U.S. primary insurance carrier Travelers has reported what its CEO Alan Schnitzer calls its “highest-ever level of first quarter catastrophe losses”, which it appears are largely due to the US winter storms.
Travelers doesn’t break out its losses from February’s US winter storms and Texas deep freeze event, but the company says that its first-quarter 2021 catastrophe losses are largely related to winter storms and wind storms in the United States, so it’s safe to assume the freeze event is the major contributor.
Which demonstrates the size of the loss and the impact it will have across insurance and reinsurance markets, in starting the year with a particularly high loss burden, which will likely now play into the mid-year reinsurance renewal negotiations.
Travelers has reported $835 million of pre-tax catastrophe losses for Q1 2021, which compares to just $333 million pre-tax in the prior year quarter.
However, the insurer was still able to deliver an underwriting profit, with its consolidated combined ratio reported as 96.6% for the period.
Commenting on the first-quarter, Alan Schnitzer, Travelers Chairman and Chief Executive Officer, said, “We are very pleased to report first quarter core income of $699 million, or $2.73 per diluted share, both up from the prior year quarter despite our highest-ever level of first quarter catastrophe losses. Higher core income resulted from very strong underlying underwriting income, as well as higher levels of favorable prior year reserve development and net investment income, which together more than offset the record level of catastrophe losses. Underlying underwriting income was meaningfully higher than in the prior year quarter, driven by higher net earned premiums and an underlying combined ratio which improved to an excellent 89.5%. The underlying underwriting result was strong in each of our three segments. In Business Insurance, the underlying combined ratio improved by more than 3 points. Bond and Specialty Insurance and Personal Insurance both benefited from higher earned premiums and continued strong margins. Our high-quality investment portfolio performed well, generating net investment income of $590 million after-tax.
“These results, along with our strong balance sheet, enabled us to return $613 million of excess capital to our shareholders this quarter, including $397 million of share repurchases. In recognition of our strong financial position and confidence in our business, I am pleased to share that our Board of Directors declared a 4% increase in our quarterly cash dividend to $0.88 per share, marking 17 consecutive years of dividend increases with a compound annual growth rate of 9% over that period. The Board also authorized an additional $5 billion of share repurchases.
“For the quarter, net written premiums grew 2%, driven by continued strong renewal premium change and retention in each of our three segments. In Business Insurance, renewal premium change increased to 9.2%, its highest level since 2013, while retention remained strong. In Bond & Specialty Insurance, net written premiums increased by 9%, driven by renewal premium change of 10.8% in our management liability business, while retention remained strong. In Personal Insurance, net written premiums increased by 7%, driven by strong renewal premium change of 7.7% in our Homeowners business and strong retention and new business in both Auto and Homeowners.
“The strength of our underwriting and investment expertise enabled us to deliver strong profitability, notwithstanding the severe winter weather. As a result, we are off to a terrific start to the year. We are particularly pleased with the strong underlying fundamentals in all three of our business segments. Our proven strategy, strong track record of execution, leading analytics and talent advantage give us confidence that we are well positioned to capitalize on opportunities as the economy recovers and to continue to create meaningful shareholder value over time.”
$506 million of the catastrophe losses fell to Travelers business insurance segment, with $305 million in the personal insurance segment.
That is interesting given the forecasts that the US winter storms would largely be a personal lines loss, which Travelers appears may have dispelled somewhat, with its commercial lines unit seemingly taking the bigger catastrophe loss hit in Q1.
Reinsurance capital may not have provided all that significant a support to Travelers in the first-quarter, being the start of its year for its renewed aggregate reinsurance.
As we’d previously explained, for 2021, Travelers upsized on its aggregate catastrophe reinsurance protection, with the renewed treaty set to cover 70% of a $500 million layer, so $350 million of coverage and a $150 million retention.
Travelers 2021 aggregate reinsurance treaty covers qualifying losses from PCS-designated catastrophe events in North America in excess of $5 million per catastrophe event, up to a maximum of $250 million per-event, with the attachment for the coverage sitting at $1.9 billion.
The first-quarter catastrophe losses will have eroded a significant amount of the deductible sitting beneath the aggregate reinsurance, perhaps as much as half given the $835 million reported is net, but with nine months left of the year to run it seems the full coverage remains intact for now.