Travelers posts strong earnings but social inflation concerns persist

Travelers posted strong second-quarter earnings on Tuesday, but the company’s leadership remains concerned about the continued impact of social inflation and how lawsuits working their way through reopened courts may affect its business.

As first reported in Business Insurance, the New York-based insurer reported net income of $934m for the quarter, compared with a year-earlier loss of $40m, due to higher net investment income, lower catastrophe losses and favourable prior-year reserve development. Net written premiums improved 11% to $8.14bn, and the combined ratio improved 8.4 points to 95.3%.

In the business insurance segment, net written premiums grew 5% to $3.98bn. Renewal premiums rose 9.5% and “near an all-time high, driven by continued strong renewal rate change and higher insured exposures reflecting higher levels of US economic activity”, said Travelers’ chairman and CEO Alan Schnitzer in an earnings call.

New business in the segment grew 9% and the combined ratio improved to 95.3%, from 107.1% in last year’s second quarter, due mostly to lower catastrophe losses.

The segment is “benefiting from strong renewal premium change” and is “trending back to pre-pandemic levels”, said Greg Tocydlowski, Travelers’ president of business insurance. Healthy exposure growth in the segment “reflects improving trends of our customers’ outlook for their businesses”, he said.

The insurer also continued to see favourable frequency activity in workers compensation. “We thought that we were going to hit the bottom a couple of quarters back,” Mr Tocydlowski said. “As we continue to work with the bureaus in terms of their loss-cost recommendations, they’re coming in less negative. I think the key will be how they treat 2020,” he added.

Travelers’ bond and specialty insurance segment reported net written premiums of $854m and its personal insurance segment reported net written premiums of $3.3bn, which represented a 16% increase from the year-earlier period in both segments.

Inflation – both monetary and social – was a topic of concern on the earnings call, with CFO Dan Frey noting that the insurer is “conscious of the inflation environment” and the uncertainties surrounding it.

“We have taken the view that social inflation has gone nowhere and that the elevated level of losses that we saw… pre-pandemic is going to persist,” he said. “I think it’s going to be a while before we see courts work through the backlog [of cases from the pandemic]. We think social inflation is as strong as ever, and that’s reflected in our numbers.”

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