The Travelers Co.'s record third-quarter net-income result was as much a product of a disciplined underwriting strategy as the benign catastrophe season, company executives say.
Discussing Travelers' third-quarter net income of $864 million, an increase of $531 million from the same period last year, Jay Fishman, Travelers' chairman and chief executive officer, says earnings were driven by “superior underwriting results as well as solid investment income.”
The result was a combination of “lower weather-related losses, net favorable prior year reserve development as well as the cumulative effect of rate gains that we have achieved over nearly two years,” Fishman adds
Discussing rate increases on business insurance, excluding national accounts, he says written rates rose nearly 8 percent and retention stood at 81 percent.
Turning to personal-lines insurance, auto insurance rates rose 9 percent, while homeowners rates rose 12 percent and retentions remained stable. Fishman adds that in addition to rate increases, the company is seeing improvement in terms and conditions on homeowners insurance.
“While we are experiencing lower new business volumes, we are taking the right actions in order to improve our profitability on returns,” says Fishman.
Fishman went on to explain that while the company is obtaining rate increases, the more important aspect of its performance is its “granularity” in underwriting, taking the time to understand “which accounts are in need of improvement and which ones meet or exceed our expectations.”
Fishman notes, “Mother Nature is increasingly unpredictable and we believe the low interest-rate environment will continue to impact our business for the foreseeable future. Therefore, we will continue to seek improved pricing and take those underwriting steps necessary to improve profits and produce higher returns on capital. This remains business as usual for us.”
Brian W. MacLean, president and chief operating officer, says the increases insureds are seeing are “broad based” but “auto is seeing a little more heat. We need the rate there. But, by and large, it has been across the board with our products.”
He says while retentions have been healthy despite the increases, what the company is “obsessing about” is that it keeps the right accounts—accounts where the combination of underwriting and losses still keep the book profitable.
Examining underwriting profitability, Travelers reports a third-quarter combined ratio of 90.3, 14.2 points lower than the same period last year. For the first nine months of this year, the combined ratio stands at 94.3, 13.9 points lower than last year.
Fishman says he does not believe Travelers' loss in new business is so much rate driven as it is losing an account because it does not fit its underwriting appetite.
“It is more important that we do it right than fix it as we go along,” says Fishman.
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