SAINT PAUL, Minn.--(BUSINESS WIRE)--
The Travelers Companies, Inc. ("Travelers,") (NYSE: TRV) today
reported net income of $214 million, or $0.36 per basic and diluted
share, for the quarter ended September 30, 2008, compared to $1.198
billion, or $1.85 per basic share and $1.81 per diluted share, for the
quarter ended September 30, 2007. Operating income in the current
quarter was $330 million, or $0.56 per basic share and $0.55 per
diluted share, compared to $1.198 billion, or $1.85 per basic share
and $1.81 per diluted share, in the prior year quarter.
"Notwithstanding the significant storm activity in the quarter,
our underlying businesses continued to perform strongly," said Jay
Fishman, Chairman and Chief Executive Officer. "While our results for
the quarter were impacted by catastrophe losses of $682 million
after-tax, our losses were consistent overall with our risk models and
pricing assumptions.
"For the nine month period of 2008, we have posted net income of
$2.1 billion producing a return on equity of 10.9%, and we have grown
our book value almost 3.5% over the past twelve months after returning
$3.7 billion to shareholders through stock repurchases and dividends.
All of our financial strength indicators are at or better than target
levels, including holding company liquidity of $2.1 billion, which is
approximately twice our target level. With our financial strength,
strong brand, continued high retention levels and the increased flow
of new business opportunities we continue to experience, we are well
positioned in the marketplace," concluded Mr. Fishman.
Current Quarter Highlights
-- Return on equity and operating return on equity in the current
quarter of 3.4 percent and 5.1 percent, respectively.
Year-to-date return on equity and operating return on equity
of 10.9 percent and 11.7 percent, respectively.
-- GAAP combined ratio of 104.7 percent for the current quarter.
Catastrophe losses added 19.1 points, partially offset by net
favorable prior year reserve development of 6.2 points.
Excluding these impacts, the GAAP combined ratio was 91.8
percent.
-- Catastrophe losses of $682 million after-tax ($1.042 billion
pre-tax) in the current quarter, compared to $9 million
after-tax ($14 million pre-tax) in the prior year quarter.
-- Net favorable prior year reserve development of $210 million
after-tax ($334 million pre-tax) in the current quarter,
compared to $145 million after-tax ($231 million pre-tax) in
the prior year quarter. Both quarters include the impact of
the company's annual in-depth asbestos claim review and
quarterly asbestos reserve review.
-- Net written premiums of $5.481 billion in the current quarter,
a 2 percent increase from the prior year quarter.
-- Net investment income of $587 million after-tax ($716 million
pre-tax) in the current quarter, compared to $724 million
after-tax ($929 million pre-tax) in the prior year quarter.
-- Net realized investment losses of $116 million after-tax ($170
million pre-tax) in the current quarter, compared to no net
realized investment gains or losses in the prior year quarter.
-- Adjusted book value per share (which excludes FAS 115) of
$43.34, a less than 1 percent decline from June 30, 2008 and
an 8 percent increase from September 30, 2007. The company
repurchased 6.2 million common shares for a total cost of $272
million in the current quarter and 61.3 million common shares
for a total cost of $3.022 billion during the preceding 12
months under the company's share repurchase authorization. In
addition, the company paid common dividends of $177 million in
the current quarter and $719 million over the prior 12 months.
-- Book value per share of $41.94, a 4 percent decline from June
30, 2008 and a 3 percent increase from September 30, 2007,
after share repurchases and common dividends.
Consolidated Highlights
----------------------------------------------------------------------
($ in
millions,
except for
per share
amounts, and
after-tax
except for Three Months Ended Nine Months Ended
premiums) September 30, September 30,
----------------------- -------------------------
2008 2007 Change 2008 2007 Change
------- ------- ------- -------- -------- -------
Gross written
premiums $6,134 $6,097 1 % $18,128 $18,430 (2)%
Net written
premiums 5,481 5,394 2 16,298 16,252 -
Net earned
premiums 5,448 5,416 1 16,145 16,038 1
Underwriting NMF
gain (loss) (208) 520 531 1,310 (59)
Net investment
income 587 724 (19) 1,861 2,219 (16)
Operating
income 330 1,198 (72) 2,256 3,443 (34)
per diluted
share $ 0.55 $ 1.81 (70) $ 3.69 $ 5.08 (27)
Net income 214 1,198 (82) 2,123 3,538 (40)
per diluted
share $ 0.36 $ 1.81 (80) $ 3.47 $ 5.22 (34)
Book value per
share $41.94 $40.54 3 $ 41.94 $ 40.54 3
Adjusted book
value per
share $43.34 $40.20 8 $ 43.34 $ 40.20 8
GAAP combined
ratio 104.7% 84.4% 20.3 pts 94.0% 87.1% 6.9 pts
Operating
return on
equity 5.1% 18.6% (13.5)pts 11.7% 18.2% (6.5)pts
Return on
equity 3.4% 18.6% (15.2)pts 10.9% 18.6% (7.7)pts
See Glossary of Financial Measures for definitions and the statistical
supplement for additional financial data.
----------------------------------------------------------------------
Third Quarter 2008 Consolidated Results
Net and operating income in the current quarter of $214 million
and $330 million, respectively, include after-tax net investment
income of $587 million, partially offset by an after-tax underwriting
loss of $208 million resulting from catastrophe losses. The current
and prior year quarters included the following:
----------------------------------------------------------------------
($ in millions) Three Months Ended September 30,
---------------------------------------
2008 2007 2008 2007
----------- --------- -------- --------
Pre-tax After-tax
--------------------- -----------------
Underwriting gain (loss) $ (288) $ 811 $(208) $520
GAAP combined ratio 104.7 % 84.4 %
Underwriting gain (loss)
includes:
Net favorable prior year
reserve development 334 231 210 145
Impact on GAAP combined
ratio (6.2)pts (4.3)pts
Catastrophes, net of
reinsurance (1,042) (14) (682) (9)
Impact on GAAP combined
ratio 19.1 pts 0.3 pts
Timing impact for the
transition to fixed,
value-based agent
compensation program - 29 - 19
Impact on GAAP combined
ratio - pts (0.5)pts
Net investment income 716 929 587 724
Average yield 3.9 % 5.0 % 3.2% 3.9%
Other, including interest
expense (70) (66) (49) (46)
Net realized investment losses (170) - (116) -
----------------------------------------------------------------------
The current quarter underwriting result reflects a GAAP combined
ratio of 91.8 percent, excluding net favorable prior year reserve
development and catastrophe losses, as compared to 88.9 percent in the
prior year quarter which also excludes the timing impact for the
transition to the fixed, value-based agent compensation program. This
increase of 2.9 points primarily resulted from pricing and loss cost
trends that were anticipated, a small number of large losses that
exceeded expectations and an increase in non-catastrophe
weather-related losses.
Net favorable prior year reserve development in the current
quarter resulted from better than expected loss experience in each
segment, particularly in Business Insurance. Catastrophe losses in the
current quarter were almost entirely related to Hurricanes Ike, Gustav
and Dolly. The prior year quarter also included a benefit from the
timing impact for the transition to the fixed, value-based agent
compensation program adopted in the first quarter 2007, which lowered
reported expenses in that quarter from what otherwise would have been
reported.
Net investment income in the current quarter declined primarily
due to lower returns from the non-fixed income portfolio, which were
slightly negative in the current quarter as compared to very strong
positive returns in the prior year quarter, and significantly lower
short-term interest rates.
Net realized investment losses in the current quarter were driven
by impairments of $102 million after-tax ($156 million pre-tax),
including impairments of $44 million after-tax ($67 million pre-tax)
with respect to securities issued by Lehman Brothers Holdings Inc. and
its subsidiaries. The prior year quarter had no net realized
investment gains or losses. At the end of the third quarter 2008, the
company was not a party to any credit default swaps and had
approximately $15 million of loans outstanding under its securities
lending program, for which the company believes it has no exposure to
loss. Additionally, at the end of the third quarter 2008, the fair
value of the company's financial assets classified as Level 3 under
FAS 157 continued to represent less than 1 percent of the total fair
value of the company's investment portfolio.
Net written premiums of $5.481 billion in the current quarter
increased by 2 percent from the prior year quarter. Overall, retention
rates continued to be strong and renewal price changes were generally
consistent with recent quarters, while new business volumes increased
slightly from the prior year quarter driven by growth in Personal
Insurance. This increase was partially offset by a decline in new
business volumes in Business Insurance and Financial, Professional and
International Insurance due to competitive market conditions and
disciplined underwriting.
Capital Management
During the third quarter 2008, the company's strong capital
position allowed for the repurchase of 6.2 million of its common
shares under its share repurchase authorization for a total cost of
$272 million. At the end of the third quarter 2008, the company had
$3.9 billion of capacity remaining under the share repurchase program.
Since the initial share repurchase authorization granted by the Board
in the second quarter of 2006, the company has repurchased 121.1
million shares for a total cost of $6.1 billion.
The company remains very well capitalized, with all of its
financial strength indicators at or better than target levels. At the
end of the third quarter 2008, shareholders' equity was $24.7 billion,
a decline of 6 percent from the end of the prior year quarter. This
decline was primarily due to a change to a net unrealized investment
loss position of $818 million at the end of the third quarter 2008
from a net unrealized investment gain position of $221 million at the
end of the prior year quarter largely driven by widening credit
spreads across fixed income securities. Statutory surplus was $21.9
billion at the end of the current quarter, a decline of 1 percent from
the end of the prior year quarter. At the end of the third quarter
2008, the company's debt-to-capital ratio (excluding FAS 115) was
slightly below its 20.0 percent target level, and holding company
liquidity of $2.1 billion was approximately twice the company's target
level.
Asbestos Reserve Review
During the third quarter of 2008, the company completed its annual
in-depth asbestos claim review. As in prior years, the annual claim
review considered active policyholders and litigation cases for
potential product and "non-product" liability. The company also
analyzed developing payment trends among policyholders in the Home
Office, Field Office and Assumed and International categories. The
Home Office and Field Office categories, which account for the vast
majority of policyholders with active asbestos related claims,
continued to experience an overall reduction in new claim filings. In
2008, the number of policyholders tendering asbestos claims for the
first time was consistent with the prior year period. Defense and
indemnity costs in these categories remain at similar levels to what
the company has experienced in recent years due to the level of trial
activity involving impaired individuals.
The completion of the company's asbestos reserve review resulted
in a $46 million after-tax ($70 million pre-tax) increase to asbestos
reserves in the current quarter. In the prior year quarter, there was
no change to the asbestos reserves. The increase in the current
quarter was driven by modest changes in the company's estimates of
costs associated with litigating asbestos coverage matters and losses
related to certain policyholders. The increase was not a result of any
change in the company's assessment of the underlying asbestos
environment.
Year-to-Date 2008 Consolidated Results
Net and operating income for the nine-month period ended September
30, 2008 of $2.123 billion and $2.256 billion, respectively, include
an after-tax underwriting gain of $531 million and after-tax net
investment income of $1.861 billion. The current and prior year
periods included the following:
----------------------------------------------------------------------
($ in millions) Nine Months Ended September 30,
--------------------------------------
2008 2007 2008 2007
----------- ---------- ------- -------
Pre-tax After-tax
---------------------- ---------------
Underwriting gain $ 877 $1,962 $ 531 $1,310
GAAP combined ratio 94.0 % 87.1 %
Underwriting gain includes:
Net favorable prior year
reserve development 1,260 418 811 268
Impact on GAAP combined
ratio (7.8)pts (2.6)pts
Catastrophes, net of
reinsurance (1,493) (99) (975) (64)
Impact on GAAP combined
ratio 9.3 pts 0.6 pts
Timing impact for the
transition to fixed,
value-based agent
compensation program - 160 - 104
Impact on GAAP combined
ratio - pts (1.0)pts
Resolution of prior year
tax matters - 34 - 34
Net investment income 2,309 2,879 1,861 2,219
Average yield 4.1 % 5.2 % 3.3% 4.0%
Other, including interest
expense (201) (208) (136) (86)
Other also includes:
Loss on the redemption of
securities - (39) - (25)
Resolution of prior year
tax matters - 52 - 52
Net realized investment gains
(losses) (196) 142 (133) 95
----------------------------------------------------------------------
The current period underwriting result reflects a GAAP combined
ratio of 92.5 percent, excluding net favorable prior year reserve
development and catastrophe losses, as compared to 90.1 percent in the
prior year period which also excludes the timing impact for the
transition to the fixed, value-based agent compensation program. This
increase of 2.4 points primarily resulted from pricing and loss cost
trends that were anticipated, a small number of large losses that
exceeded expectations, as well as an increase in non-catastrophe
weather-related losses.
Net favorable prior year reserve development in the current period
resulted from better than expected loss experience in each segment,
particularly in Business Insurance. Catastrophe losses in the current
period were almost entirely related to Hurricanes Ike, Gustav and
Dolly, as well as other severe weather events in various regions of
the United States.
Net investment income declined primarily due to smaller gains in
the non-fixed income portfolio and lower short-term interest rates.
Net written premiums were $16.298 billion in the current year
period, compared to $16.252 billion in the prior year period.
Operating return on equity was 11.7 percent in the current year
period, compared to 18.2 percent in the prior year period.
Business Insurance Segment Financial Results
For the third quarter 2008, the Business Insurance segment
reported operating income of $378 million, including after-tax net
investment income of $409 million, partially offset by an after-tax
underwriting loss of $35 million that resulted from catastrophe
losses. The current and prior year quarters included the following:
----------------------------------------------------------------------
Three Months Ended September 30,
----------------------------------
($ in millions) 2008 2007 2008 2007
---------- --------- ------ ------
Pre-tax After-tax
-------------------- -------------
Underwriting gain (loss) $ (40) $ 448 $ (35) $284
GAAP combined ratio 101.3 % 84.0 %
Underwriting gain (loss)
includes:
Net favorable prior year
reserve development 247 165 152 100
Impact on GAAP combined ratio (8.7)pts (5.9)pts
Catastrophes, net of
reinsurance (488) - (318) -
Impact on GAAP combined ratio 17.3 pts - pts
Timing impact for the
transition to fixed, value-
based agent compensation
program - 14 - 9
Impact on GAAP combined ratio - pts (0.5)pts
Net investment income 494 664 409 518
Other 8 1 4 1
----------------------------------------------------------------------
The current quarter underwriting result reflects a GAAP combined
ratio of 92.7 percent, excluding net favorable prior year reserve
development and catastrophe losses, as compared to 90.4 percent in the
prior year quarter which also excludes the timing impact for the
transition to the fixed, value-based agent compensation program. This
increase of 2.3 points was primarily due to pricing and loss cost
trends that were anticipated.
Net favorable prior year reserve development in the current
quarter primarily resulted from better than expected loss experience
in the commercial multi-peril and general liability product lines.
Catastrophe losses in the current quarter were almost entirely related
to Hurricanes Ike, Gustav and Dolly.
Business Insurance net written premiums of $2.748 billion
increased 1 percent from the prior year quarter. Retention rates
continued to be strong, and renewal price changes were slightly
negative, generally consistent with recent quarters. New business
volume declined from the prior year quarter primarily driven by
Commercial Accounts as the company responds with discipline to
competitive market conditions, partially offset by growth in Select
Accounts.
Select Accounts
-- Net written premiums of $662 million increased 4 percent from
the prior year quarter.
-- Retention rates remained strong, and renewal price changes
were relatively flat but slightly lower than recent quarters.
-- New business volume increased from the prior year quarter due
to the continued growth of TravelersExpress(SM) , the enhanced
quote-to-issue agency platform and multivariate pricing
program for smaller businesses, as well as from growth in
business from larger accounts served by Select.
Commercial Accounts
-- Net written premiums of $635 million increased 3 percent from
the prior year quarter.
-- Retention rates remained strong, and renewal price changes
were slightly negative, consistent with recent quarters.
-- New business volumes declined from the prior year quarter due
to the impact of competitive market conditions.
National Accounts
-- Net written premiums of $240 million declined 2 percent from
the prior year quarter due in part to favorable loss
experience on retrospectively rated Workers' Compensation
policies.
Industry-Focused Underwriting
-- Net written premiums of $613 million increased 5 percent from
the prior year quarter primarily driven by Construction, Oil &
Gas and Public Sector due to strong retention and higher new
business volumes.
Target Risk Underwriting
-- Net written premiums of $366 million declined 7 percent from
the prior year quarter in part to lower new business volumes
in National Property and Inland Marine.
Specialized Distribution
-- Net written premiums of $228 million declined 6 percent from
the prior year quarter in part to lower new business volumes
in National Programs.
Financial, Professional & International Insurance Segment
Financial Results
For the third quarter 2008, the Financial, Professional &
International Insurance segment reported operating income of $83
million, including after-tax net investment income of $89 million,
partially offset by an after-tax underwriting loss of $8 million that
resulted primarily from catastrophe losses. The current and prior year
quarters included the following:
----------------------------------------------------------------------
($ in millions) Three Months Ended September 30,
---------------------------------
2008 2007 2008 2007
--------- --------- ------ ------
Pre-tax After-tax
------------------- -------------
Underwriting gain (loss) $ 3 $ 125 $ (8) $84
GAAP combined ratio 99.4 % 84.6 %
Underwriting gain (loss) includes:
Net favorable prior year reserve
development 43 42 29 29
Impact on GAAP combined ratio (4.9)pts (4.8)pts
Catastrophes, net of reinsurance (91) - (64) -
Impact on GAAP combined ratio 10.5 pts - pts
Timing impact for the transition
to fixed, value-based agent
compensation program - 2 - 1
Impact on GAAP combined ratio - pts (0.2)pts
Net investment income 114 126 89 95
Other 4 5 2 4
----------------------------------------------------------------------
The current quarter underwriting result reflects a GAAP combined
ratio of 93.8 percent, excluding net favorable prior year reserve
development and catastrophe losses, as compared to 89.6 percent in the
prior year quarter which also excludes the timing impact for the
transition to the fixed, value-based agent compensation program. This
increase of 4.2 points was primarily due to a small number of large
losses that exceeded expectations within International.
The net favorable prior year reserve development in the current
quarter primarily resulted from better than expected loss experience
across various lines of business within International. Catastrophe
losses in the current quarter were due to Hurricanes Ike, Gustav and
Dolly.
Financial, Professional & International Insurance net written
premiums of $901 million declined 2 percent from the prior year
quarter.
Bond & Financial Products
-- Net written premiums of $643 million declined 2 percent from
the prior year quarter, driven primarily by the impact of
competitive market conditions and the company's continued
disciplined underwriting.
-- Retention rates continued to be strong and renewal price
changes were flat.
-- New business volumes declined slightly from the prior year
quarter.
-- The retention, renewal price change and new business volume
metrics exclude the surety line of business because these
products are sold on a non-recurring, project-specific basis.
International
-- Net written premiums of $258 million declined 2 percent from
the prior year quarter.
-- Retention rates were consistent with last quarter, but lower
than the prior year quarter due to the intentional non-renewal
of certain property business in Canada as well as more
competitive market conditions affecting the company's
operations at Lloyd's. Renewal price changes were flat, but
improved from recent quarters.
-- New business volumes declined from the prior year quarter
driven primarily by Canada due to a slowdown in economic
activity and stronger competition for new business.
Personal Insurance Segment Financial Results
For the third quarter 2008, the Personal Insurance segment
reported an operating loss of $64 million, including an after-tax
underwriting loss of $165 million that resulted from catastrophe
losses, partially offset by after-tax net investment income of $89
million. The current and prior year quarters included the following:
----------------------------------------------------------------------
($ in millions) Three Months Ended September 30,
----------------------------------
2008 2007 2008 2007
---------- --------- ------ ------
Pre-tax After-tax
-------------------- -------------
Underwriting gain (loss) $ (251) $ 238 $(165) $152
GAAP combined ratio 112.9 % 84.8 %
Underwriting gain (loss)
includes:
Net favorable prior year
reserve development 44 24 29 16
Impact on GAAP combined ratio (2.5)pts (1.4)pts
Catastrophes, net of
reinsurance (463) (14) (300) (9)
Impact on GAAP combined ratio 26.2 pts 0.8 pts
Timing impact for the
transition to fixed, value-
based agent compensation
program - 13 - 9
Impact on GAAP combined ratio - pts (0.8)pts
Net investment income 108 139 89 111
Other 18 24 12 13
----------------------------------------------------------------------
The current quarter underwriting result reflects a GAAP combined
ratio of 89.2 percent, excluding net favorable prior year reserve
development and catastrophe losses, as compared to 86.2 percent in the
prior year quarter which also excludes the timing impact for the
transition to the fixed, value-based agent compensation program. This
increase of 3.0 points was primarily due to an increase in
non-catastrophe weather-related losses in Homeowners and Other.
Net favorable prior year reserve development in the current
quarter was primarily driven by favorable loss experience related to
Hurricane Katrina as well as certain other lines of business within
Homeowners and Other. Catastrophe losses in the current quarter were
due to Hurricanes Ike, Gustav and Dolly.
Personal Insurance net written premiums of $1.832 billion
increased 5 percent from the prior year quarter. This result was
primarily due to continued strong retention rates, positive renewal
price changes and higher new business volume.
Automobile
-- Net written premiums of $929 million and policies in force
both increased 3 percent from the prior year quarter.
-- Retention rates were strong and renewal price changes were
positive, both generally consistent with recent quarters.
-- New business volume increased from the prior year quarter due
to continued agent and channel expansion of QuantumAuto(SM)
distribution.
Homeowners and Other
-- Net written premiums of $903 million increased 6 percent, and
policies in force increased 3 percent, from the prior year
quarter.
-- Retention rates were strong and renewal price changes were
positive, both generally consistent with recent quarters.
-- New business volume increased from the prior year quarter as
new business growth in non-coastal areas was partially offset
by ongoing coastal risk management initiatives.
2008 Annual Guidance
Travelers is revising its range of full year 2008 operating income
per diluted share to a range of $4.90 to $5.10, compared with the
previously announced guidance range of $5.55 to $5.85. This equates to
a range of operating return on equity of approximately 11.5 percent to
12.0 percent. This guidance includes the reported results for the
first nine months of 2008 and estimates for the remainder of 2008
based on a number of assumptions, including:
-- Catastrophe losses of $1.585 billion pre-tax and $1.035
billion after-tax, or $1.70 per diluted share, for the full
year which incorporates actual experience of the first nine
months of 2008 and $60 million after-tax for the remainder of
the year;
-- No additional prior year reserve development, favorable or
unfavorable;
-- No significant change in average invested assets (excluding
FAS 115), after taking into account dividends and
approximately $2.1 billion of share repurchases for the full
year; and
-- Weighted average diluted shares of approximately 610 million
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.travelers.com. The management of Travelers will discuss
the contents of this release and other relevant topics via webcast at
9 a.m. Eastern (8 a.m. Central) on Wednesday, October 22, 2008. Prior
to the webcast, a slide presentation pertaining to the quarterly
earnings 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 on the company's Web site.
To view the slides or to listen to the webcast or the playback,
visit the "Webcasts & Presentations" section of the Travelers investor
relations Web site at http://investor.travelers.com/.
About Travelers
Travelers is a leading provider of property casualty insurance for
auto, home and business. For more information, visit
www.travelers.com.
Travelers uses its Web site as a channel of distribution of
material company information. Financial and other material information
regarding the company is routinely posted on and accessible at
http://investor.travelers.com. In addition, you may automatically
receive email alerts and other information about Travelers by
enrolling your email by visiting the "Email Alert Service" section at
http://investor.travelers.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). 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.
Operating return on equity is the ratio of operating income to average
equity excluding net unrealized investment gains and losses, 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 (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
man-made events, including risks such as fire, earthquake, windstorm,
explosion, terrorism and other similar events. Each catastrophe has
unique characteristics, and catastrophes are not predictable as to
timing or amount. Their effects are included in net and operating
income and claims and claim adjustment expense reserves upon
occurrence. A catastrophe may result in the payment of reinsurance
reinstatement premiums and assessments from various pools. 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.
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 one or more prior years or the current year. In the
opinion of the company's management, discussion of loss reserve
development is useful to investors as it allows them to assess the
impact between prior and current year development on incurred claims
and claim adjustment expenses, net and operating income, 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
earned premiums. 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
premiums. 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. Net written premiums reflect gross written
premiums less premiums ceded to reinsurers.
Book value per share is total common shareholders' equity divided
by the number of common shares outstanding. Adjusted book value per
share is total common shareholders' equity excluding the after-tax
impact of net unrealized investment gains and losses (i.e., excluding
FAS 115), divided by the number of common 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 as it removes
the effect of changing prices on invested assets (i.e., net unrealized
investment gains (losses), net of tax), which do not have an
equivalent impact on unpaid claims and claim adjustment expense
reserves. Tangible book value per share is adjusted book value per
share excluding the after-tax value of goodwill and other intangible
assets divided by the number of common shares outstanding. In the
opinion of the company's management, tangible book value per share is
useful in an analysis of a property casualty company's book value on a
nominal basis as it removes certain effects of purchase accounting
(i.e., goodwill and other intangible assets), in addition to the
effect of changing prices on invested assets.
Travelers has organized its businesses into the following
reportable business segments:
Business Insurance: The Business Insurance segment offers a broad
array of property and casualty insurance and insurance-related
services to its clients primarily in the United States. Business
Insurance is organized into the following six groups, which
collectively comprise Business Insurance Core operations: Select
Accounts; Commercial Accounts; National Accounts; Industry-Focused
Underwriting including Construction, Technology, Public Sector
Services, Oil & Gas and Agribusiness; Target Risk Underwriting
including National Property, Inland Marine, Ocean Marine, Excess
Casualty, Boiler & Machinery and Global Accounts; and Specialized
Distribution including Northland and National Programs. Business
Insurance also includes the Special Liability Group (which manages the
company's asbestos and environmental liabilities) and other runoff
operations, which collectively are referred to as Business Insurance
Other.
Financial, Professional & International Insurance: The Financial,
Professional & International Insurance segment includes surety and
financial liability businesses, which primarily use credit-based
underwriting processes, as well as property and casualty products that
are primarily marketed on a domestic basis in the United Kingdom,
Ireland and Canada, and on an international basis through Lloyd's. The
businesses in Financial, Professional & International Insurance are
Bond & Financial Products and International.
Personal Insurance: The Personal Insurance segment 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.
Forward Looking Statement
This press release contains, 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, earnings guidance, statements about our share repurchase
plans, statements about the potential impact of the recent disruption
in the investment markets and other economic conditions on our
investment portfolio and underwriting results are forward looking, and
we may make forward-looking statements about our results of operations
(including, among others, premium volume, net and operating income,
investment income, return on equity, expected current returns and
combined ratio), and financial condition (including, among others,
invested assets and liquidity); the sufficiency of our asbestos and
other reserves (including, among others, asbestos claim payment
patterns); the cost and availability of reinsurance coverage;
catastrophe losses; investment performance; investment, economic and
underwriting market conditions; and strategic initiatives. Such
statements are subject to risks and uncertainties, many of which are
difficult to predict and generally beyond our 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: catastrophe losses
could materially and adversely affect our results of operations, our
financial position and/or liquidity and could adversely impact our
ratings, our ability to raise capital and the availability and cost of
reinsurance; if actual claims exceed our loss reserves, or if changes
in the estimated level of loss reserves are necessary, our financial
results could be materially and adversely affected; our business could
be harmed because of our potential exposure to asbestos and
environmental claims and related litigation; we are exposed to, and
may face adverse developments involving, mass tort claims such as
those relating to exposure to potentially harmful products or
substances; the effects of emerging claim and coverage issues on our
business are uncertain; we may not be able to collect all amounts due
to us from reinsurers, and reinsurance coverage may not be available
to us in the future at commercially reasonable rates or at all; the
intense competition that we face could harm our ability to maintain or
increase our profitability and premium volume; we are exposed to
credit risk in certain of our business operations and in our
investment portfolio; the insurance industry and we are the subject of
a number of investigations by state and federal authorities in the
United States, and we cannot predict the outcome of these
investigations or their impact on our business or financial results;
our businesses are heavily regulated, and changes in regulation may
reduce our profitability and limit our growth; a downgrade in our
claims-paying and debt ratings could adversely impact our business
volumes, adversely impact our ability to access the capital markets
and increase our borrowing costs; our investment portfolio may suffer
reduced returns or losses; deteriorating economic conditions in the
United States and abroad could adversely impact our ability to grow
our business profitably, and inflation could result in an increase in
loss costs which could negatively impact our profitability; the
inability of our insurance subsidiaries to pay dividends to our
holding company in sufficient amounts would harm our ability to meet
our obligations and to pay future shareholder dividends; disruptions
to our relationships with our independent agents and brokers could
adversely affect us; we are subject to a number of risks associated
with our business outside the United States including operational,
legal and foreign exchange rate risk; we could be adversely affected
if our controls to ensure compliance with guidelines, policies and
legal and regulatory standards are not effective; our business success
and profitability depend, in part, on effective information technology
systems and on continuing to develop and implement improvements in
technology; certain significant multiyear technology projects are
currently in process but may not be successful; and if we experience
difficulties with technology, data security and/or outsourcing
relationships, our ability to conduct our business could be negatively
impacted.
Our forward-looking statements speak only as of the date of this
press release or as of the date they are made, and we undertake no
obligation to update forward-looking statements. For a more detailed
discussion of these factors, see the information under the caption
"Risk Factors" in our most recent annual report on Form 10-K, and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our most recent annual report on Form 10-K
and quarterly report on Form 10-Q, filed with the Securities and
Exchange Commission.
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in millions, except per share
amounts, and after-tax) 2008 2007 2008 2007
----------------------------------------------------------------------
Operating income $ 330 $1,198 $2,256 $3,443
Net realized investment gains
(losses) (116) - (133) 95
------------------------------------------- --------------------------
Net income $ 214 $1,198 $2,123 $3,538
------------------------------------------- --------------------------
Basic earnings per share
Operating income $ 0.56 $ 1.85 $ 3.75 $ 5.22
Net realized investment gains
(losses) (0.20) - (0.22) 0.14
----------------------------------------------------------------------
Net income $ 0.36 $ 1.85 $ 3.53 $ 5.36
----------------------------------------------------------------------
Diluted earnings per share
Operating income $ 0.55 $ 1.81 $ 3.69 $ 5.08
Net realized investment gains
(losses) (0.19) - (0.22) 0.14
----------------------------------------------------------------------
Net income $ 0.36 $ 1.81 $ 3.47 $ 5.22
----------------------------------------------------------------------
Weighted average number of common
shares outstanding (basic) 587.5 648.4 600.7 658.9
Weighted average number of common
shares outstanding and common
stock equivalents (diluted) 598.0 661.9 612.3 680.3
Common shares outstanding at
period end 587.2 646.1 587.2 646.1
Common stock dividends declared $ 177 $ 188 $ 535 $ 554
----------------------------------------------------------------------
Operating income (loss) by
segment
Business Insurance $ 378 $ 803 $1,719 $2,286
Financial, Professional &
International Insurance 83 183 495 491
Personal Insurance (64) 276 239 818
----------------------------------------------------------------------
Total segment operating income 397 1,262 2,453 3,595
Interest Expense and Other (67) (64) (197) (152)
----------------------------------------------------------------------
$ 330 $1,198 $2,256 $3,443
----------------------------------------------------------------------
Operating return on equity 5.1% 18.6% 11.7% 18.2%
Return on equity 3.4% 18.6% 10.9% 18.6%
----------------------------------------------------------------------
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in millions, pre-tax) 2008 2007 2008 2007
----------------------------------------------------------------------
Revenues
Premiums $5,448 $5,416 $16,145 $16,038
Net investment income 716 929 2,309 2,879
Fee income 120 148 315 395
Net realized investment gains
(losses) (170) - (196) 142
Other revenues 31 33 99 72
----------------------------------------------------------------------
$6,145 $6,526 $18,672 $19,526
----------------------------------------------------------------------
Revenues
Business Insurance $3,445 $3,663 $10,333 $10,900
Financial, Professional &
International Insurance 982 985 2,936 2,930
Personal Insurance 1,888 1,874 5,597 5,581
----------------------------------------------------------------------
Total segment revenues 6,315 6,522 18,866 19,411
Interest Expense and Other - 4 2 (27)
----------------------------------------------------------------------
6,315 6,526 18,868 19,384
Net realized investment gains
(losses) (170) - (196) 142
----------------------------------------------------------------------
$6,145 $6,526 $18,672 $19,526
----------------------------------------------------------------------
Gross written premiums
Business Insurance $3,215 $3,243 $ 9,610 $ 9,951
Financial, Professional &
International Insurance 965 978 2,976 3,016
Personal Insurance 1,954 1,876 5,542 5,463
----------------------------------------------------------------------
$6,134 $6,097 $18,128 $18,430
----------------------------------------------------------------------
Net written premiums
Business Insurance $2,748 $2,726 $ 8,464 $ 8,541
Financial, Professional &
International Insurance 901 918 2,530 2,502
Personal Insurance 1,832 1,750 5,304 5,209
----------------------------------------------------------------------
$5,481 $5,394 $16,298 $16,252
----------------------------------------------------------------------
GAAP combined ratios: (1)
Business Insurance (2)
Loss and loss adjustment expense
ratio 67.1% 53.3% 58.7% 57.3%
Underwriting expense ratio 34.2 30.7 33.0 30.5
----------------------------------------------------------------------
Combined ratio 101.3% 84.0% 91.7% 87.8%
----------------------------------------------------------------------
Financial, Professional &
International Insurance (2)
Loss and loss adjustment expense
ratio 62.9% 48.3% 50.9% 51.9%
Underwriting expense ratio 36.5 36.3 36.3 36.4
----------------------------------------------------------------------
Combined ratio 99.4% 84.6% 87.2% 88.3%
----------------------------------------------------------------------
Personal Insurance
Loss and loss adjustment expense
ratio 77.9% 56.8% 69.4% 57.8%
Underwriting expense ratio 35.0 28.0 31.5 27.6
----------------------------------------------------------------------
Combined ratio 112.9% 84.8% 100.9% 85.4%
----------------------------------------------------------------------
Total Company (2)
Loss and loss adjustment expense
ratio 69.9% 53.6% 60.9% 56.6%
Underwriting expense ratio 34.8 30.8 33.1 30.5
----------------------------------------------------------------------
Combined ratio 104.7% 84.4% 94.0% 87.1%
----------------------------------------------------------------------
(1) For purposes of computing GAAP ratios, billing and policy fees
(which are a component of other revenues) are allocated as a reduction
of other underwriting expenses. In addition, fee income is allocated
as a reduction of losses and loss adjustment expense and other
underwriting expenses.
(2) Before policyholder dividends.
See Glossary of Financial Measures and the statistical supplement
for additional financial data.
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in millions; after-tax except
as noted) 2008 2007 2008 2007
----------------------------------------------------------------------
Reconciliation of underwriting
gain (loss) to net income
Pre-tax underwriting gain (loss) $(288) $ 811 $ 877 $1,962
Tax (expense) benefit on
underwriting results 80 (291) (346) (652)
----------------------------------------------------------------------
Underwriting gain (loss) (208) 520 531 1,310
Net investment income 587 724 1,861 2,219
Other, including interest expense (49) (46) (136) (86)
----------------------------------------------------------------------
Consolidated operating income 330 1,198 2,256 3,443
Net realized investment gains
(losses) (116) - (133) 95
----------------------------------------------------------------------
Net income $ 214 $1,198 $2,123 $3,538
----------------------------------------------------------------------
As of
----------------------------------------
September 30, December 31, September 30,
($ in millions; except per
share data) 2008 2007 2007
----------------------------------------------------------------------
Reconciliation of tangible
and adjusted common
shareholders' equity to
common shareholders' equity
Tangible common shareholders'
equity $21,452 $21,811 $21,871
Goodwill and other
intangibles, net of tax 3,995 4,073 4,100
----------------------------------------------------------------------
Adjusted common shareholders'
equity 25,447 25,884 25,971
Net unrealized investment
gains (losses), net of tax (818) 620 221
----------------------------------------------------------------------
Common shareholders' equity $24,629 $26,504 $26,192
----------------------------------------------------------------------
Common shares outstanding 587.2 627.8 646.1
----------------------------------------------------------------------
Tangible book value per share $ 36.53 $ 34.74 $ 33.85
Adjusted book value per share 43.34 41.23 40.20
Book value per share $ 41.94 $ 42.22 $ 40.54
----------------------------------------------------------------------
See Glossary of Financial Measures and the statistical supplement
for additional financial data.
Source: The Travelers Companies, Inc.
Contact: The Travelers Companies, Inc.
Media:
Shane Boyd, 651-310-3846
or
Jennifer Wislocki, 860-277-7458
or
Institutional Investors:
Gabriella Nawi, 917-778-6844
or
Andrew Hersom, 860-277-0902
or
Individual Investors:
Marc Parr, 860-277-0779