Travelers makes net investment loss in 2023

Major US P&C insurer said overall it had a record year for net income but saw more mixed numbers with its investments.

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Travelers saw a bumpy investment performance last year.

Travelers, the traditional first announcer of US insurance companies, published its full year 2023 and Q4 2023 results on Friday, with a quarterly net income of $1.626 billion and core income of $1.633 billion for Q4, driven by underwriting, which the company said was a record. This was compared to net income of $819 million in Q4 2022 a difference of $807 million.

However, it saw losses for its investments in Q4: net realised investment losses were $11 million pre-tax ($7 million after-tax), compared to net realised investment gains of $7 million pre-tax ($9 million after-tax) in the prior year quarter.

For the full year, it saw a net realised investment loss of $81 million compared to a loss of $156 million for full year 2022. Net investment income for Q4 2023 was $778 million and for the full year was $2.92 billion, an increase of $360 million from 2022.

Full year 2023 results showed net income of $2.991 billion compared to $2.842 for full year 2022, which was an increase of 5%. “Core income, earnings per share and return on equity were all record highs for the quarter, driven by both underwriting and investment results,” said Alan Schnitzer, Chairman and Chief Executive Officer, in its statement on the mixed results.

"Record underlying underwriting income resulted from net earned premiums
of $10 billion, up more than 13% over the prior year quarter."

The Hartford, Connecticut-based company, like many others, has yo-yo-ed in profitability of its investment portfolio in recent years due to the effects of the pandemic and the inflation event. In Q3 2023, Travelers’s net investment income increased 30% pre-tax over the prior year quarter, primarily due to strong fixed income returns. However, its investment numbers are reminiscent of Q3 2022, which saw many large US insurers take losses on investments and portfolios.

Underwriting record

“Record underlying underwriting income resulted from net earned premiums of $10 billion, up more than 13% over the prior year quarter, and an underlying combined ratio which improved 5.5 points to a record 85.9%,” said Schnitzer.

“We are also pleased to have delivered full year core income of $3.1 billion, generating core ROE of 11.5%, notwithstanding elevated industry-wide catastrophe losses and an operating environment for our Personal Insurance business that, while improving, was difficult during the year."

According to the results press release, core income increased primarily due to a higher underlying underwriting gain (i.e., excluding net prior year reserve development and catastrophe losses), lower catastrophe losses, and higher net investment income.

“Combined with higher fixed income yields, this sets us up for higher levels of
net investment income moving forward."

Schnitzer said that record cash flows had enabled the company to make investments in the business, return excess capital to shareholders and “grow our investment portfolio to nearly $93 billion”. 

Investment performance

Schnitzer said the company’s investment portfolio generated after-tax net investment income of $2.4 billion for the year, driven by “strong and reliable returns from our growing fixed income portfolio”.

“Combined with higher fixed income yields, this sets us up for higher levels of net investment income moving forward,” he said.

For the full year, net investment income for the company increased 14%. Travelers said that income from the fixed income investment portfolio increased over the prior year due to a higher average yield and growth in fixed maturity investments. 

“Income from the non-fixed income investment portfolio was solid but decreased from a strong level in the prior year, primarily due to lower real estate and private equity partnership returns,” read the statement.