The Travelers Companies, Inc. — Q3 2022 Form 10-Q
Business context and period. Unaudited results cover the quarter and nine months ended September 30, 2022, compared with the same 2021 periods. Travelers reports Business Insurance, Bond & Specialty Insurance, and Personal Insurance.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Premiums | $8.62B | $7.83B | $24.95B | $22.83B |
| Total revenue | $9.30B | $8.81B | $27.25B | $25.81B |
| Net income | $454M | $662M | $2.02B | $2.33B |
| Diluted EPS | $1.89 | $2.62 | $8.34 | $9.16 |
| Combined ratio | 98.2% | 98.6% | 96.0% | 96.8% |
| Net investment income | $593M | $771M | $1.94B | $2.29B |
| Net realized investment gains (losses) | $(93)M | $8M | $(211)M | $113M |
- Premium growth was broad-based: Q3 earned premiums rose 10%; nine-month premiums rose 9%. Net written premiums increased 10% in Q3 and 11% year to date.
- Q3 catastrophe losses were $512M; nine-month catastrophe losses were $1.42B, below $1.81B in 2021. Q3 net favorable prior-year reserve development was $20M, versus $56M net unfavorable in Q3 2021; nine-month favorable development was $464M versus $443M.
- Q3 combined ratio improved 0.4 percentage points, but the underlying combined ratio excluding catastrophe losses and prior-year development worsened 1.1 points. For nine months, the combined ratio improved 0.8 points while the underlying ratio worsened 1.4 points.
- Personal Insurance was the key weakness: segment loss was $111M in Q3 and $79M for nine months, versus losses of $2M and income of $433M, respectively, in 2021. Its combined ratios were 107.2% and 104.7%. Business Insurance earned $471M in Q3 and $1.81B year to date; Bond & Specialty earned $242M and $687M.
- Nine-month operating cash flow was $5.13B, down from $5.58B. Investing activities used $3.05B and financing activities used $2.01B. Cash at September 30 was $773M.
- Total assets were $114.32B and shareholders’ equity was $19.91B. Total debt was $7.29B; debt-to-total capital was 26.8%, or 21.8% excluding after-tax unrealized investment losses. Holding-company liquidity was $1.45B, above the stated $1.20B target.
- Higher interest rates drove fixed-maturity unrealized losses of $8.02B pretax ($6.32B after tax), compared with unrealized gains at year-end 2021. The decline contributed to shareholders’ equity falling from $28.89B at year-end to $19.91B.
Changes, outlook and risks
- Management attributed lower earnings mainly to reduced investment income, realized investment losses, and weaker underlying underwriting margins. Investment income fell partly because private-equity partnership returns were much lower than the unusually strong 2021 returns.
- Personal Insurance faced elevated auto and homeowners severity, including higher costs for vehicles, parts, labor and materials. Management also cited increased attorney involvement in claims and a challenging tort environment.
- Hurricane Ian and Hurricane Fiona contributed to Q3 catastrophe losses. Catastrophe and non-catastrophe weather losses are inherently unpredictable; reinsurance recoveries and future catastrophe program terms also affect results.
- Management expected strong retention by historical standards through the rest of 2022 and into 2023, while describing new-business markets as competitive. It expected after-tax investment income from the fixed-income portfolio of about $500M in Q4 2022 and $515M–$570M per quarter in 2023. Other-investment income in Q4 2022 was expected to be significantly below Q4 2021.
- Management said capital returns over time would generally not exceed net income. Travelers repurchased $1.50B of shares under authorizations in the first nine months and had $2.51B of remaining authorization at September 30. A $0.93-per-share dividend payable December 30, 2022 was declared after quarter-end.
- Asbestos and environmental reserves remain uncertain. Q3 reviews added $212M to net asbestos reserves and $12M to net environmental reserves; management said further adverse development could be material but could not be reasonably estimated. Net asbestos reserves were $1.39B and net environmental reserves $364M at September 30.
- The company noted that the Inflation Reduction Act’s corporate alternative minimum tax and 1% stock-repurchase excise tax take effect in 2023. It expected the AMT to have no direct impact on total income tax expense under its current assessment; repurchase excise tax is generally recorded in treasury-stock cost.
Important facts for investors to verify
- Whether Personal Insurance pricing and underwriting results improve enough to offset continued auto and property severity and inflation.
- How catastrophe losses, reinsurance recoveries, and reserve development—particularly asbestos and environmental exposures—evolve in subsequent quarters.
- Whether fixed-income reinvestment yields support the stated investment-income outlook, and how market movements affect realized results and equity.
- How capital returns, debt leverage, and liquidity develop, including the effects of 2023 tax provisions and premium growth on capital needs.