Travelers Boosts Q1 Profit; Talks Central Underwriting, Potential with Nationwide Agents

The Travelers Companies boosted its net income for the quarter ended March 31, 2018, by 10 percent to $669 million compared to $617 million in the prior year quarter despite unusually high catastrophe losses in March.

Catastrophe losses in the first quarter of 2018 were primarily due to winter storms in the eastern United States, a wind and hail storm in the southern United States and mudslides in California.

In remarks with analysts, company officials discussed the company’s centralized underwriting initiative for small commercial business, their view of potential acquisitions and the decision by Nationwide Insurance to switch its distribution from captive agents to independent agents.

Record net written premiums of $6.824 billion were up 5 percent from the prior year quarter, reflecting growth in all segments.

The consolidated combined ratio for the quarter was 95.5, compared to 96.0 for the same quarter in 2017.

Underwriting gains were up 22.3 percent to $258 million while income tax expenses were down 21.3 percent, primarily due to lower U.S. corporate income taxes.

Net investment income of $603 million decreased 1 percent to $603 million. Private equity returns remained strong but were lower than the prior year quarter.

“Our first quarter performance is an encouraging start to the year, and we’re making important progress on our innovation agenda to ensure that our competitive advantages continue to set us apart,” said Alan Schnitzer, chairman and chief executive officer, in prepared remarks.

During a call with analysts, Schnitzer reported on the company’s strategic initiative to centralize underwriting for “lower touch” business accounts. Four business centers are online. All eligible renewals are flowing through them and quote activity is up. “It’s still early but we are pleased with productivity gains we are seeing,” said Schnitzer.

He also said he just returned from a meeting with the carrier’s biggest producers who expressed support for the centralized underwriting centers and the company’s other strategic initiatives to strengthen ties with customers and producers.

Travelers said it views Nationwide’s decision to move from captive agency distribution to the independent agency system as not entirely new and “more an opportunity than a threat.” Michael F. Klein, president, Personal Lines, and head of Business Intelligence and Analytics, noted that Nationwide has long had affiliates that work with independent agents and Travelers already works with some Nationwide agents through a broker program of Nationwide’s that allows its captive agents to place business with other markets. He said Travelers considers its own “strength with independent agents as a continued competitive advantage” and thinks Nationwide’s move is an opportunity “to explore additional distribution points.”

In response to an analyst’s question, Schnitzer said the company remains just as focused on possible acquisitions as ever but added that today’s management also “thinks more about opportunity costs and the distraction from organic progress” of acquisitions. “Our shareholders should demand that we are active in M&As and we are and will continue to be. But we will remain disciplined. We often say that some of the best deals we do are the deals we don’t do,” Schnitzer said.

In Business Insurance, income was $452 million after-tax, an increase of $10 million. The company said pricing environment in business lines continued to improve, resulting in a domestic renewal premium increase of 4.5 percent. The Business Insurance combined ratio of 97.5 increased 1.1 points due in part to higher catastrophe losses (4 points). Net written premiums of $3.994 billion increased 4 percent and benefited from higher renewal premium change and retention, while new business remained solid.

Income for Personal Insurance was $129 million after-tax, an increase of $40 million. Personal lines net written premiums of $2.256 billion grew 8 percent, benefiting from renewal premium change of 10 percent in agency auto and a 5 percent growth in policies growth in the homeowners business. The personal lines combined ratio of 97.5 improved 2.1 points due to favorable reserve development.

In Bond & Specialty Insurance, net written premiums increased 6 percent, with growth in both the management liability and surety businesses. The combined ratio for this segment of 74.7 improved 4.7 points.