Travelers foresees continued strong commercial pricing as Q3 profits fall

Travelers’ top executive has said the firm expects commercial insurance pricing to remain strong, driven by inflation, catastrophes and a low-interest-rate environment, as the company’s profit fell 20% in the third quarter. The US-based insurer reported net income of $662m for the quarter, compared with $827m in the year-earlier quarter, due mainly to unfavourable prior-year reserve development and higher catastrophe losses. As first reported in our sister publication Business Insurance, net written premiums increased by 7% to a record $8.32bn, while the combined ratio deteriorated 3.7 points to 98.6%. Each of the company’s three business segments contributed meaningfully to top-line growth in the quarter, Travelers chairman and CEO Alan Schnitzer said in an earnings call. Catastrophe losses of $501m pre-tax compared with $397m in the year-earlier quarter, reflecting the impact of Hurricane Ida and other storms in the US. Cat losses were “well below our market share and well above the prior-year quarter, and the ten-year average for the quarter”, Schnitzer said. Chief financial officer Daniel Frey said the sheer size of Hurricane Ida, on top of the other cat losses in the quarter, resulted in “overall cat losses that were higher than our assumption”. Travelers recognised a partial recovery of $95m from its excess-of-loss reinsurance treaty in the quarter, compared with a full recovery in last year’s Q3. “That leaves us with $255m for potential recovery in the fourth quarter, depending on the level of qualifying losses we actually experience,” Frey said. In the business insurance segment, net written premiums grew 5% to $4.02bn and the combined ratio improved by 4.8 points to 97.5%. Renewal premiums grew 9.9%, “near an all-time high, driven by continued strong renewal rate change and higher exposure growth”, Schnitzer said. At the same time, retention was higher. Travelers’ ability to continue to drive price change at historical highs, while increasing retentions, reflects “the stability of the pricing environment”, said Schnitzer. Written pricing continues to outpace estimated loss trends in Travelers’ commercial business, he added. The renewal premium change was up more than two points from the third quarter last year, with strong renewal rate change of 6.3% and continued improvement in customer exposure growth, said Greg Toczydlowski, Travelers’ president of business insurance. “In addition to our granular price execution, we’ve also focused on careful management of deductibles, attachment points, limits, sub-limits and exclusions, which can also contribute to an increase in the price,” Toczydlowski said. New business was down from the prior-year quarter as Travelers continued to be “thoughtful about balancing risk and reward for new business in the marketplace”, he said. Travelers’ bond and specialty insurance segment reported net written premiums of $894m, up 19% from the year-earlier period, driven by record renewal premium change of 13.6%, strong retention in its management liability business, and production in its surety business. Its personal insurance segment saw net written premiums of $3.41bn, a 7% increase from the prior-year period. Net investment income increased by 14% to $645m, up from $566m in last year’s third quarter. Travelers returned $821m of excess capital to shareholders in the quarter, including $601m of share repurchases. For further news from Business Insurance, please click here.

Travelers foresees continued strong commercial pricing as Q3 profits fall

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