Nat cats go 3 for 3 in Q1 earnings season, hit Travelers with $535m bill

First quarter catastrophe losses hit US insurer  Travelers to the tune of a $535 million pre-tax cost net of reinsurance, pulling core earnings below prior year levels, in what is now the third nat cat spoiler to a Q1 earnings season with only three names down.

The Q1 cat hit came in over 3.3x the prior year period for a 6.0 point impact on the group's combined ratio which rose four points year to year. Net favourable prior year development was also weaker.

“Cat losses were elevated,” CEO Alan Schnitzer admitted for the company’s earnings call, citing a record high level of Q1 cat events on Verisk's PCS monitor.

In business insurance, cat losses of $199 million were 2.5x the prior year figure and accounted for 4.4 points of the combined ratio and nearly all of the year on year increase.

In personal lines, nat cat costs of $331 million were 4.1x the prior year burden, with personal lines chief Michael Klein bemoaning "significant hail and tornado events in March." The Q1 cat tally accounted for 9.4 points of the segment combined ratio and all of the deterioration to Q1's loss-showing 101.5%.

The combined ratio may have improved by nearly 7 points in personal auto, but still showed a deep loss at 104.7%.

Officials are warning on Q2. First quarter can be a wildcard and historically “the toughest to discern trends from.” But Q2 is traditionally the high season, officials said.

Travelers is not the first to admit elevated cat losses in Q1. In fact, elevated cat losses have been the story for each of the firms that have even hinted at results thus far.

The Hartford led off with a profit warning, noting that $185 million in pre-tax catastrophe losses, compounded by continuing inflation, had likely pushed it to a P&C combined ratio north of 106%. Cincinnati Financial followed with admission of $235 million in Q1 cat losses, double their five-year average for a 12.8% impact on the combined ratio.

More might be expected. Extreme weather in the US in the first quarter may have delivered insurers a bill for $7 to 9.5 billion from hail, tornado, and thunderstorm wind gusts, analysts at re/insurance broker BMS have claimed. “There is no doubt that the first quarter of the US insurance industry will be a costly one,” BMS said of claims data and its estimates.

Data from the Storm Prediction Center of the US National Weather Service show 34 severe weather events in Q1 2023, tied with 2017 for the highest Q1 count to date this century where the average is just below 20.

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