Travelers report strong third quarter with stronger combined ratio despite Hurricane Ian
Primary insurance group The Travelers Companies, Inc. reported a 31% year-on-year decline in net income to $454 million for the third quarter of 2022, but despite a higher catastrophic charge during the period , driven by Hurricane Ian, the company’s underwriting performance for the period increased by $40 million.
Quarterly net income decreased by $208 million in the third quarter of 2022 compared to the prior year period, due to a lower income base and realized net investment losses of $72 million, compared to an investment gain of $7 million a year earlier.
At the same time, catastrophe losses, net of reinsurance, increased slightly to $512 million, primarily due to Hurricane Ian and Hurricane Fiona, as well as severe storms in parts of the United States. -United.
But despite the high catastrophic experience, the insurer reported an underwriting gain of $115 million for the third quarter of 2022, compared to a gain of $75 million in the third quarter of 2021. The improvement in underwriting performance was driven by favorable net prior year reserve development of $20 million, compared to unfavorable development of $56 million in Q3 2021, partially offset by higher cat.
In total, Travelers produced a combined ratio of 98.2% for the third quarter of 2022, representing a 0.4 percentage point improvement over the prior year. On an underlying basis, i.e. excluding net prior year reserve development and catastrophe losses, the third quarter combined ratio deteriorated from 91.4% year-on-year last at 92.5% this year, and therefore remains solid.
“We are pleased to report strong results for the third quarter of 2022, particularly in light of the significant industry-wide losses from Hurricane Ian,” said Alan Schnitzer, Chairman and Chief Executive Officer ( CEO) of the company. “Our strategic approach to catastrophe underwriting has once again served us well. Our goal now is to take care of our customers and achieve our industry-leading goal of resolving 90% of our property claims from catastrophes, including this historic storm, within 30 days.
In terms of premiums, Travelers today announced record third quarter 2022 net premiums of nearly $9.2 billion, reflecting 10% growth over the prior year period, all business segments that recorded year-on-year growth.
However, on the asset side of the balance sheet, travelers felt the effects of ongoing financial market volatility, reporting a 23% reduction in net investment income to $593 million for the third quarter of 2022. The carrier notes that the Income from the non-fixed income investment portfolio declined primarily due to lower returns from private equity partnerships.
For the first nine months of 2022, it’s also a positive story for travelers, with underwriting profit reaching $887 million, up from $616 million a year earlier.
The underwriting gain was supported by higher net favorable prior year reserve development of $464 million, as well as a $393 million decline in cat losses for the period, to around 1.42 billion dollars.
For the 9 months of 2022, Travelers reported a combined ratio of 96%, compared to 96.8% for the comparable period of the previous year.
Similar to the third quarter, 9M 2022 investment income declined to just under $2 billion in the period from nearly $2.3 billion in 9M 2021. Last year travelers recorded net realized investment gains of $88 million in the 9M period, but market conditions mean that this year the company recorded $165 million in net realized investment losses.
In terms of premiums, the company’s net premiums written for 9 months 2022 increased 11%, year-over-year, to nearly $26.6 billion, with growth evident across all business segments.
Overall, Travelers recorded net income of $2.023 billion for 9M 2022, compared to more than $2.3 billion a year earlier.
“Even in the face of difficult weather conditions, we generated a meaningful profit with basic income for the quarter of $526 million, or $2.20 per diluted share, and a return on basic equity of 7.9 %. These results benefited from record net earned premiums of $8.6 billion, up 10% from the same period last year, and a strong underlying combined ratio of 92.5%. Underwriting income from our commercial businesses was excellent, driven by strong net earned premiums and an overall underlying combined ratio for commercial lines and bond and specialty lines of 88.0%. Our high-quality investment portfolio generated strong after-tax net investment income of $505 million despite the significant decline in general equity markets. These results, along with our strong balance sheet, enabled us to return $722 million of excess capital to our shareholders this quarter, including $501 million in share buybacks,” Schnitzer continued.
“Our best-in-market execution delivered 10% growth in net premiums written this quarter to a record $9.2 billion. In Business Insurance, net written premiums increased by 9%. The variation in renewal premiums was very strong at a historically high level of 10.2%, while the variation in the renewal rate of 5.0% was higher than in the first half of the year. Retention remained very strong at 86%, and new business increased by 9% over the prior year period. In Bond & Specialty Insurance, net written premiums increased by 8%, driven by excellent production results in our surety and management liability businesses. In personal lines, the change in renewal premiums was significantly higher year-over-year and sequentially as we continue to face high industry-wide claims costs.
“The significant value of our franchise is reflected in our up and down results for the quarter and year-to-date. Our tremendous quarterly performance over the past two years builds on our strong decade-long track record of growing at industry-leading returns with low industry volatility. At the same time, we continue to focus on and invest in our innovation priorities. Given the success with which we executed our Perform & Transform call to action, we are confident in our ability to continue to create significant shareholder value over time,” he added.