Board of Directors Approves a 9% Increase in the Company's Regular
Quarterly Dividend per Share to $0.36
Company Affirms Previous Guidance for 2010 Operating Income per
Diluted Share of $5.20 to $5.55
-- Net income per diluted share up 13 percent from prior year quarter.
-- Net and operating income of $647 million and $631 million, respectively.
-- Catastrophe losses of $312 million after-tax ($471 million pre-tax), or
$0.61 per diluted share, compared to $54 million after-tax ($83 million
pre-tax), or $0.09 per diluted share in prior year quarter.
-- Impact of renewal rate changes on premiums remained positive across all
three business segments and retention rates remained high.
-- Book value per share of $53.50, up 19 percent from prior year quarter
and up 2 percent from year-end 2009.
-- Repurchased 27.0 million common shares for $1.4 billion.
NEW YORK--(BUSINESS WIRE)--
The Travelers Companies, Inc. ("Travelers")(NYSE: TRV) today reported
net income of $647 million, or $1.25 per diluted share, for the quarter
ended March 31, 2010, compared to $662 million, or $1.11 per diluted
share, for the quarter ended March 31, 2009. Operating income in the
current quarter was $631 million, or $1.22 per diluted share, compared
to $799 million, or $1.34 per diluted share, in the prior year quarter.
"In what was an unusually significant catastrophe quarter for Travelers
as well as for the entire industry, we were pleased to report net income
per diluted share of $1.25, return on equity of nearly 10% and growth in
book value per share of 2% from year-end 2009," commented Jay Fishman,
Chairman and Chief Executive Officer. "The impact of the catastrophes in
the quarter was largely offset by favorable prior year reserve
development and other favorable items, and as a consequence, our
operating income of $1.22 per diluted share was consistent with our
expectation going into the quarter as well as our full year guidance.
Our underwriting fundamentals were strong, as evidenced by retention
rates continuing at high levels, positive renewal rate changes on
premiums and non-weather-related loss trends remaining within
expectations. These results, in addition to solid net investment income
and our strong capital position, enabled us to repurchase 27 million
common shares in the quarter for $1.4 billion.
"We are in the business of helping our customers recover financially
from the impacts of catastrophes. Our claim professionals responded to
the needs of our customers both quickly and with a high quality of
service, demonstrating the benefits of our continued investments in our
claim organization. We thank them for their extraordinary work during
this unprecedented first quarter. Our ability to respond promptly and to
efficiently manage the claim process for our insureds is a key
differentiator within our industry and one where we feel we have a
competitive advantage.
"The insurance market remains broadly consistent with the expectations
we had at the beginning of the year and available investment returns
have remained at relatively low levels. Consequently, our strategy
continues to be to seek premium rate gains where needed and to
aggressively return excess capital," concluded Mr. Fishman.
Consolidated Highlights
($ in millions, except for per share amounts, Three Months Ended March 31,
and after-tax, except for premiums) 2010 2009 Change
Net written premiums $ 5,251 $ 5,203 1 %
Operating income $ 631 $ 799 (21 )
per diluted share $ 1.22 $ 1.34 (9 )
Net income $ 647 $ 662 (2 )
per diluted share $ 1.25 $ 1.11 13
Book value per share $ 53.50 $ 45.12 19
Adjusted book value per share $ 49.60 $ 44.19 12
GAAP combined ratio 96.4 % 90.6 % 5.8 pts
Operating return on equity 10.1 % 12.4 % (2.3 ) pts
Return on equity 9.6 % 10.2 % (0.6 ) pts
See Glossary of Financial Measures for definitions and the statistical
supplement for additional financial data.
First Quarter 2010 Consolidated Results
The current and prior year quarters included the following:
($ in millions) Three Months Ended March 31,
2010 2009 2010 2009
Pre-tax After-tax
Underwriting gain $ 155 $ 465 $ 80 $ 353
Underwriting gain includes:
Net favorable prior year 294 258 192 168
reserve development
Catastrophes, net of (471 ) (83 ) (312 ) (54 )
reinsurance
Resolution of prior year tax - 55
matters
Net investment income 753 542 610 474
Other, including interest (76 ) (66 ) (59 ) (28 )
expense
Other includes:
Resolution of prior year tax - 14
matters
Operating Income 832 941 631 799
Net realized investment gains 25 (214 ) 16 (137 )
(losses)
Income before income taxes $ 857 $ 727
Net Income $ 647 $ 662
GAAP combined ratio 96.4 % 90.6 %
GAAP combined ratio excluding 95.8 % 90.1 %
incremental impact
of direct to consumer
initiative
Impact on GAAP combined ratio
Net favorable prior year (5.6 ) pts (4.9 ) pts
reserve development
Catastrophes, net of 9.0 pts 1.6 pts
reinsurance
Operating income of $631 million after-tax in the current quarter
decreased $168 million from the prior year quarter primarily due to a
$273 million after-tax decrease in the underwriting gain, partially
offset by a $136 million after-tax increase in net investment income.
The decrease in the underwriting gain in the current quarter reflected a
GAAP combined ratio of 96.4 percent, as compared to 90.6 percent in the
prior year quarter. This 5.8 point increase in the combined ratio was
driven by a $388 million pre-tax increase in catastrophe losses
(increase of 7.4 points), slightly offset by a $36 million pre-tax
increase in net favorable prior year reserve development (reduction of
0.7 points). Catastrophe losses in the current quarter were primarily
due to several severe winter, wind and hail storms in the eastern United
States as well as the Chilean earthquake. The 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 current quarter underwriting gain excluding net favorable prior year
reserve development and catastrophe losses reflected a GAAP combined
ratio of 93.0 percent, as compared to 93.9 percent in the prior year
quarter, as the current quarter benefited from lower non-catastrophe
weather-related losses. The prior year quarter combined ratio also
included a 1.2 point benefit resulting from a $61 million pre-tax
reduction in the estimate for Texas Windstorm Insurance Association
(TWIA) assessments related to Hurricane Ike. The underwriting gain in
the prior year quarter also reflected a $55 million benefit from the
resolution of prior year tax matters.
After-tax net investment income increased 29 percent from the prior year
quarter. This increase was driven by positive returns in the non-fixed
income portfolio, compared to negative returns in the prior year
quarter, primarily due to private equity performance. Net investment
income in the fixed income portfolio decreased slightly from the prior
year quarter mostly due to lower reinvestment rates. Current quarter
results also included net realized investment gains of $25 million
pre-tax compared to net realized investment losses of $214 million
pre-tax in the prior year quarter. Included in net realized investment
gains (losses) were other-than-temporary impairments of $6 million
after-tax ($10 million pre-tax) in the current quarter compared to $120
million after-tax ($184 million pre-tax) in the prior year quarter.
Net written premiums of $5.251 billion in the current quarter increased
1 percent from the prior year quarter. This increase was driven by
Personal Insurance and Financial, Professional & International
Insurance, partially offset by a decrease in net written premiums in
Business Insurance attributable to lower levels of economic activity in
recent quarters that impacted exposure changes at renewal, audit premium
adjustments, policy endorsements and mid-term cancellations. Retention
rates remained high and the impact of renewal rate changes on premiums
remained positive across all three business segments. New business
volumes increased slightly from the prior year quarter due to Personal
Insurance and Financial, Professional & International Insurance,
partially offset by a slight decrease in Business Insurance.
Capital Management
"We remain extremely pleased with our capital structure, our balance
sheet strength and our ability to generate excess capital," said Jay S.
Benet, Vice Chairman and Chief Financial Officer. "Our ongoing
commitment to returning excess capital to our shareholders is clearly
evidenced by the size of our share repurchases during the first quarter
and the 9% increase in our quarterly dividend that we announced today."
During the first quarter 2010, the company repurchased 27.0 million of
its common shares under its share repurchase authorization for a total
cost of $1.4 billion, leaving $5.1 billion of capacity under existing
Board of Directors approval remaining for future share repurchases, and
paid $168 million in common stock dividends. Since the initial share
repurchase authorization granted by the company's Board of Directors in
the second quarter 2006, the company has repurchased 220.2 million
common shares for a total cost of $10.9 billion.
All of the company's financial strength indicators remained at or better
than target levels. Shareholders' equity ended the current quarter at
$26.7 billion, an increase of 1 percent from the prior year quarter.
Included in shareholders' equity at the end of the current quarter were
after-tax net unrealized investment gains of $1.9 billion, compared to
$0.5 billion at the end of the prior year quarter. Statutory surplus was
$21.6 billion, the company's debt to capital ratio (excluding net
unrealized investment gains and losses) was 20.9 percent and holding
company liquidity was $3.0 billion, almost three times its target level
due to the timing of dividends from the operating companies to the
parent company.
The Board of Directors declared a regular quarterly dividend of $0.36
per common share. This dividend, which is $0.03 higher than the last
regular quarterly dividend, is payable June 30, 2010, to shareholders of
record as of the close of business June 10, 2010.
Business Insurance Segment Financial Results
"Business Insurance results in the quarter reflected an operating
environment that was fairly similar to fourth quarter 2009," commented
Brian MacLean, President and Chief Operating Officer. "Renewal rate
gains were fairly similar to last quarter, retention rates remained at
high levels and the flow of new business opportunities increased, all
speaking positively to the value we provide to the market. Loss cost
trends remained within our expectations and continued to modestly
outpace earned rate increases, consistent with our view for full year
2010."
The current and prior year quarters included the following:
($ in millions) Three Months Ended March 31,
2010 2009 2010 2009
Pre-tax After-tax
Underwriting gain $ 218 $ 296 $ 132 $ 226
Underwriting gain includes:
Net favorable prior year 242 182 158 118
reserve development
Catastrophes, net of (135 ) (12 ) (88 ) (8 )
reinsurance
Resolution of prior year tax - 38
matters
Net investment income 528 355 430 317
Other 6 6 5 4
Operating Income $ 752 $ 657 $ 567 $ 547
GAAP combined ratio 91.4 % 89.0 %
Impact on GAAP combined ratio
Net favorable prior year (9.2 ) pts (6.6 ) pts
reserve development
Catastrophes, net of 5.1 pts 0.4 pts
reinsurance
Operating income in the current quarter of $567 million after-tax
increased $20 million from the prior year quarter primarily due to a
$113 million after-tax increase in net investment income, partially
offset by a $94 million after-tax decrease in the underwriting gain.
The decrease in the underwriting gain in the current quarter reflected a
GAAP combined ratio of 91.4 percent, as compared to 89.0 percent in the
prior year quarter. This 2.4 point increase in the combined ratio was
driven by a $123 million pre-tax increase in catastrophe losses
(increase of 4.7 points), partially offset by a $60 million pre-tax
increase in net favorable prior year reserve development (reduction of
2.6 points). Catastrophe losses in the current quarter were primarily
due to several severe winter, wind and hail storms in the eastern United
States. The net favorable prior year reserve development in the current
quarter resulted from better than expected loss experience in general
liability, property and commercial multi-peril product lines.
The current quarter underwriting gain excluding net favorable prior year
reserve development and catastrophe losses reflected a GAAP combined
ratio of 95.5 percent, as compared to 95.2 percent in the prior year
quarter. The prior year quarter combined ratio included a 0.9 point
benefit resulting from a $26 million pre-tax reduction in the estimate
for TWIA assessments related to Hurricane Ike. The combined ratio
reported for the first quarter 2009 did not reflect the favorable
re-estimation that occurred in the second half of 2009. The underwriting
gain in the prior year quarter also reflected a $38 million benefit from
the resolution of prior year tax matters.
Business Insurance net written premiums of $2.834 billion in the current
quarter decreased 4 percent from the prior year quarter. This decrease
was driven by lower levels of economic activity in recent quarters that
impacted exposure changes at renewal, audit premium adjustments, policy
endorsements and mid-term cancellations across all business units within
Business Insurance. Retention rates remained strong and were higher than
recent quarters. The impact of renewal rate changes on premiums remained
positive, while new business volumes decreased slightly from the prior
year quarter.
Select Accounts
-- Net written premiums of $702 million decreased 4 percent from the prior
year quarter primarily due to reduced insured exposures driven by lower
levels of economic activity.
-- Retention rates remained generally consistent with recent quarters.
-- Renewal premium changes remained positive and were higher than recent
quarters as renewal rates continued to improve.
-- New business volumes decreased from the prior year quarter mostly due to
lower volumes from larger risks served by Select Accounts. New business
volumes remained strong from TravelersExpressSM, the company's enhanced
quote-to-issue agency platform and multivariate pricing program for
smaller businesses.
Commercial Accounts
-- Net written premiums of $706 million decreased 1 percent from the prior
year quarter primarily due to reduced insured exposures driven by lower
levels of economic activity.
-- Retention rates remained strong and increased from the most recent
quarter.
-- Renewal premium changes were slightly negative as the impact of positive
renewal rate changes on premiums was offset by reduced insured exposures
due to lower levels of economic activity.
-- New business volumes were strong and increased from the prior year
quarter due to various product and customer initiatives.
National Accounts
-- Net written premiums of $226 million decreased 13 percent from the prior
year quarter due to reduced insured exposures driven by lower levels of
economic activity and lower new business volumes.
Industry-Focused Underwriting
-- Net written premiums of $569 million decreased 8 percent from the prior
year quarter primarily due to market conditions that impacted the
company's Construction and Oil & Gas business units.
Target Risk Underwriting
-- Net written premiums of $412 million decreased 2 percent from the prior
year quarter primarily due to market conditions that impacted the
company's Ocean Marine and Inland Marine business units.
Specialized Distribution
-- Net written premiums of $215 million decreased 3 percent from the prior
year quarter primarily due to reduced insured exposures resulting from
lower levels of economic activity.
Financial, Professional & International Insurance Segment Financial
Results
"Financial, Professional & International Insurance results, excluding
the impact of the earthquake in Chile, were generally consistent with
our expectations," commented Mr. MacLean. "Production was strong across
the segment primarily due to changes in the structure of our reinsurance
that directionally aligned retentions in our International business with
our U.S. practices and, to a lesser extent, lower reinsurance costs.
Strong contributions from our Construction Surety business within Bond &
Financial Products and our Lloyd's operations within International also
contributed to production."
The current and prior year quarters included the following:
($ in millions) Three Months Ended March 31,
2010 2009 2010 2009
Pre-tax After-tax
Underwriting gain (loss) $ 6 $ 75 $ (5 ) $ 60
Underwriting gain (loss)
includes:
Net favorable prior year reserve 34 12 22 8
development
Catastrophes, net of reinsurance (86 ) - (62 ) -
Resolution of prior year tax - 8
matters
Net investment income 111 104 87 84
Other 6 6 4 4
Operating Income $ 123 $ 185 $ 86 $ 148
GAAP combined ratio 98.9 % 90.2 %
Impact on GAAP combined ratio
Net favorable prior year reserve (4.2 ) pts (1.4 ) pts
development
Catastrophes, net of reinsurance 10.4 pts - pts
Operating income in the current quarter of $86 million after-tax
decreased $62 million from the prior year quarter primarily due to a $65
million after-tax decrease in underwriting results.
The decrease in underwriting results in the current quarter reflected a
GAAP combined ratio of 98.9 percent, as compared to 90.2 percent in the
prior year quarter. This 8.7 point increase in the combined ratio was
driven by an $86 million pre-tax increase in catastrophe losses
(increase of 10.4 points), partially offset by a $22 million pre-tax
increase in net favorable prior year reserve development (reduction of
2.8 points). Catastrophe losses in the current quarter were concentrated
in the company's Lloyd's operations and related to the Chilean
earthquake. The net favorable prior year reserve development in the
current quarter resulted from better than expected loss experience in
both the management liability and surety lines of business within Bond &
Financial Products, as well as in the company's operations at Lloyd's.
The current quarter underwriting gain excluding net favorable prior year
reserve development and catastrophe losses reflected a GAAP combined
ratio of 92.7 percent, as compared to 91.6 percent in the prior year
quarter. The prior year quarter combined ratio benefited by 0.7 points
due to lower profit-sharing commission expense.
Financial, Professional & International Insurance net written premiums
of $681 million increased 21 percent from the prior year quarter.
Adjusting for the impact of changes in foreign exchange rates, net
written premiums increased 17 percent primarily due to changes in the
structure of the segment's reinsurance that directionally aligned
retentions in the International business with the company's U.S.
retention practices and, to a lesser extent, lower reinsurance costs.
Premium growth in both Bond & Financial Products and International also
contributed to production.
Retention rates, renewal premium changes and new business volumes, as
discussed below, exclude the surety line of business as surety products
are sold on a non-recurring, project specific basis.
Bond & Financial Products
-- Net written premiums of $362 million increased 8 percent from the prior
year quarter primarily due to lower reinsurance costs and strong
Construction Surety results, partially offset by a decrease in the
Professional Liability portion of the company's Management Liability
business.
-- Retention rates were strong and remained generally consistent with
recent quarters.
-- Renewal premium changes were slightly positive as the impact of positive
renewal rate changes on premiums was partially offset by reduced insured
exposures due to underwriting actions and continued low levels of
economic activity.
-- New business volumes decreased from the prior year quarter primarily due
to market conditions that impacted the Public Company Liability business
unit in the prior year quarter.
International
-- Net written premiums of $319 million increased 39 percent from the prior
year quarter. After adjusting for the impact of changes in foreign
exchange rates, net written premiums increased 30 percent primarily due
to changes in the structure of the segment's reinsurance that
directionally aligned retentions in the International business with the
company's U.S. retention practices and, to a lesser extent, lower
reinsurance costs. Premium growth in the company's Lloyd's operations
also contributed to production, partially offset by a decrease in the
business insurance line of business in Canada.
-- Retention rates were consistent with the most recent quarter.
-- Renewal premium changes were positive and improved from recent quarters.
-- New business volumes increased from the prior year quarter primarily due
to the personal lines business in Ireland.
Personal Insurance Segment Financial Results
"Personal Insurance results were impacted by the multiple severe storms
in the eastern half of the United States," commented Mr. MacLean.
"Despite the high volume of claims, our strategy of cross training our
claim staff enabled us to close a significant percentage of the claims
received to date without relying on independent adjusters. This strategy
allows us to address claims quickly, with consistent, high quality
service, a significant competitive advantage. We are also very pleased
that policies in force in our automobile business grew quarter to
quarter for the first time in five quarters, a result of actions taken
during the past year. We believe these actions will continue to provide
benefits throughout 2010."
The current and prior year quarters included the following:
($ in millions) Three Months Ended March 31,
2010 2009 2010 2009
Pre-tax After-tax
Underwriting gain (loss) $ (69 ) $ 94 $ (47 ) $ 67
Underwriting gain (loss)
includes:
Net favorable prior year 18 64 12 42
reserve development
Catastrophes, net of (250 ) (71 ) (162 ) (46 )
reinsurance
Resolution of prior year tax - 9
matters
Net investment income 114 83 93 73
Other 20 21 13 14
Operating Income $ 65 $ 198 $ 59 $ 154
GAAP combined ratio 102.6 % 93.3 %
GAAP combined ratio excluding 100.9 % 91.7 %
incremental impact
of direct to consumer
initiative
Impact on GAAP combined ratio
Net favorable prior year (1.0 ) pts (3.7 ) pts
reserve development
Catastrophes, net of 14.0 pts 4.1 pts
reinsurance
Operating income in the current quarter of $59 million after-tax
decreased $95 million from the prior year quarter primarily due to a
$114 million after-tax decrease in underwriting results, partially
offset by a $20 million after-tax increase in net investment income.
The decrease in underwriting results in the current quarter reflected a
GAAP combined ratio of 102.6 percent, as compared to 93.3 percent in the
prior year quarter. This 9.3 point increase in the combined ratio was
driven by a $179 million pre-tax increase in catastrophe losses
(increase of 9.9 points) and a $46 million pre-tax decrease in net
favorable prior year reserve development (increase of 2.7 points).
Catastrophe losses in the current quarter were primarily due to several
severe winter, wind and hail storms in the eastern United States. The
net favorable prior year reserve development in the current quarter
resulted from better than expected loss experience in Homeowners and
Other.
The current quarter underwriting results excluding net favorable prior
year reserve development and catastrophe losses reflected a GAAP
combined ratio of 89.6 percent, as compared to 92.9 percent in the prior
year quarter. The current quarter combined ratio benefited from lower
non-catastrophe weather-related losses, while the prior year quarter
combined ratio included a 2.0 point benefit resulting from a $34 million
pre-tax reduction in the estimate for TWIA assessments related to
Hurricane Ike.
Personal Insurance net written premiums of $1.736 billion increased 4
percent from the prior year quarter. This increase was primarily due to
continued positive renewal premium changes, strong retention rates and
new business growth.
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 $913 million approximated the prior year
quarter.
-- Policies in force, which decreased 2 percent from the prior year
quarter, increased quarter to quarter.
-- Retention rates were strong and renewal premium changes remained
positive.
-- New business volumes increased from the prior year quarter.
Agency Homeowners and Other
-- Net written premiums of $803 million increased 7 percent.
-- 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 volumes increased from the prior year quarter primarily
driven by distribution and geographic expansion.
2010 Annual Guidance
Travelers continues to expect that its full year 2010 operating income
per diluted share will be in the range of $5.20 to $5.55, unchanged from
the previously announced guidance range. This guidance includes the
reported results for the first quarter 2010 and estimates for the
remainder of 2010 based on a number of assumptions, including:
-- Catastrophe losses of $975 million pre-tax and $640 million after-tax,
or $1.30 per diluted share, for the full year which incorporates actual
experience for the first quarter 2010 and projects $504 million pre-tax
and $328 million after-tax, or $0.67 per diluted share, for the
remainder of the year;
-- No additional prior year reserve development, favorable or unfavorable;
-- Low single digit percentage decrease in average invested assets
(excluding net unrealized investment gains and losses), after taking
into account dividends and share repurchases;
-- Common share repurchases of $3.5 billion to $4.0 billion for the full
year; and
-- Weighted average diluted shares of 490 million to 495 million.
As noted above, the company's earnings guidance for the full year 2010
reflects actual prior year reserve development through the first
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
Friday, April 23, 2010. 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
The Travelers Companies, Inc. (NYSE:TRV) is a leading provider of
property casualty insurance for auto, home and business . A component of
the Dow Jones Industrial Average, Travelers has more than 30,000
employees and generated revenues of approximately $25 billion in 2009.
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 realized and 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 and in the case of operating
return on equity, unrealized 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% generally indicates an underwriting profit. A
GAAP combined ratio over 100% 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.
Adjusting for the impact of changes in foreign exchange rates
allows the effect of foreign exchange rate differences to be isolated in
the analysis of changes in various financial statement line items that
are translated from a local currency to the company's reporting
currency, U.S. dollars. The impact is determined by assuming constant
foreign exchange rates between periods as illustrated in the
reconciliation below. In the opinion of the company's management, this
is useful in an analysis of the results of the FP&II segment.
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 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 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, other
investment opportunities (including mergers and acquisitions), market
conditions and other factors) and statements about the potential impact
of recent or future disruption in the investment markets and other
economic conditions on our investment portfolio and underwriting
results, among others, are forward looking, and we may make
forward-looking statements about, among other things, our results of
operations (including, among others, premium volume, premium rates
(either for new or renewal business), net and operating income,
investment income and performance, return on equity, expected current
returns and combined ratio) and financial condition; the sufficiency of
our asbestos and other reserves (including, among others, asbestos claim
payment patterns); the impact of emerging claims issues (including,
among others, Chinese-made drywall); the cost and availability of
reinsurance coverage; catastrophe losses; the impact of investment,
economic and underwriting market conditions; and strategic initiatives.
We caution investors that 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;
during or following a period of financial market disruption or prolonged
economic downturn, our business could be materially and adversely
affected; our investment portfolio may suffer reduced returns or
material losses; 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; 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; our businesses are heavily
regulated and changes in regulation may reduce our profitability and
limit our growth; a downgrade in our claims-paying and financial
strength 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; our efforts to develop new products or expand
in targeted markets may not be successful and may create enhanced risks;
our business success and profitability depend, in part, on effective
information technology systems and on continuing to develop and
implement improvements in technology; if we experience difficulties with
technology, data security and/or outsourcing relationships our ability
to conduct our business could be negatively impacted; acquisitions and
integration of acquired businesses may result in operating difficulties
and other unintended consequences; 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
businesses may be adversely affected if we are unable to hire and retain
qualified employees; and 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.
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 filed with the
Securities and Exchange Commission.
Three Months Ended
March 31,
($ in millions, except per share amounts, and after-tax) 2010 2009
Operating income $ 631 $ 799
Net realized investment gains (losses) 16 (137 )
Net income $ 647 $ 662
Basic earnings per share
Operating income $ 1.23 $ 1.36
Net realized investment gains (losses) 0.03 (0.24 )
Net income $ 1.26 $ 1.12
Diluted earnings per share
Operating income $ 1.22 $ 1.34
Net realized investment gains (losses) 0.03 (0.23 )
Net income $ 1.25 $ 1.11
Weighted average number of common shares outstanding 508.4 584.6
(basic)
Weighted average number of common shares outstanding and 515.1 590.4
common stock equivalents (diluted)
Common shares outstanding at period end 497.0 585.3
Common stock dividends declared $ 168 $ 177
Operating income by segment
Business Insurance $ 567 $ 547
Financial, Professional & International Insurance 86 148
Personal Insurance 59 154
Total segment operating income 712 849
Interest Expense and Other (81 ) (50 )
$ 631 $ 799
Operating return on equity 10.1 % 12.4 %
Return on equity 9.6 % 10.2 %
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
Three Months Ended
March 31,
($ in millions, pre-tax) 2010 2009
Revenues
Premiums $ 5,230 $ 5,301
Net investment income 753 542
Fee income 79 73
Net realized investment gains (losses) 25 (214)
Other revenues 32 33
$ 6,119 $ 5,735
Revenues
Business Insurance $ 3,241 $ 3,191
Financial, Professional & International Insurance 941 911
Personal Insurance 1,912 1,847
Total segment revenues 6,094 5,949
Interest Expense and Other - -
6,094 5,949
Net realized investment gains (losses) 25 (214)
$ 6,119 $ 5,735
Gross written premiums
Business Insurance $ 3,118 $ 3,294
Financial, Professional & International Insurance 898 842
Personal Insurance 1,787 1,727
$ 5,803 $ 5,863
Net written premiums
Business Insurance $ 2,834 $ 2,963
Financial, Professional & International Insurance 681 563
Personal Insurance 1,736 1,677
$ 5,251 $ 5,203
GAAP combined ratios:1
Business Insurance2
Loss and loss adjustment expense ratio 58.7 % 57.8 %
Underwriting expense ratio 32.7 31.2
Combined ratio 91.4 % 89.0 %
Financial, Professional & International Insurance2
Loss and loss adjustment expense ratio 62.3 % 54.7 %
Underwriting expense ratio 36.6 35.5
Combined ratio 98.9 % 90.2 %
Personal Insurance
Loss and loss adjustment expense ratio 72.5 % 64.9 %
Underwriting expense ratio 30.1 28.4
Combined ratio 102.6 % 93.3 %
Total Company2
Loss and loss adjustment expense ratio 64.0 % 59.7 %
Underwriting expense ratio 32.4 30.9
Combined ratio 96.4 % 90.6 %
(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
March 31,
($ in millions; after-tax except as noted) 2010 2009
Reconciliation of underwriting gain to net income
Pre-tax underwriting gain $ 155 $ 465
Tax expense on underwriting results (75 ) (112 )
Underwriting gain 80 353
Net investment income 610 474
Other, including interest expense (59 ) (28 )
Consolidated operating income 631 799
Net realized investment gains (losses) 16 (137 )
Net income $ 647 $ 662
Three Months Ended
March 31,
($ in millions) 2010 2009 Change
The impact of changes in foreign exchange rates on
FP&II net written premiums
Net written premiums - holding foreign $ 659 $ 563 17 %
exchange rates constant
Impact of changes in foreign exchange rates 22
Net written premium - as reported $ 681 $ 563 21 %
As of
March 31, December 31, March 31,
($ in millions; except per share amounts) 2010 2009 2009
Reconciliation of tangible and adjusted
common
shareholders' equity to common shareholders'
equity
Tangible common shareholders' equity $ 20,788 $ 21,587 $ 21,919
Goodwill and other intangibles, net of tax 3,868 3,888 3,948
Adjusted common shareholders' equity 24,656 25,475 25,867
Net unrealized investment gains, net of tax 1,938 1,861 543
Common shareholders' equity $ 26,594 $ 27,336 $ 26,410
Common shares outstanding 497.0 520.3 585.3
Tangible book value per share $ 41.82 $ 41.49 $ 37.45
Adjusted book value per share 49.60 48.96 44.19
Book value per share 53.50 52.54 45.12
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
Twelve Months Ended December 31,
($ in
millions; 2009 2008 2007 2006 2005 2004
after-tax)
Reconciliation
of operating
income to net
income
Operating $ 3,600 $ 3,195 $ 4,500 $ 4,200 $ 2,026 $ 895
income
Net realized
investment 22 (271 ) 101 8 35 (28 )
gains (losses)
Income from
continuing 3,622 2,924 4,601 4,208 2,061 867
operations
Discontinued - - - - (439 ) 88
operations
Net income $ 3,622 $ 2,924 $ 4,601 $ 4,208 $ 1,622 $ 955
As of December 31,
($ in 2009 2008 2007 2006 2005 2004
millions)
Reconciliation
of adjusted
common
shareholders'
equity to
common
shareholders'
equity
Adjusted
common $ 25,475 $ 25,374 $ 25,884 $ 24,553 $ 21,823 $ 20,147
shareholders'
equity
Net unrealized
investment
gains 1,861 (144 ) 620 453 327 866
(losses), net
of tax
Common
shareholders' $ 27,336 $ 25,230 $ 26,504 $ 25,006 $ 22,150 $ 21,013
equity
Return on 13.5 % 11.4 % 18.0 % 17.9 % 7.5 % 5.1 %
equity
Operating
return on 14.0 % 12.4 % 17.7 % 17.9 % 9.6 % 5.0 %
equity
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
Source: The Travelers Companies, Inc.
Contact: The Travelers Companies, Inc.
Media:
Shane Boyd, 917-778-6267
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