Catastrophe losses including Sandy affect Travelers’ fourth-quarter financials

The Travelers Companies Inc. of New York released Tuesday its financial results for 2012, recording a 73% year-over-year increase in net income and a 1% increase in revenues.

Net income for 2012 was $2.473 billion on revenues of $25.74 billion. In 2011 Travelers reported net income of $1.426 billion on revenues of $25.446 billion. All figures are in U.S. currency.

“Business insurance net written premiums of $2.784 billion in the current quarter increased 6% from the prior year quarter, primarily driven by continued increases in renewal rate change,” the firm stated in a filing with the U.S. Securities and Exchange Commission.

“Retention rates remained strong, and new business volumes increased slightly from the prior year quarter. Net written premiums also benefited from continued positive exposure change at renewal, as well as a modestly higher level of positive audit premiums compared to the prior year quarter.”

For the fourth quarter of 2012, Travelers reported net income of $304 million on revenues of $6.477 billion, compared to net income of $618 million on revenues of $6.373 billion in last three months of 2011. The firm attributed the 51% year-over-year drop in fourth-quarter net income in part to catastrophe losses.

“Catastrophe losses in the current quarter were $689 million after-tax ($1.054 billion pre-tax), including losses resulting from Storm Sandy of $669 million after-tax ($1.024 billion pre-tax), compared to $68 million after-tax ($102 million pre-tax) in the prior year quarter.”

In Canada, Travelers offers insurance under the through St. Paul Fire and Marine Insurance Company and Travelers Insurance Company of Canada. The U.S. parent company did not break out financial results for Canada but it does report results for a category it calls financial, professional and international insurance. In that category, which includes P&C in Canada, Britain and Ireland, as well as surety, Travelers reported an underwriting gain of $88 million in the fourth quarter of 2012, down from $97 million during the same period in 2011.

Travelers reported net written premiums of $718 million in its commercial accounts, a sub-category of its business segment, up 8% year over year.

“New business volumes increased significantly from the prior year quarter,” the firm stated of commercial accounts. Other sub-categories of Travelers business insurance include “select accounts,” national accounts and “industry-focussed underwriting,” which includes construction, technology, government, oil and gas, marine, boiler and machinery.

For its business insurance, Travelers reported an underwriting loss, before tax, of $119 million during the fourth quarter of 2012, compared to an underwriting gain of $106 million during the same period in 2011. In personal insurance, including home and auto, Travelers reported an underwriting loss of $307 million during the fourth quarter of last year, compared to an underwriting loss of $16 million during the fourth quarter of 2011.

“In personal insurance, both auto and homeowners results were significantly impacted by catastrophe losses,” president and chief operating officer Brian MacLean stated in the filings. “While we were very pleased with our homeowners results given Storm Sandy, we remain concerned about uncertain weather patterns and we will continue to seek improved pricing, terms and conditions. In auto, although we are not yet satisfied with our results due to continued elevated severity, rate gains are now exceeding our current view of loss trends and, all other things being the same, we anticipate improving margins.”

For the entire firm in the fourth quarter of 2012, its generally accepted accounting principles (GAAP) combined ratio was 105.4%, up from 95.9% in the fourth quarter of 2011.

“GAAP combined ratio is the sum of the loss and loss adjustment expense ratio (loss and LAE ratio) and the underwriting expense ratio,” the firm explained in its SEC filing. “For GAAP, the loss and LAE ratio is the ratio of incurred losses and loss adjustment expenses reduced by an allocation of fee income to net earned premiums. The underwriting expense ratio is the ratio of underwriting expenses incurred reduced by an allocation of fee income, and billing and policy fees and other to net earned premiums.”