Travelers Q4 Profit Jumps 5% to $1.04B, Underwriting Gain Rises

The Travelers Companies Inc. today reported net income of $1.038 billion for the fourth quarter that ended on Dec. 31, 2014, up 5 percent compared to $988 million net income during the 2013 fourth quarter.

Travelers said its fourth-quarter results benefited from a higher underwriting gain, which was partially offset by lower net investment income.

The latest results bring Travelers’ 2014 full-year net income to $3.692 billion, up 1 percent from $3.673 billion income during full-year 2013.

Operating income for the fourth quarter was $1.023 billion, up 4 percent from $981 million a year ago. The full-year 2014 operating income was $3.641 billion, up 2 percent from $3.567 billion in 2013.

The overall combined ratio for the latest fourth quarter was 85.0 percent, improving from 87.7 percent a year ago. The combined ratio also improved on a full-year basis, coming in at 89.0 percent for 2014, compared to 89.8 percent in 2013.

Net written premiums for the 2014 fourth quarter were $5.836 billion, a 4 percent increase from $ 5.633 billion during the 2013 fourth quarter.

The full-year 2014 net written premiums were $23.904 billion, up 5 percent from $22.767 billion in 2013. Travelers said the increase was primarily driven by growth in domestic business insurance and the inclusion of Dominion, the Canadian insurer which was acquired by Travelers in November 2013.

Looking at the fourth-quarter net written premiums in major segments: Business and International Insurance net written premiums were $3.575 billion, up 6 percent compared to the prior year fourth quarter; Personal Insurance net written premiums were $1.736 billion, up 1 percent; and Bond & Specialty Insurance net written premiums were $525 million, down 5 percent.

For the full-year 2014: Business and International Insurance net written premiums were $14.636 billion, up 8 percent compared to full-year 2013; Personal Insurance net written premiums were $7.165 billion, down 1 percent; and Bond & Specialty Insurance net written premiums were $2.103 billion, up 4 percent.

The pre-tax underwriting gain for the fourth quarter was $866 million, which included $351 million in net favorable prior year reserve development as well as a $41 million loss for catastrophes, net of reinsurance. Travelers said net favorable prior year reserve development occurred in all segments. Catastrophe losses were primarily due to a wind and hail storm in the U.S. Midwest region, as well as increases in estimated losses related to certain wind and hail storms that occurred in the second quarter.

The 2014 fourth-quarter pre-tax underwriting gain was up 26 percent compared to pre-tax underwriting gain of $689 million during the 2013 fourth quarter, which included $259 million net favorable prior year reserve development and a $53 million loss for catastrophes, net of reinsurance.

The pre-tax underwriting gain for the full-year 2014 was $2.478 billion, which includes $941 million net favorable prior year reserve development and a $709 million loss for catastrophes, net of reinsurance. That’s a 14 percent increase from $2.167 billion underwriting gain for the full-year 2013, which included $840 million net favorable prior year reserve development and a $591 million loss for catastrophes, net of reinsurance.

Net investment income for the 2014 fourth quarter was $637 million, down 9 percent from $702 million from the prior year fourth quarter. Travelers said the decline is due to lower reinvestment rates in the fixed income portfolio and lower returns in the non-fixed income portfolio.

The full-year 2014 net investment income was $2.787 billion, up more than 2 percent from $2.716 billion in 2013. The increase for the full-year 2014 was primarily due to strong private equity performance and higher real estate partnership returns, partially offset by lower reinvestment rates in the fixed income portfolio.

“Fourth quarter net income of $1.038 billion provided a strong finish to an excellent year financially, strategically, and operationally,” commented Chairman and CEO Jay Fishman.

“We achieved record levels of net income per diluted share for both the quarter and the full year of $3.11 and $10.70, respectively, benefitting from strong underwriting and investment results, as well as our ongoing strategy of returning excess capital to shareholders,” said Fishman. “For the full year, we achieved a return on equity of 14.6 percent and operating return on equity of 15.5 percent, bringing our average annual return on equity to 12.5 percent and average annual operating return on equity to 13.3 percent for the past decade.”

“For the full year, all our business segments performed very well. Business and International Insurance profitability was very strong, with a combined ratio of 93.1 percent and operating income of over $2.3 billion,” said Fishman. “We remain very pleased with, and intend to continue, our proactive, account by account, class by class pricing strategy.”

“Bond & Specialty Insurance had exceptional performance in 2014, with record operating income of $727 million. These results are a continuation of the superior, long-term performance this business has achieved while successfully navigating a very challenging and rapidly evolving economic environment,” said Fishman.

Results in Personal Insurance were also strong, Fishman said, adding that Travelers is especially pleased with the marketplace success of Quantum 2.0, the company’s private passenger automobile product.

“We achieved net written premium growth in Auto in the second half of the year, as well as sequential increases in policies in force beginning in the third quarter,” he said. “Importantly, loss indications for Quantum 2.0, while still preliminary, look to be in line with our expectations.”

“We remain optimistic that we will continue to achieve superior returns over time across our business segments, and that, combined with our active capital management strategy, positions us to continue to deliver meaningful shareholder value,” said Fishman.