Cat losses hit Travelers in Q2; CEO seeks rate increases
US insurer Travelers enjoyed solid results in the second quarter of 2014 although its net and operating profits were hit by high catastrophe losses. Its chief executive also stated that it will be actively seeking rate increases on some lines.
The company made a net profit of $683 million in the quarter compared with $925 million in the first quarter of the year. Its operating profit for the quarter was $673 million compared with $816 million in the prior year quarter.
Its second quarter results were reduced by catastrophe losses of $284 million. In contrast, its results in the first quarter of 2014 were boosted by $122 million after-tax from favourable tax and legal settlements. In addition, net income in the prior year quarter benefited by $87 million after-tax from net realized investment gains related to a short position in US Treasury futures contracts.
The company enjoyed some solid growth in the quarter with net written premiums increasing by 6 percent, largely on the back of its acquisition of Dominion of Canada in November 2013.
The company also highlighted its combined ratio, which was 90.9 compared with 91.7 percent in the prior year quarter.
“Our second quarter operating income of $673 million and operating return on equity of 11.4 percent were strong, particularly given the relatively high level of catastrophe losses we experienced this quarter,” said Jay Fishman, chief executive of Travelers.
“The comparison of these results to last year’s second quarter was meaningfully impacted by the significant increase in catastrophe losses in the current quarter as well as the inclusion of significant favourable tax and legal settlements in the prior year quarter.
“We are very pleased with our underlying combined ratio of 90.9 percent, which improved from 91.7 percent in the prior year quarter. Net investment income was comparable to the prior year quarter, notwithstanding the impact of the low interest rate environment, as we continued to generate strong returns from our non-fixed income portfolio. In addition, our strong earnings in recent quarters enabled us to return over $1 billion of capital to shareholders in the current quarter, including $876 million of share repurchases.
“Our results year-to-date were very strong and demonstrated our continued success in actively managing our businesses to produce superior returns on capital over time. In business insurance, the cumulative effect of the price increases we have achieved over the last several years, combined with our highly analytic approach to risk selection, has resulted in a product portfolio that is achieving meaningfully improved and attractive returns.
“That said, we are not declaring mission accomplished. There remains opportunity to further improve the product portfolio by continuing to take appropriate action on those accounts or classes of business that still do not meet our return thresholds and by achieving additional rate increases for those accounts that continue to experience unusual weather volatility. In personal insurance, we still have more work to do to improve our returns, but we have made considerable progress in both auto and homeowners.”
