Travelers reported third-quarter net income of $1.917 billion on October 16, up from $1.888 billion a year earlier, as stronger investment income and reserve releases outweighed higher catastrophe losses.
The US insurer’s diluted earnings reached $9.04 a share. Share repurchases helped earnings per share increase faster than total profit by reducing the number of shares across which earnings were spread.
According to its results filed with the Securities and Exchange Commission, pre-tax net investment income reached a record $1.098 billion, up 6%.
Underwriting remains profitable
The combined ratio improved to 86.8%. This measure compares insurance claims and expenses with earned premiums. A result below 100% indicates an underwriting profit before investment income.
Catastrophe losses rose to $538 million, primarily from wind and hail storms. Favorable development of earlier claims reserves reached $234 million.
Reserve development reflects changes in estimates of what earlier claims will ultimately cost. A favorable change can boost current earnings without representing new policy sales.
Travelers’ underlying combined ratio, which excludes catastrophe losses and prior-year reserve development, edged up to 84.1% from 83.9%. The headline underwriting improvement therefore needs to be read alongside those adjustments.
Premium growth varies by business
Net written premiums were broadly unchanged at $11.480 billion. The comparison includes the effect of Canadian businesses sold earlier this year; excluding that sale, premiums increased 2%.
Written premiums measure insurance business booked during a period. They differ from earned premiums, which recognize coverage as it is provided, and from investment income.
For customers, one insurer’s earnings do not establish what their next renewal will cost. The type of risk, claims history, location, policy limits and deductible all affect the quotation.
A profitable insurer does not mean every risk gets cheaper
The results arrive in a market where competition and capital have helped many commercial insurance buyers, while difficult risks still attract closer scrutiny.
In its second-quarter market review, broker Aon described broadly favorable conditions, with abundant capacity and rate reductions available for many well-managed risks. It also stressed the importance of good risk information in renewal submissions.
Capacity means the amount of risk insurers are willing and financially able to accept. More capacity can increase competition, but it does not remove concerns about a particular building or liability exposure.
Our coverage of commercial insurance prices falling unevenly examines why some buyers face higher costs even when wider market conditions improve.
Businesses comparing renewals should assess coverage alongside price. A lower premium accompanied by a higher deductible or narrower protection can leave more of a loss on the company’s own balance sheet.
