Travelers Posts $864M Q3 Profit, Consistent With Prior Year Quarter

The Travelers Companies Inc. today reported its third-quarter net income of $864 million, unchanged from the same period a year ago. Travelers showed a larger underwriting gain compared to last year, but the results were partially offset by lower investment income and lower net favorable prior year reserve development.

The net income for the first nine months of this year was $2.685 billion, a 24 percent increase from $2.169 billion reported for the first nine months of 2012.

Net written premiums were the first nine months of the year were $17.134 billion, up 0.42 percent from $17.062 billion during the corresponding period last year. (The Business Insurance net written premiums were $9.360 billion, up 3 percent. The Financial, Professional & International Insurance net written premiums were $2,266 billion, up 4 percent. The Personal Insurance net written premiums were $5.508 billion, down 5 percent.)

The GAAP combined ratio for the third quarter was 88.9 percent — improving from 90.3 percent during the prior year quarter. The improvement is attributed to underlying underwriting margins (2.1 points), which was partially offset by lower net favorable prior year reserve development (0.6 points) and slightly higher catastrophe losses (0.1 point).

The GAAP combined ratio for the first nine months of this year improved to 90.6 percent, down from 94.3 percent for the first nine months of 2012.

The underwriting gain for the third quarter was $595 million (including net favorable prior year reserve development of $158 million and catastrophe losses, net of reinsurance, of $99 million). That’s a 15.76 percent increase from $514 million underwriting gain during the same time a year ago (which included net favorable prior year reserve development of $193 million and catastrophe losses, net of reinsurance, of $91 million).

The underwriting gain for the first nine months of 2013 was $1.478 billion (including net favorable prior year reserve development of $581 million and catastrophe losses, net of reinsurance, of $538 million), up 74.91 percent from $845 million underwriting gain for the corresponding period last year (including net favorable prior year reserve development of $718 million and catastrophe losses, net of reinsurance, of $808 million).

The company said net favorable prior year reserve development occurred in all segments. Catastrophe losses for the latest quarter mostly resulted from wind and hail storms in several regions in the United States, as well as increases in estimated losses related to wind and hail storms from the second quarter.

Looking at the latest financial results for individual segments, Business Insurance reported $205 million underwriting gain for the third quarter, up 9.62 percent from a year ago, and $603 million underwriting gain for the first nine months, up 62.53 percent from a year ago.

The Financial, Professional & International Insurance segment reported $131 million underwriting gain for the latest quarter, down 12.08 percent from a year ago, and $359 million underwriting gain for the first nine months, a 7.47 percent decline from last year.

The Personal Insurance segment reported $259 million underwriting gain for the latest quarter, a 45.51 percent increase from a year ago, and $516 million underwriting gain for the nine months, a 500 percent increase from last year.

The net investment income for the third quarter was $657 million, down 9.00 percent from $722 million a year ago. Travelers said the decline was due to lower reinvestment rates in the fixed income portfolio as well as lower real estate partnership returns in the non-fixed income portfolio. The net investment income for the first nine months was $2.014 billion, down 8.45 percent.

The operating return on equity was 15.2 percent for the third quarter.

Board Authorizes Additional $5B of Share Repurchases

Travelers said the total capital returned to shareholders was $985 million in the latest quarter, including $800 million in share repurchases. The year-to-date total capital returned to shareholders now adds up to $1.952 billion. The company also announced its board of directors authorized an additional $5.0 billion of share repurchases.

“The current quarter benefited from earned rate increases exceeding loss cost trends in each segment, largely the result of the pricing strategy we have been pursuing since the middle of 2010, low weather-related losses and meaningful net favorable prior year reserve development,” said Chairman and Chief Executive Officer Jay Fishman.

He also said Travelers’ strong results for the first nine months of the year enabled the company to return almost $2 billion in capital to shareholders year-to-date through share repurchases and dividends, including almost $1 billion in the latest quarter.

“We continue to be pleased with the execution of our granular pricing strategies in our commercial lines businesses,” he said. “Retention and renewal rate change levels remained strong and consistent with recent quarters, while new business was up slightly from the prior year quarter. We intend to stay the course on this strategy as our expectations of more volatile weather patterns and continued low interest rates have not changed.”

“In Personal Insurance, we are pleased that profitability continues to improve and our retention levels remain consistent with recent quarters,” CEO Fishman said. “We plan on introducing our new auto insurance product, Quantum 2.0, in approximately 15 states in the fourth quarter, and we are optimistic that this new product which incorporates a meaningfully lower cost structure will enable us to improve new business volumes at attractive returns.”

He also gave an update on Travelers’ acquisition of The Dominion of Canada, noting that the deal will close in the 2013 fourth quarter, subject to customary closing conditions. “We are excited about the transaction and look forward to welcoming the Dominion employees to Travelers,” he said.

“Our results, both currently and over time, demonstrate the successful execution of our strategy. We remain committed to delivering top-tier earnings and returning excess capital to shareholders,” CEO Fishman said.