The Travelers Companies, Inc. has reported net income of $662 million, core income of $655 million, and record net written premiums (NWP) of more than $8.3 billion for the third quarter of 2021, despite a rise in catastrophe losses to $501 million, net of reinsurance.
Although still solid, the insurer’s net income and core income did decline in Q3 2021 when compared with the prior year quarter, by 20% and 18%, respectively.
The dip in income relates primarily to net unfavourable reserve development of $56 million this year against net favourable development of $142 million last year, which included a meaningful subrogation benefit from Pacific Gas and Electric Company (PG&E) related to the 2017 and 2018 California wildfires.
Additionally, catastrophe losses, net of reinsurance, increased year-on-year by $104 million, and were primarily driven by Hurricane Ida ($425m net of reinsurance) and severe storms in several parts of the U.S.
While net losses amounted to more than $500 million in Q3 2021, Travelers explains that catastrophe and non-catastrophe weather-related losses in the period were reduced by $95 million of recoveries under its 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.
As we wrote previously, Travelers had eroded around 80% of the retention for its aggregate catastrophe reinsurance layer by the end of the first-half of 2021. The remainder of this has been eroded in Q3, resulting in the $95 million recovery for the firm.
Owing to net unfavourable reserve development and elevated cat losses, the combined ratio increased by 3.7 points but remains in profitable territory at 98.6%.
Underwriting income totalled $75 million for Travelers in Q3 2021, which represents a decline of $264 million from the gain of $339 million reported a year earlier.
However, the underlying combined ratio – so excluding net prior year reserve development and catastrophe losses – improved by 0.1 points to 91.4%.
NWP of more than $8.3 billion represents growth of 7% from the $7.8 billion the firm reported for the same period last year, and is actually a record thanks to growth in all three business segments.
On the asset side of the balance sheet, Travelers has reported a $100 million rise in net investment income to $771 million for Q3 2021, while net realised investment gains fell by $22 million to $7 million.
Alan Schnitzer, Chairman and Chief Executive Officer (CEO), commented: “We are very pleased to report excellent underlying underwriting and investment results, contributing to third quarter core income of $655 million, or $2.60 per diluted share, and core return on equity of 10.1%, a strong result despite significant catastrophe losses in the quarter.
“Higher underlying underwriting income compared to the prior year was driven by record net earned premiums of $7.8 billion and a strong underlying combined ratio of 91.4%. Our high-quality investment portfolio generated net investment income of $645 million after-tax, reflecting reliable performance in our fixed income portfolio and very strong returns in our non-fixed income portfolio. These results, together with our strong balance sheet, enabled us to return $821 million of excess capital to shareholders this quarter, including $601 million of share repurchases.”
“For the quarter, net written premiums grew 7% to a record $8.3 billion, with each of our three segments contributing. In Business Insurance, net written premiums grew by 5%, with renewal premium change of 9.9% near an all-time high, driven by continued strong renewal rate change and higher exposure growth. At the same time, retention was higher, reflecting stability in the pricing environment. In Bond & Specialty Insurance, net written premiums increased by 19%, driven by record renewal premium change of 13.6% and continued strong retention in our management liability business and terrific production in our surety business. In Personal Insurance, net written premiums increased by 7%. Policies in force in both Auto and Homeowners increased to record levels, driven by continued strong retention and growth in new business.
“Our strong top and bottom line results this quarter and year to date reflect the continued successful execution of our innovation strategy to develop and deploy capabilities designed to position Travelers for growth at attractive returns. Our below-market-share losses from Hurricane Ida, for example, benefited from investments in all three of our innovation priorities: extending our lead in risk expertise, providing great experiences to our customers and optimizing productivity and efficiency. We continue to make investments consistent with those priorities in everything from talent to technology. With our significant and hard to replicate competitive advantages and the best team in the industry, we are well positioned to continue to deliver meaningful shareholder value over time.”