Travelers Companies, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited U.S. GAAP. Travelers is a property-casualty insurer reporting Business Insurance, Bond & Specialty Insurance, and Personal Insurance.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $11.23 billion | $9.70 billion |
| Earned premiums | $10.13 billion | $8.85 billion |
| Net investment income | $846 million | $663 million |
| Income before tax | $1.37 billion | $928 million |
| Net income | $1.12 billion | $975 million |
| Diluted EPS | $4.80 | $4.13 |
| Combined ratio | 93.9% | 95.4% |
| Operating cash flow | $1.46 billion | $1.01 billion |
Revenue rose 16% and net income 15%. Earned premiums increased 14%; gross and net written premiums grew 9% and 8%, respectively. Higher investment income reflected higher average yields and investment balances, including returns from private equity partnerships. The combined ratio improved 1.5 points; the underlying combined ratio, excluding catastrophe losses and prior-year reserve development, improved 2.9 points.
| Segment | Earned premiums | Segment income | Combined ratio |
|---|---|---|---|
| Business Insurance | $5.16 billion (+15%) | $764 million (+1%) | 93.3% (93.6%) |
| Bond & Specialty Insurance | $956 million (+9%) | $195 million (-6%) | 84.5% (80.0%) |
| Personal Insurance | $4.01 billion (+15%) | $220 million (vs. $83 million) | 96.9% (101.5%) |
Parenthetical ratio figures are Q1 2023. Catastrophe losses were $712 million before tax ($563 million after tax), versus $535 million a year earlier; severe wind and hail were the principal Q1 2024 causes. Net favorable prior-year reserve development was $91 million, compared with $105 million. The loss and loss adjustment expense ratio improved to 65.2% from 66.7%; the underwriting expense ratio was 28.7% in both periods.
Financial position, cash flow and capital
- At March 31, total assets were $127.41 billion, investments $88.66 billion, claims reserves $62.49 billion, debt $8.03 billion, and shareholders’ equity $25.02 billion. Book value per common share was $109.28.
- Cash was $667 million. Operating cash flow was $1.46 billion; investing cash outflow was $1.04 billion, including the Corvus acquisition; financing cash outflow was $399 million. Cash increased $17 million during the quarter.
- Holding-company cash and short-term investments were $1.62 billion, above the approximately $1.30 billion liquidity target. The company reported $100 million of commercial paper outstanding and a $1.0 billion credit facility.
- Debt-to-total capital was 24.3%, or 21.8% excluding after-tax unrealized investment losses; the latter was within management’s 15%–25% target range. Fixed maturities and short-term securities were 93% of investments, with an Aa2 weighted average fixed-maturity credit quality.
- Net unrealized fixed-maturity investment losses were $4.72 billion before tax ($3.72 billion after tax), versus $3.97 billion before tax at year-end, primarily reflecting higher interest rates. Management characterized the losses as temporary and said they were not expected to meaningfully affect capital adequacy or liquidity.
- The company returned $620 million to shareholders in the quarter, comprising $388 million of share repurchases and $232 million of dividends. It repurchased 1.2 million shares under authorizations for $250 million; $5.79 billion of authorization capacity remained. On April 17, Travelers announced a quarterly dividend increase from $1.00 to $1.05 per share.
Material changes, outlook and risks
- Corvus acquisition: Travelers acquired cyber insurance managing general underwriter Corvus on January 2 for approximately $427 million, funded internally. Purchase accounting recorded $478 million of assets and $51 million of liabilities, including $285 million of goodwill and $105 million of identifiable intangible assets. A $19 million deferred tax asset is provisional; a measurement-period adjustment is expected in Q3 2024.
- Tax comparison: Q1 2024 income tax expense was $247 million, versus a $47 million benefit in Q1 2023. The prior-year result included a one-time $211 million tax benefit from expiration of a statute of limitations; effective tax rates were 18% and negative 5%, respectively.
- Investment-income outlook: Management expects after-tax net investment income from the fixed-income portfolio of approximately $640 million in Q2, $665 million in Q3, and $690 million in Q4 2024. These expectations are sensitive to interest rates and global financial-market disruptions. The filing gives no specific full-year earnings or premium-growth guidance.
- Underwriting outlook: Travelers expects retention to remain strong by historical standards during the rest of 2024, while competition for new business is expected to remain high. Management cites earned pricing as a benefit but notes that catastrophe and weather losses are unpredictable; historically, about 40% of annual catastrophe losses occurred in Q2.
- Key risks: Inflation in labor, parts and raw materials; loss-cost trends; aggressive attorney involvement and the tort environment; catastrophes; reserve-estimation uncertainty; reinsurance availability and collectibility; interest-rate and market volatility; and regulatory, tax, geopolitical and cyber risks could affect results. Management noted that higher loss costs continue to affect personal and commercial lines.
- Contingencies: Asbestos and environmental claims remain uncertain and could require liabilities above current reserves; any additional exposure cannot be reasonably estimated and could materially affect future results. Net asbestos reserves were $1.30 billion and net environmental reserves $396 million at quarter-end. The company increased net environmental reserves by $29 million in Q1. Management did not consider other described lawsuits reasonably likely to be material to financial position or liquidity.
Important facts for investors to verify
- Whether premium growth and the improved underlying combined ratio persist after separating pricing, exposure growth, catastrophe losses and reserve development.
- Whether current-year loss-cost inflation, catastrophe activity and adverse reserve development alter claims reserves or underwriting margins.
- How investment yields, interest rates, equity markets and unrealized fixed-maturity losses affect investment income, equity and capital measures.
- Corvus integration, cyber portfolio performance, and any Q3 purchase-accounting adjustment to its provisional tax asset.
- Developments in asbestos and environmental claims, reinsurance recoverables, and the company’s capacity to sustain dividends and repurchases while supporting premium growth.