Travelers reports Q3 net income of $404m despite underwriting loss

Primary insurance group Travelers has reported a net income of $404m in the third quarter of 2023, driven by investment income growth, despite seeing an underwriting loss of $136m, as a result of higher catastrophes losses of $850m for the period.

The insurer’s net income in Q3, lower due to core income, compares to the $454mn reported in the same period last year, and was partially offset by lower net realised investment losses. Core income in the current quarter was $454mn, down from Q3 2022’s $526mn.

According to Travelers, core income decreased primarily due to higher catastrophe losses and net unfavourable prior year reserve development (driven by the company’s run-off businesses) compared to net favourable prior year reserve development in the prior year quarter, partially offset by a higher underlying underwriting gain (i.e., excluding net prior year reserve development and catastrophe losses) and higher net investment income.

Despite positive net income, Travelers actually had a Q3 underwriting loss of $136m, and a 9M 2023 underwriting loss of $409m, as a result of higher catastrophes losses of $850m for Q3 and $2.866bn for 9M 2023. This compares with cat losses of $512m in Q3 2022 and $1.4bn in 9M 2022, when the firm reported an underwriting gain of $115m for the quarter and $887m for the nine-month period.

The Q3 2023 combined ratio of 101% increased 2.8 points due to the higher catastrophe losses and net unfavourable prior year reserve development compared to net favourable prior year reserve development in the prior year quarter, partially offset by a lower underlying combined ratio, 90.6%.

Net realised investment losses in the current quarter were $65m pre-tax, compared to $93m pre-tax in the prior year quarter. Net investment income of $769m pre-tax increased 30%.

Income from the fixed income investment portfolio increased over the prior year quarter due to a higher average yield and growth in fixed maturity investments. Income from the non-fixed income investment portfolio increased over the prior year quarter due to higher private equity partnership returns.

Net written premiums of $10.493bn increased 14% over the prior year quarter, including growth in all three segments.

Alan Schnitzer, Chairman and CEO, said:“Core income of $454mn for the quarter benefited from very strong underlying underwriting returns and net investment income but was also impacted by elevated catastrophe losses. We are very pleased with the underlying fundamentals of our business.

“Underlying underwriting income of $868mn pre-tax was up 43% over the prior year quarter, driven by record net earned premiums of $9.7bn and a consolidated underlying combined ratio which improved 1.9 points to an excellent 90.6%. The underlying combined ratio in our commercial segments remained excellent, and the underlying combined ratio in Personal Insurance improved by more than 5 points to 94.2%. Our high-quality investment portfolio continued to perform extremely well, generating after-tax net investment income of $640mn.”

Income for the Business Insurance segment was $468mn after-tax, a decrease of $3mn. The segment saw an increased combined ratio of 99.1%. Net written premiums of $5.080bn increased 16%, reflecting strong renewal premium change and retention, as well as higher levels of new business.

Travelers noted that the increase in net written premiums also included the impact of the Company’s quota share reinsurance agreement with subsidiaries of Fidelis Insurance Holdings Limited effective January 1, 2023, which is included in the segment’s International results.

In Bond & Specialty Insurance, income increased to $265mn compared to last year’s Q3, and saw a higher combiner ratio of 73.6%. Net written premiums also increased, to $1.003bn, reflecting strong production in surety, as well as strong retention and new business and positive renewal premium change in management liability.

The segment loss for Personal Insurance was $193mn after-tax, compared with a segment loss of $111mn in the prior year quarter, driven by higher cat losses. Combined ratio increased to 110.0% and net written premiums of $4.410bn increased 14%, primarily reflecting higher pricing in both Domestic Homeowners and Other and Domestic Automobile.

Schnitzer continued: “Through excellent marketplace execution across all three segments, we delivered growth of $1.3bn , or 14%, in net written premiums to a record $10.5bn. In Business Insurance, we grew net written premiums by 16%. Renewal premium change in the segment was very strong at 12.9%. Renewal rate change accelerated sequentially to 7.9%, while retention remained historically high at 87%. New business was strong and higher broadly across the segment.

“In Bond & Specialty Insurance, we grew net written premiums to a milestone $1bn, achieved 91% retention of our high-quality management liability business and grew net written premiums in our industry-leading surety business by 13%. Given the attractive returns, we are very pleased with the strong production results in both of our commercial business segments. In Personal Insurance, 14% top-line growth was driven by higher pricing. Renewal premium change was 19.4% in our Homeowners and Other business and increased to a record high 18.2% in our Auto business.

He concluded: “The fundamentals in our commercial businesses are terrific, the underlying results in our personal insurance business are improving and heading in the right direction and we are achieving steadily rising returns in our growing fixed income portfolio. Alongside that momentum, we are making excellent progress in the execution of our focused innovation agenda. For those reasons and more, we are very confident in the outlook across our diversified business.”

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