Property and casualty insurer Travelers Cos. Inc. reported a 25% drop in quarterly profit on Tuesday and warned that potential claims tied to compensation coverage for furloughed and laid-off employees would hit results for the year.
The coronavirus pandemic has brought global financial markets to a virtual halt, leaving millions of people jobless in America alone and forcing companies to boost their cash reserves.
Travelers said it could see “elevated claims frequency and severity” for its workers’ compensation line as a number of states enact changes designed to effectively expand workers’ compensation coverage. U.S. commercial insurers are facing mounting political pressure to cover claims from businesses that are losing revenue because of coronavirus-led shutdowns ordered by state and local governments.
They are being pushed to aid businesses that have been shuttered or had their operations curtailed as lawmakers race to combat the spread of the pandemic.
“As a result of COVID-19, economic conditions in the United States and other countries around the world have rapidly deteriorated. The decreased levels of economic activity will negatively impact premium volumes,” Travelers said.
The company also booked catastrophe losses of $333 million in the first quarter, compared with $193 million a year earlier.
The rise in catastrophe losses was mainly due to a string of tornadoes that tore through Nashville, Tennessee and surrounding counties early in March, with several U.S. regions also seeing wind storms and winter storms.
Travelers, often seen as a bellwether for the insurance sector as it typically reports before its industry peers, reported pretax net charges of $86 million related to the COVID-19 pandemic and related economic turmoil.
The company’s net income fell to $600 million in the latest quarter ended March 31 from $796 million a year earlier.
Core income was $2.62 per share, lagging estimates of $2.85 per share, according to IBES data from Refinitiv.
Travelers reported a 5% rise in net investment income, but added that the hit from disruptions in global financial markets due to the coronavirus outbreak would be reflected in the second quarter.
It expects after-tax net investment income to be about $20 million lower on a quarterly basis for the rest of 2020, hurt by lower reinvestment yields on fixed income investments.
Travelers also pulled its outlook for renewal premium change and underlying margins.
The company’s shares were down 4.2% at $97.51.
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