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Travelers reports profit jump, but ‘social inflation’ weighs

Travelers profit

Travelers Cos. Inc. reported higher net income in the fourth quarter of 2019, in part due to significantly lower catastrophe losses, but the insurer faces a continued challenging tort environment, the insurer’s executives said in an earnings call Thursday.

The New York-based insurer reported net income of $873 million for the quarter, a 41% increase from the same period in 2018, according to its earnings statement. Full-year net income for 2019 was $2.62 billion, up 4% from 2018. 

Catastrophe losses net of reinsurance for the fourth quarter of 2019 were $85 million, down sharply from $610 million in the same period a year earlier. Net favorable prior year reserve development fell to $60 million in the 2019 quarter from $167 million a year earlier.  

Net written premium improved both year-over-year and quarter-to-quarter, increasing 6% to $7.1 billion in the fourth quarter of 2019 and rising 5% in the full year $29.2 billion.

Travelers’ combined ratio improved more than five points to 92.4% in the 2019 fourth quarter and improved slightly to 96.5% for the full year. The underlying combined ratio, which excludes catastrophe losses and prior year reserve developments, deteriorated to 92.1% in the 2019 fourth quarter compared with 91.1% in the 2018 period. For the full year, the underlying combined ratio deteriorated to 93.2% from 92.5%.

So-called social inflation, which refers to sharply rising court awards and settlements, continues to hit results, said Alan Schnitzer, chairman and CEO said on the earnings call.

“Frankly we’re five quarters into it … certainly, social inflation continues to be a risk factor” and leaves some “uncertainty for us,” Mr. Schnitzer said. “Clearly, the plaintiffs’ bar is getting more sophisticated and more aggressive … in response to that, so are we. We’ve got a very large and very sophisticated claim operation, lawyers and litigation strategy.”

While he declined to share specific figures on the effect of tort awards, Mr. Schnitzer said the percentage of claims with attorneys in the commercial auto line increased by about 10 points over the past six years, with approximately half of that increase in 2018 and 2019. The majority of the increase came from policies with limits of $2 million or lower in commercial auto and is spreading into general liability, he said.

In workers compensation, Travelers’ largest line of business, the insurer reported better than expected loss experience, although the company said it doesn’t assume the favorable trends in workers compensation to continue.