(Source: Business Wire)
The Travelers Companies, Inc. ("Travelers,") (NYSE: TRV) today reported net income of $740 million, or $1.27 per basic and diluted share, for the quarter ended June 30, 2009, compared to $942 million, or $1.56 per basic share and $1.54 per diluted share, for the quarter ended June 30, 2008. Operating income in the current quarter was $732 million, or $1.26 per basic share and $1.25 per diluted share, compared to $918 million, or $1.52 per basic share and $1.50 per diluted share, in the prior year quarter.
"Our performance for the quarter reflects solid underwriting and fixed income investment results, as well as the continued impact of very low short-term investment yields and a small loss on our alternative investment portfolio," commented Jay Fishman, Chairman and Chief Executive Officer.
"All of our operating dynamics were strong for the quarter. Retention generally remained at or near historic highs, and we were successful at continuing to achieve rate gains. Rate change was positive in the quarter across each of our three business segments, offsetting lower coverage demands from existing policyholders due to the economic downturn. New business volumes were strong, particularly in Business Insurance. These important revenue drivers demonstrate the high regard customers, brokers and agents continue to have for Travelers.
"Our operating performance enabled us once again to generate excess capital and we resumed our share repurchases in the quarter. Results in the quarter, along with a significant increase in net unrealized investment gains, also led to an increase in book value. We are pleased that the company is very well positioned to compete successfully in the current marketplace," concluded Mr. Fishman.
Current Quarter Highlights
Return on equity and operating return on equity of 11.1 percent and 11.3 percent, respectively.
Net written premiums of $5.605 billion compared to $5.629 billion in the prior year quarter.
GAAP combined ratios in Business Insurance of 89.8 percent; Financial, Professional & International Insurance of 90.9 percent; and Personal Insurance of 99.6 percent. Consolidated GAAP combined ratio of 93.2 percent.
Net favorable prior year reserve development of $170 million after-tax ($261 million pre-tax), compared to $340 million after-tax ($526 million pre-tax) in the prior year quarter.
Catastrophe losses of $130 million after-tax ($200 million pre-tax), compared to $231 million after-tax ($356 million pre-tax) in the prior year quarter.
Net investment income of $547 million after-tax ($658 million pre-tax), compared to $624 million after-tax ($778 million pre-tax) in the prior year quarter.
Net realized investment gains of $8 million after-tax ($13 million pre-tax), compared to $24 million after-tax ($36 million pre-tax) in the prior year quarter.
Net unrealized investment gains of $865 million after-tax ($1.296 billion pre-tax) at the end of the current quarter, compared to net unrealized investment losses of $144 million after-tax ($253 million pre-tax) at year-end 2008.
The company repurchased 18.5 million common shares for a total cost of $750 million in the current quarter and 27.4 million common shares for a total cost of $1.122 billion during the preceding 12 months under the company's share repurchase authorization. In addition, the company paid common dividends of $172 million in the current quarter and $703 million during the preceding 12 months.
After common share repurchases and common dividends, book value per share of $47.29 and adjusted book value per share (which excludes FAS 115) of $45.76, increased 5 percent and 4 percent, respectively, from March 31, 2009 and increased 9 percent and 5 percent, respectively, from June 30, 2008.
Consolidated Highlights ($ in millions, except for per share amounts, Three Months Ended June 30, Six Months Ended June 30, and after-tax, except for premiums) 2009 2008 Change 2009 2008 Change Gross written premiums $ 5,969 $ 6,061 (2 ) % $ 11,832 $ 11,994 (1 ) % Net written premiums 5,605 5,629 - 10,808 10,817 - Net earned premiums 5,353 5,357 - 10,654 10,697 - Underwriting gain 206 338 (39 ) 559 739 (24 ) Net investment income 547 624 (12 ) 1,021 1,274 (20 ) Operating income 732 918 (20 ) 1,531 1,926 (21 ) per diluted share $ 1.25 $ 1.50 (17 ) $ 2.60 $ 3.11 (16 ) Net income 740 942 (21 ) 1,402 1,909 (27 ) per diluted share $ 1.27 $ 1.54 (18 ) $ 2.38 $ 3.08 (23 ) Book value per share $ 47.29 $ 43.56 9 $ 47.29 $ 43.56 9 Adjusted book value per share $ 45.76 $ 43.45 5 $ 45.76 $ 43.45 5 GAAP combined ratio 93.2 % 89.3 % 3.9 pts 91.9 % 88.5 % 3.4 pts Operating return on equity 11.3 % 14.3 % (3.0 ) pts 11.9 % 14.9 % (3.0 ) pts Return on equity 11.1 % 14.4 % (3.3 ) pts 10.7 % 14.5 % (3.8 ) pts See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data. -------------------------------------------------------------------------------
Second Quarter 2009 Consolidated Results
Net and operating income in the current quarter of $740 million and $732 million, respectively, declined from $942 million and $918 million in the prior year quarter. The current and prior year quarters included the following:
($ in millions) Three Months Ended June 30, 2009 2008 2009 2008 Pre-tax After-tax Underwriting gain $ 329 $ 535 $ 206 $ 338 GAAP combined ratio 93.2 % 89.3 % GAAP combined ratio excluding incremental impactof direct to consumer initiative 92.6 % 89.2 % Underwriting gain includes: Net favorable prior year reserve development 261 526 170 340 Impact on GAAP combined ratio (4.9 ) pts (9.8 ) pts Catastrophes, net of reinsurance (200 ) (356 ) (130 ) (231 ) Impact on GAAP combined ratio 3.7 pts 6.6 pts Resolution of prior year tax matters 5 - Net investment income 658 778 547 624 Average yield 3.6 % 4.2 % 3.0 % 3.4 % Other, including interest expense (59 ) (62 ) (21 ) (44 ) Other also includes: Resolution of prior year tax matters 14 - Net realized investment gains 13 36 8 24 -------------------------------------------------------------------------------
The current quarter underwriting gain reflects a GAAP combined ratio of 94.4 percent, excluding net favorable prior year reserve development and catastrophe losses, as compared to 92.5 percent in the prior year quarter. This increase of 1.9 points primarily resulted from reduced underwriting margins related to pricing and loss cost trends and higher non-catastrophe weather-related losses, partially offset by a $26 million pre-tax reduction in the estimate of Texas Windstorm Insurance Association (TWIA) assessments related to Hurricane Ike.
Net favorable prior year reserve development in the current quarter resulted from better than expected loss experience in each segment, particularly in Business Insurance. Catastrophe losses in the current quarter were related to several tornadoes and hail storms. In addition, the current quarter benefited from the resolution of various prior year tax matters.
Net investment income in the current quarter declined from the prior year quarter. Net investment income from the fixed income portfolio of $572 million after-tax ($698 million pre-tax) in the current quarter declined from $610 million after-tax ($758 million pre-tax) in the prior year quarter driven primarily by the negative impact of a 140 basis point reduction in average after-tax short-term interest rates and lower average invested assets. The non-fixed income portfolio, comprised substantially of private equity funds, real estate partnerships and hedge funds, recorded an investment loss of $20 million after-tax ($33 million pre-tax) in the current quarter, compared to an investment gain of $22 million after-tax ($32 million pre-tax) in the prior year quarter, reflective of the difficult investment market conditions during recent quarters.
Net realized investment gains in the current quarter included other-than-temporary impairments of $19 million after-tax ($30 million pre-tax), compared to $18 million after-tax ($28 million pre-tax) in the prior year quarter.
Net written premiums of $5.605 billion in the current quarter declined slightly from the prior year quarter. Adjusting for the impact of changes in foreign exchange rates, net written premiums increased slightly from the prior year quarter. Business retention remained at high levels. Premium rate trends continued to improve and overall rate changes were positive in each business segment, offsetting the impact of lower coverage demands from existing policyholders due to general economic conditions. New business volumes approximated the prior year quarter as strong growth in Business Insurance was offset by lower volumes in Financial, Professional & International Insurance and Personal Insurance.
Capital Management
The company remains very well capitalized, with all of its financial strength indicators at or better than target levels. During the second quarter 2009, the company repurchased 18.5 million of its common shares for a total cost of $750 million. At the end of the second quarter 2009, the company had $3.1 billion of capacity remaining under its share repurchase program.
At the end of the second quarter 2009, shareholders' equity was $26.9 billion, a 6 percent increase from year-end 2008. Included in shareholders' equity at the end of the current quarter were after-tax net unrealized investment gains of $865 million as compared to after-tax net unrealized investment losses of $144 million at year-end 2008. Statutory surplus was $21.3 billion, the company's debt to capital ratio of 20.0 percent (excluding FAS 115) was at its target level, and holding company liquidity of $3.3 billion was three times the company's target level. In addition, the current quarter included the successful issuance of a $500 million public debt offering of 5.90%, 10-year senior notes.
Year-to-Date 2009 Consolidated Results
Net and operating income for the six-month period ended June 30, 2009 of $1.402 billion and $1.531 billion, respectively, declined from $1.909 billion and $1.926 billion in the prior year period. The current and prior year period included the following:
($ in millions) Six Months Ended June 30, 2009 2008 2009 2008 Pre-tax After-tax Underwriting gain $ 794 $ 1,165 $ 559 $ 739 GAAP combined ratio 91.9 % 88.5 % GAAP combined ratio excluding incremental impactof direct to consumer initiative 91.3 % 88.3 % Underwriting gain includes: Net favorable prior year reserve development 519 926 338 601 Impact on GAAP combined ratio (4.9 ) pts (8.6 ) pts Catastrophes, net of reinsurance (283 ) (451 ) (184 ) (293 ) Impact on GAAP combined ratio 2.7 pts 4.2 pts Resolution of prior year tax matters 60 - Net investment income 1,200 1,593 1,021 1,274 Average yield 3.3 % 4.3 % 2.8 % 3.4 % Other, including interest expense (125 ) (131 ) (49 ) (87 ) Other also includes: Resolution of prior year tax matters 28 - Net realized investment losses (201 ) (26 ) (129 ) (17 ) -------------------------------------------------------------------------------
The current period underwriting gain reflects a GAAP combined ratio of 94.1 percent, excluding net favorable prior year reserve development and catastrophe losses, as compared to 92.9 percent in the prior year quarter. This increase of 1.2 points primarily resulted from reduced underwriting margins related to pricing and loss cost trends and higher non-catastrophe weather-related losses, partially offset by an $87 million pre-tax reduction in the estimate of TWIA assessments related to Hurricane Ike.
Net favorable prior year reserve development in the current period resulted from better than expected loss experience in each segment, particularly in Business Insurance. Catastrophe losses in the current period were related to several tornadoes and hail storms. In addition, the current period benefited from the resolution of various prior year tax matters.
Net investment income in the current period declined from the prior year period primarily due to negative returns in the non-fixed income portfolio as well as significantly lower short-term interest rates and lower average invested assets in the fixed income portfolio.
Net realized investment losses in the current period included other-than-temporary impairments of $139 million after-tax ($214 million pre-tax), compared to $43 million after-tax ($66 million pre-tax) in the prior year period.
