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Travelers Reports Third Quarter 2020 Net Income per Diluted Share of $3.23 and Core Income per Diluted Share of $3.12, Both Up Substantially from Prior Year Quarter

Company Release - 10/20/2020 6:57 AM ET

Third Quarter Return on Equity of 12.1% and Core Return on Equity of 13.5%

  • Third quarter net income of $827 million and core income of $798 million.
  • Consolidated combined ratio improved 6.6 points to a strong 94.9%; underlying combined ratio improved 2.6 points to a strong 91.5%.
  • Net favorable prior year reserve development included the previously announced $403 million pre-tax of PG&E subrogation recoveries.
  • Catastrophe losses of $397 million pre-tax compared to $241 million pre-tax in the prior year quarter.
  • Net written premiums of $7.771 billion, up 3% compared to the prior year quarter.
  • Strong renewal rate change in all three segments, including record renewal rate change in Business Insurance and Bond & Specialty Insurance.
  • Capital returned to shareholders of $218 million; no share repurchases in the current quarter. Year-to-date capital returned to shareholders of $1.117 billion, including $471 million of share repurchases.
  • Book value per share of $109.94, up 8% from year-end 2019; adjusted book value per share of $94.89, up 2% from year-end 2019.
  • Board of Directors declares regular quarterly cash dividend of $0.85 per share.

NEW YORK--(BUSINESS WIRE)-- The Travelers Companies, Inc. today reported net income of $827 million, or $3.23 per diluted share, for the quarter ended September 30, 2020, compared to $396 million, or $1.50 per diluted share, in the prior year quarter. Core income in the current quarter was $798 million, or $3.12 per diluted share, compared to $378 million, or $1.43 per diluted share, in the prior year quarter. Core income increased primarily due to net favorable prior year reserve development compared to net unfavorable prior year reserve development in the prior year quarter, a higher underlying underwriting gain (i.e., excluding net prior year reserve development and catastrophe losses) and higher net investment income, partially offset by higher catastrophe losses. Net realized investment gains in the current quarter were $37 million pre-tax ($29 million after-tax), compared to $23 million pre-tax ($18 million after-tax) in the prior year quarter.

 

Consolidated Highlights

($ in millions, except for per share amounts, and after-tax, except for premiums and revenues)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

Change

 

2020

 

2019

 

Change

 

Net written premiums

 

$

7,771

 

 

$

7,569

 

 

3

 

%

 

$

22,463

 

 

$

22,076

 

 

2

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

8,275

 

 

$

8,013

 

 

3

 

 

 

$

23,584

 

 

$

23,518

 

 

 

 

 

Net income

 

$

827

 

 

$

396

 

 

109

 

 

 

$

1,387

 

 

$

1,749

 

 

(21

)

 

 

per diluted share

 

$

3.23

 

 

$

1.50

 

 

115

 

 

$

5.41

 

 

$

6.59

 

 

(18

)

 

 

Core income

 

$

798

 

 

$

378

 

 

111

 

 

$

1,424

 

 

$

1,670

 

 

(15

)

 

 

per diluted share

 

$

3.12

 

 

$

1.43

 

 

118

 

 

$

5.56

 

 

$

6.29

 

 

(12

)

 

 

Diluted weighted average shares outstanding

 

254.3

 

 

261.8

 

 

(3

)

 

 

254.5

 

 

263.4

 

 

(3

)

 

 

Combined ratio

 

94.9

%

 

101.5

%

 

(6.6

)

 

pts

97.9

%

 

97.9

%

 

 

 

pts

Underlying combined ratio

 

91.5

%

 

94.1

%

 

(2.6

)

 

pts

91.4

%

 

93.5

%

 

(2.1

)

 

pts

Return on equity

 

12.1

%

 

6.2

%

 

5.9

 

 

pts

7.0

%

 

9.5

%

 

(2.5

)

 

pts

Core return on equity

 

13.5

%

 

6.5

%

 

7.0

 

 

pts

8.1

%

 

9.6

%

 

(1.5

)

 

pts

 

 

 

As of

 

Change From

 

 

September 30,
2020

 

December 31,
2019

 

September 30,
2019

 

December 31,
2019

 

September 30,
2019

Book value per share

 

$

109.94

 

 

$

101.55

 

 

$

99.21

 

 

8

%

 

11

%

Adjusted book value per share

 

94.89

 

 

92.76

 

 

90.09

 

 

2

%

 

5

%

See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.

“We are pleased to report third quarter core income of $798 million and core return on equity of 13.5%, despite catastrophe losses that were well above the 10-year average for the third quarter,” said Alan Schnitzer, Chairman and Chief Executive Officer. “Our earnings this quarter reflect strong underlying underwriting income, resulting from record quarterly net earned premiums and an underlying combined ratio which improved 2.6 points to 91.5%. The underlying loss ratio benefited from disciplined underwriting and earned rate in excess of loss trend. The underlying expense ratio continues to benefit from our strategic focus on productivity and efficiency. Core income in the quarter also included favorable prior year reserve development, driven by our previously-announced PG&E subrogation recoveries. Our high-quality investment portfolio performed well, generating net investment income of $566 million after-tax.

“We are also very pleased with the strength of our top line, particularly in light of the ongoing challenges in the economic environment. Net written premiums in the quarter were up nearly 3%, driven by retentions that remain consistently high across all of our businesses, strong renewal rate change in all three segments and a resilient portfolio of quality accounts. In Business Insurance, we achieved record renewal rate change of 8.2%, 4 points higher than the prior year quarter, while retention remained strong. In Bond & Specialty Insurance, net written premiums increased by 4%, as renewal premium change in our domestic management liability business rose to 8.1%, including record renewal rate change, while retention remained at an historical high. In Personal Insurance, net written premiums increased by 8%, driven by strong retention and new business in both Agency Auto and Agency Homeowners. In our Agency Homeowners business, we achieved renewal premium change of 8.2%, its highest level since 2014.

“From a position of strength, we continue to actively pursue our innovation agenda and invest in our strategic priorities to extend our lead in risk expertise, provide best-in-class experiences to our customers and distribution partners, and improve productivity and efficiency. With our significant competitive advantages, including our highly engaged and talented workforce, we are well positioned to capitalize on opportunities and successfully grow our business as the economy continues to reopen.”

 

Consolidated Results

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions and pre-tax, unless noted otherwise)

 

2020

 

 

2019

 

 

Change

 

2020

 

 

2019

 

 

Change

 

Underwriting gain (loss):

 

$

339

 

 

 

$

(149

)

 

 

$

488

 

 

 

$

347

 

 

 

$

320

 

 

 

$

27

 

 

 

Underwriting gain (loss) includes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable (unfavorable) prior year reserve development

 

142

 

 

 

(294

)

 

 

436

 

 

 

171

 

 

 

(120

)

 

 

291

 

 

 

Catastrophes, net of reinsurance

 

(397

)

 

 

(241

)

 

 

(156

)

 

 

(1,584

)

 

 

(801

)

 

 

(783

)

 

 

Net investment income

 

671

 

 

 

622

 

 

 

49

 

 

 

1,550

 

 

 

1,852

 

 

 

(302

)

 

 

Other income (expense), including interest expense

 

(61

)

 

 

(64

)

 

 

3

 

 

 

(228

)

 

 

(209

)

 

 

(19

)

 

 

Core income before income taxes

 

949

 

 

 

409

 

 

 

540

 

 

 

1,669

 

 

 

1,963

 

 

 

(294

)

 

 

Income tax expense

 

151

 

 

 

31

 

 

 

120

 

 

 

245

 

 

 

293

 

 

 

(48

)

 

 

Core income

 

798

 

 

 

378

 

 

 

420

 

 

 

1,424

 

 

 

1,670

 

 

 

(246

)

 

 

Net realized investment gains (losses) after income taxes

 

29

 

 

 

18

 

 

 

11

 

 

 

(37

)

 

 

79

 

 

 

(116

)

 

 

Net income

 

$

827

 

 

 

$

396

 

 

 

$

431

 

 

 

$

1,387

 

 

 

$

1,749

 

 

 

$

(362

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined ratio

 

94.9

 

%

 

101.5

 

%

 

(6.6

)

 

pts

97.9

 

%

 

97.9

 

%

 

 

 

pts

Impact on combined ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (favorable) unfavorable prior year reserve development

 

(1.9

)

 

pts

4.1

 

 

pts

(6.0

)

 

pts

(0.8

)

 

pts

0.6

 

 

pts

(1.4

)

 

pts

Catastrophes, net of reinsurance

 

5.3

 

 

pts

3.3

 

 

pts

2.0

 

 

pts

7.3

 

 

pts

3.8

 

 

pts

3.5

 

 

pts

Underlying combined ratio

 

91.5

 

%

 

94.1

 

%

 

(2.6

)

 

pts

91.4

 

%

 

93.5

 

%

 

(2.1

)

 

pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Insurance

 

$

3,833

 

 

 

$

3,889

 

 

 

(1

)

%

 

$

11,800

 

 

 

$

11,926

 

 

 

(1

)

%

 

Bond & Specialty Insurance

 

754

 

 

 

728

 

 

 

4

 

 

 

2,151

 

 

 

2,025

 

 

 

6

 

 

 

Personal Insurance

 

3,184

 

 

 

2,952

 

 

 

8

 

 

 

8,512

 

 

 

8,125

 

 

 

5

 

 

 

Total

 

$

7,771

 

 

 

$

7,569

 

 

 

3

 

%

 

$

22,463

 

 

 

$

22,076

 

 

 

2

 

%

 

Third Quarter 2020 Results
(All comparisons vs. third quarter 2019, unless noted otherwise)

Net income of $827 million increased $431 million due to higher core income and higher net realized investment gains. Core income of $798 million increased $420 million, primarily due to net favorable prior year reserve development in the current quarter compared to net unfavorable prior year reserve development in the prior year quarter, a higher underlying underwriting gain and higher net investment income, partially offset by higher catastrophe losses. The underlying underwriting gain benefited from higher business volumes and a lower underlying combined ratio. Catastrophe and non-catastrophe weather-related losses, including losses from wildfires, in the third quarter of 2020 were reduced by the full $280 million of recoveries available under the Company’s Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty. Net realized investment gains were $37 million pre-tax ($29 million after-tax), compared to $23 million pre-tax ($18 million after-tax) in the prior year quarter.

Combined ratio:

  • The combined ratio of 94.9% improved 6.6 points due to net favorable prior year reserve development in the current quarter compared to net unfavorable prior year reserve development in the prior year quarter (6.0 points) and a lower underlying combined ratio (2.6 points), partially offset by higher catastrophe losses (2.0 points).
  • The underlying combined ratio of 91.5% improved 2.6 points. See below for further details by segment.
  • Net favorable prior year reserve development included a $403 million subrogation benefit from Pacific Gas and Electric Company (PG&E) related to the 2017 and 2018 California wildfires. Net prior year reserve development also included a $295 million increase to asbestos reserves, compared with a $220 million increase in the prior year quarter.
  • Catastrophe losses primarily resulted from the derecho windstorm in the midwestern region of the United States, the Glass wildfire in California, Tropical Storm Isaias, Hurricane Laura and additional wildfires in the western United States.

Net investment income of $671 million pre-tax ($566 million after-tax) increased 8%. Income from the fixed income investment portfolio decreased from the prior year quarter, primarily due to lower interest rates, partially offset by a higher average level of fixed maturity investments. Income from the non-fixed income investment portfolio increased over the prior year quarter, primarily due to higher private equity partnership returns. Non-fixed income returns are generally reported on a one quarter lagged basis and directionally follow the broader equity markets.

Net written premiums of $7.771 billion increased 3%. See below for further details by segment.

Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)

Net income of $1.387 billion decreased $362 million due to lower core income and net realized investment losses in the current period compared to net realized investment gains in the prior year period. Core income of $1.424 billion decreased by $246 million, primarily due to higher catastrophe losses and lower net investment income, partially offset by a higher underlying underwriting gain and net favorable prior year reserve development in the current period compared to net unfavorable prior year reserve development in the prior year period. The underlying underwriting gain benefited from higher business volumes and a lower underlying combined ratio. Net realized investment losses were $48 million pre-tax ($37 million after-tax), compared to net realized investment gains of $101 million pre-tax ($79 million after-tax) in the prior year period. Net realized investment losses in the current period included the mark-to-market impact on the Company’s equity investments related to the volatility in global financial markets in the first quarter of 2020 associated with COVID-19.

Combined ratio:

  • The combined ratio of 97.9% was level with the prior year period, as a lower underlying combined ratio (2.1 points) and net favorable prior year reserve development in the current period compared to net unfavorable prior year reserve development in the prior year period (1.4 points) were offset by higher catastrophe losses (3.5 points).
  • The underlying combined ratio of 91.4% improved 2.1 points. See below for further details by segment.
  • Net favorable prior year reserve development in Personal Insurance was partially offset by net unfavorable prior year reserve development in Business Insurance and Bond & Specialty Insurance.
  • Catastrophe losses included the third quarter events described above, as well as tornado activity in Tennessee and other wind storms and winter storms in several regions of the United States in the first quarter of 2020, and severe storms in several regions of the United States and civil unrest in the second quarter of 2020.

Net investment income of $1.550 billion pre-tax ($1.336 billion after-tax) decreased 16%. Income from the fixed income investment portfolio decreased from the prior year period, primarily due to lower interest rates, partially offset by a higher average level of fixed maturity investments. Income from the non-fixed income investment portfolio decreased from the prior year period, primarily due to lower private equity partnership returns which reflected the impact of the disruption in global financial markets in the first quarter of 2020 associated with COVID-19.

Net written premiums of $22.463 billion increased 2%. See below for further details by segment.

Shareholders’ Equity

Shareholders’ equity of $27.849 billion increased 7% over year-end 2019, primarily due to higher net unrealized investment gains resulting from lower interest rates. Net unrealized investment gains included in shareholders’ equity were $4.844 billion pre-tax ($3.812 billion after-tax), compared to net unrealized investment gains of $2.853 billion pre-tax ($2.246 billion after-tax) at year-end 2019. Book value per share of $109.94 increased 8% from year-end 2019, also primarily due to the impact of lower interest rates on net unrealized investment gains. Adjusted book value per share of $94.89, which excludes net unrealized investment gains, increased 2% from year-end 2019.

The Company did not repurchase any shares during the third quarter under its share repurchase authorization. Capacity remaining under the existing share repurchase authorization was $1.361 billion at the end of the quarter. Also at the end of the quarter, statutory capital and surplus was $21.230 billion, and the ratio of debt-to-capital was 20.2%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains included in shareholders’ equity was 22.7%, within the Company’s target range of 15% to 25%.

The Board of Directors declared a regular quarterly dividend of $0.85 per share. The dividend is payable on December 31, 2020, to shareholders of record at the close of business on December 10, 2020.

 

Business Insurance Segment Financial Results

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions and pre-tax, unless noted otherwise)

 

2020

 

 

2019

 

 

Change

 

2020

 

 

2019

 

 

Change

 

Underwriting gain (loss):

 

$

(100

)

 

 

$

(284

)

 

 

$

184

 

 

 

$

(472

)

 

 

$

(282

)

 

 

$

(190

)

 

 

Underwriting gain (loss) includes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unfavorable prior year reserve development

 

(220

)

 

 

(316

)

 

 

96

 

 

 

(215

)

 

 

(266

)

 

 

51

 

 

 

Catastrophes, net of reinsurance

 

(97

)

 

 

(116

)

 

 

19

 

 

 

(669

)

 

 

(422

)

 

 

(247

)

 

 

Net investment income

 

498

 

 

 

457

 

 

 

41

 

 

 

1,131

 

 

 

1,365

 

 

 

(234

)

 

 

Other income (expense)

 

6

 

 

 

 

 

 

6

 

 

 

(16

)

 

 

(6

)

 

 

(10

)

 

 

Segment income before income taxes

 

404

 

 

 

173

 

 

 

231

 

 

 

643

 

 

 

1,077

 

 

 

(434

)

 

 

Income tax expense (benefit)

 

39

 

 

 

(6

)

 

 

45

 

 

 

47

 

 

 

133

 

 

 

(86

)

 

 

Segment income

 

$

365

 

 

 

$

179

 

 

 

$

186

 

 

 

$

596

 

 

 

$

944

 

 

 

$

(348

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined ratio

 

102.3

 

%

 

107.0

 

%

 

(4.7

)

 

pts

103.8

 

%

 

102.1

 

%

 

1.7

 

 

pts

Impact on combined ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unfavorable prior year reserve development

 

5.8

 

 

pts

8.1

 

 

pts

(2.3

)

 

pts

1.9

 

 

pts

2.3

 

 

pts

(0.4

)

 

pts

Catastrophes, net of reinsurance

 

2.5

 

 

pts

3.0

 

 

pts

(0.5

)

 

pts

5.8

 

 

pts

3.7

 

 

pts

2.1

 

 

pts

Underlying combined ratio

 

94.0

 

%

 

95.9

 

%

 

(1.9

)

 

pts

96.1

 

%

 

96.1

 

%

 

 

 

pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums by market

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

Select Accounts

 

$

658

 

 

 

$

695

 

 

 

(5

)

%

 

$

2,191

 

 

 

$

2,236

 

 

 

(2

)

%

 

Middle Market

 

2,131

 

 

 

2,150

 

 

 

(1

)

 

 

6,499

 

 

 

6,569

 

 

 

(1

)

 

 

National Accounts

 

239

 

 

 

273

 

 

 

(12

)

 

 

755

 

 

 

800

 

 

 

(6

)

 

 

National Property and Other

 

602

 

 

 

553

 

 

 

9

 

 

 

1,615

 

 

 

1,528

 

 

 

6

 

 

 

Total Domestic

 

3,630

 

 

 

3,671

 

 

 

(1

)

 

 

11,060

 

 

 

11,133

 

 

 

(1

)

 

 

International

 

203

 

 

 

218

 

 

 

(7

)

 

 

740

 

 

 

793

 

 

 

(7

)

 

 

Total

 

$

3,833

 

 

 

$

3,889

 

 

 

(1

)

%

 

$

11,800

 

 

 

$

11,926

 

 

 

(1

)

%

 

Third Quarter 2020 Results
(All comparisons vs. third quarter 2019, unless noted otherwise)

Segment income for Business Insurance was $365 million after-tax, an increase of $186 million. Segment income increased primarily due to lower net unfavorable prior year reserve development, a higher underlying underwriting gain, higher net investment income and lower catastrophe losses (net of recoveries under the property aggregate catastrophe reinsurance treaty discussed above).

Combined ratio:

  • The combined ratio of 102.3% improved 4.7 points due to lower net unfavorable prior year reserve development (2.3 points), a lower underlying combined ratio (1.9 points) and lower catastrophe losses (0.5 points).
  • The underlying combined ratio of 94.0% improved by 1.9 points, primarily reflecting earned pricing that exceeded loss cost trends and a modest net favorable impact from COVID-19 and related economic conditions.
  • Net unfavorable prior year reserve development was primarily driven by an increase to asbestos reserves of $295 million and an increase to the reserves in our run-off book related to a single insured arising out of policies issued more than 20 years ago, both primarily in the segment’s domestic general liability product line. These reserve increases were partially offset by $81 million of recoveries from the PG&E subrogation described above and better than expected loss experience in workers’ compensation for multiple accident years.

Net written premiums of $3.833 billion decreased 1%. The benefits of continued strong retention and higher renewal rate changes were more than offset by a modest reduction in exposures and a decrease in new business volume, both impacted by COVID-19 and related economic conditions.

Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)

Segment income for Business Insurance was $596 million after-tax, a decrease of $348 million. Segment income decreased primarily due to higher catastrophe losses and lower net investment income, partially offset by lower net unfavorable prior year reserve development.

Combined ratio:

  • The combined ratio of 103.8% increased 1.7 points due to higher catastrophe losses (2.1 points), partially offset by lower net unfavorable prior year reserve development (0.4 points).
  • The underlying combined ratio of 96.1% was level with the prior year period. COVID-19 and related economic conditions had a modest net unfavorable impact on the underlying combined ratio.
  • Net unfavorable prior year reserve development was primarily driven by the following:

Asbestos reserves - an increase of $295 million;

General liability (excluding asbestos and environmental) - higher than expected loss experience in the segment’s domestic operations for primary and excess coverages for recent accident years;

Commercial automobile - higher than expected loss experience in the segment’s domestic operations for recent accident years; and

Commercial multi-peril (excluding PG&E subrogation recoveries and asbestos and environmental) - higher than expected loss experience in the segment’s domestic operations for recent accident years.

Partially offset by:

Workers’ compensation - better than expected loss experience in the segment’s domestic operations for multiple accident years;

Commercial property (excluding PG&E subrogation recoveries) - better than expected loss experience in the segment’s domestic operations for multiple accident years; and

PG&E subrogation recoveries - $81 million of recoveries as described above.

Net written premiums of $11.800 billion decreased 1%, driven by the same factors described above for the third quarter of 2020.

 

Bond & Specialty Insurance Segment Financial Results

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions and pre-tax, unless noted otherwise)

2020

 

 

2019

 

 

Change

 

2020

 

 

2019

 

 

Change

 

Underwriting gain:

$

76

 

 

 

$

104

 

 

 

$

(28

)

 

 

$

208

 

 

 

$

373

 

 

 

$

(165

)

 

 

Underwriting gain includes:

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable (unfavorable) prior year reserve development

 

 

 

3

 

 

 

(3

)

 

 

(33

)

 

 

45

 

 

 

(78

)

 

 

Catastrophes, net of reinsurance

(2

)

 

 

(1

)

 

 

(1

)

 

 

(10

)

 

 

(4

)

 

 

(6

)

 

 

Net investment income

58

 

 

 

59

 

 

 

(1

)

 

 

155

 

 

 

173

 

 

 

(18

)

 

 

Other income

5

 

 

 

6

 

 

 

(1

)

 

 

13

 

 

 

16

 

 

 

(3

)

 

 

Segment income before income taxes

139

 

 

 

169

 

 

 

(30

)

 

 

376

 

 

 

562

 

 

 

(186

)

 

 

Income tax expense

24

 

 

 

30

 

 

 

(6

)

 

 

67

 

 

 

111

 

 

 

(44

)

 

 

Segment income

$

115

 

 

 

$

139

 

 

 

$

(24

)

 

 

$

309

 

 

 

$

451

 

 

 

$

(142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined ratio

89.3

 

%

 

83.3

 

%

 

6.0

 

 

pts

89.7

 

%

 

79.8

 

%

 

9.9

 

 

pts

Impact on combined ratio

 

 

 

 

 

 

 

 

 

 

 

 

Net (favorable) unfavorable prior year reserve development

 

 

pts

(0.5

)

 

pts

0.5

 

 

pts

1.5

 

 

pts

(2.3

)

 

pts

3.8

 

 

pts

Catastrophes, net of reinsurance

0.3

 

 

pts

0.2

 

 

pts

0.1

 

 

pts

0.5