10-QPeriod: Q2 FY2020

TRAVELERS COMPANIES, INC. Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 23, 2020For Securities:TRV

Summary

The Travelers Companies, Inc. reported a net loss of $40 million ($0.16 per share) for the second quarter of 2020, a significant decline from the $557 million net income ($2.10 per share) reported in the same period of 2019. This downturn was primarily driven by a substantial increase in catastrophe losses, which rose to $854 million from $367 million in the prior year, coupled with lower net investment income and reduced favorable prior year reserve development. Despite the quarterly loss, the company demonstrated resilience in its core operations. Earned premiums remained stable year-over-year at $6.96 billion, and underlying underwriting margins, excluding catastrophes and prior year reserve movements, showed improvement in the Business and Personal Insurance segments. The company maintained a strong balance sheet with total investments of $80.6 billion and a debt-to-total capital ratio of 20.7%. The ongoing impact of the COVID-19 pandemic on economic conditions and claims activity remains a key factor influencing future performance, with the company providing premium refunds and experiencing varied impacts across its business segments.

Financial Highlights

35 data points
Beta

Revenue

$7.40B

Net Income

-$40.00M

-0.5% Net Margin

EPS (Diluted)

$-0.16

Total Assets

$113.34B

Cash & Equivalents

$623.00M

Free Cash Flow

$1.66B

Financial Statements
Beta
Revenue$7.40B
SG&A Expenses$1.12B
Interest Expense$85.00M
Net Income-$40.00M
EPS (Basic)$-0.16
EPS (Diluted)$-0.16
Shares Outstanding (Basic)251.60M
Shares Outstanding (Diluted)251.60M

Key Highlights

  • 1Net loss of $40 million for Q2 2020, a sharp decrease from $557 million net income in Q2 2019.
  • 2Catastrophe losses significantly increased to $854 million in Q2 2020 compared to $367 million in Q2 2019.
  • 3Earned premiums remained largely stable at $6.96 billion in Q2 2020, comparable to $6.99 billion in Q2 2019.
  • 4Net investment income declined by 59% to $268 million in Q2 2020 from $648 million in Q2 2019, largely due to lower interest rates and negative impacts on 'other investments' from COVID-19.
  • 5Combined ratio increased to 103.7% in Q2 2020 from 98.4% in Q2 2019, primarily due to higher catastrophe losses.
  • 6The company maintained a strong financial position with total investments of $80.6 billion and shareholders' equity of $26.9 billion as of June 30, 2020.
  • 7The company experienced a net loss of $0.16 per diluted share in Q2 2020, compared to diluted net income of $2.10 per share in Q2 2019.

Frequently Asked Questions

The primary driver of the net loss of $40 million in the second quarter of 2020 was a significant increase in catastrophe losses, which rose to $854 million, up from $367 million in the same period of 2019. Lower net investment income and reduced favorable prior year reserve development also contributed to the loss.

The COVID-19 pandemic had a mixed impact. Earned premiums were affected by premium refunds in Personal Insurance and reduced exposures in Business Insurance. Claims and claim adjustment expenses saw varied impacts, with lower auto losses due to reduced driving but higher losses in management liability. Net investment income was negatively impacted by losses in 'other investments' (private equity, hedge funds, real estate partnerships) due to market disruptions in Q1 2020. General and administrative expenses increased due to a higher allowance for expected credit losses.

The company anticipates continued uncertainty due to COVID-19. They expect a persistent negative impact on premium volumes and an adverse impact on the underwriting expense ratio in the near term. While retention levels have remained strong, business failures or financial distress could impact future retention. The company plans to continue returning capital to shareholders through dividends and share repurchases but may adjust these based on evolving economic conditions and its capital position.

The investment portfolio of $80.6 billion is primarily composed of high-quality fixed maturities. Net investment income decreased significantly due to lower interest rates and negative impacts from 'other investments' related to COVID-19. Key risks include credit risk, interest rate risk, and potential further disruptions in financial markets. The company maintains a high-quality portfolio and focuses on a relatively short average effective duration.