Travelers reports $512m of pre-tax net catastrophe losses for Q3

US primary insurance giant Travelers has reported its third-quarter results, revealing $512 million of pre-tax and net of reinsurance catastrophe losses for the period, largely from hurricanes Ian, Fiona and some US severe storms, but still the carrier has kept its consolidated combined ratio profitable, at 98.2%.

Travelers losses from hurricane Ian in particular will have resulted in a significant amount of new erosion to the deductible sitting under its aggregate catastrophe reinsurance treaty, making that contract more at-risk through the rest of the calendar year.

For 2022, Travelers’ aggregate catastrophe reinsurance treaty is structured across a $500 million layer above an attachment of $2 billion, but only 45% or $225 million is actually covered by this reinsurance, as Travelers would retain the other $275 million share as losses eat through the $2 billion attachment up to the $2.5 billion exhaustion.

The 2022 aggregate catastrophe reinsurance treaty only covers PCS-designated catastrophe events in North America in excess of $10 million per catastrophe event, so hurricane Ian has certainly qualified, Fiona may have as well.

“We are pleased to report solid third quarter 2022 results, particularly in light of significant industry-wide losses from Hurricane Ian,” commented Alan Schnitzer, Chairman and Chief Executive Officer of Travelers. “Our strategic approach to underwriting for catastrophes has once again served us well. Our focus is now on taking care of our customers and meeting our industry-leading objective of resolving 90% of our property claims arising out of catastrophes, including this historic storm, within 30 days.”

Travelers results were particularly strong, given the significant catastrophe losses experienced, Schnitzer said, “Even in the face of challenging weather, we generated meaningful profit with core income for the quarter of $526 million, or $2.20 per diluted share, and core return on equity of 7.9%. These results benefited from record net earned premiums of $8.6 billion, up 10% compared to the prior year period, and a solid underlying combined ratio of 92.5%.”

While Travelers catastrophe losses were actually higher than a year ago for the quarter at $512 million, their contribution to its combined ratio fell to 5.9 points (down from $501 million and 6.4 points), as the company grew which mitigated their impact somewhat.

By the end of the second-quarter of 2022, Travelers had eroded roughly $935 million of the deductible sitting below its aggregate catastrophe reinsurance, which attaches at $2 billion of losses.

So, hurricane Ian will undoubtedly have raised the deductible erosion far higher, but the insurer still likely has some buffer left to go, before the aggregate reinsurance attaches and its reinsurance partners face any losses.