In a strong finish to the year, Travelers Companies announces a significant increase in fourth-quarter profit on Friday, sending its stock 6.7% higher at market close.
Travelers credits the record-breaking profits to a combination of higher underlying underwriting gains, lower catastrophe losses, and higher investment returns.
The insurer’s net income surged to $1.63 billion for the quarter ended 31 December 2023, doubling from $819 million, in the same period the previous year.
The insurer’s combined ratio, a key metric that measures profitability, showed remarkable progress, decreasing from 94.5% to 85.8%.
A combined ratio below 100% indicates that the insurer earned more in premiums than it paid out in claims. This reduction in the combined ratio underscores Travelers’ ability to effectively manage risk and control expenses.
Cat Losses & Reinsurance
The insurer’s catastrophe losses, net of reinsurance, dropped to $125 million, which is a substantial decline from $459 million in the year-earlier period.
Catastrophe losses primarily resulted from wind and hailstorms in multiple states, as well as a winter storm.
This decrease in catastrophe losses reflects Travelers’ enhanced risk management strategies in addition to recent quota share reinsurance agreement with subsidiaries of Fidelis Insurance Holdings.
Reinsurance plays a crucial role in managing catastrophe risks for insurance companies. By transferring a portion of their risks to reinsurers, insurers can protect their balance sheets and enhance their ability to absorb losses.
Travelers’ Investment Returns
Travelers‘ investment portfolio also played a significant role in bolstering its fourth-quarter profits. Net investment income increased by 24% to $778 million from $625 million a year earlier.
This surge in investment returns can be attributed to favorable market conditions, including a rally in US equity markets and robust gains across investment portfolios.
The Federal Reserve’s indication of potential interest rate cuts in 2024 spurred a rally in US equity markets, with the benchmark S&P 500 closing approximately 24% and reaching record highs.
This positive market sentiment extended to other asset classes, benefiting Travelers’ investment portfolio, and contributing to its strong financial performance.
Besides, Travelers’ impressive financial results extend beyond the fourth quarter. The company reported a full-year core income of $3.1 billion, underscoring its resilience and strong business fundamentals.
“We are also pleased to have delivered full-year core income of $3.1 billion … notwithstanding elevated industry-wide catastrophe losses and an operating environment for our personal insurance business that, while improving, was difficult during the year,” CEO Alan Schnitzer said in a statement.
The Board of Directors declared a regular quarterly dividend of $1.00 per share.