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Travelers reports lower net, core income in 2017 Q3 than in 2016 Q3


October 20, 2017   by Canadian Underwriter


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A US$700 million pre-tax hit for catastrophe losses in 2017 Q3 contributed to Travelers Companies, Inc. seeing both its net income and core income drop compared to the prior-year quarter.

The U.S. insurer’s net income amounted to US$293 million for the quarter ended Sept. 30, 2017 compared to US$716 million for the same period of 2016. Core income, for its part, was also down to US$263 million compared to US$701 million.

“The decrease in net income and core income was primarily due to significantly higher catastrophe losses,” the insurer noted in a statement Thursday.

More positively, “net income benefited from an increase in net realized investment gains of US$61 million pre-tax (US$40 million after-tax) in the current quarter, primarily driven by gains on the sale of equity securities,” Travelers reports.

This compares to “US$23 million pre-tax (US$15 million after-tax) in the prior-year quarter,” the insurer adds.

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

Looking at financial results for the first nine months of 2017, Travelers’ net income was again down – although not as dramatically – at about US$1.5 billion compared to almost US$2.1 billion for the same three quarters of 2016.

This was “due to lower core income, partially offset by higher net realized investment gains,” the company statement notes.

Core income for the nine months of 2017, too, decreased, with Travelers posting US$1.4 billion compared to about US$2.0 billion for the same period in 2016.

The decrease was “primarily driven by significantly higher catastrophe losses, lower net favourable prior-year reserve development, and a lower underlying underwriting gain, partially offset by higher net investment income,” the company reports.

On the premium front, Travelers saw an increase in 2017 Q3 compared to 2016 Q3.

Net written premiums (NWP) amounted to almost US$6.7 billion for the three months ended Sept. 30, 2017 compared to approximately US$6.4 billion for the same quarter of 2016, an increase of 4% and with growth in all segments.

For the first nine months of 2017, NWP increased slightly more – 5% — to about US$19.8 billion from US$18.9 billion for the comparable period in 2016.

By line, NWP for Business Insurance in 2017 Q3 amounted to slightly more than US$3.4 billion compared to shy of US$3.4 billion in 2016 Q3, a difference of about 1%; NWP for Bond & Speciality Insurance increased 2% to US$611 million compared to US$600 million; and Personal Insurance was up 9% to US$2.6 billion compared to US$2.4 billion.

Results were less favourable with regard to combined ratio and return on equity (ROE) in 2017 Q3 compared to 2016 Q3.

Combined ratio rose 10.3 points to 103.2% from 92.9%. The increase was “due to higher catastrophe losses (9.3 points), a higher underlying combined ratio (0.7 points) and lower net favourable prior-year reserve development (0.3 points),” Travelers points out.

“Catastrophe losses in the third quarter of 2017 primarily resulted from hurricanes Harvey, Irma and Maria, as well as wind and hail storms in the Southern region of the United States,” the insurer reports.

Related: Zurich estimates net claims related to Hurricanes Harvey, Irma and Maria of US$700 million

With regard to ROE, this was down 6.7 points to 4.9% in the third quarter of 2017 compared to 11.6% in the prior-year quarter.

Results year to date took a similar path, with combined ratio amounting to 98.7% in 2017 compared to 92.8% in 2016. ROE, for its part, was 8.5% for the first nine months of 2017 compared to 11.4% for the first three quarters of 2016.

In a quarter of unprecedented hurricane activity, Travelers chairman and CEO Alan Schnitzer says, “our disciplined coastal underwriting stood up to the storms, and we also delivered a consolidated underlying combined ratio of 92.8%, with all three segments contributing to the solid result.”

More specifically, results in Business Insurance benefited from higher earned premiums and lower general and administrative expenses, Bond & Speciality Insurance delivered another quarter of impressive profitability and within Personal insurance, “the underlying combined ratio in auto improved, reflecting the continued successful execution of pricing and underwriting actions we began implementing a year ago,” Schnitzer continues.

“In our commercial businesses, retention remained at historic highs, renewal premium change remained positive and consistent with recent periods and the level of new business increased,” he reports.

“In Personal auto, renewal premium change reached double digits in September, consistent with our plans to improve profitability, and we maintained the positive momentum in our homeowners business with 5% growth in policies in force quarter-over-quarter,” Schnitzer adds.

Travelers also witnessed the following financial results for 2017 Q3:

  • net investment income amounted to US$588 million pre-tax (US$457 million after-tax);
  • total capital returned to shareholders was US$528 million; and
  • book value per share of US$86.73 was up 4% from year-end 2016.

Related: Hurricanes to date a capital event for reinsurers, 2017 could be even more costly Cat year than 2005