Travelers result dented by Covid-19, catastrophes & Tennessee tornadoes

U.S. primary insurer Travelers has reported a decline in its first-quarter net income, with the major dent to the result seemingly being elevated catastrophe losses, with the Tennessee tornadoes in March a key driver.

The tornadoes that struck near Nashville in Tennessee at the beginning of March have been estimated as a potential billion dollar industry loss event for insurance and reinsurance interests.

Travelers is the first company to report its results and it seems the tornadoes were a key factor in lifting the insurers Q1 catastrophe losses up to $333 million net of reinsurance and before tax, much higher than the prior year’s $193 million.

Catastrophe losses in Q1 2020 “primarily resulted from tornado activity in Tennessee and other wind storms and winter storms in several regions of the United States,” Travelers said.

In the prior year quarter winter storms and wind storms were the primary driver, as there was much less significant convective storm and tornadic activity during the period.

Travelers reported net income of $600 million for the quarter ended March 31st 2020, down on Q1 2019’s $796 million.

As well as the impact of aggregated catastrophe losses, net of reinsurance, Travelers also reported net charges of $86 million pre-tax ($68 million after-tax) associated with the COVID-19 pandemic and related economic conditions.

The insurer also reported negative investment performance of -$98 million before tax, compared to net realised investment gains of $53 million in the prior year.

Alan Schnitzer, Chairman and Chief Executive Officer of Travelers commented on the results, “Turning to our financial results for the first quarter, core income was $676 million, and core return on equity was 11.5%. Underlying underwriting income in the quarter was higher than in the prior year period, benefiting from record first quarter net earned premium of $7.2 billion and an underlying combined ratio which improved to 91.3%.”

But added that, “These strong underlying results, which included the impact of charges related to the COVID-19 pandemic, were more than offset by higher catastrophe losses.”

While the underlying combined ratio was a little lower year-on-year, adding in the catastrophe loss impacts elevated it to 95.5%, up on the prior year period.

Whether Travelers results prove to be an outlier, or set a trend for higher catastrophe loss attrition due to severe convective weather and the tornadoes that were seen in Q1 remains to be seen. But the results certainly imply that some companies will have been calling on their reinsurance panel in Q1 to assist with the catastrophe load.

It’s not clear how much Travelers may have called on its reinsurers to support catastrophe losses, but there is likely to have been some loss ceded to its quota share arrangements at a minimum.