Travelers Companies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results compared with Q1 2022. Travelers is a property-casualty insurer with Business Insurance, Bond & Specialty Insurance, and Personal Insurance segments.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Total revenue | $9.704 billion | $8.809 billion |
| Earned premiums | $8.854 billion | $8.014 billion |
| Net investment income | $663 million | $637 million |
| Income before tax | $928 million | $1.182 billion |
| Net income | $975 million | $1.018 billion |
| Diluted EPS | $4.13 | $4.15 |
| Combined ratio | 95.4% | 91.3% |
| Operating cash flow | $1.012 billion | $1.266 billion |
| Total assets / shareholders’ equity | $118.352 billion / $23.052 billion | $115.717 billion / $21.560 billion at Dec. 31, 2022 |
| Total debt | $7.292 billion | Unchanged from Dec. 31, 2022 |
Premiums grew 10%; net written premiums increased 12%. Net income declined 4%, while diluted EPS declined less than 1%, reflecting lower average shares after repurchases. The loss and loss adjustment expense ratio rose to 66.7% from 62.3%; the underwriting expense ratio improved to 28.7% from 29.0%. Catastrophe losses were $535 million versus $160 million, while net favorable prior-year reserve development was $105 million versus $153 million.
Q1 results included a one-time $211 million tax benefit from expiration of the statute of limitations on a tax item. The resulting income tax benefit was $47 million, compared with $164 million tax expense in Q1 2022. Net investment income rose 4%, principally from higher fixed-income and short-term yields; returns from private equity and real estate partnerships were lower. Cash flow from operations fell, primarily because of higher claim and commission payments, partly offset by higher premium receipts.
Segment income was $756 million for Business Insurance, up 13%; $207 million for Bond & Specialty, down 5%; and $83 million for Personal Insurance, down 63%. Personal Insurance’s 101.5% combined ratio exceeded 100%, reflecting elevated catastrophe and auto losses. The other segment combined ratios were 93.6% for Business Insurance and 80.0% for Bond & Specialty.
At March 31, investments totaled $82.035 billion, including $72.914 billion of fixed maturities. The fixed-maturity portfolio’s net unrealized loss was $4.91 billion pre-tax ($3.87 billion after tax), improved from $6.22 billion pre-tax at year-end, mainly as interest rates declined. Management considers these losses temporary and reports no expected effect on contractual cash flows. Holding-company cash and short-term investments were $1.55 billion, above its approximately $1.27 billion liquidity target. Debt-to-total capital was 24.0%, or 21.3% excluding after-tax unrealized investment losses; the latter was within the company’s 15%–25% target range.
Outlook, capital returns, and risks
Management expects retention levels to remain strong by historical standards during the remainder of 2023 and expects competitive conditions for new business. It expects after-tax fixed-income investment income of approximately $530 million in Q2, $555 million in Q3, and $575 million in Q4 2023, subject to interest rates and financial-market conditions. Under a quota-share agreement effective January 1, 2023, Travelers assumes 20% of certain Fidelis business, subject to a loss-ratio cap; expected full-year net written premiums are $550 million–$600 million, reported in Business Insurance International.
On April 19, 2023, the board authorized an additional $5.0 billion of share repurchase capacity, on top of $1.60 billion remaining at quarter-end, and raised the regular quarterly dividend from $0.93 to $1.00 per share. Q1 capital returned was $680 million, comprising $462 million of repurchases and $218 million of dividends declared.
Key exposures include unpredictable catastrophe and weather losses; claims inflation, auto severity, and supply and labor costs; reserve estimation and prior-year development; a challenging tort environment and increased attorney involvement; banking-sector disruption; investment-market, interest-rate, and credit risks; and reinsurance recoverability. Asbestos and environmental reserve outcomes remain uncertain, and additional liabilities could be material, though not reasonably estimable. The filing reports no material change to the previously disclosed risk factors. Management stated disclosure controls were effective and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether the $211 million one-time tax benefit obscures underlying earnings trends; compare reported net income with core income of $970 million versus $1.037 billion in Q1 2022.
- Whether Personal Insurance auto loss severity and its 101.5% combined ratio improve, and whether catastrophe activity remains elevated.
- How reserve development evolves, particularly for long-tail, asbestos, and environmental claims, and whether reinsurance recoverables remain collectible.
- Whether management’s quarterly investment-income expectations are achieved and how interest-rate moves affect portfolio values and capital.
- How Fidelis quota-share results develop relative to the stated premium expectation and loss-ratio cap.
- Whether capital returns remain consistent with premium growth, catastrophe needs, and the stated capital and liquidity targets.