NEW YORK--(BUSINESS WIRE)--
The Travelers Companies, Inc. ("Travelers,") (NYSE:TRV) today reported
net income of $801 million, or $1.37 per basic share and $1.35 per
diluted share, for the quarter ended December 31, 2008, compared to
$1.063 billion, or $1.67 per basic share and $1.64 per diluted share,
for the quarter ended December 31, 2007. Operating income in the current
quarter was $939 million, or $1.61 per basic share and $1.58 per diluted
share, compared to $1.057 billion, or $1.66 per basic share and $1.63
per diluted share, in the prior year quarter.
"Travelers produced operating income of $939 million and an operating
return on equity of 14.7% in the fourth quarter of 2008," commented Jay
Fishman, Chairman and Chief Executive Officer. "These results reflected
solid underwriting performance as evidenced by a combined ratio of 85.9%
and were achieved despite lower net investment income due to difficult
investment markets. Notwithstanding these lower returns, we continue to
be very pleased with the high quality and diversification of our
investment portfolio. Net written premiums grew slightly in the quarter.
Business retention remained at historically high levels, and the impact
of a slightly improving rate trend was partially offset by lower
coverage demands from existing policyholders due to general economic
conditions.
"For the full year, despite significant storm activity and difficult
investment markets, we recorded operating income of $3.2 billion and an
operating return on equity of 12.4%, and book value per share increased
by 2% after repurchasing approximately $2.1 billion of common stock and
paying common stock dividends of $712 million. These results helped us
continue to achieve our goal of delivering a mid-teens annual operating
return on equity over time. Average annual operating return on equity
from January 1, 2005 through year-end 2008 was approximately 14.5%.
"Looking forward to 2009, we believe that Travelers is well positioned
in the current uncertain economic environment. Our balance sheet is
strong with capital at or above all of our target levels, our debt to
capital ratio of 19.5% is below our target of 20% and holding company
liquidity of $2.1 billion is approximately twice our target
level. Equally important, our disciplined approach to evaluating risk
and reward in both our underwriting and investment activities remains
deeply embedded in the culture of the company and has been strengthened
by experience. We are all very proud of what this franchise has
continued to accomplish," concluded Mr. Fishman.
Current Quarter Highlights
-- Return on equity and operating return on equity of 12.8 percent and 14.7
percent, respectively.
-- Strong underwriting results in all segments with GAAP combined ratios in
Business Insurance of 85.7 percent; Financial, Professional &
International Insurance of 87.2 percent; and Personal Insurance of 85.6
percent. Consolidated GAAP combined ratio of 85.9 percent.
-- Positive impact to net and operating income of $56 million after-tax
($85 million pre-tax) due to a downward adjustment of current year
catastrophe losses, compared to catastrophe losses of $45 million
after-tax ($68 million pre-tax) in the prior year quarter.
-- Net favorable prior year reserve development of $189 million after-tax
($278 million pre-tax), compared to $83 million after-tax ($128 million
pre-tax) in the prior year quarter.
-- Sale of Unionamerica Holdings Limited, the company's United
Kingdom-based runoff insurance and reinsurance businesses, recording a
tax benefit of $89 million in operating income along with an
insignificant net realized investment gain.
-- Net written premiums of $5.385 billion, compared to $5.366 billion in
the prior year quarter.
-- Net investment income of $438 million after-tax ($483 million pre-tax),
compared to $696 million after-tax ($882 million pre-tax) in the prior
year quarter. Net investment income in the current quarter was impacted
by negative returns in the non-fixed income portfolio and very low
short-term interest rates.
-- Net realized investment losses of $138 million after-tax ($219 million
pre-tax), compared to net realized investment gains of $6 million
after-tax ($12 million pre-tax) in the prior year quarter.
-- Book value per share of $43.12, a 3 percent increase from September 30,
2008, after repurchasing 2.7 million common shares for a total cost of
$100 million and paying common stock dividends of $177 million. Adjusted
book value per share (which excludes FAS 115) of $43.37, a slight
increase from September 30, 2008.
Full Year 2008 Highlights
-- Return on equity and operating return on equity of 11.4 percent and 12.4
percent, respectively.
-- Consolidated GAAP combined ratio of 91.9 percent, compared to 87.4
percent in the prior year.
-- Catastrophe losses of $919 million after-tax ($1.408 billion pre-tax),
compared to $109 million after-tax ($167 million pre-tax) in the prior
year.
-- Net favorable prior year reserve development of $1.000 billion after-tax
($1.538 billion pre-tax), compared to $351 million after-tax ($546
million pre-tax) in the prior year.
-- Net written premiums of $21.683 billion, compared to $21.618 billion in
the prior year.
-- Net investment income of $2.299 billion after-tax ($2.792 billion
pre-tax), compared to $2.915 billion after-tax ($3.761 billion pre-tax)
in the prior year. Net investment income in the current year was
impacted by negative returns in the non-fixed income portfolio and low
short-term interest rates.
-- Net realized investment losses of $271 million after-tax ($415 million
pre-tax), compared to net realized investment gains of $101 million
after-tax ($154 million pre-tax) in the prior year.
-- Book value per share of $43.12 and adjusted book value per share (which
excludes FAS 115) of $43.37, increased 2 percent and 5 percent,
respectively, from December 31, 2007, after repurchasing 45 million
common shares for a total cost of $2.122 billion and paying common stock
dividends of $712 million.
Consolidated Highlights
($ in
millions,
except for
per share Three Months Ended December Twelve Months Ended December
amounts, and 31, 31,
after-tax,
except for
premiums)
2008 2007 Change 2008 2007 Change
Gross
written $ 5,709 $ 5,768 (1 ) % $ 23,837 $ 24,198 (1 ) %
premiums
Net written 5,385 5,366 - 21,683 21,618 -
premiums
Net earned 5,434 5,432 - 21,579 21,470 1
premiums
Underwriting 545 389 40 1,076 1,699 (37 )
gain
Net
investment 438 696 (37 ) 2,299 2,915 (21 )
income
Operating 939 1,057 (11 ) 3,195 4,500 (29 )
income
per diluted $ 1.58 $ 1.63 (3 ) $ 5.27 $ 6.71 (21 )
share
Net income 801 1,063 (25 ) 2,924 4,601 (36 )
per diluted $ 1.35 $ 1.64 (18 ) $ 4.82 $ 6.86 (30 )
share
Book value $ 43.12 $ 42.22 2 $ 43.12 $ 42.22 2
per share
Adjusted
book value $ 43.37 $ 41.23 5 $ 43.37 $ 41.23 5
per share
GAAP
combined 85.9 % 88.4 % (2.5 ) pts 91.9 % 87.4 % 4.5 pts
ratio
Operating
return on 14.7 % 16.3 % (1.6 ) pts 12.4 % 17.7 % (5.3 ) pts
equity
Return on 12.8 % 16.1 % (3.3 ) pts 11.4 % 18.0 % (6.6 ) pts
equity
See Glossary of Financial Measures for definitions and the statistical
supplement for additional financial data.
Fourth Quarter 2008 Consolidated Results
Net and operating income in the current quarter of $801 million and $939
million, respectively, include an after-tax underwriting gain of $545
million and after-tax net investment income of $438 million. The current
and prior year quarters included the following:
($ in millions) Three Months Ended December 31,
2008 2007 2008 2007
Pre-tax After-tax
Underwriting gain $ 729 $ 596 $ 545 $ 389
GAAP combined ratio 85.9 % 88.4 %
Underwriting gain includes:
Net favorable prior year 278 128 189 83
reserve development
Impact on GAAP combined (5.1 ) pts (2.4 ) pts
ratio
Catastrophe (losses) /
reduction in losses, net of 85 (68 ) 56 (45 )
reinsurance
Impact on GAAP combined (1.6 ) pts 1.3 pts
ratio
Re-estimation of the
current year loss ratios (42 ) 54 (27 ) 35
for the first three
quarters of the year
Impact on GAAP combined 0.8 pts (1.0 ) pts
ratio
Tax benefit related to sale 89 -
of subsidiary
Net investment income 483 882 438 696
Average yield 2.6 % 4.7 % 2.4 % 3.7 %
Other, including interest (66 ) (49 ) (44 ) (28 )
expense
Net realized investment (219 ) 12 (138 ) 6
gains (losses)
The current quarter underwriting result reflects a GAAP combined ratio
of 91.8 percent, excluding net favorable prior year reserve development,
catastrophes and re-estimation of the current year loss ratios for the
first three quarters of the year, as compared to 90.5 percent in the
prior year quarter. This increase of 1.3 points primarily resulted from
pricing and loss cost experience that were generally consistent with
prior quarters and a small number of large losses that exceeded
expectations.
Net favorable prior year reserve development in the current quarter
resulted from better than expected loss experience in each segment,
particularly in Business Insurance. The company also benefited in the
quarter from a downward adjustment in its current year catastrophe loss
estimates. The largest component of this favorable adjustment was due to
the company's re-estimation of the Texas Windstorm Insurance Association
(TWIA) losses arising out of Hurricane Ike, a storm that occurred late
in the third quarter. This resulted in a reduction of the company's
share of TWIA losses. There was also a favorable re-estimation of direct
catastrophe losses primarily related to Hurricanes Ike and Gustav, as
additional company-specific information became available. In addition,
the current quarter included an $89 million tax benefit related to the
sale of Unionamerica, the company's United Kingdom-based runoff
insurance and reinsurance businesses, primarily resulting from the
difference between its book basis and tax basis.
Net investment income in the current quarter declined from the prior
year quarter due to negative returns in the non-fixed income portfolio
as well as a 220 basis point reduction in average after-tax short-term
interest rates in the fixed-income portfolio. The non-fixed income
portfolio, comprised substantially of private equity funds, real estate
partnerships and hedge funds, recorded an investment loss of $164
million after-tax ($256 million pre-tax) in the current quarter
reflective of difficult investment markets. Private equity funds, real
estate partnerships and hedge funds typically report returns on a lag.
As in past quarters, the value of many of these investments was updated
through quarter-end (December 31) based upon information made available
by certain of the investment managers. This update accounted for $56
million after-tax ($87 million pre-tax) of the non-fixed income
portfolio's investment loss described above.
Net realized investment losses in the current quarter included
impairments of $129 million after-tax ($198 million pre-tax). Net
realized investment gains in the prior year quarter included impairments
of $25 million after-tax ($38 million pre-tax).
Net written premiums of $5.385 billion in the current quarter were
slightly higher than in the prior year quarter. Overall, business
retention remained at historically high levels and the impact of a
slightly improving rate trend was partially offset by lower coverage
demands from existing policyholders due to general economic conditions.
New business volumes increased from the prior year quarter driven by
growth in Financial Professional & International Insurance and Personal
Insurance.
Capital Management
The company remains very well capitalized, with all of its financial
strength indicators at or better than target levels. During the fourth
quarter 2008, the company repurchased 2.7 million of its common shares
under its share repurchase authorization for a total cost of
approximately $100 million. At the end of 2008, the company had $3.8
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 123.9 million shares
for a total cost of $6.2 billion.
At the end of 2008, shareholders' equity was $25.3 billion, a decline of
5 percent from the end of the prior year. This decline was due in part
to share repurchases and common stock dividends totaling $2.8 billion
and net unrealized investment losses of $144 million after-tax at the
end of the current year as compared to net unrealized investment gains
of $620 million after-tax at the end of the prior year. This change in
unrealized investment gains and losses was largely driven by widening
credit spreads across fixed income securities, partially offset by lower
treasury rates. The decline in shareholders' equity was also due in part
to the impact of current market conditions on the company's qualified
pension plan assets. Statutory surplus was $21.5 billion at the end of
2008, a decline of 6 percent from the end of the prior year. The
company's debt to capital ratio of 19.5 percent (excluding FAS 115) at
the end of 2008 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.
Full Year 2008 Consolidated Results
Net and operating income for the twelve-month period ended December 31,
2008 of $2.924 billion and $3.195 billion, respectively, include an
after-tax underwriting gain of $1.076 billion and after-tax net
investment income of $2.299 billion. The current and prior years
included the following:
($ in millions) Twelve Months Ended December 31,
2008 2007 2008 2007
Pre-tax After-tax
Underwriting gain $ 1,606 $ 2,558 $ 1,076 $ 1,699
GAAP combined ratio 91.9 % 87.4 %
Underwriting gain
includes:
Net favorable prior
year reserve 1,538 546 1,000 351
development
Impact on GAAP (7.1 ) pts (2.5 ) pts
combined ratio
Catastrophes, net of (1,408 ) (167 ) (919 ) (109 )
reinsurance
Impact on GAAP 6.5 pts 0.7 pts
combined ratio
Timing impact for the
transition to fixed, - 163 - 106
value-based agent
compensation program
Impact on GAAP - pts (0.8 ) pts
combined ratio
Tax benefit related 89 -
to sale of subsidiary
Resolution of prior - 34
year tax matters
Net investment income 2,792 3,761 2,299 2,915
Average yield 3.8 % 5.1 % 3.1 % 3.9 %
Other, including (267 ) (257 ) (180 ) (114 )
interest expense
Other also includes:
Loss on the
redemption of - (39 ) - (25 )
securities
Resolution of prior - 52
year tax matters
Net realized
investment gains (415 ) 154 (271 ) 101
(losses)
The current year underwriting result reflects a GAAP combined ratio of
92.5 percent, excluding net favorable prior year reserve development and
catastrophes, as compared to 90.0 percent in the prior year, which also
excludes 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 the period from what otherwise would have
been reported. This increase of 2.5 points primarily resulted from
pricing and loss cost experience that were anticipated, a small number
of large losses that exceeded expectations and an increase in
non-catastrophe related weather losses.
Net favorable prior year reserve development in the current year
resulted from better than expected loss experience in each segment,
particularly in Business Insurance. Catastrophe losses in the current
year were primarily related to Hurricanes Ike, Gustav and Dolly, as well
as other severe weather events in various regions of the United States.
Net investment income in the current year was impacted by negative
returns in the non-fixed income portfolio and low short-term interest
rates.
Net written premiums in the current year were $21.683 billion, compared
to $21.618 billion in the prior year.
Business Insurance Segment Financial Results
For the fourth quarter 2008, the Business Insurance segment reported
operating income of $619 million, including an after-tax underwriting
gain of $325 million and after-tax net investment income of $291
million. The current and prior year quarters included the following:
($ in millions) Three Months Ended December 31,
2008 2007 2008 2007
Pre-tax After-tax
Underwriting gain $ 390 $ 342 $ 325 $ 221
GAAP combined ratio 85.7 % 87.8 %
Underwriting gain includes:
Net favorable prior year reserve 205 49 140 29
development
Impact on GAAP combined ratio (7.3 ) pts (1.7 ) pts
Catastrophe (losses) / reduction 24 (4 ) 16 (3 )
in losses, net of reinsurance
Impact on GAAP combined ratio (0.8 ) pts 0.1 pts
Re-estimation of the current
year loss ratios for the first (16 ) 54 (10 ) 35
three quarters of the year
Impact on GAAP combined ratio 0.6 pts (1.9 ) pts
Tax benefit related to sale of 89 -
subsidiary
Net investment income 310 633 291 502
Other 9 9 3 6
The current quarter underwriting result reflects a GAAP combined ratio
of 93.2 percent, excluding net favorable prior year reserve development,
catastrophes and re-estimation of the current year loss ratios for the
first three quarters of the year, as compared to 91.3 percent in the
prior year quarter. This increase of 1.9 points primarily resulted from
pricing and loss cost experience that were generally consistent with
prior quarters.
Net favorable prior year reserve development in the current quarter
primarily resulted from better than expected loss experience in the
general liability, commercial auto and commercial multi-peril product
lines. The segment also benefited in the quarter from a downward
adjustment in current year catastrophe loss estimates due in large part
to favorable re-estimation of losses related to Hurricane Gustav. In
addition, the current quarter included the $89 million tax benefit
related to the sale of Unionamerica.
Business Insurance net written premiums of $2.756 billion declined 1
percent from the prior year quarter. Retention rates continued to be
very strong and improved from the prior year quarter particularly in
Commercial Accounts. Renewal price changes, while generally slightly
negative, improved from the prior year quarter due to the impact of a
slightly improving rate trend across several lines, partially offset by
lower coverage demands from existing policyholders due to general
economic conditions. New business volumes were consistent with the prior
year quarter as growth in Select Accounts was offset by declines in
Target Risk Underwriting and Specialized Distribution.
Select Accounts
-- Net written premiums of $662 million increased 3 percent from the prior
year quarter.
-- Retention rates remained strong and improved from the prior year
quarter.
-- Renewal price changes were slightly lower than recent quarters due to
lower coverage demands from existing policyholders.
-- New business volume increased from the prior year quarter due to
significant increases in submission flows related to TravelersExpressSM
, 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 $666 million declined 2 percent from the prior
year quarter.
-- Retention rates remained very strong and improved from the prior year
quarter.
-- Renewal price changes remained negative and generally consistent with
recent quarters as the impact of a slightly improving rate trend was
partially offset by lower coverage demands from existing policyholders.
-- New business volumes were generally consistent with the prior year
quarter.
National Accounts
-- Net written premiums of $269 million were consistent with the prior year
quarter.
Industry-Focused Underwriting
-- Net written premiums of $586 million increased 6 percent from the prior
year quarter primarily driven by Construction, Oil & Gas and Technology.
Target Risk Underwriting
-- Net written premiums of $359 million declined 5 percent from the prior
year quarter primarily due to the overall pricing environment and lower
new business volumes in National Property.
Specialized Distribution
-- Net written premiums of $208 million declined 15 percent from the prior
year quarter primarily due to weaknesses in the commercial trucking
industry.
Financial, Professional & International Insurance Segment Financial
Results
For the fourth quarter 2008, the Financial, Professional & International
Insurance segment reported operating income of $154 million, including
an after-tax underwriting gain of $72 million and after-tax net
investment income of $78 million. The current and prior year quarters
included the following:
($ in millions) Three Months Ended December 31,
2008 2007 2008 2007
Pre-tax After-tax
Underwriting gain $ 106 $ 119 $ 72 $ 83
GAAP combined ratio 87.2 % 85.3 %
Underwriting gain includes:
Net favorable prior year reserve 36 36 25 26
development
Impact on GAAP combined ratio (4.2 ) pts (4.3 ) pts
Catastrophe (losses) / reduction in 13 - 10 -
losses, net of reinsurance
Impact on GAAP combined ratio (1.6 ) pts - pts
Re-estimation of the current year
loss ratios for the first three (5 ) - (3 ) -
quarters of the year
Impact on GAAP combined ratio 0.6 pts - pts
Net investment income 98 122 78 94
Other 6 13 4 7
The current quarter underwriting result reflects a GAAP combined ratio
of 92.4 percent, excluding net favorable prior year reserve development,
catastrophes and re-estimation of the current year loss ratios for the
first three quarters of the year, as compared to 89.6 percent in the
prior year quarter. The significant components of the 2.8 point increase
are a small number of large losses that exceeded expectations within
International and increased loss activity within the Financial
Institutions business unit of Bond & Financial Products resulting from
the difficult conditions in financial markets, partially offset by
favorable results in the Commercial Surety and Construction Services
business units of Bond & Financial Products.
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. The segment also
benefited in the quarter from a downward adjustment in current year
catastrophe loss estimates due in large part to favorable re-estimation
of direct losses related to Hurricanes Ike and Gustav.
Financial, Professional & International Insurance net written premiums
of $938 million declined 3 percent from the prior year quarter primarily
due to changes in foreign currency exchange rates.
Bond & Financial Products
-- Net written premiums of $586 million declined 3 percent from the prior
year quarter, driven primarily by lower business volumes in surety.
-- Retention rates in the management liability business continued to be
strong.
-- Renewal price changes were slightly positive driven by an improving rate
trend across several lines.
-- New business volumes increased from the prior year quarter due in part
to higher submission flows.
-- 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 $352 million declined 2 percent from the prior
year quarter primarily due to changes in foreign currency exchange
rates.
-- Retention rates were lower than the prior year quarter primarily due to
the intentional non-renewal of certain business in Canada and Ireland,
as well as underwriting actions taken within the property and marine
businesses at the company's Lloyd's operations.
-- Renewal price changes were positive and improved from recent quarters
driven by the company's Lloyd's operations.
-- New business volumes declined from the prior year quarter due to changes
in foreign currency exchange rates.
Personal Insurance Segment Financial Results
For the fourth quarter 2008, the Personal Insurance segment reported
operating income of $226 million, including an after-tax underwriting
gain of $148 million and after-tax net investment income of $69 million.
The current and prior year quarters included the following:
($ in millions) Three Months Ended December 31,
2008 2007 2008 2007
Pre-tax After-tax
Underwriting gain $ 233 $ 135 $ 148 $ 85
GAAP combined ratio 85.6 % 90.8 %
Underwriting gain includes:
Net favorable prior year reserve 37 43 24 28
development
Impact on GAAP combined ratio (2.1 ) pts (2.5 ) pts
Catastrophe (losses) / reduction 48 (64 ) 30 (42 )
in losses, net of reinsurance
Impact on GAAP combined ratio (2.7 ) pts 3.7 pts
Re-estimation of the current
year loss ratios for the first (21 ) - (14 ) -
three quarters of the year
Impact on GAAP combined ratio 1.2 pts - pts
Net investment income 75 127 69 100
Other 17 21 9 16
The current quarter underwriting result reflects a GAAP combined ratio
of 89.2 percent, excluding net favorable prior year reserve development,
catastrophes and re-estimation of the current year loss ratios for the
first three quarters of the year, as compared to 89.6 percent in the
prior year quarter. This decrease of 0.4 points was primarily due to
favorable automobile loss trends.
Net favorable prior year reserve development in the current quarter was
primarily driven by favorable loss experience related to Hurricane
Katrina and other prior year weather-related losses within Homeowners
and Other. The segment also benefited in the quarter from a downward
adjustment in current year catastrophe loss estimates due in large part
to the company's re-estimation of the TWIA losses arising out of
Hurricane Ike. There was also favorable re-estimation of direct
catastrophe losses primarily related to Hurricane Ike.
Personal Insurance net written premiums of $1.691 billion increased 4
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 $876 million increased 3 percent, and policies
in force increased 2 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 QuantumAutoSM distribution.
Homeowners and Other
-- Net written premiums of $815 million increased 5 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.
2009 Annual Guidance
Travelers expects 2009 operating income per diluted share in the range
of $4.50 to $4.90. This guidance is based on a number of assumptions,
including:
-- Catastrophe losses of $552 million pre-tax and $360 million after-tax,
or $0.62 per diluted share;
-- No prior year reserve development, favorable or unfavorable;
-- Non-fixed income investment yield of 2.4 percent;
-- No significant change in average invested assets (excluding FAS 115),
after taking into account dividends and approximately $1.0 billion of
share repurchases for the full year; and
-- Weighted average diluted shares of approximately 585 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 Tuesday, January 27, 2009. 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.
From time to time Travelers may use 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 or other adverse economic
circumstances 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; loss or significant restriction of the use of credit scoring
in the pricing and underwriting of insurance products could reduce
future profitibilty; 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 Twelve Months Ended
December 31, December 31,
($ in millions, except per share 2008 2007 2008 2007
amounts, and after-tax)
Operating income $ 939 $ 1,057 $ 3,195 $ 4,500
Net realized investment gains (138 ) 6 (271 ) 101
(losses)
Net income $ 801 $ 1,063 $ 2,924 $ 4,601
Basic earnings per share
Operating income $ 1.61 $ 1.66 $ 5.35 $ 6.89
Net realized investment gains (0.24 ) 0.01 (0.45 ) 0.15
(losses)
Net income $ 1.37 $ 1.67 $ 4.90 $ 7.04
Diluted earnings per share
Operating income $ 1.58 $ 1.63 $ 5.27 $ 6.71
Net realized investment gains (0.23 ) 0.01 (0.45 ) 0.15
(losses)
Net income $ 1.35 $ 1.64 $ 4.82 $ 6.86
Weighted average number of common 583.6 634.5 596.4 652.7
shares outstanding (basic)
Weighted average number of common
shares outstanding and common stock 593.0 648.7 607.3 672.3
equivalents (diluted)
Common shares outstanding at period 585.1 627.8 585.1 627.8
end
Common stock dividends declared $ 177 $ 184 $ 712 $ 738
Operating income by segment
Business Insurance $ 619 $ 729 $ 2,338 $ 3,015
Financial, Professional & 154 184 649 675
International Insurance
Personal Insurance 226 201 465 1,019
Total segment operating income 999 1,114 3,452 4,709
Interest Expense and Other (60 ) (57 ) (257 ) (209 )
$ 939 $ 1,057 $ 3,195 $ 4,500
Operating return on equity 14.7 % 16.3 % 12.4 % 17.7 %
Return on equity 12.8 % 16.1 % 11.4 % 18.0 %
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
Three Months Ended Twelve Months Ended
December 31, December 31,
($ in millions, pre-tax) 2008 2007 2008 2007
Revenues
Premiums $ 5,434 $ 5,432 $ 21,579 $ 21,470
Net investment income 483 882 2,792 3,761
Fee income 75 113 390 508
Net realized investment (219 ) 12 (415 ) 154
gains (losses)
Other revenues 32 52 131 124
$ 5,805 $ 6,491 $ 24,477 $ 26,017
Revenues
Business Insurance $ 3,184 $ 3,623 $ 13,517 $ 14,523
Financial, Professional & 971 977 3,907 3,907
International Insurance
Personal Insurance 1,869 1,871 7,466 7,452
Total segment revenues 6,024 6,471 24,890 25,882
Interest Expense and Other - 8 2 (19 )
6,024 6,479 24,892 25,863
Net realized investment (219 ) 12 (415 ) 154
gains (losses)
$ 5,805 $ 6,491 $ 24,477 $ 26,017
Gross written premiums
Business Insurance $ 2,970 $ 3,066 $ 12,580 $ 13,017
Financial, Professional & 990 1,021 3,966 4,037
International Insurance
Personal Insurance 1,749 1,681 7,291 7,144
$ 5,709 $ 5,768 $ 23,837 $ 24,198
Net written premiums
Business Insurance $ 2,756 $ 2,777 $ 11,220 $ 11,318
Financial, Professional & 938 963 3,468 3,465
International Insurance
Personal Insurance 1,691 1,626 6,995 6,835
$ 5,385 $ 5,366 $ 21,683 $ 21,618
GAAP combined ratios:1
Business Insurance2
Loss and loss adjustment 54.6 % 56.6 % 57.7 % 57.1 %
expense ratio
Underwriting expense ratio 31.1 31.2 32.5 30.7
Combined ratio 85.7 % 87.8 % 90.2 % 87.8 %
Financial, Professional &
International Insurance2
Loss and loss adjustment 52.3 % 47.4 % 51.2 % 50.8 %
expense ratio
Underwriting expense ratio 34.9 37.9 36.0 36.8
Combined ratio 87.2 % 85.3 % 87.2 % 87.6 %
Personal Insurance
Loss and loss adjustment 56.8 % 61.0 % 66.2 % 58.6 %
expense ratio
Underwriting expense ratio 28.8 29.8 30.8 28.2
Combined ratio 85.6 % 90.8 % 97.0 % 86.8 %
Total Company2
Loss and loss adjustment 54.9 % 56.6 % 59.4 % 56.6 %
expense ratio
Underwriting expense ratio 31.0 31.8 32.5 30.8
Combined ratio 85.9 % 88.4 % 91.9 % 87.4 %
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 Twelve Months Ended
December 31, December 31,
($ in millions; after-tax except as 2008 2007 2008 2007
noted)
Reconciliation of underwriting gain
to net income
Pre-tax underwriting gain $ 729 $ 596 $ 1,606 $ 2,558
Tax expense on underwriting results (184 ) (207 ) (530 ) (859 )
Underwriting gain 545 389 1,076 1,699
Net investment income 438 696 2,299 2,915
Other, including interest expense (44 ) (28 ) (180 ) (114 )
Consolidated operating income 939 1,057 3,195 4,500
Net realized investment gains (138 ) 6 (271 ) 101
(losses)
Net income $ 801 $ 1,063 $ 2,924 $ 4,601
As of
December 31, December 31,
($ in millions; except per share data) 2008 2007
Reconciliation of tangible and adjusted common
shareholders' equity to common shareholders' equity
Tangible common shareholders' equity $ 21,402 $ 21,811
Goodwill and other intangibles, net of tax 3,972 4,073
Adjusted common shareholders' equity 25,374 25,884
Net unrealized investment gains (losses), net of tax (144 ) 620
Common shareholders' equity $ 25,230 $ 26,504
Common shares outstanding 585.1 627.8
Tangible book value per share $ 36.58 $ 34.74
Adjusted book value per share 43.37 41.23
Book value per share $ 43.12 $ 42.22
See Glossary of Financial Measures and the statistical supplement for additional
financial data.
Twelve Months Ended
December 31,
($ in millions; after-tax) 2006 2005
Reconciliation of operating income to net income
Operating income $ 4,200 $ 2,026
Net realized investment gains 8 35
Income from continuing operations 4,208 2,061
Discontinued operations - (439 )
Net income $ 4,208 $ 1,622
As of
December 31, December 31,
($ in millions) 2006 2005
Reconciliation of adjusted common shareholders'
equity to common shareholders' equity
Adjusted common shareholders' equity $ 24,553 $ 21,823
Net unrealized investment gains, net of tax 453 327
Common shareholders' equity $ 25,006 $ 22,150
Return on equity 17.9 % 7.5 %
Operating return on equity 17.9 % 9.6 %
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
Source: The Travelers Companies, Inc.
Contact: For The Travelers Companies, Inc.
Media:
Shane Boyd, 651-310-3846
Jennifer Wislocki, 860-277-7458
or
Institutional Investors:
Gabriella Nawi, 917-778-6844
Andrew Hersom, 860-277-0902
or
Individual Investors:
Marc Parr, 860-277-0779