Catastrophe losses contribute to decrease in 2017 Q2 net income for Travelers

Solid net investment income was not enough to offset higher catastrophe losses and lower underlying underwriting gains, contributing to the Travelers Companies, Inc. witnessing lower net income for 2017 Q2 compared to 2016 Q2.

Net income was US$595 million for the quarter ended June 30, 2017, compared to US$664 million for the same quarter of 2016 “due to lower core income, partially offset by higher net realized investment gains,” notes a company statement Thursday.

Core income, for its part, amounted to US$543 million in 2017 Q2 compared to US$649 million in 2016 Q2.

This was the result of “lower net favourable prior-year reserve development, higher catastrophe losses and a lower underlying underwriting gain (i.e., excluding net favourable prior-year reserve development and catastrophe losses), partially offset by higher net investment income,” the statement explains.

Related: Travelers reports combined ratio of 96% for Q1, net income of US$617 million

“Second quarter core income of US$543 million and core return on equity of 9.5% were impacted by high levels of catastrophe and non-catastrophe weather-related losses caused by significant U.S. tornado and hail activity,” company CEO Alan Schnitzer says in the statement. “The storm activity had the greatest impact on Personal Insurance, affecting results in both home and auto,” Schnitzer points out.

As for the underlying underwriting gain, this declined because of the “timing impact of higher loss estimates in personal auto bodily injury liability coverages that were consistent with the higher loss trends recognized in the last half of 2016 and higher non-catastrophe weather-related losses,” the statement explains.

Travelers’ combined ratio amounted to 96.7% for the second quarter of 2017, but this included 6.4 points of catastrophe losses. As such, the underlying combined ratio was 93.5%, Travelers reports.

The decrease in net income was despite healthy net investment income, which was 9% pre-tax (6% after-tax) higher in the second quarter of 2017 than it was in the second quarter of 2016, it adds.

“Net realized investment gains of US$80 million pre-tax (US$52 million after-tax) in the current quarter, compared to US$19 million pre-tax (US$15 million after-tax) in the prior-year quarter, were primarily driven by gains on the sale of equity securities.”

Results were also positive with regard to net written premiums (NWP). In 2017 Q2, NWP amounted to US$6,640 million compared to US$6,345 million in the corresponding quarter of 2016, an increase of 5% and a record level.

Looking at premiums by business segment, Business Insurance had NWP of US$3,544 million in 2017 Q2 compared to US$3,472 million in the second quarter of 2016; NWP for Bond & Specialty Insurance was US$598 million compared to US$570 million; and NWP for Personal Insurance was US$2,498 million compared to US$2,303 million.

“We remain very pleased with the execution of our marketplace strategies in each of our business segments,” Schnitzer says.

“In our commercial businesses, retention levels remained at historic highs, while renewal premium change improved from recent quarters. Notably, in our core middle market business, we achieved rate increases more broadly across our portfolio as compared to recent quarters,” he points out.

“In Personal Insurance, auto renewal premium change was 8%, consistent with our plans to improve profitability, and we expect that number to reach double digits by the end of the third quarter,” Schnitzer says, adding strong momentum in the company’s homeowners business has been maintained.

With regard to Travelers’ total revenues, these were also up in the second quarter of 2017 compared to the same quarter of 2016. Specifically, revenues were up 6% to US$7,184 million compared to US$6,785 million.

Figures for the first six months of 2017 compared to the first half of 2016 were in line with patterns seen for the second quarters:

• net income was US$1,212 million compared to US$1,355 million – down 11%;
• core income was US$1,157 million compared to US$1,347 million – a decrease of 14%;
• total revenue was US$14,126 million compared to US$13,471 million – a 5% increase;
• net investment income was US$1,208 million pre-tax (US$948 million after-tax) – a 11% increase;
• combined ratio was 96.4% compared to 92.7% – resulting from lower net favourable prior-year reserve development (1.5 points), a higher underlying combined ratio (1.2 points) and higher catastrophe losses (0.9 points); and
• NWP was US$13,135 million compared to US$12,511 million, reflecting growth in all segments – a 5% hike.

With regard to NWP by business segment for the first half of 2017 compared to the same period of 2016, these amounted to US$7,399 million compared to US$7,232 million for Business Insurance; US$1,142 million compared to US$1,092 million for Bond & Specialty Insurance; and US$4,594 million compared to US$4,187 million for Personal Insurance.