Travelers reported another quarter of near-US$2 billion earnings on October 16. For Canadian brokers, though, the more interesting story is what Travelers has kept in Canada since selling most of its business here, and what its US numbers say about where the North American commercial market is heading.
Travelers sold its Canadian personal and commercial operations to Definity Financial at the start of the year, but kept its Canadian surety business. That decision looks well judged. Surety is now the fastest-growing part of the group.
Travelers’ Bond & Specialty segment, which houses surety, lifted net written premiums 12% to US$1.209 billion in the third quarter, and segment income rose 24% to US$309 million. US surety premiums grew 21% to US$414 million, and 25% year to date. Travelers describes itself as North America’s largest surety writer.
The segment’s international business, which includes its Canadian surety operation alongside specialty business in the UK and Ireland and a joint venture in Brazil, wrote US$146 million, up from US$125 million a year earlier. Adjusting for the US$14 million of Canadian specialty business sold to Definity, that is growth of about 32%, by IB’s calculation. Travelers does not break out Canadian surety separately.
“In our leading Surety business, we grew net written premiums by 21%, reflecting continued strong production across the portfolio,” said chairman and chief executive Alan Schnitzer.
The segment’s combined ratio improved to 77.3% from 81.6%, helped by US$95 million of favourable reserve development, driven partly by better-than-expected loss experience in fidelity and surety.
For Canadian brokers placing surety, Travelers’ results point to a carrier still investing in the line here. With construction activity and infrastructure spending driving bonding demand, that matters.
At group level, core income rose 4% to US$1.947 billion, or US$9.18 per diluted share, up from US$8.14. Net income was US$1.917 billion. The combined ratio improved to 86.8% from 87.3%, while the underlying combined ratio, which excludes catastrophes and reserve development, edged up to 84.1% from 83.9%.
Net written premiums were flat at US$11.480 billion. The prior-year quarter included US$240 million from the Canadian operations, and excluding them, premiums grew 2%.
The pricing numbers matter for Canadian brokers too, even though they describe Travelers’ US business. In Business Insurance, renewal rate change across the domestic book, excluding National Accounts, fell to 0.9% from 4.3% a year earlier, according to the company’s earnings presentation. Renewal premium change, which includes exposure growth, slowed to 4.1%.
Property is the drag. Commercial property premiums fell about 4%, while general liability and commercial auto grew. Excluding property, renewal premium change was 7.0%. Retention held at 86%, and new business reached a third-quarter record of US$699 million.
“If there’s one word over the top to describe it, I would say it’s stable,” Schnitzer said of pricing on the earnings call. “We’re not prepared to call a bottom.”
The softening mirrors the Canadian market. Marsh’s index showed Canadian commercial rates extending their run of declines in the second quarter, with property leading the falls. US carriers’ appetite also shapes the specialty and excess capacity available to Canadian brokers with cross-border clients, so a US market where property rates are falling and casualty is still firming is relevant on both sides of the border.
The business Travelers sold now sits with Definity, which reported C$190 million of third-quarter catastrophe losses in a quarter dominated by severe convective storms across Ontario, Quebec and the Prairies. Travelers’ own results show the effect of exiting. Its Personal Insurance segment is now entirely US business, and personal lines premiums fell 7%, or 3% excluding Canada.
Net investment income reached a record US$1.098 billion pre-tax, up 6%, as higher yields lifted fixed-income returns. Chief financial officer Dan Fry said new money was being invested at about 120 basis points above the portfolio’s embedded yield.
Higher rates also hurt the balance sheet. After-tax unrealized investment losses rose to US$6.352 billion from US$1.478 billion at year-end, and book value per share fell 6% to US$141.48. Excluding unrealized losses, adjusted book value per share rose 9% to US$172.47.
Travelers again added to asbestos reserves, by US$295 million, but net favourable reserve development across the group still totalled US$234 million.
For Canadian brokers, Travelers is now a narrower but still significant presence: a leading surety market, with a parent whose US results point to a North American commercial market where property is softening fastest and casualty is still firming.
Fry said strong results were pushing profit-sharing and contingent commissions above plan. Schnitzer said he expects Travelers to become “a consolidator of premium,” with savings from AI and scale showing up first in margins and over time in growth.
The board declared a quarterly dividend of US$1.25 per share, payable December 31.
