Primary insurance group The Travelers Companies, Inc. has reported a 31% year-on-year dip in net income to $454 million for the third quarter of 2022, but despite experiencing a higher catastrophe load in the period, driven by hurricane Ian, the firm’s underwriting return for the period increased by $40 million.
Quarterly net income fell by $208 million in Q3 2022 when compared with the prior year period, driven by lower core income and net realised investment losses of $72 million, against an investment gain of $7 million a year earlier.
At the same time, catastrophe losses, net of reinsurance, increased slightly to $512 million, primarily resulting from hurricane Ian and hurricane Fiona, as well as severe storms in parts of the U.S.
But despite the elevated catastrophe experience, the insurer has reported an underwriting gain of $115 million for Q3 2022 compared with a gain of $75 million in Q3 2021. The improved underwriting performance was helped by net favourable prior year reserve development of $20 million, compared with unfavourable development of $56 million in Q3 2021, partially offset by the $11 million rise in cat losses.
All in all, Travelers has produced a combined ratio of 98.2% for the third quarter of 2022, representing a 0.4 percentage point improvement on the prior year. On an underlying basis, so excluding net prior year reserve development and catastrophe losses, the Q3 combined ratio deteriorated from 91.4% last year to 92.5% this year, so remains strong.
“We are pleased to report solid third quarter 2022 results, particularly in light of significant industry-wide losses from Hurricane Ian,” said Alan Schnitzer, the company’s Chairman and Chief Executive Officer (CEO). “Our strategic approach to underwriting for catastrophes has once again served us well. Our focus is now on taking care of our customers and meeting our industry-leading objective of resolving 90% of our property claims arising out of catastrophes, including this historic storm, within 30 days.”
In terms of premiums, Travelers has today reported record Q3 2022 net premiums written of almost $9.2 billion, which reflects growth of 10% on the prior year period as all business segments achieved year-on-year growth.
However, on the asset side of the balance sheet Travelers felt the impacts of the current financial market volatility, reporting a 23% reduction in net investment income to $593 million for Q3 2022. The carrier notes that income from the non-fixed income investment portfolio decreased primarily due to lower private equity partnership returns.
For the first nine months of 2022 it is also a positive story for Travelers, with underwriting profit hitting $887 million, compared with $616 million a year earlier.
The underwriting gain has been supported by higher net favourable prior year reserve development of $464 million, and also a $393 million decline in cat losses for the period, to approximately $1.42 billion.
For 9M 2022, Travelers has reported a combined ratio of 96%, compared with 96.8% in the comparable prior year period.
As in Q3, the 9M 2022 investment result declined, coming in at just under $2 billion in the period, compared with almost $2.3 billion in 9M 2021. Last year, Travelers recorded net realised investment gains of $88 million in the 9M period, but current market conditions meant that this year, the firm has booked $165 million of net realised investment losses.
In terms of premiums, the company’s net premiums written for 9M 2022 increased by 11%, year-on-year, to almost $26.6 billion, with growth evident in all business segments.
Overall, Travelers has recorded net income of $2.023 billion for 9M 2022, compared with more than $2.3 billion a year earlier.
“Even in the face of challenging weather, we generated meaningful profit with core income for the quarter of $526 million, or $2.20 per diluted share, and core return on equity of 7.9%. These results benefited from record net earned premiums of $8.6 billion, up 10% compared to the prior year period, and a solid underlying combined ratio of 92.5%. Underwriting income in our commercial businesses was excellent, driven by strong net earned premiums and an aggregate underlying combined ratio for Business Insurance and Bond & Specialty Insurance of 88.0%. Our high-quality investment portfolio generated solid after-tax net investment income of $505 million despite the significant downturn in the broader equity markets. These results, along with our strong balance sheet, enabled us to return $722 million of excess capital to our shareholders this quarter, including $501 million of share repurchases,” continued Schnitzer.
“Our best-in-class marketplace execution produced 10% growth in net written premiums this quarter to a record $9.2 billion. In Business Insurance, net written premiums grew by 9%. Renewal premium change was very strong at an historically high 10.2%, while renewal rate change of 5.0% was higher than in the first half of the year. Retention remained very strong at 86%, and new business increased 9% from the prior year period. In Bond & Specialty Insurance, net written premiums increased by 8%, driven by excellent production results in both our surety and management liability businesses. In Personal Insurance, renewal premium change was meaningfully higher both year over year and sequentially, as we continue to address elevated industry-wide loss costs.
“Our meaningful franchise value is reflected in our top- and bottom-line results for the quarter and year-to-date. Our terrific quarterly performance over the past two years builds on our excellent, decade-long track record of growing at industry-leading returns with industry-low volatility. At the same time, we continue to focus on, and invest in, our innovation priorities. Given the success with which we have executed on our Perform & Transform call to action, we are confident in our ability to continue to create meaningful shareholder value over time,” he added.
