Lower cat losses boost Travelers’ results but CEO warns on challenging tort environment

US insurer Travelers improved its profits and enjoyed growth in both the fourth quarter and the whole of 2019 due to significantly lower catastrophe losses, but its CEO did highlight the increasingly challenging tort environment in faces.

The insurer made a net profit of $2.6 billion in 2019, a small increase of $99 million on the year before. Its combined ratio decreases by 0.4 points to reach 96.5 percent due to significantly lower catastrophe losses (3.2 points), partially offset by net unfavorable prior year reserve development.

In the fourth quarter alone, it made a profit of $873 million, compared with $621 million in the same period a year earlier with similar dynamics influencing the result.

Its gross written premiums for 2019 increased by 6 percent to reach $31 billion. Its net written premiums increased by 5 percent to reach $29 billion. These were impacted by an Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty, which it entered into effective January 1, 2019, the entire cost of which impacted net written premiums in the first quarter. In the fourth quarter, its net written premiums increased by 6 percent to reach $7 billion.

Alan Schnitzer, the chairman and CEO of Travelers, said: “We are pleased to report fourth quarter core income of $867 million and core return on equity of 14.8 percent. Our strong earnings and improved combined ratio of 92.4 percent benefited from lower catastrophe losses and the continued successful execution of our strategy to grow the top line at attractive returns while improving operating leverage.

“Earned premiums increased by 4 percent over the prior year quarter to a record $7.3 billion. Our expense ratio improved to 29.1 percent, lowering our full year expense ratio to 29.6 percent, a significant improvement from recent years. These improvements were partially offset by the impacts of ongoing challenges in the tort environment.

“Our high-quality investment portfolio continued to perform well, generating net investment income of $525 million after-tax. Our results, together with our strong balance sheet, enabled us to return $588 million of excess capital to shareholders this quarter, including $376 million of share repurchases. For the full year, we returned $2.4 billion of excess capital to shareholders, including more than $1.5 billion in share repurchases.

“Turning to the top line, we continue to be pleased with our marketplace execution. Net written premiums increased by 6 percent to a fourth quarter record of $7.1 billion, marking the twelfth consecutive quarter in which we generated premium growth in all three business segments.

“In an environment of elevated loss activity and persistently low interest rates, we were once again successful in achieving meaningful improvement in renewal premium change while maintaining high levels of retention. In domestic Business Insurance, renewal premium change was 7.8 percent, including renewal rate change of 5.1 percent, in both cases the highest levels since 2013, while retention remained very strong at 84 percent.

“In our domestic management liability business in Bond & Specialty Insurance, renewal premium change was 6.6 percent, the highest level since 2014, while retention remained historically high at 89 percent. In Personal Insurance, retention and new business remained strong in both Agency Auto and Agency Homeowners. In our Agency Homeowners business, renewal premium change increased to 7.4 percent, its highest level since 2014.

“In this more challenging tort and low interest rate environment, we generated full year core income in excess of $2.5 billion and core return on equity of 10.9 percent, demonstrating the strength and resilience of our franchise. We grew full year net written premiums by 5 percent to a record $29.2 billion and generated cash flow from operations of $5.2 billion, its highest level in more than a decade. Our performance enabled us to continue to make significant investments in support of our ambitious innovation agenda, while growing our investment portfolio and returning a substantial amount of capital to our shareholders. With our significant competitive advantages, including the best talent in the industry and deep experience in successfully managing our diversified business through a variety of market conditions, we remain well positioned to continue to deliver superior returns over time.”