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Travelers’ profit climbs, but cat losses pressure results

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Travelers Cos. Inc. Tuesday reported a higher net profit for the third quarter but said it has exhausted its $280 million property aggregate catastrophe excess-of-loss reinsurance treaty as catastrophe losses continue to pressure results.

The New York-based insurer reported a net profit of $827 million, or $3.23 per share, compared with net income of $396 million, or $1.50 per share, for the same period last year.

Results benefited from a net favorable prior-year reserve development, including a $403 million subrogation benefit from Pacific Gas and Electric Co. related to the 2017 and 2018 California wildfires, Travelers said. This was partially offset by a $295 million increase to asbestos reserves, the insurer said.

Pre-tax catastrophe losses for the third quarter were $397 million, up from $241 million in the same period last year.

This included the impacts of Hurricane Laura, Tropical Storm Isaias, the derecho windstorm in the Midwest in August, and several large California wildfires, including the Glass fire, Travelers executives said during the insurer’s earnings call with analysts Tuesday.

Full recovery in the quarter from its excess-of-loss reinsurance treaty tempered the impact of catastrophe losses, but means there is “no coverage from this treaty as we enter the fourth quarter,” Daniel Frey, Travelers chief financial officer, said during the earnings call.

“Maybe we’ll buy that reinsurance again, maybe we won’t. It’ll depend how we feel about the risk transfer versus the pricing that we can get,” Mr. Frey said.

Net written premiums rose to $7.77 billion, up 3% from $7.57 billion in the same period last year. Travelers saw strong renewal rate change and high retentions in all three business segments, said Alan Schnitzer, chairman and CEO.

In its commercial insurance division, renewal rates increased 8.2% in the quarter, 4 points higher than the prior-year quarter, while retention remained strong, Travelers said. Meaningful rate increases are being achieved in all lines, except for workers compensation, executives said.

However, commercial insurance net written premiums declined by 1% to $3.83 billion as the strong retention and higher renewal rates were offset by a “modest reduction” in exposures and a decline in new business volume due to COVID-19 and related economic conditions.

Its bond and specialty insurance division saw a 4% increase in net written premiums as renewal premium change in its domestic management liability business rose to 8.1%, including record renewal rate change and high retention, Travelers said.

In personal insurance, net written premiums increased by 8%, driven by strong retention and new business in both agency auto and homeowners business, and renewal premiums were up 8.2% the highest level since 2014, Travelers said.

The current market environment points to continued pricing momentum, executives said during the call.

“Social inflation isn’t going away, we’ve got weather losses, wildfires that are burning. Interest rates are lower for longer. … We do have some capacity issues in some lines, some markets are pulling back on capacity. We think all of these broader environmental trends will continue to provide positive momentum in the marketplace,” Mr. Schnitzer said.

The insurer’s consolidated combined ratio for the quarter improved 6.6 points to 94.9% while the underlying combined ratio improved 2.6 points to 91.5%, Travelers said.

This was due to disciplined underwriting and earned rate in excess of loss trend, the insurer said.

Losses directly related to COVID-19 for the quarter totaled $133 million pretax, $92 million in business insurance driven by workers comp and $41 million in Travelers’ bond and specialty business, Mr. Frey said.

“More than offsetting those losses were lower levels of auto claims and fewer non-COVID workers comp and general liability claims due to lower levels of economic activity,” he said.

Net investment income for the quarter was $671 million, an almost 8% increase from $622 million in the same period last year.