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

The Travelers Companies, Inc. has reported a combined ratio of 96% for the first quarter of 2017, up 3.7 points from 92.3% in the first quarter of last year.

Net income for the first quarter of 2017 ending March 31 was US$617 million, down from US$691 million in Q1 2016, Travelers said in a statement issued on Thursday. Core income (formerly referred to as operating income) was US$614 million, compared to US$698 million in the prior-year quarter. Net and core income in both the current and prior-year quarters were impacted by significant catastrophe losses of US$226 million after-tax (US$347 million pre-tax) and US$207 million after-tax (US$318 million pre-tax), respectively.

“Core income of US$614 million and core return on equity of 10.8% reflected unusually high first quarter catastrophe losses that arose from a record number of tornado and hail events,” said Travelers’ CEO Alan Schnitzer in the release. “We were pleased with our underlying underwriting results and that loss trends were stable and consistent with our expectations for all of our businesses, including personal auto.

Travelers also reported “record” net written premiums (NWP) of US$6.5 billion in the most recent quarter, up 5% (Q1 2016: US$6.17 billion) from the prior-year quarter and reflecting growth in all segments. Total revenues were US$6.94 billion in the most recent quarter, up from US$6.69 billion in Q1 2016.

“Net written premiums grew 5% to a record level this quarter, with each business segment contributing to the growth,” Schnitzer continued. “In our commercial businesses, the markets in which we operate remained stable. We continued to achieve historically high levels of retention, and renewal rate change remained positive and improved modestly from recent quarters.”

The net income of US$617 million after-tax decreased US$74 million due to lower core income, slightly offset by net realized investment gains in the current quarter as compared to net realized investment losses in the prior-year quarter. Core income of US$614 million after-tax decreased US$84 million, primarily driven by lower net favourable prior-year reserve development that included a $51 million after-tax ($62 million pre-tax) impact from the recent Ogden discount rate adjustment, a lower underlying underwriting gain as explained below and higher catastrophe losses, partially offset by higher net investment income. The current quarter benefited from a US$39 million resolution of prior-year income tax matters, while the prior-year quarter benefited modestly from the favourable settlement of a claims-related legal matter, Travelers reported in the statement.

The combined ratio of 96%, which was impacted by significant catastrophe losses as was the prior-year quarter, increased 3.7 points due to lower net favourable prior-year reserve development (1.7 points), a higher underlying combined ratio (1.7 points) and higher catastrophe losses (0.3 points).

First quarter segment income for Business and International Insurance in 2017 was US$468 million after-tax, a decrease of US$8 million, primarily driven by a decrease in net favourable prior-year reserve development due to a US$51 million after-tax (US$62 million pre-tax) increase in reserves related to the recent Ogden discount rate adjustment, a lower underlying underwriting gain, partially offset by higher net investment income and modestly lower catastrophe losses as compared to a particularly high level of catastrophe losses in the prior-year quarter. The segment’s combined ratio of 96.3% increased 1.5 points due to a higher underlying combined ratio (1.2 points) and lower net favourable prior-year reserve development (0.7 points), partially offset by lower catastrophe losses (0.4 points), the statement said.

Segment income for Bond & Specialty Insurance for the most recent quarter was US$129 million after-tax, a decrease of US$15 million, due to lower net favorable prior-year reserve development, partially offset by the current quarter benefit from a US$17 million resolution of prior-year income tax matters. The combined ratio of 79.3% increased 10 points due to lower net favourable prior-year reserve development. NWP of $504 million grew 2% from the prior year quarter.

For Personal Insurance, segment income was US$79 million after-tax, a decrease of US$60 million, primarily driven by a lower underlying underwriting gain, higher catastrophe losses and no net prior-year reserve development compared to net favourable prior-year reserve development in the prior-year quarter, partially offset by higher net investment income. The current quarter also benefitted from a US$7 million resolution of prior-year income tax matters, the statement noted. The segment’s combined ratio of 99.9% increased 6.2 points due to a higher underlying combined ratio (3.4 points), no net prior-year reserve development compared to net favourable prior-year reserve development Q1 2016 (1.4 points) and higher catastrophe losses (1.4 points). NWP of US$1.96 billion increased 12%. Agency Automobile NWP growth of 17% benefitted from the impact of auto rate increases that were consistent with plans to improve profitability and an increase in policies in force of 12% from the prior-year quarter. Agency Homeowners & Other NWP grew 4%, with an increase in policies in force of 4% from the prior-year quarter.

Travelers provides auto, home and business insurance. A component of the Dow Jones Industrial Average, Travelers has approximately 30,000 employees and generated revenues of approximately US$28 billion in 2016.