Travelers’ Q2 Net Income Declines 18% On Higher Catastrophe Losses

by Trefis Team
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The Travelers Companies (NYSE:TRV) announced its second quarter earnings on Thursday, July 21. The company’s revenues grew less than 1% year-over-year (y-o-y) to $6.7 billion in Q2 2016. In terms of the bottom line, Travelers faced a tough quarter due to a higher level of catastrophe losses. The company’s net income declined 18% over the previous year quarter to $664 million, primarily driven by higher catastrophe and certain non-catastrophe weather-related losses. Wind and hailstorms in Texas, and the wildfire in Canada were the primary contributors to the company’s catastrophe losses. As a result, Travelers’ combined ratio (the ratio of claims to premiums earned) increased to 93.1% in the quarter compared to 90.8% a year ago.

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Segment Performance

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The Business and International Insurance division reported revenues of $3.6 billion in the quarter, growing at less than 1% y-o-y and accounting for 59% of total premiums. However, its operating income declined almost 28% to $393 million driven by higher catastrophe losses, higher non-catastrophe weather related losses and lower net investment income, which was partially offset by higher net favorable prior-year reserve deployment. The segment reported a combined ratio of 97.5%, an increase of 450 basis points on a y-o-y basis.

In the Bonds and Specialty Insurance business, higher net favorable prior-year reserve deployment led to an increase in operating income by about 34% to $202 million. This was reflected in the combined ratio for the segment as well, which improved by 21.4 percentage points over the prior year quarter to 52.4%.

Despite a 6.7% y-o-y rise in Personal Insurance revenues, the division’s operating income declined by 33% to $116 million. This was primarily due to a lower net favorable prior-year reserve deployment. As a result, combined ratio for the division increased 460 basis points to 95.7% in Q2 2016.


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