Return on Equity and Operating Return on Equity of 16.8% and 17.8%,
Respectively
Board of Directors Approves 10% Increase in the Company’s Regular
Quarterly Dividend per Share to $0.55
-
Net and operating income of $1.052 billion, up 17% and 19%,
respectively, from prior year quarter.
-
Increase primarily attributable to higher underlying underwriting
gains and higher investment income.
-
Written rate gains exceeded expected loss cost trends in all segments.
-
Record quarterly net written premiums of $5.9 billion, up 5% from
prior year quarter primarily reflecting the impact of Dominion of
Canada, acquired in November 2013.
-
Total capital returned to shareholders of $882 million in the quarter,
including $705 million in share repurchases.
-
Increases in book value per share of 4% to $73.06 and adjusted book
value per share of 3% to $68.25 from year-end 2013.
NEW YORK--(BUSINESS WIRE)--
The Travelers Companies, Inc. today reported net and operating income of
$1.052 billion, or $2.95 per diluted share, for the quarter ended March
31, 2014, compared to net income of $896 million, or $2.33 per diluted
share, and operating income of $887 million, or $2.31 per diluted share
in the prior year quarter. The increases in net and operating income
compared to the prior year quarter primarily resulted from higher
underlying underwriting gains (i.e., excluding prior year reserve
development and catastrophe losses), higher net investment income and
higher net favorable prior year reserve development, partially offset by
higher catastrophe losses. Underlying underwriting gains in the current
quarter included a $49 million after-tax ($76 million pre-tax) benefit
resulting from a reduction in the estimated liability for state
assessments to be paid by the company related to workers’ compensation
premiums.
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Consolidated Highlights |
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|
($ in millions, except for per share amounts, and after-tax,
| | | | Three Months Ended March 31, | |
except for premiums & revenues)
| | | | 2014 | | 2013 | | | Change | |
| | | | |
| |
| | |
| |
| | | | | | | | | | |
|
Net written premiums | | | | $ | 5,873 | | | $ | 5,597 | | | | 5 | | % |
| | | | | | | | | | |
|
| | | | | | | | | | |
|
Total revenues | | | | | $ | 6,708 | | | $ | 6,328 | | | | 6 | | |
| | | | | | | | | | |
|
Operating income | | | | $ | 1,052 | | | $ | 887 | | | | 19 | | |
| | | | | | | | | |
| | |
per diluted share | | | | $ | 2.95 | | | $ | 2.31 | | | | 28 | | |
| | | | | | | | | | |
|
Net income | | | | | $ | 1,052 | | | $ | 896 | | | | 17 | | |
| | | | | | | | | | |
|
per diluted share | | | | $ | 2.95 | | | $ | 2.33 | | | | 27 | | |
| | | | | | | | | | |
|
Diluted weighted average | | | | | 354.6 | | | | 381.9 | | | | (7 | ) | |
shares outstanding | | | | | | | | |
| |
| | | | | | | | | | |
|
GAAP combined ratio | | | | | 85.7 | % | | | 88.5 | % | | | (2.8 | ) | pts |
| | | | | | | | | | |
|
Underlying GAAP combined ratio | | | | | 88.2 | % | | | 90.8 | % | | | (2.6 | ) | pts |
| | | | | | | | | | |
|
Operating return on equity | | | | | 17.8 | % | | | 15.8 | % | | | 2.0 | | pts |
| | | | | | | | | | |
|
Return on equity | | | | | 16.8 | % | | | 14.1 | % | | | 2.7 | | pts |
| | | | | | | | | | |
|
| | | | | | | | | | |
|
| | | | | March 31, | | December 31, | | | | |
| | | | | 2014 | | 2013 | | | Change | |
Book value per share | | | | $ | 73.06 | | | $ | 70.15 | | | | 4 | |
%
|
| | | | | | | | | | |
|
Adjusted book value per share | | | | $ | 68.25 | | | $ | 66.41 | | | | 3 | | |
| | | | | | | | | | |
|
| | | | | | | | | | |
See Glossary of Financial Measures for definitions and the
statistical supplement for additional financial data.
|
|
“We are very pleased to report $2.95 in net and operating income per
diluted share, record quarterly amounts for both of these measures,”
commented Jay Fishman, Chairman and Chief Executive Officer. “Operating
income of over $1 billion increased 19% from the prior year quarter,
resulting in an operating return on equity of 17.8%, our highest
quarterly level since 2009. Underwriting results were excellent, with a
combined ratio of 85.7%. Net investment income increased 7% after-tax,
benefiting from strong returns in our non-fixed income portfolio. We
also returned $882 million in capital to shareholders, including $705
million in share repurchases. The Board of Directors has also announced
a 10% increase in our quarterly dividend per share to $0.55. This marks
the 10th consecutive year we have increased the quarterly
dividend per share, and this increase brings the compound annual growth
rate over this time period to 9.6%.
“Results in each of our business segments were very strong this quarter.
In Business Insurance, profitability improved despite the impact of
severe winter weather as underlying underwriting margins continued to
improve. We achieved written rate gains in excess of loss trends while
increasing retention from already strong levels. Importantly, the
written rate gains we achieved this quarter continued to be consistent
with our expectations and were the result of our proactive, account by
account, class by class pricing actions. In Financial, Professional &
International Insurance, operating income growth of 20% and net written
premium growth of 47% were the result of the Dominion acquisition as
well as strong performance in both our management liability and surety
businesses. Personal Insurance also performed very well as underlying
underwriting margins expanded in both Auto and Homeowners. Our new auto
product, Quantum 2.0, has now been implemented in 28 states and the
District of Columbia and is being well received by both customers and
agents, as evidenced by the meaningful increase in new business volumes
we have experienced in those states where the product has been available
for several months.
“Our performance this quarter is a very encouraging start to the year.
Our very deep agent, broker and customer relationships, highly segmented
pricing strategies and expense discipline continued to deliver strong
and improving underwriting results. These underwriting results, along
with our proven investment philosophy and active capital management
strategy, leave us well positioned to deliver on our goal of producing a
mid-teens operating return on equity over time.”
|
Consolidated Results |
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|
($ in millions and pre-tax, unless noted otherwise)
|
|
| | |
| | |
| | |
| | | | | | | Three Months Ended March 31, | |
| | | | | | |
| 2014 |
| | |
| 2013 |
| | | Change | |
| | | | | | | | | | | | | |
|
Underwriting gains: | | | | | | $ | 791 | | | | $ | 602 | | | | $ | 189 | | |
Underwriting gains includes: | | | | | | | | | | | | |
Net favorable prior year reserve development | | | | | | 294 | | | | | 231 | | | | | 63 | | |
Catastrophes, net of reinsurance | | | | | | (149 | ) | | | | (99 | ) | | | | (50 | ) | |
| | | | | | | | | | | | | |
|
Net investment income | | | | | | 736 | | | | | 670 | | | | | 66 | | |
| | | | | | | | | | | | | |
|
Other, including interest expense | | | | |
| (58 | ) | | |
| (62 | ) | | |
| 4 |
| |
Operating income before income taxes | | | | | 1,469 | | | | | 1,210 | | | | | 259 | | |
Income tax expense | | | | |
| 417 |
| | |
| 323 |
| | |
| 94 |
| |
Operating income | | | | | | | 1,052 | | | | | 887 | | | | | 165 | | |
Net realized investment gains after income taxes | | |
| - |
| | |
| 9 |
| | |
| (9 | ) | |
Net Income | | | | | | $ | 1,052 |
| | | $ | 896 |
| | | $ | 156 |
| |
|
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|
|
|
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|
|
|
|
| | | | | | | | | | | | | |
|
GAAP combined ratio | | | | | | 85.7 | | % | | | 88.5 | | % | | | (2.8 | ) |
pts
|
| | | | | | | | | | | | | |
|
Impact on GAAP combined ratio | | | | | | | | | | | | |
Net favorable prior year reserve development
| | | |
(5.1
|
)
|
pts
| | |
(4.1
|
)
|
pts
| | |
(1.0
|
)
|
pts
|
Catastrophes, net of reinsurance
| | | | |
2.6
| |
pts
| | |
1.8
| |
pts
| | |
0.8
| |
pts
|
| | | | | | | | | | | | | |
|
Underlying GAAP combined ratio | | | | | 88.2 | | % | | | 90.8 | | % | | | (2.6 | ) |
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
|
Net written premiums | | | | | | | | | | | | | |
Business Insurance | | | | | |
$
|
3,304
| | | |
$
|
3,260
| | | | |
1
| | % |
Financial, Professional & International Insurance | | | |
950
| | | | |
647
| | | | |
47
| | |
Personal Insurance | | | | | |
|
1,619
|
| | |
|
1,690
|
| | | |
(4
|
)
| |
Total | | | | | | | $ | 5,873 |
| | | $ | 5,597 |
| | | | 5 | | % |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
First Quarter 2014 Results
(All comparisons vs. first quarter 2013, unless noted otherwise)
Net and operating income of $1.052 billion after-tax increased 17% and
19%, respectively, primarily reflecting improved underwriting results
driven by higher underlying underwriting gains, higher net favorable
prior year reserve development, and higher net investment income. These
improvements were partially offset by higher catastrophe losses. The
underlying underwriting gains in the current quarter included lower
general and administrative expenses due to a $49 million after-tax ($76
million pre-tax) benefit resulting from a reduction in the estimated
liability for state assessments to be paid by the company related to
workers’ compensation premiums.
Underwriting results
-
The GAAP combined ratio improved 2.8 points to 85.7% due to higher
underlying underwriting margins (2.6 points) and higher net favorable
prior year reserve development (1.0 points), partially offset by
higher catastrophe losses (0.8 points).
-
Net favorable prior year reserve development occurred in all segments.
Catastrophe losses primarily resulted from winter storms in the United
States.
-
The underlying GAAP combined ratio improved 2.6 points to 88.2%
resulting from lower expense ratios in each segment. The underlying
loss ratio was consistent with the prior year quarter as earned rate
increases exceeding loss cost trends were offset by higher
non-catastrophe weather-related losses.
Net investment income of $582 million after-tax ($736 million pre-tax)
increased primarily due to higher private equity and real estate
partnership returns, modestly offset by lower reinvestment rates in the
fixed income portfolio.
Record net written premiums of $5.873 billion increased 5% primarily due
to the inclusion of Dominion within Financial, Professional &
International Insurance, as well as slightly higher net written premiums
in Business Insurance. These increases were partially offset by lower
net written premiums in Personal Insurance.
Shareholders’ Equity
Shareholders’ equity of $25.387 billion increased 2% from the end of
2013. Included in shareholders’ equity were after-tax net unrealized
investment gains of $1.674 billion, compared to $1.322 billion at the
end of the prior year. The company repurchased 8.5 million shares during
the first quarter at a total cost of $705 million, including 7.8 million
shares at a total cost of $650 million, under its existing share
repurchase authorization, leaving $4.109 billion of capacity under that
authorization for future share repurchases. Statutory surplus was
$21.440 billion, and the ratio of debt-to-capital (excluding after-tax
net unrealized investment gains) was 21.1%, well within its target range
of 15% to 25%.
The Board of Directors declared a regular quarterly dividend of $0.55
per share. This dividend, which is $0.05 higher than the last regular
quarterly dividend, is payable June 30, 2014, to shareholders of record
as of the close of business June 10, 2014.
| | | | |
|
|
| | |
| | |
| | |
Business Insurance Segment Financial
Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions and pre-tax, unless noted otherwise)
| | | | | | | | | | | |
| | | | | | | | Three Months Ended March 31, | |
| | | | | | | |
| 2014 |
| | |
| 2013 |
| | | Change | |
| | | | | | | | | | | | | | |
|
Underwriting gains: | | | | | | $ | 361 | | | | $ | 298 | | | | $ | 63 | | |
Underwriting gains includes: | | | | | | | | | | | | |
Net favorable prior year reserve development | | | | | | 93 | | | | | 113 | | | | | (20 | ) | |
Catastrophes, net of reinsurance | | | | | | | (80 | ) | | | | (35 | ) | | | | (45 | ) | |
| | | | | | | | | | | | | | |
|
Net investment income | | | | | | | 530 | | | | | 487 | | | | | 43 | | |
| | | | | | | | | | | | | | |
|
Other | | | | | | | |
| 8 |
| | |
| 13 |
| | |
| (5 | ) | |
Operating income before income taxes | | | | | | 899 | | | | | 798 | | | | | 101 | | |
Income tax expense | | | | | |
| 246 |
| | |
| 208 |
| | |
| 38 |
| |
Operating income | | | | | | $ | 653 |
| | | $ | 590 |
| | | $ | 63 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
|
GAAP combined ratio | | | | | | | 87.7 | | % | | | 89.4 | | % | | | (1.7 | ) |
pts
|
| | | | | | | | | | | | | | |
|
Impact on GAAP combined ratio | | | | | | | | | | | | |
Net favorable prior year reserve development
| | | | |
(3.1
|
)
|
pts
| | |
(3.9
|
)
|
pts
| | |
0.8
| |
pts
|
Catastrophes, net of reinsurance
| | | | | |
2.7
| |
pts
| | |
1.2
| |
pts
| | |
1.5
| |
pts
|
| | | | | | | | | | | | | | |
|
Underlying GAAP combined ratio | | | | | | 88.1 | | % | | | 92.1 | | % | | | (4.0 | ) |
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
|
Net written premiums by market | | | | | | | | | | | | |
Select Accounts
| | | | | | |
$
|
718
| | | |
$
|
724
| | | | |
(1
|
)
| % |
Commercial Accounts
| | | | | | |
893
| | | | |
908
| | | | |
(2
|
)
| |
National Accounts
| | | | | | | |
300
| | | | |
277
| | | | |
8
| | |
Industry-Focused Underwriting
| | | | | |
732
| | | | |
699
| | | | |
5
| | |
Target Risk Underwriting
| | | | | | |
454
| | | | |
448
| | | | |
1
| | |
Specialized Distribution
| | | | | |
|
207
|
| | |
|
204
|
| | | |
1
| | |
Total | | | | | | | | $ | 3,304 |
| | | $ | 3,260 |
| | | | 1 | | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2014 Results
(All comparisons vs. first quarter 2013, unless noted otherwise)
Operating income of $653 million after-tax increased $63 million or 11%,
primarily reflecting higher underlying underwriting gains and higher net
investment income. These improvements were partially offset by lower net
favorable prior year reserve development and higher catastrophe losses.
The underlying underwriting gains in the current quarter included lower
general and administrative expenses due to a $49 million after-tax ($76
million pre-tax) benefit resulting from a reduction in the estimated
liability for state assessments to be paid by the company related to
workers’ compensation premiums.
Underwriting results
-
The GAAP combined ratio improved 1.7 points to 87.7% due to higher
underlying underwriting margins (4.0 points), partially offset by
higher catastrophes (1.5 points) and lower net favorable prior year
reserve development (0.8 points).
-
Net favorable prior year reserve development primarily resulted from
better than expected loss experience related to the general liability
product line, which was concentrated in excess coverages for accident
years 2011 and prior, as well as the property product line for
accident years 2010 through 2013. These improvements were partially
offset by higher than expected loss experience for liability coverages
in the commercial multi-peril product line for accident years 2010
through 2013.
-
The underlying GAAP combined ratio improved 4.0 points to 88.1%,
mostly resulting from a lower expense ratio that included the impact
of the reduction in the estimated liability for assessments to be paid
by the company related to workers’ compensation premiums. The
underlying loss ratio improved slightly as earned rate increases
exceeding loss cost trends were mostly offset by higher
non-catastrophe weather-related losses.
Record quarterly Business Insurance net written premiums of $3.304
billion increased 1%, primarily driven by continued meaningful
improvement in renewal rate. Net written premiums also benefited from
positive exposure change at renewal. Retention rates remained strong
and, consistent with the company’s pricing strategy, improved from
recent quarters, while new business volumes decreased modestly from the
prior year quarter.
| | | |
|
| | |
|
| | |
|
| | |
Financial, Professional & International
Insurance Segment Financial Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions and pre-tax, unless noted otherwise)
| | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | |
| | | | | |
| 2014 |
| | | |
| 2013 |
| | | | Change | |
| | | | | | | | | | | | | | |
|
Underwriting gains | | | | $ | 162 | | | | | $ | 128 | | | | | $ | 34 | | |
Underwriting gains includes: | | | | | | | | | | | | |
Net favorable prior year reserve development | | | | 69 | | | | | | 58 | | | | | | 11 | | |
Catastrophes, net of reinsurance | | | | | 4 | | | | | | - | | | | | | 4 | | |
| | | | | | | | | | | | | | |
|
Net investment income | | | | | 106 | | | | | | 92 | | | | | | 14 | | |
| | | | | | | | | | | | | | |
|
Other | | | | | |
| 8 |
| | | |
| 5 |
| | | |
| 3 |
| |
Operating income before income taxes | | | | 276 | | | | | | 225 | | | | | | 51 | | |
Income tax expense | | | |
| 81 |
| | | |
| 62 |
| | | |
| 19 |
| |
Operating income | | | | $ | 195 |
| | | | $ | 163 |
| | | | $ | 32 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
|
GAAP combined ratio | | | | | 83.8 | | % | | | | 82.3 | | % | | | | 1.5 | |
pts
|
| | | | | | | | | | | | | | |
|
Impact on GAAP combined ratio | | | | | | | | | | | | |
Net favorable prior year reserve development
| | | |
(6.6
|
)
|
pts
| | | |
(7.8
|
)
|
pts
| | | |
1.2
| |
pts
|
Catastrophes, net of reinsurance
| | | |
0.4
| |
pts
| | | | - | |
pts
| | | |
0.4
| |
pts
|
| | | | | | | | | | | | | | |
|
Underlying GAAP combined ratio | | | | 90.0 | | % | | | | 90.1 | | % | | | | (0.1 | ) |
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
|
Net written premiums by market | | | | | | | | | | | | |
Bond & Financial Products
| | | |
$
|
482
| | | | |
$
|
395
| | | | | |
22
| | % |
International
| | | | |
|
468
|
| | | |
|
252
|
| | | | |
86
| | |
Total | | | | | | $ | 950 |
| | | | $ | 647 |
| | | | | 47 | | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2014 Results
(All comparisons vs. first quarter 2013, unless noted otherwise)
Operating income of $195 million after-tax increased $32 million or 20%
as a result of improved underwriting results, driven by higher
underlying underwriting gains in Bond & Financial Products, the
inclusion of Dominion and higher net favorable prior year reserve
development. Operating income in the current quarter also benefited from
higher net investment income driven by the inclusion of Dominion.
Underwriting results
-
The GAAP combined ratio increased 1.5 points to 83.8%. While the
dollar amount of net favorable prior year reserve development was
higher by $11 million pre-tax, the impact on the GAAP combined ratio
was less favorable than the prior year quarter by 1.2 points due to an
increase in earned premiums primarily due to the inclusion of Dominion.
-
Net favorable prior year reserve development primarily resulted from
better than expected loss experience in the surety line of business
within Bond & Financial Products for accident years 2007 through 2010.
-
The underlying GAAP combined ratio improved slightly from 90.1% to
90.0%. An improvement in the underlying loss ratio from earned rate
increases exceeding loss cost trends and lower reinsurance costs in
Bond & Financial Products was more than offset by the impact of
Dominion on the underlying loss ratio. This higher underlying loss
ratio was more than offset by a reduction in the expense ratio
reflecting the inclusion of Dominion.
Financial, Professional & International Insurance net written premiums
of $950 million increased 47% as a result of higher net written premiums
in both Bond & Financial Products and International. Bond & Financial
Products net written premiums of $482 million increased 22% primarily
due to an elimination of a reinsurance program, continued strong
retention rates and renewal rate increases in management liability, as
well as higher construction surety volume. International net written
premiums of $468 million increased 86% due to the inclusion of Dominion.
| | | |
|
| | |
|
| | |
|
| | |
Personal Insurance Segment Financial
Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions and pre-tax, unless noted otherwise)
| | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | |
| | | | | |
| 2014 |
| | | |
| 2013 |
| | | | Change | |
| | | | | | | | | | | | | | |
|
Underwriting gains: | | | | $ | 268 | | | | | $ | 176 | | | | | $ | 92 | | |
Underwriting gains includes: | | | | | | | | | | | | |
Net favorable prior year reserve development | | | | 132 | | | | | | 60 | | | | | | 72 | | |
Catastrophes, net of reinsurance | | | | | (65 | ) | | | | | (64 | ) | | | | | (1 | ) | |
| | | | | | | | | | | | | | |
|
Net investment income | | | | | 100 | | | | | | 91 | | | | | | 9 | | |
| | | | | | | | | | | | | | |
|
Other | | | | | |
| 26 |
| | | |
| 18 |
| | | |
| 8 |
| |
Operating income before income taxes | | | | 394 | | | | | | 285 | | | | | | 109 | | |
Income tax expense | | |
| 126 |
| | | |
| 88 |
| | | |
| 38 |
| |
Operating income | | | | $ | 268 |
| | | | $ | 197 |
| | | | $ | 71 |
| |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
|
GAAP combined ratio | | | | | 83.6 | | % | | | | 89.4 | | % | | | | (5.8 | ) |
pts
|
| | | | | | | | | | | | | | |
|
Impact on GAAP combined ratio | | | | | | | | | | | | |
Net favorable prior year reserve development
| | | |
(7.5
|
)
|
pts
| | | |
(3.3
|
)
|
pts
| | | |
(4.2
|
)
|
pts
|
Catastrophes, net of reinsurance
| | | |
3.7
| |
pts
| | | |
3.5
| |
pts
| | | |
0.2
| |
pts
|
| | | | | | | | | | | | | | |
|
Underlying GAAP combined ratio | | | | 87.4 | | % | | | | 89.2 | | % | | | | (1.8 | ) |
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
|
Net written premiums | | | | | | | | | | | | | |
Agency Automobile1 | | | |
$
|
788
| | | | |
$
|
831
| | | | | |
(5
|
)
| % |
Agency Homeowners & Other1 | | | |
788
| | | | | |
820
| | | | | |
(4
|
)
| |
Direct to Consumer
| | | | |
|
43
|
| | | |
|
39
|
| | | | |
10
| | |
Total | | | | | | $ | 1,619 |
| | | | $ | 1,690 |
| | | | | (4 | ) | % |
| | | | | | | | | | | | | | |
|
1 Represents business sold through agents, brokers and
other intermediaries and excludes direct to consumer.
|
|
|
|
First Quarter 2014 Results
(All comparisons vs. first quarter 2013, unless noted otherwise)
Operating income of $268 million after-tax increased $71 million or 36%,
primarily reflecting improved underwriting results driven by higher net
favorable prior year development and higher underlying underwriting
gains, as well as higher net investment income.
Underwriting results
-
The GAAP combined ratio improved 5.8 points to 83.6% primarily due to
higher net favorable prior year reserve development (4.2 points) and
higher underlying underwriting margins (1.8 points).
-
Net favorable prior year reserve development primarily resulted from
better than expected loss experience in Homeowners & Other for
non-catastrophe weather-related losses for accident year 2013 and
catastrophe losses for accident years 2011 through 2013.
-
The underlying GAAP combined ratio improved 1.8 points to 87.4%
primarily resulting from a decrease in the expense ratio and earned
rate increases exceeding loss cost trends in both Automobile and
Homeowners & Other, partially offset by higher non-catastrophe
weather-related losses.
Personal Insurance net written premiums of $1.619 billion decreased 4%.
Renewal premium change remained positive, but lower than the prior year
quarter. Retention rates continued to be strong and generally consistent
with recent quarters. New business was meaningfully higher than the
prior year quarter due to the company’s new auto product, Quantum 2.0,
which was introduced in 28 states and the District of Columbia by the
end of the first quarter.
Financial Supplement and Conference Call
The information in this press release should be read in conjunction with
a financial supplement that is available on our website 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 Tuesday, April 22, 2014. Investors can access the call
via webcast at http://investor.travelers.com
or by dialing 1-800-745-9476 within the U.S. and 1-212-231-2918 outside
the U.S. (use passcode 14788 for both the U.S. and international calls).
Prior to the webcast, a slide presentation pertaining to the quarterly
earnings will be available on the company's website.
Following the live event, an audio playback of the webcast and the slide
presentation will be available at the same website. An audio playback
can also be accessed by phone at 1-800-633-8284 within the U.S. and
1-402-977-9140 outside the U.S. (use reservation 21711670 for both the
U.S. and international calls).
About Travelers
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of
property casualty insurance for auto,
home
and business.
The company’s diverse business lines offer its customers a wide range of
coverage sold primarily through independent agents and brokers. A
component of the Dow Jones Industrial Average, Travelers has more than
30,000 employees and operations in the United States and selected
International markets. For more information, visit www.travelers.com.
From time to time, Travelers may use its website and/or social media
outlets, such as Facebook and Twitter, as distribution channels of
material company information. Financial and other important information
regarding the company is routinely accessible through and posted on our
website at http://investor.travelers.com,
our Facebook page at https://www.facebook.com/travelers
and our Twitter account (@TRV_Insurance) at https://twitter.com/TRV_Insurance.
In addition, you may automatically receive email alerts and other
information about Travelers when you enroll your email address by
visiting the “Email Alert Service” section at http://investor.travelers.com.
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 Partner Services; 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 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 primarily use
credit-based underwriting processes, as well as property and casualty
products that are primarily marketed on a domestic basis in Canada, the
United Kingdom and the Republic of Ireland, and on an international
basis as a corporate member of Lloyd’s. The segment includes the Bond &
Financial Products groups as well as the International group. The
International group includes The Dominion of Canada General Insurance
Company, which the company acquired in November 2013 and which writes
personal lines and small commercial insurance business in Canada. In
addition, the company owns 49.5% of the common stock of J. Malucelli
Participações em Seguros e Resseguros S.A., its joint venture in Brazil.
Personal Insurance: The Personal Insurance segment writes a broad
range of property and casualty insurance covering individuals’ personal
risks. The primary products of automobile and homeowners insurance are
complemented by a broad suite of related coverages.
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. Words
such as “may”, “will”, “should”, “likely”, “anticipates”, “expects”,
“intends”, “plans”, “projects”, “believes”, “estimates” and similar
expressions are used to identify these forward-looking statements.
Specifically, statements about the company’s outlook, share repurchase
plans, expected margin improvement, potential returns, future pension
plan contributions and the potential impact of investment markets and
other economic conditions on the company’s investment portfolio and
underwriting results, among others, are forward looking, and the company
may also make forward-looking statements about, among other things:
-
its results of operations and financial condition (including, among
other things, premium volume, premium rates, net and operating income,
investment income and performance, loss costs, return on equity, and
expected current returns and combined ratios);
-
the sufficiency of the company’s asbestos and other reserves;
-
the impact of emerging claims issues as well as other insurance and
non-insurance litigation;
-
the cost and availability of reinsurance coverage;
-
catastrophe losses;
-
the impact of investment, economic and underwriting market conditions;
and
-
strategic initiatives, including initiatives, such as in Personal
Insurance, to improve profitability and competitiveness.
The company cautions investors that such statements are subject to risks
and uncertainties, many of which are difficult to predict and generally
beyond the company’s control, that could cause actual results to differ
materially from those expressed in, or implied or projected by, the
forward-looking information and statements.
Some of the factors that could cause actual results to differ include,
but are not limited to, the following:
-
catastrophe losses could materially and adversely affect the company’s
results of operations, its financial position and/or liquidity, and
could adversely impact the company’s ratings, the company’s ability to
raise capital and the availability and cost of reinsurance;
-
during or following a period of financial market disruption or
economic downturn, the company’s business could be materially and
adversely affected;
-
if actual claims exceed the company’s claims and claim adjustment
expense reserves, or if changes in the estimated level of claims and
claim adjustment expense reserves are necessary, the company’s
financial results could be materially and adversely affected;
-
the company’s investment portfolio may suffer reduced returns or
material realized or unrealized losses;
-
the company’s business could be harmed because of its potential
exposure to asbestos and environmental claims and related litigation;
-
the company is 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 the company’s
business are uncertain;
-
the intense competition that the company faces could harm its ability
to maintain or increase its business volumes and profitability;
-
the company may not be able to collect all amounts due to it from
reinsurers and reinsurance coverage may not be available to the
company in the future at commercially reasonable rates or at all;
-
the company is exposed to credit risk in certain of its business
operations;
-
within the United States, the company’s businesses are heavily
regulated by the states in which it conducts business, including
licensing and supervision, and changes in regulation may reduce the
company’s profitability and limit its growth;
-
changes in state or federal regulation or enforcement practices could
impose significant burdens on the company and otherwise adversely
impact the company’s results;
-
a downgrade in the company’s claims-paying and financial strength
ratings could adversely impact the company’s business volumes,
adversely impact the company’s ability to access the capital markets
and increase the company’s borrowing costs;
-
the inability of the company’s insurance subsidiaries to pay dividends
to the company’s holding company in sufficient amounts would harm the
company’s ability to meet its obligations, pay future shareholder
dividends or make future share repurchases;
-
disruptions to the company’s relationships with its independent agents
and brokers could adversely affect the company;
-
the company’s efforts to develop new products, such as Quantum 2.0, or
expand in targeted markets may not be successful and may create
enhanced risks;
-
the company may be adversely affected if its pricing and capital
models provide materially different indications than actual results;
-
the company’s business success and profitability depend, in part, on
effective information technology systems and on continuing to develop
and implement improvements in technology;
-
if the company experiences difficulties with technology, data security
and/or outsourcing relationships, the company’s ability to conduct its
business could be negatively impacted;
-
the company is subject to a number of risks associated with its
business outside the United States;
-
new regulations outside of the United States, including in the
European Union, could adversely impact the company’s results of
operations and limit its growth;
-
loss of or significant restriction on the use of particular types of
underwriting criteria, such as credit scoring, in the pricing and
underwriting of the company’s products could reduce the company’s
future profitability;
-
acquisitions and integration of acquired businesses may result in
operating difficulties and other unintended consequences;
-
the company could be adversely affected if its controls to ensure
compliance with guidelines, policies and legal and regulatory
standards are not effective;
-
the company’s businesses may be adversely affected if it is unable to
hire and retain qualified employees;
-
intellectual property is important to the company’s business, and the
company may be unable to protect and enforce its own intellectual
property or the company may be subject to claims for infringing on the
intellectual property of others;
-
changes to existing accounting standards may adversely impact the
company’s reported results;
-
changes in U.S. tax laws or in the tax laws of other jurisdictions in
which the company operates could adversely impact the company; and
-
the company’s repurchase plans depend on a variety of factors,
including the company’s financial position, earnings, share price,
catastrophe losses, maintaining capital levels commensurate with the
company’s desired ratings from independent rating agencies, funding of
the company’s qualified pension plan, capital requirements of the
company’s operating subsidiaries, legal requirements, regulatory
constraints, other investment opportunities (including mergers and
acquisitions and related financings), market conditions and other
factors.
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 captions "Risk Factors" 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 (SEC).
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF NON-GAAP
MEASURES TO GAAP 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 financial
statements or are not required to be disclosed in the notes to financial
statements or, in some cases, include or exclude certain items not
ordinarily included or excluded in the most comparable GAAP financial
measure. Reconciliations of non-GAAP measures to their most directly
comparable GAAP measures also follow.
In the opinion of the company’s management, a discussion of these
measures provides investors, financial analysts, rating agencies and
other financial statement users 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. Internally, the company's management uses these measures to
evaluate performance against historical results, to establish financial
targets on a consolidated basis and for other reasons, which are
discussed below.
Some of these measures exclude net realized investment gains (losses),
net of tax, and/or net unrealized investment gains (losses), net of tax,
which can be significantly impacted by both discretionary and other
economic factors and are not necessarily indicative of operating trends.
Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by the
company’s management.
RECONCILIATION OF OPERATING INCOME AND CERTAIN OTHER NON-GAAP
MEASURES TO NET INCOME
Operating income is net income excluding the after-tax impact of
net realized investment gains (losses) and discontinued operations.
Management uses operating income to analyze each segment’s performance
and as a tool in making business decisions. Financial statement users
also consider operating income when analyzing the results and trends of
insurance companies. Operating earnings per share is operating
income on a per common share basis.
Reconciliation of Operating Income less Preferred Dividends to Net
Income
|
|
| |
|
| |
|
|
|
|
|
|
|
|
| | | | | |
|
| | | Three Months Ended |
| | | March 31, |
($ in millions, pre-tax)
|
|
|
| 2014 |
|
|
| 2013 |
| | | | | |
|
Operating income | | | $ | 1,469 |
| | $ | 1,210 |
Net realized investment gains
|
|
|
|
1
|
|
|
|
10
|
Net income |
|
| $ | 1,470 |
|
| $ | 1,220 |
|
|
|
|
|
|
| |
| |
| | Three Months Ended |
| | March 31, |
($ in millions, after-tax)
|
| 2014 |
| 2013 |
| | | |
|
Operating income | | $ 1,052 | | $ 887 |
Net realized investment gains
|
|
-
|
|
9
|
Net income |
| $ 1,052 |
| $ 896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | Twelve Months Ended December 31, |
($ in millions, after-tax)
|
|
|
| 2013 |
|
| 2012 |
|
| 2011 |
|
| 2010 |
|
| 2009 |
|
| 2008 |
|
|
| 2007 |
|
| 2006 |
|
| 2005 |
|
| | | | | | | | | | | | | | | | | | |
|
Operating income, less preferred dividends
| | |
$
|
3,567
| |
$
|
2,441
| |
$
|
1,389
| |
$
|
3,040
| |
$
|
3,597
| |
$
|
3,191
| | |
$
|
4,496
| |
$
|
4,195
| |
$
|
2,020
| |
Preferred dividends
|
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
|
4
|
|
|
5
|
|
|
6
|
|
Operating income | | | | 3,567 | | | 2,441 | | | 1,390 | | | 3,043 | | | 3,600 | | | 3,195 | | | | 4,500 | | | 4,200 | | | 2,026 | |
Net realized investment gains (losses)
|
|
|
|
106
|
|
|
32
|
|
|
36
|
|
|
173
|
|
|
22
|
|
|
(271
|
)
|
|
|
101
|
|
|
8
|
|
|
35
|
|
Income from continuing operations | | | | 3,673 | | | 2,473 | | | 1,426 | | | 3,216 | | | 3,622 | | | 2,924 | | | | 4,601 | | | 4,208 | | | 2,061 | |
Discontinued operations
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
(439
|
)
|
Net income |
|
| $ | 3,673 |
| $ | 2,473 |
| $ | 1,426 |
| $ | 3,216 |
| $ | 3,622 |
| $ | 2,924 |
|
| $ | 4,601 |
| $ | 4,208 |
| $ | 1,622 |
|
|
| |
| |
Reconciliation of Operating Earnings per Share to Net Income
per Share on a Basic and Diluted Basis |
|
|
|
|
|
| | | |
|
| | Three Months Ended |
| | March 31, |
|
| 2014 |
| 2013 |
| | | |
|
Basic earnings per share | | | | |
Operating income | | $ | 2.98 | | $ | 2.33 |
Net realized investment gains
|
|
|
-
|
|
|
0.03
|
Net income |
| $ | 2.98 |
| $ | 2.36 |
| | | |
|
Diluted earnings per share | | | | |
Operating income | | $ | 2.95 | | $ | 2.31 |
Net realized investment gains
|
|
|
-
|
|
|
0.02
|
Net income |
| $ | 2.95 |
| $ | 2.33 |
| |
|
| |
| |
Reconciliation of Operating Income by Segment to Total
Operating Income |
|
|
|
|
|
|
|
| | | | | |
|
| | | | Three Months Ended |
| | | | March 31, |
($ in millions, after-tax)
|
|
|
|
| 2014 |
|
|
| 2013 |
|
| | | | | |
|
| | | | | |
|
Business Insurance | | | |
$
|
653
| | |
$
|
590
| |
Financial, Professional & International Insurance | | | |
195
| | | |
163
| |
Personal Insurance |
|
|
|
|
268
|
|
|
|
197
|
|
Total segment operating income
| | | | |
1,116
| | | |
950
| |
Interest Expense and Other
|
|
|
|
|
(64
|
)
|
|
|
(63
|
)
|
Total operating income |
|
|
| $ | 1,052 |
|
| $ | 887 |
|
RECONCILIATION OF ADJUSTED SHAREHOLDERS’ EQUITY TO SHAREHOLDERS’
EQUITY AND OPERATING RETURN ON EQUITY TO RETURN ON EQUITY
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and end
of each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two. Adjusted
shareholders’ equity is shareholders’ equity excluding net
unrealized investment gains (losses), net of tax, net realized
investment gains (losses), net of tax, for the period presented,
preferred stock and discontinued operations. Adjusted average
shareholders’ equity is average shareholders’ equity excluding net
unrealized investment gains (losses), net of tax, for all quarters
included in the calculation and, for each quarterly period included in
the calculation, that quarter’s net realized investment gains (losses),
net of tax and discontinued operations.
Reconciliation of Adjusted Shareholders’ Equity to Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |
| |
| |
| | | |
| |
| |
| |
| |
| |
| | | | | | As of March 31, | | | | | | | | | | | |
($ in millions)
|
|
|
|
|
|
| 2014 |
|
| 2013 |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
Adjusted shareholders' equity | | | | | | $ | 23,713 | | $ | 22,723 | | | | | | | | | | | | |
Net unrealized investment gains, net of tax
| | | | | | |
1,674
| | |
2,864
| | | | | | | | | | | | |
Net realized investment gains, net of tax
|
|
|
|
|
|
|
-
|
|
|
9
|
| | | | | | | | | | | |
Shareholders' equity |
|
|
|
|
| $ | 25,387 |
| $ | 25,596 |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | As of December 31, |
($ in millions)
|
|
| 2013 |
|
| 2012 |
|
| 2011 |
|
| 2010 |
|
| 2009 |
|
| 2008 |
|
|
| 2007 |
|
| 2006 |
|
| 2005 |
|
|
| 2004 |
|
| | | | | | | | | | | | | | | | | | | |
|
Adjusted shareholders' equity | | $ | 23,368 | | $ | 22,270 | | $ | 21,570 | | $ | 23,375 | | $ | 25,458 | | $ | 25,647 | | | $ | 25,783 | | $ | 24,545 | | $ | 22,227 | | | $ | 20,087 | |
Net unrealized investment gains (losses), net of tax
| |
1,322
| | |
3,103
| | |
2,871
| | |
1,859
| | |
1,856
| | |
(146
|
)
| | |
620
| | |
453
| | |
327
| | | |
866
| |
Net realized investment gains (losses), net of tax
| |
106
| | |
32
| | |
36
| | |
173
| | |
22
| | |
(271
|
)
| | |
101
| | |
8
| | |
35
| | | |
(28
|
)
|
Preferred stock
| | |
-
| | |
-
| | |
-
| | |
68
| | |
79
| | |
89
| | | |
112
| | |
129
| | |
153
| | | |
188
| |
Discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
(439
|
)
|
|
|
88
|
|
Shareholders' equity |
| $ | 24,796 |
| $ | 25,405 |
| $ | 24,477 |
| $ | 25,475 |
| $ | 27,415 |
| $ | 25,319 |
|
| $ | 26,616 |
| $ | 25,135 |
| $ | 22,303 |
|
| $ | 21,201 |
|
Return on equity is the ratio of annualized net income less
preferred dividends to average shareholders’ equity for the periods
presented. Operating return on equity is the ratio of annualized
operating income less preferred dividends to adjusted average
shareholders’ equity for the periods presented. In the opinion of the
company’s management, these are important indicators of how well
management creates value for its shareholders through its operating
activities and its capital management.
|
| |
| |
Calculation of Operating Return on Equity and Return on Equity |
|
|
|
|
|
| | | |
|
| | Three Months Ended |
| | March 31, |
($ in millions, after-tax)
|
|
| 2014 |
|
|
| 2013 |
|
| | | |
|
Annualized operating income
| |
$
|
4,207
| | |
$
|
3,550
| |
Adjusted average shareholders' equity
|
|
|
23,594
|
|
|
|
22,512
|
|
Operating return on equity |
|
| 17.8 | % |
|
| 15.8 | % |
| | | |
|
Annualized net income
| |
$
|
4,209
| | |
$
|
3,586
| |
Average shareholders' equity
|
|
|
25,092
|
|
|
|
25,500
|
|
Return on equity |
|
| 16.8 | % |
|
| 14.1 | % |
Average annual operating return on equity over a period is the
ratio of:
a) the sum of operating income less preferred dividends for the periods
presented to
b) the sum of: 1) the sum of the adjusted average shareholders’ equity
for all full years in the period presented, and 2) for partial years in
the period presented, the number of quarters in that partial year
divided by four, multiplied by the adjusted average shareholders’ equity
of the partial year.
| |
| |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
Calculation of Average Annual Operating Return on Equity from
January 1, 2005 through March 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | | | | | | | | | | | | | | | | | |
| March 31, | | | Twelve Months Ended December 31, |
($ in millions)
| 2014 |
| 2013 |
|
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| | | | | | | | | | | | | | | | | | | | | |
|
Operating income, less preferred dividends
| $ 1,052 | | $ 887 | | | $ 3,567 | | $ 2,441 | | $ 1,389 | | $ 3,040 | | $ 3,597 | | $ 3,191 | | $ 4,496 | | $ 4,195 | | $ 2,020 |
Annualized operating income
|
4,207
| |
3,550
| | | | | | | | | | | | | | | | | | | |
Adjusted average shareholders' equity
|
23,594
| |
22,512
| | |
23,004
| |
22,158
| |
22,806
| |
24,285
| |
25,777
| |
25,668
| |
25,350
| |
23,381
| |
21,118
|
Operating return on equity
|
17.8%
|
|
15.8%
|
|
|
15.5%
|
|
11.0%
|
|
6.1%
|
|
12.5%
|
|
14.0%
|
|
12.4%
|
|
17.7%
|
|
17.9%
|
|
9.6%
|
| | | | | | | | | | | | | | | | | | | | | |
|
Average annual operating return on equity | | | 13.2% | | | | | | | | | | | | | | | | |
for the period Jan. 1, 2005 through Mar. 31, 2014 | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN ITEMS
TO NET INCOME
Underwriting gain is net earned premiums and fee income less
claims and claim adjustment expenses and insurance-related expenses. In
the opinion of the company’s management, it is important to measure the
profitability of each segment excluding the results of investing
activities, which are managed separately from the insurance business.
This measure is used to assess each segment’s business performance and
as a tool in making business decisions. Pre-taxunderwriting
gain, excluding the impact of catastrophes and net favorable prior year
loss reserve development, is the underwriting gain adjusted to
exclude claims and claim adjustment expenses, reinstatement premiums and
assessments related to catastrophes and loss reserve development related
to time periods prior to the current year. In the opinion of the
company's management, this measure is meaningful to users of the
financial statements to understand the company's periodic earnings and
the variability of earnings caused by the unpredictable nature (i.e.,
the timing and amount) of catastrophes and loss reserve development.
This measure is also referred to as underlying underwriting margin
or underlying underwriting gain.
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 to users of the financial statements to understand the
company’s periodic earnings and the variability in periodic earnings
caused by the unpredictable nature of catastrophes.
Net favorable (unfavorable) prior year 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, which may be related to one or more prior years. In the opinion
of the company's management, a discussion of loss reserve development is
meaningful to users of the financial statements 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 (loss),
and changes in claims and claim adjustment expense reserve levels from
period to period.
| |
| | | |
Reconciliation of Pre-tax Underwriting Gain (Excluding the
Impact of Catastrophes and Net Favorable Prior Year Loss Reserve
Development) to Net Income |
|
|
|
|
|
|
| | | | |
|
| | | Three Months Ended |
| | | March 31, |
($ in millions, after-tax except as noted)
|
|
| 2014 |
|
|
| 2013 |
|
| | | | |
|
Pre-tax underwriting gain excluding the impact of catastrophes
| |
and net favorable prior year loss reserve development
| |
$
|
646
| |
|
$
|
470
| |
Pre-tax impact of catastrophes
| | | |
(149
|
)
| | |
(99
|
)
|
Pre-tax impact of net favorable prior year loss reserve development
|
|
|
294
|
|
|
|
231
|
|
Pre-tax underwriting gain
| | | |
791
| | | |
602
| |
Income tax expense on underwriting results
|
|
|
284
|
|
|
|
217
|
|
Underwriting gain
| | | |
507
| | | |
385
| |
Net investment income
| | | |
582
| | | |
542
| |
Other, including interest expense
|
|
|
|
(37
|
)
|
|
|
(40
|
)
|
Operating income | | | | 1,052 | | | | 887 | |
Net realized investment gains
|
|
|
|
-
|
|
|
|
9
|
|
Net income |
|
| $ | 1,052 |
|
| $ | 896 |
|
GAAP COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING GAAP COMBINED RATIO
Combined ratio (SAP and GAAP) For SAP, it is the sum of the SAP
loss and LAE ratio and the SAP underwriting expense ratio as defined in
the statutory financial statements required by insurance regulators. The
GAAP combined ratio is the equivalent of, and is calculated in the same
manner as, the SAP combined ratio except that the SAP underwriting
expense ratio is based on net written premium and the GAAP underwriting
expense ratio is based on net earned premiums. The loss and LAE ratio
for SAP is the ratio of incurred losses and loss adjustment expenses
less certain administrative services fee income to net earned premiums
as defined in the statutory financial statements required by insurance
regulators. The GAAP ratio is calculated in the same manner as the SAP
ratio. The underwriting expense ratio for SAP is the ratio of
underwriting expenses incurred (including commissions paid), less
certain administrative services fee income and billing and policy fees,
to net written premiums as defined in the statutory financial statements
required by insurance regulators. For GAAP, it is the ratio of
underwriting expenses (including the amortization of deferred
acquisition costs), less certain administrative services fee income and
billing and policy fees, to net earned premiums.
The GAAP combined ratio, GAAP loss and LAE ratio, and GAAP underwriting
expense ratio are used as indicators of the company’s underwriting
discipline, efficiency in acquiring and servicing its business and
overall underwriting profitability. A combined ratio under 100%
generally indicates an underwriting profit. A combined ratio over 100%
generally indicates an underwriting loss.
Underlying GAAP combined ratio represents the GAAP combined ratio
excluding the impact of net prior year reserve development and
catastrophes. In the opinion of the company’s management, this measure
is meaningful to users of the financial statements to understand the
company’s periodic underwriting profitability and the variability of
underwriting profitability caused by the unpredictable nature of
catastrophes and loss reserve development.
Calculation of the GAAP Combined Ratio
|
|
|
|
|
|
| |
| |
| |
| | | Three Months Ended |
| | | March 31, |
($ in millions, pre-tax)
|
|
|
| 2014 |
|
|
| 2013 |
|
| | | | |
|
Loss and loss adjustment expense ratio | | | | |
Claims and claim adjustment expenses
| |
$
|
3,315
| | |
$
|
3,153
| |
Less:
| | | | | |
Policyholder dividends
| | | |
11
| | | |
10
| |
Allocated fee income
|
|
|
|
43
|
|
|
|
42
|
|
Loss ratio numerator |
|
| $ | 3,261 |
|
| $ | 3,101 |
|
| | | | |
|
Underwriting expense ratio | | | | | |
Amortization of deferred acquisition costs
| |
$
|
950
| | |
$
|
948
| |
General and administrative expenses (G&A)
| | |
881
| | | |
915
| |
Less:
| | | | | |
G&A included in Interest Expense and Other
| | |
7
| | | |
4
| |
Allocated fee income
| | | |
64
| | | |
55
| |
Billing and policy fees and other
|
|
|
|
30
|
|
|
|
24
|
|
Expense ratio numerator |
|
| $ | 1,730 |
|
| $ | 1,780 |
|
|
|
|
|
|
|
Earned premium |
|
| $ | 5,823 |
|
| $ | 5,517 |
|
| | | | |
|
GAAP combined ratio 1 | | | | | |
Loss and loss adjustment expense ratio
| | |
56.0
|
%
| | |
56.2
|
%
|
Underwriting expense ratio
|
|
|
|
29.7
|
%
|
|
|
32.3
|
%
|
Combined ratio |
|
|
| 85.7 | % |
|
| 88.5 | % |
1 For purposes of computing GAAP ratios, billing and
policy fees and other (which are a component of other revenues) are
allocated as a reduction of underwriting expenses. In addition, fee
income is allocated as a reduction of losses and loss adjustment
expenses and underwriting expenses.
|
|
ADJUSTMENT TO NET WRITTEN PREMIUMS FOR THE IMPACT OF CHANGES IN
FOREIGN EXCHANGE RATES
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 International market and
the Financial, Professional & International (FP&II) segment.
Reconciliation of the Impact of Changes in Foreign Exchange Rates on
International Net Written Premiums to International Net Written Premiums
|
| |
| |
| |
|
|
|
|
|
|
|
| | Three Months Ended |
| | March 31, |
($ in millions)
|
| 2014 |
| 2013 |
| Change |
| | | | | |
|
Net written premiums - holding foreign
| |
$
|
467
| |
$
|
252
| |
85
|
%
|
exchange rates constant
| | | | | | |
Impact of changes in foreign exchange rates
|
|
|
1
|
|
|
|
|
Net written premiums
|
|
$
|
468
|
|
$
|
252
|
|
86
|
%
|
Reconciliation of the Impact of Changes in Foreign Exchange Rates on
FP&II Net Written Premiums to FP&II Net Written Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| | March 31, |
($ in millions)
|
| 2014 |
| 2013 |
| Change |
| | |
| |
| |
Net written premiums - holding foreign
| |
$
|
949
| |
$
|
647
| |
47
|
%
|
exchange rates constant
| | | | | | |
Impact of changes in foreign exchange rates
|
|
|
1
|
|
|
|
|
Net written premiums
|
|
$
|
950
|
|
$
|
647
|
|
47
|
%
|
RECONCILIATION OF CERTAIN NON-GAAP MEASURES TO BOOK VALUE PER SHARE
AND SHAREHOLDERS’ EQUITY
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, 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.
Reconciliation of Tangible and Adjusted Shareholders’ Equity to
Shareholders’ Equity
|
|
|
|
|
|
|
| | |
| | | |
| | As of |
| | March 31, | | December 31, | March 31, |
($ in millions, except per share amounts)
|
| 2014 |
|
|
| 2013 |
|
|
| 2013 |
|
| | | | | |
|
Tangible shareholders' equity | | $ | 19,804 | | | $ | 19,543 | | | $ | 19,046 | |
Goodwill
| | |
3,624
| | | |
3,634
| | | |
3,365
| |
Other intangible assets
| | |
339
| | | |
351
| | | |
370
| |
Less: Impact of deferred tax on other intangible assets
|
|
(54
|
)
|
|
|
(54
|
)
|
|
|
(49
|
)
|
Adjusted shareholders' equity | | | 23,713 | | | | 23,474 | | | | 22,732 | |
Net unrealized investment gains, net of tax
|
|
1,674
|
|
|
|
1,322
|
|
|
|
2,864
|
|
Shareholders' equity |
| $ | 25,387 |
|
| $ | 24,796 |
|
| $ | 25,596 |
|
| | | | | |
|
Common shares outstanding
|
|
|
347.5
|
|
|
|
353.5
|
|
|
|
376.4
|
|
| | | | | |
|
Tangible book value per share
| |
$
|
57.00
| | |
$
|
55.29
| | |
$
|
50.60
| |
Adjusted book value per share
| | |
68.25
| | | |
66.41
| | | |
60.39
| |
Book value per share
|
|
|
73.06
|
|
|
|
70.15
|
|
|
|
68.00
|
|
RECONCILIATION OF CERTAIN NON-GAAP MEASURES TO TOTAL CAPITALIZATION
Total capitalization is the sum of total shareholders’ equity and
debt. Debt-to-capital ratio excluding net unrealized gain on
investments is the ratio of debt to total capitalization 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 financial leverage.
Reconciliation of Total Debt and Equity Excluding Net Unrealized
Investment Gain to Total Capitalization
| | |
|
| |
| |
| | As of |
| | March 31, 2014 | | | December 31, 2013 | | March 31, 2013 |
($ in millions)
|
|
|
|
|
| | | | | | | |
|
Debt
| |
$
|
6,347
| | | |
$
|
6,346
| | | |
$
|
5,851
| |
Shareholders' equity
|
|
|
25,387
|
|
|
|
|
24,796
|
|
|
|
|
25,596
|
|
Total capitalization |
|
| 31,734 |
|
|
|
| 31,142 |
|
|
|
| 31,447 |
|
Net unrealized investment gains, net of tax
|
|
1,674
|
|
|
|
|
1,322
|
|
|
|
|
2,864
|
|
Total capitalization excluding net unrealized gain | $ | 30,060 | | | | $ | 29,820 | | | | $ | 28,583 | |
on investments, net of tax |
|
|
|
|
|
|
|
|
| | | | | | | |
|
Debt-to-capital ratio
| | |
20.0
|
%
| | | |
20.4
|
%
| | | |
18.6
|
%
|
Debt-to-capital ratio excluding net unrealized investment gains, net
of tax
|
|
21.1
|
%
|
|
|
|
21.3
|
%
|
|
|
|
20.5
|
%
|
OTHER DEFINITIONS
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to policyholders for the
effective period of the contract based on the terms and conditions of
the insurance contract. Net written premiums reflect gross
written premiums less premiums ceded to reinsurers. These are GAAP
measures.
For the Business Insurance and Financial, Professional and International
Insurance segments, retention is theamount of premium
available for renewal that was retained, excluding rate and exposure
changes. For the Personal Insurance segment, retention is the ratio of
the expected number of renewal policies that will be retained throughout
the annual policy period to the number of available renewal base
policies. For all of the segments, renewalrate change represents
the estimated change in average premium on policies that renew,
excluding exposure changes. Exposure is the measure of risk used
in the pricing of an insurance product. The change in exposure is the
amount of change in premium on policies that renew attributable to the
change in portfolio risk. Renewal premium change represents the
estimated change in average premium on policies that renew, including
rate and exposure changes. New business volume is the amount of
written premium related to new policyholders and additional products
sold to existing policyholders. These are operating statistics, which
are subject to change based upon a number of factors, including changes
in actuarial estimates. For the Business Insurance segment, retention,
renewal premium change and new business volumes exclude National
Accounts and Business Insurance-Other.
An insurance company’s statutory surplus represents the excess of
its assets over its liabilities in accordance with the statutory
accounting practices required by state laws and regulations.
Holding company liquidity is the total funds available at the
holding company level to fund general corporate purposes, primarily the
payment of shareholder dividends and debt service. These funds consist
of total cash, short-term invested assets and other readily marketable
securities held by the holding company.
For a glossary of other financial terms used in this press release, we
refer you to the company’s most recent annual report on Form 10-K filed
with the Securities and Exchange Commission.
The Travelers Companies, Inc
Media:
Patrick
Linehan, 917-778-6267
or
Institutional
Investors:
Gabriella Nawi, 917-778-6844
or
Andrew
Hersom, 860-277-0902
Individual Investors:
Marc
Parr, 860-277-0779
Source: The Travelers Companies, Inc.