SAINT PAUL, Minn.--(BUSINESS WIRE)--Oct. 27, 2005--The St. Paul
Travelers Companies, Inc. ("St. Paul Travelers," NYSE:STA) today
reported net income for the current quarter of $162 million, or $0.24
per basic share and $0.23 per diluted share, compared to net income of
$340 million, or $0.51 per basic and $0.50 per diluted share, in the
prior year quarter. Catastrophe losses related to Hurricanes Katrina
and Rita in the current quarter were $1.009 billion after-tax ($1.524
billion pre-tax), net of reinsurance and including $88 million
after-tax ($119 million pre-tax) of reinstatement premiums. The prior
year quarter included hurricane-related catastrophe losses of $402
million after-tax ($612 million pre-tax). The current quarter also
included after-tax income from discontinued operations of $87 million
primarily related to the gain on disposition of St. Paul Travelers'
remaining equity stake in Nuveen Investments, Inc. ("Nuveen"). Income
from continuing operations was $75 million for the current quarter, or
$0.11 per basic and diluted share, compared to $311 million, or $0.46
per basic and $0.45 per diluted share, in the prior year quarter.
Operating income for the current quarter was $50 million, or $0.07 per
basic and diluted share, compared to $343 million, or $0.51 per basic
share and $0.50 per diluted share, in the prior year quarter.
Operating income is net income excluding the after-tax impact of net
realized investment gains (losses) and discontinued operations.
Highlights
-- Operating income of $50 million for the quarter and $1.875
billion year-to-date. Excluding catastrophe losses, operating
income of $1.059 billion for the quarter and $2.912 billion
year-to-date.
-- Operating return on equity (excluding FAS 115) of 0.9 percent
for the quarter and 11.9 percent year-to-date. Excluding
catastrophe losses, operating return on equity (excluding FAS
115) of 19.3 percent for the quarter and 18.4 percent
year-to-date.
-- GAAP combined ratio of 116.2 percent for the quarter and 97.9
percent year-to-date. Excluding catastrophe losses and net
favorable prior year reserve development, GAAP combined ratio
of 87.9 percent for the quarter and 89.3 percent year-to-date.
-- Increases in gross and net written premiums of 2 and 1
percent, respectively, from the prior year quarter, excluding
Commercial Other, the Company's runoff operations. Excluding
the impact of reinstatement premiums and Commercial Other,
increase in net written premiums of 3 percent.
-- Increase in net investment income of 22 percent from the prior
year quarter.
-- Strong underlying operating performance in the Commercial,
Specialty and Personal segments, with GAAP combined ratios of
88.6, 90.4 and 84.7 percent, respectively, excluding the
impacts of 41.1, 11.0 and 26.6 points, respectively, for both
catastrophe losses and net favorable prior year reserve
development.
Catastrophe losses related to Hurricanes Katrina and Rita in the
current quarter were $803 million and $206 million after-tax ($1.215
billion and $309 million pre-tax), respectively, net of reinsurance
and including $88 million after-tax ($119 million pre-tax) of
reinstatement premiums. These amounts reflect gross pre-tax losses of
$2.545 billion and $423 million, respectively, excluding reinstatement
premiums.
The estimates recorded for Hurricanes Katrina and Rita were
developed through an analysis of claims reported and anticipated to be
reported, the values of properties in the affected areas, damage
projections estimated by wind force and the presence of other perils,
anticipated costs for demand surge and other factors requiring
considerable judgment. Due to the complexity of factors contributing
to the losses, there can be no assurance that St. Paul Travelers'
costs for these hurricanes will not materially differ from its current
recorded estimates.
The current quarter results included after-tax benefits of $70
million ($102 million pre-tax) for net favorable prior year reserve
development primarily related to the Personal segment and $45 million
($70 million pre-tax) due to the re-estimation of the current year
loss ratios for the first two quarters in the Commercial and Personal
segments. In these segments, the margins in the current year have
trended better than originally estimated due to favorable claim
activity. The current quarter results also benefited from strong net
investment income and a low level of non-catastrophe-related property
claims in the Commercial segment. The prior year quarter included an
after-tax charge of $55 million ($83 million pre-tax) for net
unfavorable prior year development, partially offset by an after-tax
benefit of $23 million ($36 million pre-tax) due to the re-estimation
of the current year loss ratios for the first two quarters of 2004 in
the Personal Segment.
Jay Fishman, Chairman and Chief Executive Officer, said, "The
earnings power of our Company was clearly demonstrated this quarter as
we posted an operating profit despite more than $1 billion of
after-tax catastrophe charges.
"The fundamentals of our business remain very strong with
retention rates continuing at historically high levels and new
business premiums showing improvement over the prior year quarter. As
a result, gross written premiums, excluding the impact of our runoff
operations, were up 2 percent in the quarter. We have continued
rolling out our Quantum Auto(TM) product within the Personal segment,
which has led to favorable new business trends in the 11 states now
quoting with Quantum Auto(TM).
"The Company continues to focus its efforts on the individuals and
businesses affected by Hurricanes Katrina, Rita and, most recently,
Wilma. We have over 1,000 claim specialists in the impacted areas of
Louisiana, Mississippi, Alabama, Texas and Florida, many with wireless
technology which enables them to expedite the claims-handling process.
We also have seven mobile claim vans deployed in the affected areas
which allow us to make payments to policyholders on the spot. In
addition, the Company and its employees contributed over $1.3 million
to the American Red Cross to show our support for the people and the
communities in the affected areas.
"This quarter's results provide further evidence that St. Paul
Travelers is financially strong, and we are well-positioned to respond
to future market opportunities," concluded Mr. Fishman.
Consolidated Third Quarter Highlights
----------------------------------------------------------------------
($ in millions, except for per share Three Months Ended September 30,
amounts, and after-tax except for --------------------------------
premiums)
2005 2004 Change
---------- ---------- ----------
Gross written premiums $6,030 $6,129 (2)%
excluding Commercial Other 6,011 5,920 2
Net written premiums 5,096 5,154 (1)
excluding Commercial Other 5,079 5,041 1
Net earned premiums 4,977 5,269 (6)
Underwriting gain (loss) (555) (155) NMF
Net investment income 625 514 22
Operating income 50 343 (85)
per diluted share $0.07 $0.50 (86)
Income from continuing operations 75 311 (76)
per diluted share $0.11 $0.45 (76)
Net income 162 340 (52)
per diluted share $0.23 $0.50 (54)
Book value per share $32.14 $30.91 4
Adjusted book value per share (1) $31.46 $29.63 6
GAAP combined ratio 116.2% 103.8% 12.4 pts
Operating return on equity (1) 0.9% 6.9% (6.0) pts
Continuing operations return on
equity 1.3% 6.1% (4.8) pts
Return on equity 2.9% 6.7% (3.8) pts
----------------------------------------------------------------------
($ in millions, except for per share Nine Months Ended September 30,
amounts, and after-tax except for --------------------------------
premiums)
2005 2004 Change
---------- ---------- ----------
Gross written premiums $17,859 $16,281 10%
excluding Commercial Other 17,722 15,480 14
Net written premiums 15,092 13,810 9
excluding Commercial Other 15,013 13,383 12
Net earned premiums 15,205 13,762 10
Underwriting gain (loss) 119 (784) NMF
Net investment income 1,806 1,458 24
Operating income 1,875 620 202
per diluted share $2.68 $1.04 158
Income from continuing operations 1,883 596 216
per diluted share $2.69 $1.00 169
Net income 1,443 652 121
per diluted share $2.07 $1.09 90
Book value per share $32.14 $30.91 4
Adjusted book value per share (1) $31.46 $29.63 6
GAAP combined ratio 97.9% 108.0% (10.1) pts
Operating return on equity (1) 11.9% 4.9% 7.0 pts
Continuing operations return on
equity 11.6% 4.5% 7.1 pts
Return on equity 8.9% 4.9% 4.0 pts
(1) Excludes FAS 115
Note: The results of St. Paul Travelers for the nine months ended
September 30, 2004 reflect only the accounts of Travelers for
the three months ended March 31, 2004 and the consolidated
accounts of St. Paul and Travelers for the six months ended
September 30, 2004.
Please see Glossary of Financial Measures for definitions and the
statistical supplement for additional financial data
----------------------------------------------------------------------
Gross and net written premiums, excluding Commercial Other,
increased 2 and 1 percent, respectively, from the prior year quarter.
Net written premiums in the current quarter were impacted negatively
by $119 million of reinstatement premiums associated primarily with
Hurricane Katrina. Excluding the impact of reinstatement premiums and
Commercial Other, net written premiums increased 3 percent from the
prior year quarter. Premium growth was attributable to the Personal
segment and certain businesses within the Specialty segment. Retention
rates were strong, in many instances increasing from the high levels
of the prior quarters. New business premiums, excluding the impact of
renewal rights transactions, increased 18 percent from the prior year
quarter.
Net investment income for the current quarter was $625 million
after-tax ($812 million pre-tax), a 22 percent increase over the prior
year quarter. The increase was driven by continued strong operating
cash flows, the investment of proceeds received from the sale of the
Company's equity stake in Nuveen, higher short-term interest rates and
favorable returns in private equity partnerships.
The current quarter GAAP combined ratio was 116.2 percent,
compared to 103.8 percent in the prior year quarter. The current
quarter GAAP combined ratio was negatively impacted by 30.3 points for
catastrophe losses, partially offset by benefits of 2.0 points for net
favorable prior year reserve development and 1.4 points due to the
re-estimation of the current year loss ratios for the first two
quarters. The prior year quarter was negatively impacted by 11.6
points for catastrophe losses and 1.6 points for net unfavorable prior
year reserve development.
Year-to-Date Consolidated Results
The St. Paul Companies, Inc. ("St. Paul") and Travelers Property
Casualty Corp. ("Travelers") merged to form St. Paul Travelers on
April 1, 2004. The results of St. Paul Travelers for the nine months
ended September 30, 2004, reflect only the accounts of Travelers for
the three months ended March 31, 2004, and the consolidated accounts
of St. Paul and Travelers for the six months ended September 30, 2004.
For the first nine months of 2005, St. Paul Travelers reported net
income of $1.443 billion, or $2.14 per basic share and $2.07 per
diluted share, compared to $652 million, or $1.10 per basic and $1.09
per diluted share, in the prior year period. Income from continuing
operations for the first nine months was $1.883 billion, or $2.79 per
basic share and $2.69 per diluted share, compared to $596 million, or
$1.01 per basic and $1.00 per diluted share, in the prior year period.
Operating income for the first nine months was $1.875 billion, or
$2.78 per basic share and $2.68 per diluted share, compared to $620
million, or $1.05 per basic and $1.04 per diluted share, in the prior
year period. Current year-to-date results included an after-tax charge
of $1.037 billion ($1.566 billion pre-tax) for catastrophe losses and
an after-tax benefit of $156 million ($232 million pre-tax) for net
favorable prior year reserve development, compared to after-tax
charges of $431 million ($656 million pre-tax) for catastrophe losses,
$1.007 billion ($1.523 billion pre-tax) for net unfavorable prior year
reserve development and $26 million ($40 million pre-tax) for other
items in the prior year period.
The GAAP combined ratio for the first nine months of 2005 was 97.9
percent, compared to 108.0 percent in the prior year period. The
current year GAAP combined ratio was negatively impacted by 10.2
points for catastrophe losses, partially offset by a benefit of 1.6
points for net favorable prior year reserve development. The prior
year period GAAP combined ratio was negatively impacted by 4.8 points
for catastrophe losses and 11.1 points for net unfavorable prior year
reserve development.
Net investment income for the first nine months of 2005 was $1.806
billion after-tax ($2.352 billion pre-tax), compared to $1.458 billion
after-tax ($1.928 billion pre-tax) in the prior year period. The prior
year period did not include St. Paul's investment results for the
first quarter of 2004. The increase was also driven by strong
operating cash flows and the investment of proceeds received from the
sale of the Company's equity stake in Nuveen.
For the first nine months of 2005, operating return on equity
(excluding FAS 115) was 11.9 percent, compared to 4.9 percent in the
prior year period. Catastrophe losses negatively impacted operating
return on equity by 6.5 points in the current year period, compared to
3.3 points in the prior year period. Operating return on equity in
2004 was also negatively impacted by net unfavorable prior year
reserve development.
Commercial Segment Financial Results
For the third quarter 2005, the Commercial segment reported an
operating loss of $14 million compared to operating income of $224
million in the prior year quarter. The current quarter was negatively
impacted by an after-tax charge of $563 million ($867 million pre-tax)
for catastrophe losses related to Hurricanes Katrina and Rita,
partially offset by after-tax benefits of $33 million ($51 million
pre-tax) due to the re-estimation of the current year loss ratios for
the first two quarters and $3 million ($6 million pre-tax) for net
favorable prior year reserve development. As mentioned previously, the
margins in the current year have trended better than originally
estimated due to favorable claim activity. In addition, the current
quarter benefited from strong net investment income and a low level of
non-catastrophe-related property claims. The prior year quarter
included after-tax charges of $185 million ($286 million pre-tax) for
catastrophe losses and $78 million ($117 million pre-tax) for net
unfavorable prior year reserve development.
The Commercial GAAP combined ratio was 129.7 percent in the
current quarter, compared to 107.9 percent in the prior year quarter.
Catastrophe losses for the current quarter negatively impacted the
GAAP combined ratio by 41.4 points, compared to 12.1 points for the
prior year quarter. The current quarter GAAP combined ratio benefited
by 2.5 points due to the re-estimation of the current year loss ratios
for the first two quarters and 0.3 points for net favorable prior year
reserve development. The prior year quarter's GAAP combined ratio was
negatively impacted by 4.9 points for net unfavorable prior year
reserve development.
Gross and net written premiums, excluding Commercial Other,
decreased 1 and 2 percent, respectively, from the prior year quarter.
Net written premiums were impacted by approximately $52 million of
reinstatement premiums associated with Hurricane Katrina. Excluding
the impact of reinstatement premiums and Commercial Other, net written
premiums were virtually unchanged from the prior year quarter.
Retention rates continued to be strong, new business premiums for
Commercial and Select Accounts, excluding the impact of renewal rights
transactions in 2004, increased 23 percent from the prior year quarter
and renewal price changes remained generally consistent with recent
quarters.
Specialty Segment Financial Results
For the third quarter 2005, the Specialty segment reported
operating income of $130 million compared to $38 million in the prior
year quarter. The significant improvement was primarily attributable
to strong net investment income and solid current year performance and
lower commission rates in certain business units. The current quarter
included an after-tax charge of $129 million ($169 million pre-tax)
for catastrophe losses related to Hurricanes Katrina and Rita and a
pre-tax and after-tax benefit of $13 million for net favorable prior
year reserve development, compared to after-tax charges of $125
million ($184 million pre-tax) for catastrophe losses and $2 million
($3 million pre-tax) for net unfavorable prior year reserve
development in the prior year quarter.
The Specialty GAAP combined ratio was 101.4 percent in the current
quarter, compared to 106.7 percent in the prior year quarter. The
current quarter GAAP combined ratio was negatively impacted by 11.9
points for catastrophe losses, partially offset by 0.9 points for net
favorable prior year reserve development, compared to 12.5 points for
catastrophe losses and minimal prior year reserve development in the
prior year quarter.
Gross and net written premiums increased 1 and 2 percent,
respectively, from the prior year quarter. Net written premiums were
impacted by $46 million of reinstatement premiums associated primarily
with Hurricane Katrina. Excluding this impact, net written premiums
increased 5 percent from the prior year quarter. The increase in
premiums was primarily attributable to growth in business volumes in
Financial and Professional Services, Bond, and certain other
businesses within Domestic and International Specialty. Approximately
$25 million of the Financial and Professional Services gross written
premium for the current quarter were written by Gulf in the prior year
quarter.
Within Domestic Specialty, retention rates were strong and higher
than previous quarters, and new business premiums increased 25 percent
from the prior year quarter. Within International Specialty, excluding
the Company's Lloyd's operations, retention rates were also strong,
increasing from previous quarters, and new business premiums decreased
24 percent from the prior year quarter due primarily to a decrease in
business volume in the United Kingdom.
Personal Segment Financial Results
For the third quarter 2005, the Personal segment reported an
operating loss of $25 million compared to operating income of $127
million in the prior year quarter. The current quarter was negatively
impacted by an after-tax charge of $317 million ($488 million pre-tax)
for catastrophe losses related to Hurricanes Katrina and Rita,
partially offset by after-tax benefits of $54 million ($83 million
pre-tax) for net favorable prior year reserve development and $12
million ($19 million pre-tax) due to the re-estimation of the current
year loss ratio for the first two quarters. As mentioned previously,
the margins in the current year have trended better than originally
estimated due to favorable claim activity. Additionally, the current
quarter benefited from strong net investment income. The prior year
quarter included an after-tax charge of $92 million ($142 million
pre-tax) for catastrophe losses, partially offset by after-tax
benefits of $25 million ($37 million pre-tax) for net favorable prior
year reserve development and $23 million ($36 million pre-tax) due to
the re-estimation of the current year loss ratios for the first two
quarters of 2004.
The Personal GAAP combined ratio was 111.3 percent in the current
quarter, compared to 94.0 percent in the prior year quarter.
Catastrophe losses for the current quarter negatively impacted the
GAAP combined ratio by 32.1 points, compared to 9.9 points for the
prior year quarter. The current quarter GAAP combined ratio benefited
by 5.5 points for net favorable prior year reserve development and 1.3
points due to the re-estimation of the current year loss ratios for
the first two quarters, compared to 2.6 points for net favorable prior
year reserve development in the prior year quarter and 2.5 points due
to the re-estimation of the current year loss ratios in the first two
quarters of 2004.
Gross and net written premiums increased 6 and 3 percent,
respectively, from the prior year quarter. Net written premiums were
impacted by $21 million of reinstatement premiums associated with
Hurricane Katrina. Excluding this impact, net written premiums
increased 5 percent from the prior year quarter.
Automobile gross and net written premiums each increased 1 percent
from the prior year quarter, and policies in force increased 2 percent
from the prior year quarter. The Company continued to experience
profitable growth from efforts to diversify its geographic footprint
outside the Northeast, where the regulatory and competitive
environment is more challenging. Retention rates were strong and
consistent with previous quarters, and renewal price changes remained
slightly positive. New business premiums, excluding the impact of the
Royal & SunAlliance renewal rights transaction in 2004, increased 10
percent from the prior year quarter due partially to the introduction
of Quantum Auto(TM), the Company's multivariate pricing system, in 11
states.
Homeowners and Other gross and net written premiums increased 11
and 6 percent, respectively, and policies in force increased 6 percent
from the prior year quarter. Excluding the impact of reinstatement
premiums, net written premiums increased 9 percent from the prior year
quarter. Retention rates remained strong and consistent with previous
quarters, and renewal price changes moderated slightly from previous
quarters. New business premiums, excluding the impact of the Royal &
SunAlliance renewal rights transaction in 2004, increased 14 percent
from the prior year quarter.
Financial Supplement and Conference Call
The information in this press release should be read in
conjunction with a financial supplement that is available on our Web
site at www.stpaultravelers.com. The management of St. Paul Travelers
will discuss the contents of this release via Webcast at 9:00 a.m.
Eastern (8:00 a.m. Central) on Thursday, October 27, 2005. Prior to
the Webcast, a related slide presentation will be available on the
Company's Web site. Following the live event, an audio playback of the
Webcast and the slide presentation will be available at the Company's
Web site.
To view the slides or to listen to the Webcast or the playback,
visit the "Webcasts & Presentations" section of St. Paul Travelers
investor relations Web site at http://investor.stpaultravelers.com/.
About St. Paul Travelers
St. Paul Travelers is a leading provider of property casualty
insurance. For more information, visit www.stpaultravelers.com.
Glossary of Financial Measures
The following measures are used by the Company's management to
evaluate financial performance against historical results and
establish targets on a consolidated basis. In some cases, these
measures are considered non-GAAP financial measures under applicable
SEC rules because they are not displayed as separate line items in the
consolidated statement of income or required to be disclosed in the
notes to financial statements, and in some cases, include or exclude
certain items not ordinarily included or excluded in the most
comparable GAAP financial measure. In the opinion of the Company's
management, a discussion of these measures provides investors with a
better understanding of the significant factors that comprise the
Company's periodic results of operations and how management evaluates
the Company's financial performance.
Operating income (loss) is net income (loss) excluding the
after-tax impact of net realized investment gains (losses) and
discontinued operations. Operating income (loss) per share is
operating income (loss) on a per share basis.
Return on equity is the ratio of net income to average equity.
Continuing operations return on equity is the ratio of income from
continuing operations to average equity. Operating return on equity is
the ratio of operating income to average equity excluding net
unrealized gains or losses on investment securities and discontinued
operations, net of tax.
In the opinion of the Company's management, operating income,
operating income per share, and operating return on equity are
meaningful indicators of underwriting and operating results. These
measures exclude net realized investment gains or losses which can be
significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Internally, the Company's management uses operating income, operating
income per share and operating return on equity to evaluate
performance against historical results and establish financial targets
on a consolidated basis.
Underwriting gain or loss is net earned premiums and fee income
less claims and claim adjustment expenses and insurance-related
expenses.
A catastrophe is a severe loss, resulting from natural and manmade
events, including risks such as fire, earthquake, windstorm,
explosion, terrorism and other similar events. Each catastrophe has
unique characteristics. Catastrophes are not predictable as to timing
or amount in advance, and therefore their effects are not included in
earnings or claims and claim adjustment expense reserves prior to
occurrence. A catastrophe may result in the payment of reinstatement
premiums. In the opinion of the Company's management, a discussion of
the impact of catastrophes is meaningful for investors to understand
the variability in periodic earnings.
Reinstatement premiums represent additional premiums payable to
reinsurers to restore coverage limits for certain excess of loss
reinsurance treaties.
Loss reserve development is the increase or decrease in incurred
claims and claim adjustment expenses as a result of the re-estimation
of claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims. Loss reserve development
may be related to prior year or current year development. In the
opinion of the Company's management, discussion of prior year loss
reserve development is useful to investors as it allows them to assess
the impact between prior year and current year development on current
earnings and changes in claims and claim adjustment expense reserve
levels from period to period.
GAAP combined ratio is the sum of the loss and loss adjustment
expense ratio (loss and LAE ratio), the underwriting expense ratio
and, where applicable, the ratio of dividends to policyholders to net
premiums earned. For GAAP, the loss and LAE ratio is the ratio of
incurred losses and loss adjustment expenses reduced by an allocation
of fee income to net earned premiums. The underwriting expense ratio
is the ratio of underwriting expenses incurred reduced by an
allocation of fee income, billing and policy fees to net earned
premium. A GAAP combined ratio under 100 percent generally indicates
an underwriting profit. A GAAP combined ratio over 100 percent
generally indicates an underwriting loss. The GAAP combined ratio is
an operating statistic that includes GAAP measures in the numerator
and the denominator.
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to the policyholders for the
effective period of the contract based on the terms and conditions of
the insurance contract. Gross written premiums are a measure of
overall business volume.
Adjusted book value per share represents assets less liabilities
and preferred shareholder's equity excluding the after-tax impact of
net unrealized investment gains and losses, divided by the number of
shares outstanding. In the opinion of the Company's management,
adjusted book value is useful in an analysis of a property-casualty
company's book value on a nominal basis as it removes the effect of
changing prices on invested assets, which do not have an equivalent
impact on unpaid claims and claim adjustment expense reserves.
St. Paul Travelers has organized its businesses into the following
operating and reporting segments, beginning with the second quarter
2004:
Commercial: Commercial - Core offers a broad array of property and
casualty insurance and insurance-related services and is organized
into the following three marketing and underwriting groups focusing on
a particular client base or product grouping to provide products and
services that specifically address clients' needs: Commercial
Accounts, Select Accounts and National Accounts. Commercial - Other
includes policies written by Gulf, primarily management and
professional liability coverages (prior to the integration of these
products into Specialty in April 2004), the Special Liability Group
and other runoff operations.
Specialty provides dedicated underwriting, claim and risk control
services that require specialized expertise, domestically and
internationally. Domestic Specialty includes Financial and
Professional Services, Bond, Construction, Technology, Ocean Marine,
Oil and Gas, Public Sector and Excess & Umbrella, among others.
International Specialty includes operations in the U.K, Ireland,
Canada and the Company's participation in Lloyd's.
Personal writes virtually all types of property and casualty
insurance covering personal risks. The primary coverages in this
segment are personal automobile and homeowners insurance sold to
individuals.
Discontinued Operations (Asset Management) comprises Nuveen
Investments, whose core businesses are asset management and related
research, as well as the development, marketing and distribution of
investment products and services for the affluent, high net worth and
institutional market segments. The Company held a 31% interest in
Nuveen Investments as of June 30, 2005. During the third quarter of
2005 the Company divested its remaining ownership interest of Nuveen
Investments.
Segment results for periods beginning prior to April 1, 2004 have
been restated from the historical presentation of Travelers to conform
to the new St. Paul Travelers segment arrangement where practicable.
As a result, prior quarter Bond and Construction results were
disaggregated from historical Travelers Commercial Lines segment to
create a historical Specialty segment and to restate Commercial into
the new format. Beginning in the second quarter of 2005, the results
of Discover Re are included in the Commercial segment. Previously,
Discover Re's results were included in the Specialty segment. All
prior quarters have been restated.
Invested and other assets and net investment income (NII) of
historical Travelers had been specifically identified by reporting
segment prior to the merger. Beginning in the second quarter 2004, the
Company developed a methodology to allocate NII and invested assets to
the identified segments. This methodology allocates pretax NII based
upon an investable funds concept, which takes into account liabilities
(net of non-invested assets) and appropriate capital considerations
for each segment. It is not practicable to apply the methodology to
historical businesses and as such, actual (versus allocated) NII is
included in revenues and operating income of the restated segments for
periods prior to the merger. It is also not practicable to present
total assets for restated Specialty and Commercial segments for
periods prior to the merger. The Company believes that the
differences, if any, are not significant to a comparison with the new
segment presentation.
Forward Looking Statement
This press release may contain, and management may make, certain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, may be forward-looking statements.
Specifically, the Company may make forward-looking statements about
the Company's results of operations (including, among others, premium
volume, income from continuing operations, net and operating income
and return on equity), financial condition and liquidity; the
sufficiency of the Company's asbestos and other reserves (including,
among others, asbestos claim payment patterns); the post-merger
integration (including, among others, expense savings); the
availability of reinsurance coverage; and strategic initiatives. Such
statements are subject to risks and uncertainties, many of which are
difficult to predict and generally beyond the Company's control, that
could cause actual results to differ materially from those expressed
in, or implied or projected by, the forward-looking information and
statements.
Some of the factors that could cause actual results to differ
include, but are not limited to, the following: adverse developments
involving asbestos claims and related litigation; the impact of
aggregate policy coverage limits for asbestos claims; the impact of
bankruptcies of various asbestos producers and related businesses; the
willingness of parties including the Company to settle
asbestos-related litigation; the Company's ability to fully integrate
the former St. Paul and Travelers businesses in the manner or in the
timeframe currently anticipated; the Company's ability to execute
announced and future strategic initiatives as planned; insufficiency
of, or changes in, loss and loss adjustment expense reserves; the
Company's inability to obtain prices sought due to competition or
otherwise; the occurrence of catastrophic events, both natural and
man-made, including terrorist acts, with a severity or frequency
exceeding the Company's expectations; adverse developments involving
catastrophe claims, in particular those arising out of Hurricanes
Katrina, Rita and Wilma, and any Company loss estimates with respect
to these storms; exposure to, and adverse developments involving,
environmental claims and related litigation; exposure to, and adverse
developments involving, construction defect claims; the impact of
claims related to exposure to potentially harmful products or
substances, including, but not limited to, lead paint, silica and
other potentially harmful substances; adverse changes in loss cost
trends, including inflationary pressures in medical costs and auto and
building repair costs; the effects of corporate bankruptcies on surety
bond claims; adverse developments relating to the cost and/or
availability of reinsurance, the credit quality and liquidity of
reinsurers and the Company's ability to collect reinsurance on a
timely basis or at all; the ability of the Company's subsidiaries to
pay dividends to us; adverse developments in legal proceedings;
judicial expansion of policy coverage and the impact of new theories
of liability; the impact of legislative and other governmental
actions, including, but not limited to, federal and state legislation
related to asbestos liability reform, terrorism insurance and
reinsurance (such as the extension of or replacement for the Terrorism
Risk Insurance Act of 2002) and governmental actions regarding the
compensation of brokers and agents; the impact of well-publicized
governmental investigations of certain industry practices, including
with respect to business practices between insurers, including the
Company, and brokers and the purchase and sale by insurers, including
the Company, of finite, or non-traditional, insurance products; the
performance of the Company's investment portfolios, which could be
adversely impacted by adverse developments in U.S. and global
financial markets, interest rates and rates of inflation; weakening
U.S. and global economic conditions; larger than expected assessments
for guaranty funds and mandatory pooling arrangements; a downgrade in
the Company's claims-paying and financial strength ratings; the loss
or significant restriction on the Company's ability to use credit
scoring in the pricing and underwriting of Personal policies; and
changes to the regulatory capital requirements.
The Company's forward-looking statements speak only as of the date
of this press release or as of the date they are made, and the Company
undertakes no obligation to update its forward-looking statements.
----------------------------------------------------------------------
Summary of Financial Information
On April 1, 2004, Travelers Property Casualty Corp. ("Travelers")
completed its previously announced merger into The St. Paul
Companies, Inc. ("St. Paul"), forming The St. Paul Travelers
Companies, Inc. ("St. Paul Travelers"). Each share of Travelers class
A and class B common stock was exchanged for 0.4334 of a share of
St. Paul Travelers common stock, and the Travelers treasury stock was
cancelled. The number of shares and per share amounts for all periods
presented have been restated to reflect the equivalent number of
shares resulting from the exchange of Travelers common stock for
St. Paul Travelers common stock due to the merger on April 1, 2004.
For accounting purposes, this transaction was accounted for as a
reverse acquisition with Travelers treated as the accounting
acquirer. Accordingly, the transaction was accounted for as a
purchase business combination, using Travelers historical
financial information and applying fair value estimates to the
acquired assets, liabilities and commitments of St. Paul as of
April 1, 2004. The results of St. Paul Travelers for the nine
months ended September 30, 2004 reflect only the accounts of
Travelers for the three months ended March 31, 2004 and the
consolidated accounts of St. Paul and Travelers for the six months
ended September 30, 2004.
-------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------- -----------------
($ in millions, except per share
amounts, and after-tax) 2005 2004 2005 2004
----------------------------------------------------------------------
Operating income $50 $343 $1,875 $620
Net realized investment gains
(losses) 25 (32) 8 (24)
----------------------------------------------------------------------
Income from continuing
operations 75 311 1,883 596
Discontinued operations 87 29 (440) 56
----------------------------------------------------------------------
Net income $162 $340 $1,443 $652
----------------------------------------------------------------------
Basic earnings per share
Operating income $0.07 $0.51 $2.78 $1.05
Net realized investment gains
(losses) 0.04 (0.05) 0.01 (0.04)
----------------------------------------------------------------------
Income from continuing
operations 0.11 0.46 2.79 1.01
Discontinued operations 0.13 0.05 (0.65) 0.09
----------------------------------------------------------------------
Net income $0.24 $0.51 $2.14 $1.10
----------------------------------------------------------------------
Diluted earnings per share
Operating income $0.07 $0.50 $2.68 $1.04
Net realized investment gains
(losses) 0.04 (0.05) 0.01 (0.04)
----------------------------------------------------------------------
Income from continuing
operations 0.11 0.45 2.69 1.00
Discontinued operations 0.12 0.05 (0.62) 0.09
----------------------------------------------------------------------
Net income $0.23 $0.50 $2.07 $1.09
----------------------------------------------------------------------
Weighted average number of
common shares outstanding
(basic) 679.2 665.9 672.3 588.7
Weighted average number of
common shares outstanding and
common stock equivalents
(diluted) 683.8 (1) 707.9 711.3 607.0
Common shares outstanding at
period end 692.2 669.2 692.2 669.2
Common stock dividends declared $159.1 $147.1 $462.4 $375.7
----------------------------------------------------------------------
Operating income (loss) by
segment
Commercial $(14) $224 $964 $970
Specialty 130 38 524 (780)
Personal (25) 127 526 561
Interest Expense and Other (41) (46) (139) (131)
----------------------------------------------------------------------
$50 $343 $1,875 $620
----------------------------------------------------------------------
Operating return on equity(2) 0.9% 6.9% 11.9% 4.9%
Continuing operations return on
equity 1.3% 6.1% 11.6% 4.5%
Return on equity 2.9% 6.7% 8.9% 4.9%
----------------------------------------------------------------------
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
(1) The calculation of earnings per diluted share for the three months
ended September 30, 2005 excluded the weighted average effects of
the following securities convertible into the Company's common
shares because their effect was anti-dilutive: equity units (7.6
million shares); outstanding convertible preferred stock (4.1
million shares); zero coupon convertible notes (2.3 million
shares); and convertible junior subordinated notes (16.7 million
shares).
(2) Excludes FAS 115
----------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
($ in millions, pre-tax) 2005 2004 2005 2004
----------------------------------------------------------------------
Revenues
Premiums $4,977 $5,269 $15,205 $13,762
Net investment income 812 667 2,352 1,928
Fee income 169 186 505 529
Net realized investment gains
(losses) 39 (49) (16) (36)
Other revenues 45 56 138 133
----------------------------------------------------------------------
$6,042 $6,129 $18,184 $16,316
----------------------------------------------------------------------
Revenues by segment excluding
net realized investment gains
(losses)
Commercial $2,740 $2,989 $8,433 $8,331
Specialty 1,603 1,630 4,888 3,512
Personal 1,647 1,553 4,874 4,500
Interest Expense and Other 13 6 5 9
----------------------------------------------------------------------
6,003 6,178 18,200 16,352
Net realized investment gains
(losses) 39 (49) (16) (36)
----------------------------------------------------------------------
$6,042 $6,129 $18,184 $16,316
----------------------------------------------------------------------
Gross written premiums
Commercial Core $2,625 $2,645 $7,739 $7,065
Commercial Other 19 209 137 801
----------------------------------------------------------------------
Total Commercial 2,644 2,854 7,876 7,866
Specialty 1,654 1,640 5,103 3,781
Personal 1,732 1,635 4,880 4,634
----------------------------------------------------------------------
$6,030 $6,129 $17,859 $16,281
----------------------------------------------------------------------
Net written premiums
Commercial Core $1,972 $2,018 $6,149 $5,703
Commercial Other 17 113 79 427
----------------------------------------------------------------------
Total Commercial 1,989 2,131 6,228 6,130
Specialty 1,480 1,451 4,179 3,183
Personal 1,627 1,572 4,685 4,497
----------------------------------------------------------------------
$5,096 $5,154 $15,092 $13,810
----------------------------------------------------------------------
GAAP combined ratios:(1)
Commercial(2)
Loss and loss adjustment expense
ratio 98.7% 80.4% 74.9% 72.9%
Underwriting expense ratio 31.0 27.5 29.3 27.6
----------------------------------------------------------------------
Combined ratio 129.7% 107.9% 104.2% 100.5%
----------------------------------------------------------------------
Specialty(2)
Loss and loss adjustment expense
ratio 69.7% 74.5% 64.5% 115.3%
Underwriting expense ratio 31.7 32.2 31.6 34.0
----------------------------------------------------------------------
Combined ratio 101.4% 106.7% 96.1% 149.3%
----------------------------------------------------------------------
Personal
Loss and loss adjustment expense
ratio 84.5% 69.5% 64.2% 63.6%
Underwriting expense ratio 26.8 24.5 26.5 24.5
----------------------------------------------------------------------
Combined ratio 111.3% 94.0% 90.7% 88.1%
----------------------------------------------------------------------
Total Company(2)
Loss and loss adjustment expense
ratio 86.3% 75.8% 68.8% 79.9%
Underwriting expense ratio 29.9 28.0 29.1 28.1
----------------------------------------------------------------------
Combined ratio 116.2% 103.8% 97.9% 108.0%
----------------------------------------------------------------------
(1) For purposes of computing GAAP ratios, billing and policy fees
(which are a component of other revenues) are allocated as a
reduction of other underwriting expenses. In addition, fee income
is allocated as a reduction of losses and loss adjustment expenses
and other underwriting expenses.
(2) Before policyholder dividends.
----------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
($ in millions; after tax except
as noted) 2005 2004 2005 2004
----------------------------------------------------------------------
Reconciliation of underwriting
gain (loss) to net income
Pre-tax underwriting gain (loss) $(828) $(240) $224 $(1,193)
Tax (expense) benefit on
underwriting results 273 85 (105) 409
----------------------------------------------------------------------
Underwriting gain (loss) (555) (155) 119 (784)
Net investment income 625 514 1,806 1,458
Other, including interest
expense and minority interest (20) (16) (50) (54)
----------------------------------------------------------------------
Consolidated operating income 50 343 1,875 620
Net realized investment gains
(losses) 25 (32) 8 (24)
Discontinued operations 87 29 (440) 56
----------------------------------------------------------------------
Net income $162 $340 $1,443 $652
----------------------------------------------------------------------
----------------------------------------------------------------------
Reconciliation of net income
excluding catatstrophe losses
to net income
Net income excluding catastrophe
losses $1,171 $742 $2,480 $1,083
Catastrophe losses 1,009 402 1,037 431
----------------------------------------------------------------------
Net income $162 $340 $1,443 $652
----------------------------------------------------------------------
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
CONTACT: St. Paul Travelers Companies, Inc., Saint Paul
Media:
Shane Boyd, 651-310-3846
or
Marlene Ibsen, 860-277-9039
or
Joan Palm, 651-310-2685
or
Institutional Investors:
Maria Olivo, 860-277-8330
or
Individual Investors:
Marc Parr, 860-277-0779
SOURCE: St. Paul Travelers Companies, Inc.