Travelers reports 22% Q1 profit gain despite cat losses

Travelers Cos. Inc. expects the environment for higher commercial insurance prices to continue as it reported an increase in first-quarter profit despite a record level of first-quarter catastrophe losses, the insurer’s executives said.

Travelers reported a first-quarter profit of $733 million, up 22% from the first quarter of 2020.

Catastrophe losses for this year’s first quarter more than doubled to $835 million, from $333 million in the prior-year period.

On a conference call with analysts Tuesday, Alan Schnitzer, chairman and CEO, said the pricing environment continues to be rational and favorable to the insurer across its commercial business with written pricing well above estimated loss cost trends.

“Overall pricing levels continue to be near record levels, and all markets have improved. Given the continued headwinds impacting returns from the industry, we expect pricing to continue to outpace loss trend for some time,” Mr. Schnitzer said.

The quarter’s catastrophes include $703 million from the February winter storms that affected Texas and a number of other states, said Dan Frey, chief financial officer.

Through March 31, Travelers has accumulated $915 million of qualified losses toward the $1.9 billion retention on its underlying property aggregate catastrophe reinsurance cover, Mr. Frey said.

Travelers reported $7.51 billion in net written premium in the first quarter, a 2% increase over the same period last year, driven by strong renewal premium change and retention.

The workers compensation renewal premium change that includes exposure was positive for the first time in a number of quarters, while the pure renewal rate change was slightly negative, Mr. Schnitzer said.

Renewal premium changes in every other product line were near or at record highs, he said.

However, net written premiums in the insurer’s commercial insurance division declined by 2% despite strong retention, a renewal premium change of 9.2% and a renewal rate increase of 8.4 percent.

The decline was due primarily to lower net written premiums in the workers compensation line as a result of the impact of the pandemic on payrolls, Gregory Toczydlowski, president of Travelers’ business insurance division, said on the earnings call.

“We achieved positive rate on more than 80% of our accounts this quarter, a 10-point increase from the first quarter last year,” Mr. Toczydlowski said.

Net written premiums in Traveler’s bond and specialty business increased by 9% driven by a renewal premium change of 10.8% in its management liability business, Travelers said.

The insurer’s combined ratio deteriorated to 96.6% in the first quarter compared with 95.5% for the prior-year period. Its commercial insurance division reported a 103.5% combined ratio, compared with 102.2% in the same period last year, due to the increased catastrophe losses. 

Net realized investment gains were $34 million after-tax, compared with a $76 million loss for the same period last year. Net investment income was $701 million, up 15%.

Travelers continues to be cognizant of sexual abuse and molestation exposures and how they are reflected in its reserves, executives said during the Q&A with analysts.

The insurer declined to comment on whether it was seeking to settle claims related to sexual abuse allegations against the Boy Scouts of America.

Rival insurer Hartford Financial Services Group Inc. recently settled the Boy Scouts sexual abuse claims for $650 million.