corporation from bankruptcy, it expects to recognise in Q3 2020 favorable prior year reserve development of around $400 million, pre-tax and net of expenses and reinsurance, related to the 2017 and 2018 wildfires in California.

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