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Travelers’ record NWP in 2015 Q3 over prior year quarter helps net income increase to US$928 million


October 22, 2015   by Canadian Underwriter


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Record net written premiums (NWP) for The Travelers Companies, Inc. in the third quarter of 2015 helped buoy the company’s net income the quarter, which reached US$928 million compared to US$919 million in the same period of 2014.

The 1% increase in net income for the quarter ended Sept. 30, 2015 was bettered by a 3% increase in operating income to US$918 million compared to US$893 million in the prior year quarter, Travelers reported earlier this week.

Travelers reports net income of US$928 million in 2015 Q3

“The increase in net and operating income primarily resulted from higher underlying underwriting gains (i.e., excluding net favourable prior year reserve development and catastrophe losses) and higher net favourable prior year reserve development, partially offset by lower net investment income,” notes a company statement reporting Q3 and year-to-date financial results.

Travelers saw record NWP in the third quarter of 2015 – up 3% to US$6,191 million compared to US$6,033 million in the same quarter of 2014 – with increases in each business segment.

More specifically, the Business and International Insurance (BII) segment had NWP of US$3,590 million in 2015 Q3 compared to US$3,560 in 2014 Q3 (up 1%); Bond & Specialty Insurance (BSI) had NWP of US$565 million compared to US$556 million (up 2%); and Personal Insurance (PI) had NWP of US$2,036 million compared to US$1,917 million (up 6% – notably Agency Auto achieved growth in both NWP and policies in force, at 10% and 6%, respectively).

Jay Fishman

Company chairman and CEO Jay Fishman (pictured left) notes that for the BII segment, “the combined ratio improved to 92.2%, and retention remained at historically high levels.” As for BSI, it had a combined ratio of 57.1% “as well as higher retention and new business volume in Management Liability,” Fishman reports. And in PI, he adds that the combined ratio was 85.1% and NWP growth was 6%.

NWP benefited “from strong retention and positive renewal premium changes in each business segment, as well as higher new business volume in Personal Insurance. Net written premiums also benefited from the impact of changes in the timing and structure of certain of the company’s reinsurance treaties that occurred in prior quarters, partially offset by the impact of changes in foreign currency exchange rates,” the statement adds.

With regard to underwriting gain for 2015 Q3, that increased by US$195 million to US$759 million over the same period in 2014.

Positive underwriting results were reflected in an improved combined ratio, which was 86.9% in 2015 Q3 compared to 90.0% in 2014 Q3.

“At 86.9%, our combined ratio reflected very strong performance across all of our business segments,” says Fishman. “Our investment portfolio continued to deliver solid returns in the continuing low interest rate environment.”

The net investment income was US$614 million pre-tax (US$484 million after-tax), decreasing primarily as a result of lower returns in both the non-fixed income and fixed income portfolios.

“Non-fixed income returns remained strong, but declined as compared to a particularly high level in the prior year quarter, Travelers notes in the statement. “Fixed income returns declined primarily due to lower reinvestment rates and a modestly lower amount of fixed income investments that were impacted by the Company’s $579 million payment in the first quarter of 2015 related to the settlement of the Asbestos Direct Action Litigation,” the statement adds.

With regard to Catastrophes, net of reinsurance was –US$85 million in 2015 Q3 compared to –US$83 million in the prior year quarter. The combined ratio for Catastrophes, net of reinsurance remained steady at 1.4 points.

“Catastrophe losses primarily resulted from wildfires in California, as well as wind and hail storms in the Midwest region of the United States,” the statement notes.

(Click to enlarge)

Travelers' consolidated financial results

Looking at results for the first three quarters of the year compared to the same nine months in 2014, Travelers reports the following:

  • net income was US2,573 million compared to US$2,654 million (down US$81 million);
  • operating income was US$2,551 million compared to US$2,618 million (down US$67 million);
  • underwriting gain was US$1,890 million compared to US$1,612 million (up US$278 million);
  • net investment income was US$1,838 million compared to US$2,150 million (down US$312 million);
  • combined ratio was 88.9% compared to 90.3% (down 1.4 points);
  • catastrophes, net of reinsurance was –US$468 million compared to –US$668 million (down $US200 million); and
  • combined ratio for catastrophes, net of reinsurance was 2.6 points compared to 3.7 points (Cat losses included the 2015 Q3 events noted earlier, as well as wind and hail storms in several regions of the United States in 2015 Q2 and a winter storm in the eastern United States in 2015 Q1).

“Since Jan. 1, 2005, we have produced an average annual operating return on equity of 13.4%. With our meaningful competitive advantages, as well as our commitment to our proven investment and capital management strategies, we remain well positioned to continue to deliver on our long-term financial objective,” Fishman says.

Other results include the following:

  • operating income per diluted share for the third quarter of 2015 increased 12% to US$2.93;
  • return on equity and operating return on equity in 2015 Q3 was 15.4% and 16.2%, respectively;
  • total capital returned to shareholders was US$939 million, including US$750 million of share repurchases; and book value per share was US$79.00, up 2% from year-end 2014.