Business context and reporting period
The Travelers Companies, Inc. is a property-and-casualty insurer operating through Business Insurance, Bond & Specialty Insurance, and Personal Insurance. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023; comparisons are with the same 2022 periods. Amounts are in U.S. dollars.
Financial performance and position
- Second quarter: Revenue was $10.10 billion, up 11% year over year, led by earned premiums of $9.22 billion, also up 11%. Net investment income was $712 million. Travelers recorded a net loss of $14 million, or $0.07 per diluted share, versus net income of $551 million, or $2.27 per diluted share, a year earlier.
- First six months: Revenue was $19.80 billion, up 10%; net income was $961 million, down 39%, and diluted earnings per share were $4.09, down 36%. Net investment income was $1.38 billion, up 2%.
- Underwriting and margins: The consolidated combined ratio was 106.5% for Q2 (98.3% in 2022) and 101.1% for the first half (94.8%). Catastrophe losses were $1.48 billion in Q2 and $2.02 billion year to date, compared with $746 million and $906 million, respectively, in 2022. Underlying combined ratios, excluding catastrophe losses and prior-year reserve development, improved 1.7 points for Q2 and 1.2 points for the first half, according to management.
- Cash flow and liquidity: Operating cash flow was $2.56 billion for the first half, versus $2.64 billion in 2022; Q2 operating cash flow was $1.55 billion. At June 30, cash was $605 million and holding-company liquidity was $1.97 billion, above the company’s approximately $1.29 billion target.
- Balance sheet and capital: Total assets were $120.57 billion; shareholders’ equity was $21.86 billion. Debt was $8.03 billion, with a debt-to-total-capital ratio of 26.9%, or 23.3% excluding after-tax unrealized investment losses (within management’s 15%–25% target range). Book value per share was $95.46. Fixed maturities and short-term securities were 93% of $82.97 billion in total investments.
- Capital returned: Q2 repurchases were $400 million and dividends were $233 million. First-half repurchases and dividends were $800 million and $447 million, respectively. The declared quarterly dividend was $1.00 per share.
Changes versus the prior comparable period
- Higher catastrophe losses and less favorable prior-year reserve development weighed on earnings. Q2 net favorable prior-year development was $60 million, compared with $291 million in Q2 2022; first-half amounts were $165 million and $444 million, respectively.
- Personal Insurance was the largest pressure point: it reported a $538 million Q2 segment loss versus a $193 million loss in 2022, and a $455 million first-half loss versus $32 million of income. Its combined ratios were 122.0% for Q2 and 112.0% for the first half.
- Business Insurance Q2 segment income fell 40% to $402 million, while Bond & Specialty Insurance Q2 segment income was nearly flat at $230 million. Premium growth was broad: first-half earned premiums increased 10% in Business, 7% in Bond & Specialty, and 12% in Personal.
- Investment income rose modestly overall, as improved fixed-income and short-term yields were partly offset by lower private-equity and real-estate partnership returns. The first-half income tax benefit included a one-time $211 million benefit from expiration of a tax statute of limitations.
Outlook, commentary and risks
- Management expects retention levels to remain strong by historical standards for the rest of 2023, while property-and-casualty competition for new business is expected to continue.
- Expected after-tax net investment income from the fixed-income portfolio is approximately $570 million in Q3 2023 and $595 million in Q4 2023; management says interest rates and global market disruption could affect these estimates.
- Given first-half catastrophe losses, management expects share repurchases in the remainder of 2023 to be lower than in the first half. Repurchase timing remains subject to capital needs, earnings, catastrophe losses, market conditions, and other factors.
- Key exposures include unpredictable catastrophe and weather losses; claims inflation, elevated auto and homeowners severity, and a changing tort environment; reserve-estimation uncertainty; investment interest-rate, credit and market risk; and potential reinsurance or counterparty risk. Management describes fixed-maturity unrealized losses of about $5.8 billion pre-tax as primarily rate-driven and temporary, with no expected impact on contractual cash flows.
- Asbestos and environmental claims remain uncertain. Net asbestos reserves were $1.22 billion and net environmental reserves were $374 million at June 30. The company says additional liabilities beyond current reserves may arise, potentially materially, but cannot currently be reasonably estimated. Unfunded investment commitments were $1.72 billion.
- Other notable items: Travelers issued $750 million of 5.45% senior notes due 2053 in May. A July 1, 2023 hurricane reinsurance treaty provides up to $500 million of coverage for specified U.S. coastal homeowners losses, subject to a $1.75 billion retention. The filing reports no material changes to risk factors, no material change in internal control over financial reporting, and effective disclosure controls.
Important facts for investors to verify
- How Q3 and full-year catastrophe activity, especially severe storms, develops and affects underwriting results and capital.
- Whether pricing and earned premium growth continue to offset claims inflation, elevated personal-lines severity, and loss trends.
- Future reserve development, particularly in Business Insurance general liability, commercial auto and environmental exposures, and the adequacy of asbestos and environmental reserves.
- Actual investment income versus management’s Q3 and Q4 estimates, and changes in interest rates, unrealized losses, and partnership returns.
- The pace of share repurchases relative to catastrophe losses, capital requirements, and the stated expectation of reduced repurchases in the second half.