Travelers Cos. has no plans to halt its strategy of pushing rate increases and improving policy terms and conditions as the company eyeballs a host of factors clouding the future with uncertainty.
Weather is becoming increasingly unpredictable and the low interest rates are persisting, Travelers Chief Executive Officer Jay Fishman said in a conference call announcing that the company more than doubled its third-quarter net income.
Those factors are coupled with the uncertainty of the fiscal cliff and what happens to the economy, he said. "We have not set a goal, a threshold number, at which we stop," Fishman said. "It's driven by the fact that the environment remains really unpredictable and somewhat volatile."
The company for the past two years has been vocal about driving up their rates. Company officials pointed out rates are increased more on less-profitable business and less on the book's best business. The company has seen a rise in renewal premium and stable retention rates, but lower new business volumes.
Fishman said the company will continue business as usual, which reflects a positive outlook based on third-quarter results. The company posted a third-quarter net income of $864 million, which is more than double the prior-year quarter results. The combined ratio was 90.3, which is 14.2 points lower than the same time a year ago. Pretax catastrophe losses were $91 million, down from $606 million a year ago.
"What is happening underneath the numbers is the real story," Fishman said. "Our success is premised on really understanding which accounts or lines are in need of improvement and which ones exceed our expectations."
The company's business insurance and personal insurance segments figures in the third quarter were better than a year ago, while the financial, professional and international insurance segment was slightly below the performance of last year's third quarter. Travelers increased its asbestos reserves by $108 million in the quarter in response to recent higher payment trends in litigation landscape. However, the company said its underlying view of the asbestos environment "is essentially unchanged."
After-tax operating income in the company's business insurance segment increased in the quarter by $249 million over the prior year, to finish at $543 million. Fishman said the company's performance in business insurance has been primarily rate-driven and the company has always worked with its insureds to manage risk to help reduce claim costs.
Better underwriting has played a larger part in personal lines, along with rate adjustments, Fishman said. The company has been raising deductibles and has been successful raising those levels on the coastal hurricane-exposed areas, said Brian MacLean, the company's chief operating officer. The issue lately has been inland areas that are exposed to tornadoes and hailstorms. He said age and quality of roofs in homeowners insurance is becoming an important underwriting point. MacLean said in the 1970s, the average homeowners deductible was about $250, maybe $500. He said today's average is $500.
"We think the average deductible should be somewhere around $2,000," MacLean said.
Fishman said insurance should respond to catastrophic events and his company should do what's best for its insureds, even if they don't always see it that way.
"A $500 deductible today becomes a policy that responds to a lost iPad," Fishman said. "That isn't the way a homeowners policy was really designed to be."
The company's pretax net investment income increased 4.6% from the previous third quarter to finish the quarter at $722 million. In a presentation this summer, Fishman said he refuses to "chase yield" and that Travelers will continue to invest in the same asset classes as it has.