Board of Directors Approves a 10% Increase in the Company's Regular
Quarterly Dividend per Share and Authorizes an Additional $6 Billion
Share Repurchase Program
Guidance for 2009 Operating Income per Diluted Share Increased to
$5.30-$5.50, from $4.80-$5.05
-- Net and operating income of $935 million and $914 million, respectively.
-- Positive renewal rate changes across all three business segments.
-- Book value per share of $51.24, an increase of 22 percent from prior
year quarter.
-- Repurchased 20.8 million common shares for $1.0 billion in the third
quarter; guidance assumes fourth quarter repurchases of $1.5 billion.
-- Three percent decline in net written premiums from prior year quarter
largely attributable to the decline in economic activity in recent
quarters.
-- Catastrophe losses of $103 million after-tax ($158 million pre-tax) in
the third quarter, compared to $682 million after-tax ($1.0 billion
pre-tax) in the prior year quarter.
-- S&P affirmed financial strength ratings of AA- and debt ratings of A- on
August 11, 2009 and revised their outlook on these ratings to positive
from stable with a one year time horizon for consideration of an
upgrade.
NEW YORK--(BUSINESS WIRE)--
The Travelers Companies, Inc. ("Travelers") (NYSE:TRV) today reported
net income of $935 million, or $1.65 per diluted share, for the quarter
ended September 30, 2009, compared to $214 million, or $0.36 per diluted
share, for the quarter ended September 30, 2008. Operating income in the
current quarter was $914 million, or $1.61 per diluted share, compared
to $330 million, or $0.55 per diluted share, in the prior year quarter.
"We are pleased to report strong third quarter operating income of $914
million and operating return on equity of 14.1%," commented Jay Fishman,
Chairman and Chief Executive Officer. "These results were driven by
underwriting profitability in each of our business segments and
increased net investment income, as our non-fixed income portfolio yield
improved to a positive level.
"We were once again successful in achieving positive renewal rate
changes across all of our business segments, although net written
premiums were down modestly, largely attributable to declining economic
activity in recent quarters. As in previous quarters, we remain cautious
about the magnitude of rate gains that are achievable in the near term
given general economic conditions. Nonetheless, we plan to continue to
seek rate gains where needed and we will continue to focus on execution.
Solid retention and new business levels continue to underscore our
strong position in the marketplace.
"With improved stability in the capital markets we deployed excess
liquidity that we accumulated over the past several quarters. We
repurchased $1 billion of common shares in the quarter in contrast to
our past practice of reduced share repurchases during the catastrophe
season. Furthermore, our guidance for 2009 now includes an assumption of
$1.5 billion in common share repurchases in the fourth quarter, an
increase from our previous assumption, subject to market conditions and
other factors. This change, in combination with our year-to-date
performance, has resulted in an increase in our guidance for full year
2009 operating income per diluted share to $5.30-$5.50 from $4.80-$5.05.
"Given our strong earnings performance and cash position and more stable
capital markets, we increased our regular quarterly dividend by 10
percent to $0.33 per share. In addition our Board of Directors has
approved an additional $6.0 billion of common share repurchases.
Confidence in our strong balance sheet, ability to execute in the
marketplace and our strategy of returning excess capital enable us to
continue to create shareholder value," concluded Mr. Fishman.
Consolidated Highlights
Three Months Ended September Nine Months Ended September
30, 30,
($ in
millions,
except for
per share
amounts, 2009 2008 Change 2009 2008 Change
and
after-tax,
except for
premiums)
Net
written $ 5,340 $ 5,481 (3 ) % $ 16,148 $ 16,298 (1 ) %
premiums
Operating $ 914 $ 330 177 $ 2,445 $ 2,256 8
income
per
diluted $ 1.61 $ 0.55 193 $ 4.21 $ 3.68 14
share
Net income $ 935 $ 214 337 $ 2,337 $ 2,123 10
per
diluted $ 1.65 $ 0.36 358 $ 4.02 $ 3.47 16
share
Book value $ 51.24 $ 41.94 22 $ 51.24 $ 41.94 22
per share
Adjusted
book value $ 47.16 $ 43.34 9 $ 47.16 $ 43.34 9
per share
GAAP
combined 89.7 % 104.7 % (15.0 ) pts 91.2 % 94.0 % (2.8 ) pts
ratio
Operating
return on 14.1 % 5.1 % 9.0 pts 12.6 % 11.7 % 0.9 pts
equity
Return on 13.6 % 3.4 % 10.2 pts 11.7 % 10.9 % 0.8 pts
equity
See Glossary of Financial Measures for definitions and the statistical supplement
for additional financial data.
Third Quarter 2009 Consolidated Results
The current and prior year quarters included the following:
($ in millions) Three Months Ended September 30,
2009 2008 2009 2008
Pre-tax After-tax
Underwriting gain (loss) $ 524 $ (288 ) $ 338 $ (208 )
Underwriting gain (loss)
includes:
Net favorable prior year 309 334 202 210
reserve development
Catastrophes, net of (158 ) (1,042 ) (103 ) (682 )
reinsurance
Re-estimation of the current
year loss ratios for the 71 - 46 -
first two quarters of the
year
Net investment income 763 716 616 587
Other, including interest (66 ) (70 ) (40 ) (49 )
expense
Operating Income 1,221 358 914 330
Net realized investment gains 29 (170 ) 21 (116 )
(losses)
Income before income taxes $ 1,250 $ 188
Net Income $ 935 $ 214
GAAP combined ratio 89.7 % 104.7 %
GAAP combined ratio excluding
incremental impact of direct 89.1 % 104.5 %
to consumer initiative
Impact on GAAP combined ratio
Net favorable prior year (5.7 ) pts (6.2 ) pts
reserve development
Catastrophes, net of 2.9 pts 19.1 pts
reinsurance
Re-estimation of the current
year loss ratios for the (1.3 ) pts - pts
first two quarters of the
year
The current quarter underwriting gain reflects a GAAP combined ratio,
excluding net favorable prior year reserve development and catastrophe
losses, of 92.5 percent, as compared to 91.8 percent in the prior year
quarter. This increase of 0.7 points primarily resulted from reduced
underwriting margins related to pricing and loss cost trends, higher
non-catastrophe weather-related losses within Personal Insurance as well
as the impact of the company's recently announced direct to consumer
initiative. The GAAP combined ratio in the current quarter benefited
from 1.3 points of favorable re-estimation of current year loss ratios
which reflects better than expected frequency trends in Business
Insurance for the first two quarters of the year.
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 net favorable prior year
development in Business Insurance included a $120 million after-tax
($185 million pre-tax) increase to asbestos reserves that was primarily
driven by a slight increase in the company's assumption for projected
defense costs related to many policyholders. Overall, the company's
assessment of the underlying asbestos environment did not change
significantly from recent periods.
Catastrophe losses in the current quarter, which were considerably lower
than the prior year quarter, were related to multiple severe weather
events across various regions of the United States.
The investment portfolio, which grew to $76 billion at the end of the
current quarter reflective of an increase to net unrealized investment
gains of $2.1 billion pre-tax from June 30, 2009, performed very well
during the quarter. Net investment income in the current quarter
increased from the prior year quarter for the first time since the third
quarter 2007, despite lower short-term interest rates. This increase was
driven by positive returns in the non-fixed income portfolio in the
current quarter, compared to negative returns in the prior year quarter,
and is primarily due to improved investment market conditions for hedge
funds and private equity funds. Net investment income in the fixed
income portfolio declined slightly from the prior year quarter due to a
150 basis point reduction in average after-tax short-term interest
rates. The current quarter results also include net realized investment
gains compared to net realized investment losses in the prior year
quarter. The current quarter included other-than-temporary impairments
of only $12 million after-tax ($19 million pre-tax), compared to $102
million after-tax ($156 million pre-tax) in the prior year quarter.
Net written premiums of $5.340 billion in the current quarter declined 3
percent from the prior year quarter. Business retention remained at high
levels. Renewal rate changes were positive in each business segment,
more than offsetting the impact of lower coverage demands from existing
policyholders due to general economic conditions. New business volumes
were down slightly from the prior year quarter as modest growth in
Business Insurance and Financial, Professional and International
Insurance was offset by lower volumes in Personal Insurance.
Capital Management
"This quarter once again demonstrated the company's significant balance
sheet strength," said Jay Benet, Vice Chairman and Chief Financial
Officer. "During the current quarter we grew shareholders' equity by 5
percent to $28.2 billion after returning $1.2 billion to our
shareholders through common share dividends and common share
repurchases. As further acknowledgement of our balance sheet strength,
during the quarter S&P affirmed our financial strength ratings of AA-
and debt ratings of A- and revised the outlook for these ratings to
positive from stable with a one year time horizon for consideration of
an upgrade."
At the end of the third quarter 2009, all of the company's financial
strength indicators were at or better than target levels. Statutory
surplus was $22.1 billion, the company's debt to capital ratio of 20.1
percent (excluding net unrealized investment gains and losses) was at
its target level and holding company liquidity of $2.6 billion was more
than twice the company's target level.
Travelers' Board of Directors has approved an additional $6.0 billion of
common share repurchases. This amount is in addition to the $2.1 billion
that remained from previous authorizations as of September 30, 2009.
Repurchases may be made from time to time in the open-market, in private
transactions, pursuant to pre-set trading plans meeting the requirements
of Rule 10b5-1 of the Securities Exchange Act of 1934 or otherwise. This
authorization does not have a stated expiration date. The timing and
actual number of shares to be repurchased will depend on a variety of
factors, including corporate and regulatory requirements, price,
catastrophe experience and other market conditions.
The Board of Directors also declared a regular quarterly dividend of
$0.33 per common share. This dividend, which is $0.03 higher than the
last regular quarterly dividend, is payable December 31, 2009, to
shareholders of record as of the close of business December 10, 2009.
Business Insurance Segment Financial Results
"We continue to focus on effective execution and further strengthening
our position in the marketplace," said Brian MacLean, President and
Chief Operating Officer. "This has enabled us to once again achieve
positive renewal rate change, strong retentions and overall attractive
margin levels within Business Insurance. Furthermore, lower than
expected frequency trends have resulted in better than expected loss
cost trends. Although we continue to see the impact of the economic
downturn in many of our businesses, we remain pleased with the results
in the quarter."
The current and prior year quarters included the following:
($ in millions) Three Months Ended September 30,
2009 2008 2009 2008
Pre-tax After-tax
Underwriting gain (loss) $ 366 $ (40 ) $ 228 $ (35 )
Underwriting gain (loss)
includes:
Net favorable prior year reserve 262 247 170 152
development
Catastrophes, net of reinsurance (86 ) (488 ) (56 ) (318 )
Re-estimation of the current
year loss ratios for the first 77 - 50 -
two quarters of the year
Net investment income 529 494 429 409
Other, including interest 15 8 11 4
expense
Operating Income $ 910 $ 462 $ 668 $ 378
GAAP combined ratio 86.5 % 101.3 %
Impact on GAAP combined ratio
Net favorable prior year reserve (9.5 ) pts (8.7 ) pts
development
Catastrophes, net of reinsurance 3.1 pts 17.3 pts
Re-estimation of the current
year loss ratios for the first (2.8 ) pts - pts
two quarters of the year
The current quarter underwriting gain reflects a GAAP combined ratio,
excluding net favorable prior year reserve development and catastrophe
losses, of 92.9 percent, as compared to 92.7 percent in the prior year
quarter. This increase of 0.2 points primarily resulted from reduced
underwriting margins related to pricing and loss cost trends, partially
offset by 2.8 points of favorable re-estimation of current year loss
ratios due to better than expected frequency trends for the first two
quarters of the year.
Net favorable prior year reserve development in the current quarter
primarily resulted from better than expected loss experience in the
general liability, commercial multi-peril and commercial automobile
product lines for recent accident years.
Business Insurance net written premiums of $2.611 billion in the current
quarter declined 5 percent from the prior year quarter. This decline was
driven in large part by premium refunds and mid-term cancellations as a
result of lower levels of economic activity during the preceding 12
months. Retention rates remained strong, although slightly lower than
recent quarters. Renewal rate trends continued to improve and overall
renewal rate changes were positive in the current quarter. However,
renewal premium changes were slightly negative as the impact of the
positive rate changes was offset by lower coverage demands from existing
policyholders due to general economic conditions. New business volumes
increased modestly from the prior year quarter.
Select Accounts
-- Net written premiums of $655 million declined 1 percent from the prior
year quarter primarily due to general economic conditions.
-- Retention rates remained strong, although slightly lower than recent
quarters.
-- Renewal premium changes remained positive and improved from recent
quarters as a result of a continued improving renewal rate trend.
-- New business volumes declined from the prior year quarter as continued
strong growth from the success and expansion of TravelersExpressSM, the
company's enhanced quote-to-issue agency platform and multivariate
pricing program for smaller businesses, was offset by lower volumes in
larger accounts served by Select.
Commercial Accounts
-- Net written premiums of $609 million declined 4 percent from the prior
year quarter primarily due to general economic conditions.
-- Retention rates remained strong and consistent with the prior year
quarter.
-- Renewal premium changes, although slightly negative, were improved from
recent quarters as the impact of improving renewal rate trend was
partially offset by lower coverage demands from existing policyholders.
-- New business volumes increased from the prior year quarter due to the
impact of various product and customer initiatives.
National Accounts
-- Net written premiums of $197 million declined 18 percent from the prior
year quarter due to renewal premium changes that were negative, driven
by lower coverage demands from existing policyholders, as well as lower
premium volume from industry property and workers' compensation
involuntary residual markets.
Industry-Focused Underwriting
-- Net written premiums of $564 million declined 8 percent from the prior
year quarter due to the effect of current market conditions in
Technology, Construction and Public Sector.
Target Risk Underwriting
-- Net written premiums of $360 million declined 2 percent from the prior
year quarter primarily due to lower new business volumes in Inland
Marine, partially offset by continued positive renewal premium changes
and strong retention rates in National Property.
Specialized Distribution
-- Net written premiums of $221 million declined 3 percent from the prior
year quarter primarily due to weakness in the commercial trucking
industry and continuing competition from standard markets and other
distribution channels.
Financial, Professional & International Insurance Segment Financial
Results
"Performance within Financial, Professional & International Insurance
demonstrated the impact of our disciplined underwriting," said Mr.
MacLean. "Within our management liability and International businesses,
loss costs were at or better than expected and we generally achieved
positive renewal rate change where margins indicate it is needed. The
construction surety business continues to be impacted by the slow down
in construction spending, but our high quality credit profile has
allowed us to maintain our underwriting margins."
The current and prior year quarters included the following:
($ in millions) Three Months Ended September 30,
2009 2008 2009 2008
Pre-tax After-tax
Underwriting gain (loss) $ 95 $ 3 $ 69 $ (8 )
Underwriting gain (loss) includes:
Net favorable prior year reserve 25 43 17 29
development
Catastrophes, net of reinsurance (4 ) (91 ) (3 ) (64 )
Net investment income 118 114 93 89
Other, including interest expense 7 4 5 2
Operating Income $ 220 $ 121 $ 167 $ 83
GAAP combined ratio 88.7 % 99.4 %
Impact on GAAP combined ratio
Net favorable prior year reserve (2.9 ) pts (4.9 ) pts
development
Catastrophes, net of reinsurance 0.5 pts 10.5 pts
The current quarter underwriting gain reflects a GAAP combined ratio,
excluding net favorable prior year reserve development and catastrophe
losses, of 91.1 percent, as compared to 93.8 percent in the prior year
quarter. This improvement of 2.7 points primarily resulted from a lower
amount of large losses within International, partially offset by a
change in business mix within Bond & Financial Products due to lower
construction surety volumes.
The net favorable prior year reserve development in the current quarter
resulted from better than expected loss experience across various lines
of business within International.
Financial, Professional & International Insurance net written premiums
of $870 million declined 3 percent from the prior year quarter.
Adjusting for the impact of changes in foreign exchange rates, net
written premiums declined 1 percent primarily due to lower business
volumes in the construction surety and professional liability businesses
in the Bond & Financial Products group, partially offset by growth in
International.
Retention rates, renewal premium changes and new business volumes as
discussed below exclude the surety line of business because these
products are sold on a non-recurring, project specific basis.
Bond & Financial Products
-- Net written premiums of $574 million declined 6 percent from the prior
year quarter primarily reflecting lower business volumes in construction
surety, due to reduced public construction project activity, and
disciplined underwriting actions in professional liability.
-- Retention rates remained strong, although down from recent quarters
primarily in professional liability due to underwriting actions.
-- Renewal premium changes were positive, compared to flat in the prior
year quarter, as the impact of a continued improving renewal rate trend
was partially offset by reduced exposures related to underwriting
actions and lower coverage demands from existing policyholders.
-- New business volumes declined slightly from the prior year quarter.
International
-- Net written premiums of $296 million increased 1 percent from the prior
year quarter. After adjusting for the impact of changes in foreign
exchange rates, net written premiums increased 9 percent primarily due
to results at the company's Lloyd's operations and in Ireland.
-- Retention rates were slightly lower than the prior year quarter
primarily due to underwriting actions taken in the United Kingdom and
the company's operations at Lloyd's.
-- Renewal premium changes were positive, compared to slightly negative in
the prior year quarter, as the impact of a continued improving renewal
rate trend was partially offset by lower coverage demands from existing
policyholders.
-- New business volumes increased from the prior year quarter driven
primarily by the personal lines business in Ireland.
Personal Insurance Segment Financial Results
"Our Personal Insurance business continues to demonstrate sound
fundamentals and sustained earnings power," said Mr. MacLean. "We are
generally encouraged by the firming rate environment within the
automobile marketplace and are seeing solid growth and profitability in
homeowners."
The current and prior year quarters included the following:
($ in millions) Three Months Ended September 30,
2009 2008 2009 2008
Pre-tax After-tax
Underwriting gain (loss) $ 63 $ (251 ) $ 41 $ (165 )
Underwriting gain (loss)
includes:
Net favorable prior year reserve 22 44 15 29
development
Catastrophes, net of reinsurance (68 ) (463 ) (44 ) (300 )
Re-estimation of the current
year loss ratios for the first (6 ) - (4 ) -
two quarters of the year
Net investment income 116 108 94 89
Other, including interest 20 18 14 12
expense
Operating Income (loss) $ 199 $ (125 ) $ 149 $ (64 )
GAAP combined ratio 95.2 % 112.9 %
GAAP combined ratio excluding
incremental impact of direct to 93.3 % 112.3 %
consumer initiative
Impact on GAAP combined ratio
Net favorable prior year reserve (1.3 ) pts (2.5 ) pts
development
Catastrophes, net of reinsurance 3.8 pts 26.2 pts
Re-estimation of the current
year loss ratios for the first 0.3 pts - pts
two quarters of the year
The current quarter underwriting gain reflects a GAAP combined ratio,
excluding net favorable prior year reserve development and catastrophe
losses, of 92.7 percent, as compared to 89.2 percent in the prior year
quarter. This increase of 3.5 points primarily resulted from higher
non-catastrophe weather-related losses and the impact of the company's
recently announced direct to consumer initiative.
Net favorable prior year reserve development in the current quarter was
primarily driven by better than expected loss experience related to
Hurricane Ike and the 2007 California wildfires, partially offset by a
write down of net recoverables due to the restructuring of the North
Carolina Insurance Underwriting Association Beach Plan.
Personal Insurance net written premiums of $1.859 billion increased 1
percent from the prior year quarter. This result was primarily due to
continued positive renewal premium changes and strong retention rates.
Agency Automobile and Agency Homeowners and Other as discussed below
represent business sold through agents, brokers and other
intermediaries, and exclude direct to consumer.
Agency Automobile
-- Net written premiums of $898 million and policies in force each declined
3 percent from the prior year quarter.
-- Retention rates were strong and renewal premium changes remained
positive, both generally consistent with recent quarters.
-- New business declined from the prior year quarter.
Agency Homeowners and Other
-- Net written premiums of $946 million increased 5 percent, and policies
in force increased 3 percent, from the prior year quarter.
-- Retention rates were strong and renewal premium changes remained
positive, both generally consistent with recent quarters.
-- New business volume increased from the prior year quarter.
Year-to-Date 2009 Consolidated Results
The current and prior year
periods included the
following:
($ in millions) Nine Months Ended September 30,
2009 2008 2009 2008
Pre-tax After-tax
Underwriting gain $ 1,318 $ 877 $ 897 $ 531
Underwriting gain includes:
Net favorable prior year 828 1,260 540 811
reserve development
Catastrophes, net of (441 ) (1,493 ) (287 ) (975 )
reinsurance
Resolution of prior year 60 -
tax matters
Net investment income 1,963 2,309 1,637 1,861
Other, including interest (191 ) (201 ) (89 ) (136 )
expense
Other also includes:
Resolution of prior year 28 -
tax matters
Operating Income 3,090 2,985 2,445 2,256
Net realized investment (172 ) (196 ) (108 ) (133 )
losses
Income before income taxes $ 2,918 $ 2,789
Net Income $ 2,337 $ 2,123
GAAP combined ratio 91.2 % 94.0 %
GAAP combined ratio
excluding incremental 90.6 % 93.8 %
impact of direct to
consumer initiative
Impact on GAAP combined
ratio
Net favorable prior year (5.1 ) pts (7.8 ) pts
reserve development
Catastrophes, net of 2.7 pts 9.3 pts
reinsurance
The current period underwriting gain reflects a GAAP combined ratio of
93.6 percent, excluding net favorable prior year reserve development and
catastrophe losses, as compared to 92.5 percent in the prior year
quarter. This increase of 1.1 points primarily resulted from reduced
underwriting margins related to pricing and loss cost trends and higher
non-catastrophe weather-related losses, partially offset by a reduction
in the estimate of Texas Windstorm Insurance Association assessments
related to Hurricane Ike.
2009 Annual Guidance
Travelers expects that its full year 2009 operating income per diluted
share will be in the range of $5.30 to $5.50, as compared to the
previously announced range of $4.80 to $5.05. This guidance includes the
reported results for the first nine months of 2009 and estimates for the
remainder of 2009 based on a number of assumptions, including:
-- Catastrophe losses of $570 million pre-tax and $370 million after-tax,
or $0.65 per diluted share, for the full year which incorporates actual
experience for the first nine months of 2009 and $129 million pre-tax
and $83 million after-tax, or $0.15 per diluted share for the remainder
of the year;
-- No additional prior year reserve development, favorable or unfavorable;
-- No significant changes in short-term interest rates or private equity
and hedge fund valuations due to an assumption of unchanged market
conditions. Lower real estate partnership valuations due to a continuing
downward trend in commercial real estate values;
-- No significant change in average invested assets (excluding net
unrealized investment gains and losses), after taking into account
dividends and share repurchases;
-- Approximately $3.3 billion of share repurchases for the full year ($1.5
billion for the remainder of the year); and
-- Weighted average diluted shares of approximately 570 million.
As noted above, the company's earnings guidance for the full year
reflects actual prior year reserve development through the third
quarter, but does not assume any additional prior year reserve
development, favorable or unfavorable. The company understands that the
earnings estimates published by third parties may include assumed
amounts of prior year reserve development for future periods. As a
result, third party earnings estimates for the company may not be
expressed on a basis comparable to the earnings guidance provided by the
company.
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.
Travelers management will discuss the contents of this release and other
relevant topics via webcast at 9 a.m. Eastern (8 a.m. Central) on
Thursday, October 22, 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. A Fortune 100 company, Travelers has 33,000 employees
and 2008 revenues of approximately $24 billion. Travelers stock is
traded on the New York Stock Exchange (NYSE: TRV) and is a component of
the Dow Jones Industrial Average. 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, and 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.
GAAP combined ratio excluding incremental impact of direct to
consumer initiative is the GAAP combined ratio adjusted to exclude
the direct, variable impact of the company's direct-to-consumer
initiative in Personal Insurance. In the opinion of the company's
management, this is useful in an analysis of the profitability of the
company's ongoing agency business.
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
net unrealized investment gains and losses), 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.
Debt to capital is the ratio of debt to the sum of shareholders'
equity and debt excluding the after-tax impact of net unrealized
investment gains and losses. In the opinion of the company's management,
the debt to capital ratio is useful in an analysis of the company's
leverage.
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, Aviation
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 the assumed reinsurance, healthcare and certain
international 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 coverages, which require a primarily
credit-based underwriting process, 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 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 (which repurchase plans depend on a variety of factors, including
our financial position, earnings, capital requirements of our operating
subsidiaries, legal requirements, regulatory constraints and other
factors), 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 business; financial disruption or a
prolonged economic downturn may materially and adversely affect our
business; our investment portfolio may suffer reduced returns or
material losses; 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; we are exposed to
credit risk in certain of our business operations; 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; the intense
competition that we face could harm our ability to maintain or increase
our business volumes and our profitability; increased competition based
on price (resulting, for example, from increased price sensitivity of
customers due to the economic downturn or from increased use of price
comparison rating technologies by personal auto agents) could lead to
reduced revenues and reduced margins; 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 the impact on our business practices 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; 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; loss of or
significant restriction on the use of credit scoring in the pricing and
underwriting of Personal Insurance products could reduce our future
profitability; we are subject to a number of risks associated with our
business outside the United States; 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; some strategic initiatives, including our direct to consumer
initiative in Personal Insurance, are long-term in nature and may
negatively impact our loss and loss adjustment expense ratios and
underwriting expense ratios as we invest, and these initiatives may not
be successful; if we experience difficulties with technology, data
security and/or outsourcing relationships, our ability to conduct our
business could be negatively impacted; and acquisitions and integration
of acquired businesses may result in operating difficulties and other
unintended consequences.
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 filed with the Securities and
Exchange Commission and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our most recent annual
report on Form 10-K and our quarterly report on Form 10-Q for the third
quarter ended September 30, 2009 filed with the Securities and Exchange
Commission.
Three Months Ended Nine Months Ended
September 30, September 30,
($ in millions, except per share 2009 2008 2009 2008
amounts, and after-tax)
Operating income $ 914 $ 330 $ 2,445 $ 2,256
Net realized investment gains 21 (116 ) (108 ) (133 )
(losses)
Net income $ 935 $ 214 $ 2,337 $ 2,123
Basic earnings per share1
Operating income $ 1.62 $ 0.56 $ 4.24 $ 3.73
Net realized investment gains 0.04 (0.20 ) (0.19 ) (0.22 )
(losses)
Net income $ 1.66 $ 0.36 $ 4.05 $ 3.51
Diluted earnings per share1
Operating income $ 1.61 $ 0.55 $ 4.21 $ 3.68
Net realized investment gains 0.04 (0.19 ) (0.19 ) (0.21 )
(losses)
Net income $ 1.65 $ 0.36 $ 4.02 $ 3.47
Weighted average number of common 558.4 586.7 572.8 600.0
shares outstanding (basic)1
Weighted average number of common
shares outstanding and common stock 564.1 594.7 577.5 609.1
equivalents (diluted)1
Common shares outstanding at period 547.9 587.2 547.9 587.2
end
Common stock dividends declared $ 166 $ 177 $ 515 $ 535
Operating income (loss) by segment
Business Insurance $ 668 $ 378 $ 1,775 $ 1,719
Financial, Professional & 167 83 448 495
International Insurance
Personal Insurance 149 (64 ) 391 239
Total segment operating income 984 397 2,614 2,453
Interest Expense and Other (70 ) (67 ) (169 ) (197 )
$ 914 $ 330 $ 2,445 $ 2,256
Operating return on equity 14.1 % 5.1 % 12.6 % 11.7 %
Return on equity 13.6 % 3.4 % 11.7 % 10.9 %
1 In accordance with new guidance on determining whether
instruments granted in share-based payment transactions are
participating securities, which was effective January 1, 2009, all
prior-period basic and diluted EPS data has been restated to reflect the
retrospective application of this guidance.
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) 2009 2008 2009 2008
Revenues
Premiums $ 5,421 $ 5,448 $ 16,075 $ 16,145
Net investment income 763 716 1,963 2,309
Fee income 72 120 234 315
Net realized investment 29 (170 ) (172 ) (196 )
gains (losses)
Other revenues 42 31 124 99
$ 6,327 $ 6,145 $ 18,224 $ 18,672
Revenues
Business Insurance $ 3,383 $ 3,445 $ 9,896 $ 10,333
Financial, Professional & 986 982 2,821 2,936
International Insurance
Personal Insurance 1,928 1,888 5,669 5,597
Total segment revenues 6,297 6,315 18,386 18,866
Interest Expense and Other 1 - 10 2
6,298 6,315 18,396 18,868
Net realized investment 29 (170 ) (172 ) (196 )
gains (losses)
$ 6,327 $ 6,145 $ 18,224 $ 18,672
Gross written premiums
Business Insurance $ 3,029 $ 3,215 $ 9,369 $ 9,610
Financial, Professional & 918 965 2,735 2,976
International Insurance
Personal Insurance 1,988 1,954 5,663 5,542
$ 5,935 $ 6,134 $ 17,767 $ 18,128
Net written premiums
Business Insurance $ 2,611 $ 2,748 $ 8,387 $ 8,464
Financial, Professional & 870 901 2,347 2,530
International Insurance
Personal Insurance 1,859 1,832 5,414 5,304
$ 5,340 $ 5,481 $ 16,148 $ 16,298
GAAP combined ratios:1
Business Insurance2
Loss and loss adjustment 53.5 % 67.1 % 56.3 % 58.7 %
expense ratio
Underwriting expense ratio 33.0 34.2 32.1 33.0
Combined ratio 86.5 % 101.3 % 88.4 % 91.7 %
Financial, Professional &
International Insurance2
Loss and loss adjustment 53.3 % 62.9 % 54.1 % 50.9 %
expense ratio
Underwriting expense ratio 35.4 36.5 35.8 36.3
Combined ratio 88.7 % 99.4 % 89.9 % 87.2 %
Personal Insurance
Loss and loss adjustment 64.3 % 77.9 % 66.5 % 69.4 %
expense ratio
Underwriting expense ratio 30.9 35.0 29.5 31.5
Combined ratio 95.2 % 112.9 % 96.0 % 100.9 %
Total Company2
Loss and loss adjustment 57.0 % 69.9 % 59.4 % 60.9 %
expense ratio
Underwriting expense ratio 32.7 34.8 31.8 33.1
Combined ratio 89.7 % 104.7 % 91.2 % 94.0 %
1 For purposes of computing GAAP ratios, billing and policy
fees (which are a component of other revenues) are allocated as a
reduction of other underwriting expenses. In addition, fee income is
allocated as a reduction of losses and loss adjustment 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 2009 2008 2009 2008
noted)
Reconciliation of underwriting gain
(loss) to net income
Pre-tax underwriting gain (loss) $ 524 $ (288 ) $ 1,318 $ 877
Tax (expense) benefit on underwriting (186 ) 80 (421 ) (346 )
results
Underwriting gain (loss) 338 (208 ) 897 531
Net investment income 616 587 1,637 1,861
Other, including interest expense (40 ) (49 ) (89 ) (136 )
Consolidated operating income 914 330 2,445 2,256
Net realized investment gains (losses) 21 (116 ) (108 ) (133 )
Net income $ 935 $ 214 $ 2,337 $ 2,123
As of
September 30, December 31, September 30,
($ in millions; except per share 2009 2008 2008
amounts)
Reconciliation of tangible and
adjusted common
shareholders' equity to common
shareholders' equity
Tangible common shareholders' equity $ 21,935 $ 21,402 $ 21,452
Goodwill and other intangibles, net 3,908 3,972 3,995
of tax
Adjusted common shareholders' equity 25,843 25,374 25,447
Net unrealized investment gains 2,236 (144 ) (818 )
(losses), net of tax
Common shareholders' equity $ 28,079 $ 25,230 $ 24,629
Common shares outstanding 547.9 585.1 587.2
Tangible book value per share $ 40.03 $ 36.58 $ 36.53
Adjusted book value per share 47.16 43.37 43.34
Book value per share 51.24 43.12 41.94
Twelve Months Ended December 31,
($ in millions; 2008 2007 2006 2005 2004
after-tax)
Reconciliation of
operating income to
net income
Operating income $ 3,195 $ 4,500 $ 4,200 $ 2,026 $ 895
Net realized
investment gains (271 ) 101 8 35 (28 )
(losses)
Income from
continuing 2,924 4,601 4,208 2,061 867
operations
Discontinued - - - (439 ) 88
operations
Net income $ 2,924 $ 4,601 $ 4,208 $ 1,622 $ 955
As of December 31,
($ in millions) 2008 2007 2006 2005 2004
Reconciliation of
adjusted common
shareholders'
equity to common
shareholders' equity
Adjusted common $ 25,374 $ 25,884 $ 24,553 $ 21,823 $ 20,147
shareholders' equity
Net unrealized
investment gains (144 ) 620 453 327 866
(losses), net of tax
Common shareholders' $ 25,230 $ 26,504 $ 25,006 $ 22,150 $ 21,013
equity
Return on equity 11.4 % 18.0 % 17.9 % 7.5 % 5.1 %
Operating return on 12.4 % 17.7 % 17.9 % 9.6 % 5.0 %
equity
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