Travelers’ Q1 Income Falls On Higher Catastrophe Losses

by Trefis Team
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The Travelers Companies (NYSE:TRV), one of the largest property and casualty (P&C) insurers in the U.S., reported disappointing earnings for the first quarter, with operating income declining 12% year-over-year (y-o-y) and its combined ratio (the ratio of claims to premiums earned) increasing by 370 basis points to 96.0%. The decline in operating income was primarily due to higher catastrophe losses, partially offset by higher net investment income. Per the National Weather Service, there were more than 400 tornadoes in the first quarter in the U.S., more than four times the previous three year average. [1]trv-23

trv-22 The company’s revenues grew 5% year-over-year (y-o-y) to about $6.5 billion in Q1 2017. In terms of bottom line, the company’s operating income per share declined by 7% to $2.18, missing analyst estimates of $2.35 per share for the quarter.

See our full analysis of Travelers here

Business And International Insurance

The Business and International Insurance division reported revenues of $4.2 billion in the quarter, comparable to the year ago quarter and accounting for 61% of total revenues. This was driven by a 13% increase in net investment income.

The division’s operating income declined 2% to $468 million after-tax, primarily driven by a decrease in net favorable prior year reserve development, partially offset by higher net investment income and modestly lower catastrophe losses, compared to a particularly high level of catastrophe losses in the prior year quarter. The segment reported a combined ratio of 96.30%, an increase of 150 basis points on a y-o-y basis.

In the Bonds and Specialty Insurance business, operating income declined by 10% to $129 million (after-tax) due to lower net favorable prior year reserve development. This was reflected in the combined ratio for the segment as well, which worsened by 10 percentage points over the prior year quarter to 79.3%.

Personal Insurance

The company offers homeowner’s multiperil and personal automobile insurance products within the Personal Insurance division. The net premiums written jumped 12% y-o-y to about $2 billion driven by higher new business volume from the company’s Quantum Auto 2.0.

Lower underlying underwriting gains and higher catastrophe losses helped worsen the division’s combined ratio by 6.2 percentage points y-o-y to 99.9% in Q1 2017. As a result, the division’s operating income declined 43% to $79 million in the first quarter.


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Notes:
  1. Tornado, Hail Losses Hurt Travelers in Q1, Insurance Journal, April 20 2017 []
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