Catastrophe losses nearing agg trigger for Travelers as CEO sees exceptional underlying results

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U.S primary insurer Travelers has pre-announced estimated catastrophe losses of USD 459 million pre-tax (USD 362m after-tax), net of reinsurance, for the fourth quarter of 2022, but still expects to report an underlying, pre-tax underwriting gain of USD 723 million (USD 571m after-tax) for the period.

Travelers Insurance umbrellaCatastrophe losses for Q4 2022 primarily resulted from the winter storm that impacted much of the U.S. and Canada in December.

In Q3 2022, Travelers reported catastrophe losses, net of reinsurance, of USD 512 million, mostly related to Hurricane Ian, which meant the firm had accumulated $1.4 billion of qualifying losses for the retention of $2 billion on its property aggregate catastrophe excess of loss (XoL) treaty.

The announcement today of a Q4 2022 catastrophe load of USD 459 million, takes the accumulation of qualifying losses to just shy of USD 1.9 billion, so very close to the aggregate trigger. Given that the announcement today is net, it’s hard to say if any reinsurance recoveries will be made, but what’s certain is that catastrophes have, at the very least, again eroded most of the retention for this programme.

It’s worth highlighting that in both 2020 and 2021, Travelers exhausted its aggregate reinsurance protection, making recoveries for the full-year. In response, at the January 1st, 2022 reinsurance renewals, the carrier made some reductions to its aggregate catastrophe programme, while expanding its corporate catastrophe XoL reinsurance treaty.

Changes to the aggregate catastrophe treaty meant that it would take more losses to attach, with each loss needing to be larger and, with the amount of cover coming down from the previous year, the protection also required more loss activity to attach.

Alongside the estimated cat bill, the insurer has said that it expects to report net income of USD 819 million, and core income of USD 810 million, for the fourth quarter of 2022.

It also expects to produce an underlying underwriting gain of USD 723 million (USD 571m after-tax), net investment income of USD 625 million (USD 531m after-tax), and net favourable prior year reserve development of USD 185 million (USD 145m after-tax).

Alan Schnitzer, Chairman and Chief Executive Officer (CEO), said: “We are pleased with the solid results for the quarter in light of the late December winter storm. While the footprint of the storm was substantial, impacting 37 U.S. states, the District of Columbia and Canada, our loss experience is consistent with our modeled estimates.

“Aside from the catastrophic weather, underlying results in our commercial businesses were exceptional. Underlying results in Personal Insurance remain challenged by elevated industrywide loss costs. We recorded another quarter of progress with strong pricing and other actions to address these challenges. Across all three segments, we are also pleased with continued strong net written premium growth in the quarter, positioning us well as we enter the new year.”

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