Travelers Cos. Inc. expects premiums to decline due to economic slowdowns related to COVID-19, but it will keep pushing for increased commercial insurance rates where it feels they are needed, executives at the insurer said as it announced a fall in first-quarter profit.
The insurer’s results were hit by higher catastrophe losses and a charge for pandemic-related losses, but it expects that most commercial business interruption claims related to the coronavirus will be successfully denied, the executives said.
On a conference call with analysts Tuesday, the executives said it is difficult to forecast future profits given the disruption in financial markets and the world economy.
“We are a GDP-based business. We insure the output of the economy. As a result, we and the industry will be impacted by lower premium levels as the economy contracts,” said Alan Schnitzer, chairman and CEO of Travelers.
But the insurer will still push for higher rates in certain lines, he said. Commercial insurance rates were generally increasing prior to the outbreak of the pandemic.
Travelers’ average commercial insurance renewal rates increased 6.2% in the United States in the first quarter, which was up more than 1 percentage point from the fourth quarter of 2019, said Gregory Toczydlowski, president of Travelers’ business insurance division.
“We will continue to execute to meet our objectives, and on many lines that means we will continue to get rate,” Mr. Schnitzer said.
While the pandemic will result in reduced premiums, it will also result in reduced claims for some lines, such as automobile coverage, he said.
“Loss ratios could improve or deteriorate, and that will vary by line,” Mr. Schnitzer said.
In workers compensation, disease arising out of employment is covered, which in the case of COVID-19 will likely affect claims from health care workers and other first responders, he said, noting that some states have expanded presumption laws to cover other public-facing workers.
“Shifting the exposure to the workers comp system will increase loss costs. That will be reflected in rate making, increasing the cost of workers comp going forward,” he said.
Directors and officers liability losses may increase due to increased shareholder lawsuits following volatile stock price movements, however, “given the breadth of the market decline, causation may be harder to prove in those cases,” Mr. Schnitzer said.
Travelers does not expect significant business interruption losses arising out of COVID-19, he said. Travelers, like many insurers, has been subject to lawsuits seeking declaratory rulings that business interruption coverage is triggered by government-ordered business closures. Travelers on Monday filed a counter suit seeking a ruling that coverage is not triggered by the pandemic.
“Our commercial property insurance policies that include business interruption, including as a result of civil authority, require losses to be caused by direct physical damage to property from a covered cause of loss. In addition, our standard policy form specifically excludes loss or damage caused by or resulting from a virus,” Mr. Schnitzer said on the analysts call.
He also criticized efforts to force insurers to pay pandemic-related business interruption losses by lawmakers in several states.
“Insurers don’t collect premiums to cover losses that policies weren’t written to cover. Requiring those losses to be covered retroactively on any broad scale would overwhelm the industry’s claims-paying ability for legitimate claims,” he said.
Travelers reported a first-quarter profit of $600 million, down 24.6% from the first quarter of 2019.
Catastrophe losses for this year’s first quarter totaled $333 million, compared with $193 million in the year-earlier period. The cat losses included $182 million from tornados that hit the Nashville area in March, said Dan Frey, chief financial officer.
In addition, the first-quarter results included a pre-tax $86 million charge related to COVID-19.
The charge reflects “first-quarter loss estimates, an increase in the provision for uncollectable receivables and a reduction in our estimate for ultimate audit premiums receivable,” Mr. Frey said.
Travelers reported $7.35 billion in net written premium in the first quarter, a 4.1% increase over the same period last year.
The insurer’s combined ratio deteriorated to 95.5% in the first quarter compared with 93.7% for the prior-year period. Its commercial insurance division reported a 102.2% combined ratio, compared with 98.1% in the same period last year. Better than expected results in its commercial property insurance business were offset by higher than expected losses in commercial auto, a Travelers statement said.
Net realized investment losses were $76 million, compared with a $41 million gain for the same period last year. Net investment income was $611 million, up 29%, but the impact of financial market price drops will be felt in second-quarter results, Mr. Frey said.
