TRV The Travelers Companies Inc

By Leslie Scism 

Travelers Cos. booked $86 million in pretax charges in the first quarter related to the coronavirus pandemic, including for billings that hard-hit policyholders haven't paid.

In its quarterly earnings report, the insurance company also said it expects increased litigation over disputed business-income coverage stemming from Covid-19. The charges and expected litigation expenses are among the many ramifications still unfolding at Travelers and other property-casualty insurers from the unparalleled shutdown of swaths of the U.S. to slow the spread of the new coronavirus.

Still, Travelers shareholders seemed relieved that the financial damage for the first quarter wasn't more extensive. The company's shares were ahead for most of Tuesday's trading session before closing unchanged on a down day for the broader market.

Travelers, which is part of the Dow Jones Industrial Average, is among the largest sellers of insurance to U.S. businesses and, as well, sells car and home insurance to individuals and families. It is one of the earliest big property-casualty insurers to post earnings each quarter, and its results are watched closely as a bellwether for others.

The insurer reported lower profit in the first quarter, down 25% at $600 million. Besides the pandemic-related charge, results were depressed by higher costs from tornadoes and other storms labeled as catastrophes.

Investors and analysts were less focused on operational specifics in a Tuesday morning earnings call and instead peppered management with questions about Covid-19 fallout. As a leading seller of property insurance to small and midsize businesses, Travelers is among a raft of insurers already facing litigation from policyholders who contend their insurers should pay for income losses suffered as lockdown orders took effect and forced them to limit, or entirely shutter, their businesses.

Those government health directives have resulted in increasingly desperate small businesses, and owners have been seeking help wherever they can find it. That includes flooding banks with applications for a piece of a $350 billion small-business loan program within the federal stimulus package passed in late March, leading Congress to consider a second round of funding.

Many entrepreneurs with insurance policies are also eyeing so-called business-interruption features as a lifeline, and have filed claims that could eventually total hundreds of billions of dollars, according to industry brokers, lawyers and executives. Even celebrity chefs have turned to President Trump to push the insurance industry to make good on claims they contend are legitimate, among policyholders' other appeals to state and federal lawmakers and regulators.

Travelers Chief Executive Alan Schnitzer said in Tuesday's earnings call that the insurer's standard policy form specifically excludes loss or damage caused by or resulting from a virus. That is similar to other insurers' policy wording, adopted around 2006 after the SARS outbreak.

Mr. Schnitzer said the insurer has received some claims seeking business-income payouts, and Travelers declined most of the claims consistent with policy terms.

At an insurer as big as Travelers, "we're certainly going to find a pocket here or there that doesn't have that specific exclusion," Mr. Schnitzer said. The insurer's anticipated exposure on those policies was reflected in the first-quarter charge, he said. Barring legislative action to nullify the existing exclusions, "we really do not think we have a material exposure from business interruption," he said.

Lawmakers in a handful of big states have proposed such nullifications, which Mr. Schnitzer said would likely be subject to a constitutional challenge.

The likelihood of a challenge notwithstanding, Travelers added a new risk factor in its regulatory filings, according to Credit Suisse analyst Michael Zaremski.

Travelers inserted that "the effects of emerging claim and coverage issues on the Company's business are uncertain, and court decisions or legislative or regulatory changes...can result in an unexpected increase in the number of claims and have an adverse impact on the Company's results of operations."

Other business lines exposed to Covid-19 claims include workers' compensation, a mandatory coverage for employers to pay their workers' health care and lost wages resulting from on-the-job injuries.

Travelers said it would have exposure to claims from some essential workers but noted that it doesn't have a significant business providing the coverage to health-care workers and other first responders.

On Monday, Travelers went on the offensive on the litigation front and filed a complaint in federal court in California against a policyholder seeking a business-income payout. Travelers' complaint asks the court for a review of its policy to confirm that "the claims do not fall within the policies' grants of coverage," the filing states.

The policyholder is a Los Angeles law firm, Geragos & Geragos, that had filed for such a judicial review in a state court in California only days earlier. Geragos is representing other policyholders that also are suing Travelers.

"We welcome the opportunity to fight on behalf of small businesses," said Mr. Geragos in a statement.

In Travelers' quarterly results, pretax catastrophe losses, net of reinsurance, were $333 million, up from $193 million a year earlier. First-quarter revenue rose more than 3% to $7.91 billion, with net premiums written rising about 4% to $7.35 billion.

Chubb Ltd. said in an earnings release late Tuesday that its first-quarter results weren't affected by the Covid-19 outbreak. But Chief Executive Evan Greenberg said premium growth would slow in the current quarter "as insurance exposures in important areas shrink" with the pandemic dealing a severe blow to the global economy.

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Allison Prang contributed to this article.

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

April 21, 2020 17:12 ET (21:12 GMT)

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