U.S. primary insurance giant Travelers (TRV) reported its fourth-quarter 2018 results yesterday, revealing a $611 million catastrophe burden pre-tax and after taking into account reinsurance recoveries made.
As we explained yesterday, Travelers has bulked up on its reinsurance at the January renewal, adding a new aggregate catastrophe treaty which may be a response to the elevated level of catastrophe losses and losses from smaller severe weather events seen across the last two years.
In the fourth quarter of 2018, Travelers was hit particularly hard by the California wildfires and hurricane Michael.
The California wildfires drove $453 million of losses for Travelers pre-tax ($358 million after-tax) after accounting for reinsurance recoveries.
Hurricane Michael's impacts in Florida and beyond caused Travelers a pre-tax loss of $158 million ($125 million after-tax), again net of reinsurance recoveries.
The impact of catastrophe losses on Travelers fourth-quarter 2018 results was exacerbated by slower favorable development of prior-year loss reserves, which may be a sign of some loss creep from 2017 events as well as a dip due to 2018 featuring fewer really major loss events compared to 2017.
"Fourth quarter core income of $571 million and core return on equity of 10.0% were both impacted by a high level of catastrophe losses arising from the California wildfires and Hurricane Michael," commented Alan Schnitzer, Chairman and Chief Executive Officer.
Interestingly, Travelers has also continued to grow its book in terms of net premiums underwritten, thereby increasing its exposure and another driver for increased reinsurance purchases in the future, we'd imagine.
"We remain very pleased with our performance in the market, as net written premiums increased by 4% to $6.7 billion, with each of our business segments contributing," Schnitzer said.
On the full-year 2018 he commented, "For the full year, we were pleased to have achieved record net written premiums of $27.7 billion and core income of $2.4 billion that generated core ROE of 10.7% despite an elevated level of $1.4 billion of after-tax catastrophe losses."
So, a record level of underwritten premiums at Travelers, which suggests an increasing need for more reinsurance to help the insurer manage its exposures and deflect the financial impacts of losses on its bottom line.
It will be interesting to see whether the company returns to the catastrophe bond market anytime soon. It seems that Travelers' new aggregate reinsurance cover could quite easily have been a securitised layer of protection, adding to its existing Long Point bond.
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