The Travelers Companies, Inc. has reported a year-on-year increase in net income to $733 million for Q1 2021, despite catastrophe losses, net of reinsurance, hitting $835 million.
Up from $600 million in the prior year period, the increase was driven by higher core income, higher net favourable prior year reserve development and higher net investment income, partially offset by elevated catastrophe losses.
Core income increased by 3% in Q1 2021 to $699 million, compared with $676 million in Q1 2020.
Travelers attributes the growth in core income to higher net favorable prior year reserve development, a higher underlying underwriting gain, and higher net investment income.
During the quarter, underwriting income declined from $288 million in Q1 2020 to $217 million, as the firm recorded its highest ever amount of Q1 catastrophe losses, primarily as a result of the severe winter weather in the U.S.
$506 million of these cat losses fell to Travelers business insurance segment, $305 million in the personal insurance segment, and $24 million in its Bond & Specialty Insurance segment.
In comparison, Travelers recorded catastrophe losses, net of reinsurance, of $333 million in the first-quarter of 2020.
As a result of the catastrophes, the combined ratio of 96.6% increased 1.1 points, however remains in profitable territory amid net favourable prior year reserve development of $317 million, compared with just $27 million a year earlier.
In fact, on an underlying basis, so excluding reserve development and catastrophe losses, the insurer’s combined ratio actually strengthened year-on-year by 1.8 points to 89.5%
Net premiums written amounted to approximately $7.5 billion in Q1 2021, which represents growth of 2% from the approximately $7.4 billion posted for the same period in 2020.
Additionally, net investment income increased in the opening quarter of the year for Travelers, hitting $701 million in Q1 2021 against $611 million a year earlier.
Alan Schnitzer, Chairman and Chief Executive Officer (CEO), commented: “We are very pleased to report first quarter core income of $699 million, or $2.73 per diluted share, both up from the prior year quarter despite our highest-ever level of first quarter catastrophe losses.
“Higher core income resulted from very strong underlying underwriting income, as well as higher levels of favourable prior year reserve development and net investment income, which together more than offset the record level of catastrophe losses. Underlying underwriting income was meaningfully higher than in the prior year quarter, driven by higher net earned premiums and an underlying combined ratio which improved to an excellent 89.5%. The underlying underwriting result was strong in each of our three segments. In Business Insurance, the underlying combined ratio improved by more than 3 points. Bond and Specialty Insurance and Personal Insurance both benefited from higher earned premiums and continued strong margins. Our high-quality investment portfolio performed well, generating net investment income of $590 million after-tax.
“These results, along with our strong balance sheet, enabled us to return $613 million of excess capital to our shareholders this quarter, including $397 million of share repurchases. In recognition of our strong financial position and confidence in our business, I am pleased to share that our Board of Directors declared a 4% increase in our quarterly cash dividend to $0.88 per share, marking 17 consecutive years of dividend increases with a compound annual growth rate of 9% over that period. The Board also authorized an additional $5 billion of share repurchases.
“For the quarter, net written premiums grew 2%, driven by continued strong renewal premium change and retention in each of our three segments. In Business Insurance, renewal premium change increased to 9.2%, its highest level since 2013, while retention remained strong. In Bond & Specialty Insurance, net written premiums increased by 9%, driven by renewal premium change of 10.8% in our management liability business, while retention remained strong. In Personal Insurance, net written premiums increased by 7%, driven by strong renewal premium change of 7.7% in our Homeowners business and strong retention and new business in both Auto and Homeowners.
“The strength of our underwriting and investment expertise enabled us to deliver strong profitability, notwithstanding the severe winter weather. As a result, we are off to a terrific start to the year. We are particularly pleased with the strong underlying fundamentals in all three of our business segments. Our proven strategy, strong track record of execution, leading analytics and talent advantage give us confidence that we are well positioned to capitalize on opportunities as the economy recovers and to continue to create meaningful shareholder value over time.”