Travelers’ Q2 Report: $1.5 Billion in Catastrophe Losses Drive Combined Ratio of 106.5%”
The Travelers Companies, Inc. has released its financial results for the second quarter and year-to-date period of 2023. The company reported a net loss per diluted share of $0.07 for the second quarter of 2023, compared to a net income of $2.27 per diluted share in the prior-year quarter. Core income per diluted share for the second quarter of 2023 was $0.06, compared to $2.57 per diluted share in the prior-year quarter.
The company reported a net loss of $14 million for the second quarter of 2023, with core income of $15 million. The consolidated combined ratio for the second quarter of 2023 was 106.5%. Catastrophe losses for the second quarter of 2023 were $1.481 billion pre-tax, compared to $746 million pre-tax in the prior year quarter. However, despite the challenging quarter, the consolidated underlying combined ratio improved by 1.7 points to 91.1% compared to the prior-year quarter. (The underlying combined ratio excludes the impact of net prior year reserve development and catastrophe losses).
Net written premium up 14% to $10.318 billion
One of the highlights of the report was the record net written premiums of $10.318 billion, up 14% compared to the prior-year quarter. This growth was driven by very strong production in all three segments, including a renewal premium change in Business Insurance that accelerated to a record 12.8%. The company also returned $633 million to shareholders, including $400 million of share repurchases.
In terms of the company’s financial position, the book value per share was $95.46, down 1% from June 30, 2022, driven by higher interest rates. However, the adjusted book value per share was $115.45, up 3% over June 30, 2022.
Alan Schnitzer, Chairman and Chief Executive Officer of Travelers, commented on the results, stating, “This quarter, we reported strong underlying results and investment returns, as well as net favorable prior-year reserve development, which were essentially offset by an historic level of industry-wide catastrophe losses.” He further added, “We are very confident in the outlook for our business. We have terrific underlying fundamentals in our commercial businesses, improving underlying results in our personal insurance business, and steadily rising investment returns in our fixed income portfolio.”
The three business segments at Travelers: The personal Insurance Segment, Business Insurance Segment, and the Bond & Specialty Insurance Segment had results from a $500 million loss to a $230 million profit.
Personal Insurance Segment: A reported a loss of $538 million after-tax
The personal insurance segment of Travelers focuses on providing a broad array of property and casualty insurance products and services to individuals. Despite the challenging quarter, the segment reported a 13% increase in net written premiums, reflecting higher pricing in both Domestic Homeowners and Domestic Automobile.
However, this segment reported a loss of $538 million after-tax for the second quarter of 2023, compared to a loss of $193 million in the prior-year quarter. The increase in loss was primarily driven by higher catastrophe losses, partially offset by a higher underlying underwriting gain and higher net favorable prior-year reserve development.
The combined ratio for the personal insurance segment was 122.0% for the second quarter of 2023, an increase of 10.8 points compared to the prior-year quarter. The increase was mainly due to higher catastrophe losses (13.5 points), partially offset by a lower underlying combined ratio (2.0 points) and higher net favorable prior-year reserve development (0.7 points).
Business Insurance Segment: A reported a loss of $14 million
The business insurance segment of Travelers offers a broad array of property and casualty insurance products and services to businesses. The segment reported strong growth in net written premiums, with an 18% increase compared to the prior-year quarter.
For the second quarter of 2023, the segment reported a loss of $14 million, compared to an underwriting gain of $281 million in the prior-year quarter. The loss was primarily driven by net unfavorable prior-year reserve development and higher catastrophe losses.
The combined ratio for the business insurance segment was 100.1% for the second quarter of 2023, an increase of 6.9 points compared to the prior-year quarter. The increase was mainly due to net unfavorable prior-year reserve development (7.0 points) and higher catastrophe losses (2.9 points), partially offset by a lower underlying combined ratio (3.0 points).
Despite the challenges faced by both segments, Travelers remains confident in the underlying fundamentals of its business. The company is leveraging its scale, expertise, and proven track record of execution to invest in new capabilities and advance its innovation agenda. With a focus on delivering industry-leading returns and shareholder value, Travelers is well-positioned for continued success.
Bond & Specialty Insurance Segment: A $230 million after tax profit
The Bond & Specialty Insurance segment of Travelers offers a range of insurance products, including surety, fidelity, management liability, professional liability, and other property and casualty coverages. Despite the challenging market conditions, the segment reported a solid performance in the second quarter of 2023. Net written premiums remained steady at $964 million, reflecting the segment’s ability to maintain its market position.
For the second quarter of 2023, the Bond & Specialty Insurance segment reported segment income of $230 million after-tax, representing a slight increase of $2 million compared to the prior-year quarter. This growth was primarily driven by higher net favorable prior year reserve development and increased net investment income. However, the segment experienced a lower underlying underwriting gain and higher catastrophe losses, which partially offset the positive results.
The combined ratio for the Bond & Specialty Insurance segment was 77.1% for the second quarter of 2023, an increase of 3.1 points compared to the prior-year quarter. The increase was primarily due to a higher underlying combined ratio and higher catastrophe losses, partially offset by higher net favorable prior-year reserve development. The segment’s underlying combined ratio increased by 5.6 points, primarily driven by losses from a small number of surety accounts and a higher expense ratio.
Conclusion
Travelers’ second quarter and year-to-date results reflect a mixed performance, with challenges posed by industry-wide catastrophe losses. The company’s underlying fundamentals, growth in net written premiums, and focus on innovation seems to provide a positive outlook for the future.
However, as the accompanying article on the Federal Insurance Office’s recent climate change and insurance report explores, major weather events may become the norm and eventually affect all four quarters of every property and casualty insurers’ results.
