Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Travelers Companies Inc (TRV, Financial) reported a strong bottom-line result with core income of $585 million or $2.51 per diluted share.
- Record net earned premium of $10.2 billion and a consolidated underlying combined ratio improved to 87.7%.
- Net written premiums grew by 8% to $11.1 billion, with growth in all three business segments.
- After-tax net investment income increased by 22% from the prior year quarter to $727 million.
- The company generated strong operating cash flows for the seventh consecutive quarter, exceeding $1 billion.
Negative Points
- The second-quarter results included $1.5 billion pretax catastrophe losses due to a record number of severe convective storms.
- The umbrella line required $250 million of reserve strengthening for accident years 2021 through 2023.
- The expense ratio for the second quarter was 28.8%, which is relatively high.
- Retention in the select business unit ticked down to 83% due to efforts to optimize risk return profiles in certain geographies.
- New business in personal insurance was down slightly, reflecting efforts to manage auto profitability and property actions in high-risk areas.
Q & A Highlights
Q: I just had a question on the moving pieces around reserves in business insurance. Can you elaborate on the $250 million of recent accident year umbrella charges and give some confidence that this issue is behind you?
A: We've seen umbrella and general liability lines require some strengthening in the last two quarters. We believe we are being proactive and decisive in reacting to the changes in actual versus expected and adjusting development factors going forward. Importantly, the 2015 through 2020 period has held up well given the actions taken through the end of 2023.
Q: The underlying loss ratio in business insurance showed improvement year over year. What was driving that improvement, and was there any change to loss trend baked in?
A: The improvement was driven by earned pricing and property losses being about a point favorable to our expectations. We had already taken some action by adding IBNR to the current accident year last quarter. The changes made in PYD had some carryforward impact on the umbrella line, but overall, there was no significant movement in the underlying loss ratio.
Q: Looking at BI pricing trend, the RRC decelerated by 40 basis points. Is that due to property given that select and middle market did improve in the quarter?
A: Yes, the primary driver of the slight deceleration in RRC was the national property business. Select and middle market showed improvement, with select up and middle market flat.
Q: Can you give more color on the umbrella increase by accident year and what emerged in Q2 more than in Q1?
A: The increase is related to accident years '21, '22, and '23. We are reacting to higher-than-expected claims, including tornado upgrades, severity, and jury awards. We are adjusting development factors going forward to be proactive and decisive.
Q: Could you give more color on the corp backlogs now resolved from the COVID shutdown?
A: This evaluation is based on our own data, but we believe it reflects broader market trends. The corp backlogs from the COVID shutdown are largely resolved.
Q: Do you expect any impact to the combined ratio from the changes to reinsurance?
A: No significant impact is expected. Pricing was about in line with expectations, and any increase in reinsurance costs is offset by price increases on the direct side.
Q: Can you discuss the competitive positioning in personal auto, especially given the policy count going down?
A: We are seeing growth in geographies with better auto margins and are managing profitability in challenged states. Our strategy focuses on package writing, which impacts our competitive positioning differently than competitors who are not predominantly package writers.
Q: Given the changes in the reinsurance market, should we assume higher levels of debt absorption going forward?
A: No, we are not holding onto more risk. The attachment points have increased naturally due to growth in the premium base and insured values, but this does not significantly impact our net results.
Q: Can you talk about competitor behavior in the personal auto line in terms of pricing and advertising spending?
A: We continue to see renewal premium changes and price increases across the industry. Advertising spending has increased among some competitors, reflecting improved profitability and a pivot towards profitable growth.
Q: Can you discuss the impact of the Supreme Court's overturning of the Chevron doctrine on exposure for various casualty lines?
A: It's too early to make a definitive call on the impact. Regulatory activity can influence loss activity, and the decision might have a positive effect, but we are not overly concerned at this point.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
