Press Release

Email Alerts Email page Print view PDF view Social Media Sharing

Travelers Reports Quarterly Records for Net and Operating Income per Diluted Share of $2.70 and $2.68, Respectively, as Compared to $0.78 and $0.72 in the Prior Year Quarter

Company Release - 1/21/2014 6:58 AM ET

Fourth Quarter Return on Equity and Operating Return on Equity of 15.9% and 16.8%, Respectively

Record Full Year Net Income per Diluted Share of $9.74 Generating Return on Equity of 14.6%

  • Fourth quarter net and operating income of $988 million and $981 million, respectively.
  • Written rate gains continued to exceed expected loss cost trends in all segments.
  • Net written premiums of $5.6 billion, up 5% from prior year quarter including the impact of Dominion acquisition.
  • Total capital returned to shareholders of $1.2 billion in the quarter, including $1.0 billion in share repurchases. Full year total capital returned to shareholders of $3.1 billion.
  • Increases in book value per share of 4% to $70.15 and adjusted book value per share of 12% to $66.41 from year-end 2012.

NEW YORK--(BUSINESS WIRE)-- The Travelers Companies, Inc. today reported net income of $988 million, or $2.70 per diluted share, for the quarter ended December 31, 2013, compared to $304 million, or $0.78 per diluted share, in the prior year quarter. Operating income in the current quarter was $981 million, or $2.68 per diluted share, compared to $278 million, or $0.72 per diluted share, in the prior year quarter. The increase in net and operating income compared to the prior year quarter primarily resulted from lower catastrophe losses.

Consolidated Highlights

               
($ in millions, except for per share amounts, and after-tax, Three Months Ended December 31, Twelve Months Ended December 31,
except for premiums & revenues) 2013       2012       Change 2013       2012       Change
 
Net written premiums $ 5,633 $ 5,385 5 % $ 22,767 $ 22,447 1 %
                                                             
 
Total revenues $ 6,737 $ 6,477 4 $ 26,191 $ 25,740 2
 
Operating income $ 981 $ 278 253 $ 3,567 $ 2,441 46

 

per diluted share $ 2.68 $ 0.72 272 $ 9.46 $ 6.21 52
 
Net income $ 988 $ 304 225 $ 3,673 $ 2,473 49

 

per diluted share $ 2.70 $ 0.78 246 $ 9.74 $ 6.30 55
 
Diluted weighted average 363.4 385.3 (6 ) 374.3 389.8 (4 )
shares outstanding

 

 

 
GAAP combined ratio 87.7 % 105.4 % (17.7 ) pts 89.8 % 97.1 % (7.3 ) pts
 
Underlying GAAP combined ratio 91.2 % 90.7 % 0.5 pts 90.9 % 93.0 % (2.1 ) pts
 
Operating return on equity 16.8 % 5.0 % 11.8 pts 15.5 % 11.0 % 4.5 pts
 
Return on equity 15.9 % 4.7 % 11.2 pts 14.6 % 9.8 % 4.8 pts
                                                             
 
As of December 31,
2013 2012 Change
Book value per share $ 70.15 $ 67.31 4 %
 
Adjusted book value per share

 

$ 66.41 $ 59.09 12
 

 

See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.                            

“Fourth quarter operating income of almost a billion dollars provided a very strong finish to an excellent 2013,” commented Jay Fishman, Chairman and Chief Executive Officer. “For the full year, we achieved record levels of net and operating income per diluted share of $9.74 and $9.46, respectively. Full year operating return on equity was 15.5%, driven by strong underwriting profitability, solid investment income and our capital management strategy, which permitted us to return more than $3 billion of capital to our shareholders in 2013.

“We continue to be very pleased with the execution of our business strategies. In Business Insurance, our active pricing strategy improved profitability, as well as delivered meaningful written rate gains and higher retention levels. Within the Financial, Professional & International segment, our Management Liability business continued to improve profitability and achieve written rate gains in excess of loss trend. In International, our acquisition of Dominion closed on November 1, and we are on track with the integration. We are also pleased with the profitability of our Personal Insurance business, particularly the improvement in Automobile. Finally, we launched our new auto product, Quantum 2.0, in October and are encouraged in these early days by the market receptivity.

“Our focus on delivering top-tier operating return on equity by generating appropriate returns on our products and right sizing capital has created significant shareholder value. From the beginning of 2005 through the end of 2013, we have delivered an average annual operating return on equity of 13.1%, returned over $27 billion in capital to our shareholders through dividends and share repurchases, and grown book value per share at a compound annual growth rate of 9%. Total return to shareholders over that period, including dividends reinvested, exceeded 200%. We are encouraged by the strength of our 2013 results, and we remain committed to taking the steps necessary to continue to improve returns consistent with our long-held goal of producing mid-teens operating return on equity over time,” concluded Fishman.

Consolidated Results

                                                                       
($ in millions and pre-tax, unless noted otherwise)                                      
Three Months Ended December 31, Twelve Months Ended December 31,
2013 2012 Change 2013 2012 Change
 
Underwriting gain (loss): $ 689 $ (338 ) $ 1,027 $ 2,167 $ 507 $ 1,660

Underwriting gain (loss) includes:

 

Net favorable prior year reserve development

Catastrophes, net of reinsurance

 

259 222 37 840 940 (100 )
(53 ) (1,054 ) 1,001 (591 ) (1,862 ) 1,271
 
Net investment income 702 689 13 2,716 2,889 (173 )
 
Other, including interest expense (31 ) (79 ) 48 (104 ) (281 ) 177
           
Operating income before income taxes 1,360 272 1,088 4,779 3,115 1,664
Income tax expense (benefit)   379     (6 )   385     1,212     674     538  
Operating income 981 278 703 3,567 2,441 1,126
Net realized investment gains after income taxes   7     26     (19 )   106     32     74  
Net Income $ 988   $ 304   $ 684   $ 3,673   $ 2,473   $ 1,200  
                                                                       
 
GAAP combined ratio 87.7 % 105.4 % (17.7 ) pts 89.8 % 97.1 % (7.3 ) pts
 

Impact on GAAP combined ratio

Net favorable prior year reserve development

Catastrophes, net of reinsurance

(4.4 ) pts (4.0 ) pts (0.4 ) pts (3.7 ) pts (4.2 ) pts 0.5 pts
0.9 pts 18.7 pts (17.8 ) pts 2.6 pts 8.3 pts (5.7 ) pts
 
Underlying GAAP combined ratio 91.2 % 90.7 % 0.5 pts 90.9 % 93.0 % (2.1 ) pts
                                                                       
 
Net written premiums
Business Insurance $ 2,873 $ 2,784 3 % $ 12,233 $ 11,872 3 %
Financial, Professional & International Insurance 1,043 808 29 3,309 2,981 11
Personal Insurance   1,717     1,793   (4 )   7,225     7,594   (5 )
Total $ 5,633   $ 5,385   5 % $ 22,767   $ 22,447   1 %
                                                                                               

Fourth Quarter 2013 Results

(All comparisons vs. fourth quarter 2012, unless noted otherwise)

Net and operating income of $988 million after-tax and $981 million after-tax, respectively, increased $684 million and $703 million, primarily due to lower catastrophe losses.

Underwriting results

  • The GAAP combined ratio improved 17.7 points to 87.7% due to lower catastrophe losses (17.8 points) and higher net favorable prior year reserve development (0.4 points), partially offset by lower underlying underwriting margins (0.5 points).
  • Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from wind and hail storms in the Midwestern United States and Storm Xaver in the United Kingdom.
  • The underlying GAAP combined ratio increased 0.5 points to 91.2% as Business Insurance improved while Personal Insurance and Financial, Professional & International Insurance were negatively impacted by higher levels of non-catastrophe weather-related losses and non-weather related property losses.

Net investment income of $562 million after-tax ($702 million pre-tax) increased modestly primarily due to higher private equity and real estate partnership returns in the non-fixed income portfolio, partially offset by lower reinvestment rates in the fixed income portfolio.

On November 1, 2013, the company acquired The Dominion of Canada General Insurance Company (Dominion) for an aggregate purchase price of approximately $1.034 billion.

Net written premiums of $5.633 billion increased 5% primarily due to the inclusion of Dominion within Financial, Professional & International Insurance, as well as higher net written premiums in Business Insurance. These increases were partially offset by lower net written premiums in Personal Insurance.

Full Year 2013 Results

(All comparisons vs. full year 2012, unless noted otherwise)

Net income of $3.673 billion after-tax increased $1.200 billion or 49%, primarily due to higher operating income. Operating income of $3.567 billion increased $1.126 billion, primarily reflecting improved underwriting results driven by lower catastrophe losses, a higher underlying underwriting gain, a $63 million benefit resulting from the resolution of prior year tax matters and a $59 million after-tax ($91 million pre-tax) gain from the settlement of a legal proceeding. These improvements were partially offset by lower net investment income and lower net favorable prior year reserve development.

Underwriting results

  • The GAAP combined ratio improved 7.3 points to 89.8% due to lower catastrophe losses (5.7 points) and higher underlying underwriting margins (2.1 points), partially offset by lower net favorable prior year reserve development (0.5 points).
  • Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from tornado, wind and hail storms in several regions of the United States.
  • The underlying GAAP combined ratio improved 2.1 points to 90.9%, primarily resulting from earned rate increases exceeding loss cost trends in each segment.

Net investment income of $2.186 billion after-tax ($2.716 billion pre-tax) decreased primarily due to lower reinvestment rates in the fixed income portfolio and lower real estate partnership returns in the non-fixed income portfolio.

Net realized investment gains of $106 million after-tax ($166 million pre-tax) increased primarily, due to an $87 million after-tax ($134 million pre-tax) gain in the second quarter related to a short position in U.S. Treasury futures contracts. The company closed this position by the end of the second quarter.

Net written premiums of $22.767 billion increased 1% reflecting the same factors discussed above for the fourth quarter.

Shareholders’ Equity

Shareholders’ equity of $24.796 billion was generally consistent with the end of the third quarter 2013 but decreased 2% from the end of 2012. Included in shareholders’ equity were after-tax net unrealized investment gains of $1.322 billion, compared to $1.559 billion at the end of the third quarter 2013 and $3.103 billion at the end of the prior year. These lower net unrealized investment gains resulted from increased interest rates. The company repurchased 11.4 million shares during the fourth quarter and 28.4 million shares during the full year under its existing share repurchase authorization at a total cost of $1.0 billion and $2.4 billion, respectively, leaving $4.759 billion of capacity under that authorization for future share repurchases. Statutory surplus was $21.123 billion, and the ratio of debt-to-capital (excluding after-tax net unrealized investment gains) was 21.3%, well within its target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.50 per share. This dividend is payable March 31, 2014, to shareholders of record as of the close of business on March 10, 2014.

 

Business Insurance Segment Financial Results

                                                                     
($ in millions and pre-tax, unless noted otherwise)                                      
Three Months Ended December 31, Twelve Months Ended December 31,
2013 2012 Change 2013 2012 Change
 
Underwriting gain (loss): $ 333 $ (119 ) $ 452 $ 936 $ 252 $ 684

Underwriting gain (loss) includes:

Net favorable prior year reserve development 121 120 1 325 467 (142 )
Catastrophes, net of reinsurance (41 ) (439 ) 398 (285 ) (794 ) 509
 
Net investment income 507 498 9 1,975 2,090 (115 )
 
Other 23 9 14 158 40 118
           
Operating income before income taxes 863 388 475 3,069 2,382 687
Income tax expense   229     62     167     740     539     201  
Operating income $ 634   $ 326   $ 308   $ 2,329   $ 1,843   $ 486  

 

 

                                                                 

 

GAAP combined ratio 88.9 % 103.5 % (14.6 ) pts 91.9 % 97.4 % (5.5 ) pts
 

Impact on GAAP combined ratio

Net favorable prior year reserve development (3.9 ) pts (4.0 ) pts 0.1 pts (2.7 ) pts (4.0 ) pts 1.3 pts
Catastrophes, net of reinsurance 1.3 pts 14.7 pts (13.4 ) pts 2.4 pts 6.8 pts (4.4 ) pts
 
Underlying GAAP combined ratio 91.5 % 92.8 % (1.3 ) pts 92.2 % 94.6 % (2.4 ) pts
                                                                 
 
Net written premiums by market
Select Accounts $ 637 $ 657 (3 ) % $ 2,724 $ 2,775 (2 ) %
Commercial Accounts 750 718 4 3,197 3,101 3
National Accounts 255 244 5 1,010 907 11
Industry-Focused Underwriting 620 599 4 2,645 2,554 4
Target Risk Underwriting 410 369 11 1,799 1,666 8
Specialized Distribution 202 198 2 858 870 (1 )
Other   (1 )   (1 ) -   -     (1 ) NM
Total $ 2,873   $ 2,784   3 % $ 12,233   $ 11,872   3 %
 
NM = Not Meaningful                                                              
 

Fourth Quarter 2013 Results

(All comparisons vs. fourth quarter 2012, unless noted otherwise)

Operating income of $634 million after-tax increased $308 million or 94%, primarily reflecting improved underwriting results driven by lower catastrophe losses and a higher underlying underwriting gain.

Underwriting results

  • The GAAP combined ratio improved 14.6 points to 88.9% due to lower catastrophe losses (13.4 points) and higher underlying underwriting margins (1.3 points).
  • Net favorable prior year reserve development primarily resulted from better than expected loss experience related to the general liability product line, which was concentrated in excess coverages for accident years 2006 through 2012, reflecting more favorable legal and judicial environments than what the company previously expected. Catastrophe losses primarily resulted from wind and hail storms in the Midwestern United States.
  • The underlying GAAP combined ratio improved 1.3 points to 91.5%, primarily resulting from earned rate increases exceeding loss cost trends and a decrease in the expense ratio.

Business Insurance net written premiums of $2.873 billion increased 3% primarily driven by continued increases in renewal rate change. Retention rates remained strong and higher than recent quarters. New business volumes decreased modestly from the prior year quarter. Net written premiums also benefited from positive exposure change at renewal and positive audit premiums, both of which were slightly higher than the prior year quarter.

Full Year 2013 Results

(All comparisons vs. full year 2012, unless noted otherwise)

Operating income of $2.329 billion after-tax increased $486 million or 26%, primarily reflecting improved underwriting results driven by lower catastrophe losses, a higher underlying underwriting gain, a $59 million after-tax ($91 million pre-tax) gain from the settlement of a legal proceeding and a $43 million benefit resulting from the resolution of prior year tax matters. These improvements were partially offset by lower net favorable prior year reserve development and lower net investment income.

Underwriting results

  • The GAAP combined ratio improved 5.5 points to 91.9% due to lower catastrophe losses (4.4 points) and higher underlying underwriting margins (2.4 points), partially offset by lower net favorable prior year reserve development (1.3 points).
  • Net favorable prior year reserve development primarily resulted from better than expected loss experience related to the general liability product line for accident years 2012 and prior, the property product line for accident years 2010 through 2012 and the workers’ compensation product line for accident years 2008 and prior. Also included in net favorable prior year reserve development was a $42 million pre-tax ($27 million after-tax) charge that was precipitated by legislation in New York enacted in the first quarter 2013 related to the New York Fund for Reopened Cases for workers’ compensation. Catastrophe losses primarily resulted from tornado, wind and hail storms in several regions of the United States.
  • The underlying GAAP combined ratio improved 2.4 points to 92.2%, primarily resulting from earned rate increases exceeding loss cost trends and a decrease in the expense ratio.

Business Insurance net written premiums of $12.233 billion, a record full year level, increased 3%, primarily driven by continued increases in renewal rate change. Retention rates remained strong, while new business volumes increased modestly from the prior year. Net written premiums also benefited from positive exposure change at renewal and positive audit premiums, although at lower levels than the prior year.

Financial, Professional & International Insurance Segment Financial Results

                                                                     
($ in millions and pre-tax, unless noted otherwise)                                  
Three Months Ended December 31, Twelve Months Ended December 31,
2013 2012 Change 2013 2012

Change

 
Underwriting gain $ 140 $ 88 $ 52 $ 499 $ 476 $ 23

Underwriting gain includes:

Net favorable prior year reserve development 102 69 33 306 298 8
Catastrophes, net of reinsurance (10 ) (45 ) 35 (56 ) (50 ) (6 )
 
Net investment income 101 95 6 372 395 (23 )
 
Other 7 5 2 22 26 (4 )
           
Operating income before income taxes 248 188 60 893 897 (4 )
Income tax expense   77     57     20     245     255     (10 )
Operating income $ 171   $ 131   $ 40   $ 648   $ 642   $ 6  

 

 

                                                                 
 
GAAP combined ratio 85.0 % 88.3 % (3.3 ) pts 84.3 % 84.1 % 0.2 pts
 

Impact on GAAP combined ratio

Net favorable prior year reserve development (10.7 ) pts (9.1 ) pts (1.6 ) pts (9.5 ) pts (9.8 ) pts 0.3 pts
Catastrophes, net of reinsurance 1.0 pts 5.9 pts (4.9 ) pts 1.8 pts 1.7 pts 0.1 pts
 
Underlying GAAP combined ratio 94.7 % 91.5 % 3.2 pts 92.0 % 92.2 % (0.2 ) pts
                                                                 
 
Net written premiums by market
Bond & Financial Products $ 551 $ 514 7 % $ 2,030 $ 1,924 6 %
International   492     294   67   1,279     1,057   21
Total