(Source: Business Wire)
The Travelers Companies, Inc. ("Travelers") (NYSE:TRV) today reported
net income of $935 million, or $1.65 per diluted share, for the quarter
ended September 30, 2009, compared to $214 million, or $0.36 per diluted
share, for the quarter ended September 30, 2008. Operating income in the
current quarter was $914 million, or $1.61 per diluted share, compared
to $330 million, or $0.55 per diluted share, in the prior year quarter.
"We are pleased to report strong third quarter operating income of $914
million and operating return on equity of 14.1%," commented Jay Fishman,
Chairman and Chief Executive Officer. "These results were driven by
underwriting profitability in each of our business segments and
increased net investment income, as our non-fixed income portfolio yield
improved to a positive level.
"We were once again successful in achieving positive renewal rate
changes across all of our business segments, although net written
premiums were down modestly, largely attributable to declining economic
activity in recent quarters. As in previous quarters, we remain cautious
about the magnitude of rate gains that are achievable in the near term
given general economic conditions. Nonetheless, we plan to continue to
seek rate gains where needed and we will continue to focus on execution.
Solid retention and new business levels continue to underscore our
strong position in the marketplace.
"With improved stability in the capital markets we deployed excess
liquidity that we accumulated over the past several quarters. We
repurchased $1 billion of common shares in the quarter in contrast to
our past practice of reduced share repurchases during the catastrophe
season. Furthermore, our guidance for 2009 now includes an assumption of
$1.5 billion in common share repurchases in the fourth quarter, an
increase from our previous assumption, subject to market conditions and
other factors. This change, in combination with our year-to-date
performance, has resulted in an increase in our guidance for full year
2009 operating income per diluted share to $5.30-$5.50 from $4.80-$5.05.
"Given our strong earnings performance and cash position and more stable
capital markets, we increased our regular quarterly dividend by 10
percent to $0.33 per share. In addition our Board of Directors has
approved an additional $6.0 billion of common share repurchases.
Confidence in our strong balance sheet, ability to execute in the
marketplace and our strategy of returning excess capital enable us to
continue to create shareholder value," concluded Mr. Fishman.
Consolidated Highlights
Three Months Ended September 30, Nine Months Ended September 30,
($ in millions, except for per share amounts, and after-tax, except for premiums) 2009 2008 Change 2009 2008 Change
Net written premiums $ 5,340 $ 5,481 (3 ) % $ 16,148 $ 16,298 (1 ) %
Operating income $ 914 $ 330 177 $ 2,445 $ 2,256 8
per diluted share $ 1.61 $ 0.55 193 $ 4.21 $ 3.68 14
Net income $ 935 $ 214 337 $ 2,337 $ 2,123 10
per diluted share $ 1.65 $ 0.36 358 $ 4.02 $ 3.47 16
Book value per share $ 51.24 $ 41.94 22 $ 51.24 $ 41.94 22
Adjusted book value per share $ 47.16 $ 43.34 9 $ 47.16 $ 43.34 9
GAAP combined ratio 89.7 % 104.7 % (15.0 ) pts 91.2 % 94.0 % (2.8 ) pts
Operating return on equity 14.1 % 5.1 % 9.0 pts 12.6 % 11.7 % 0.9 pts
Return on equity 13.6 % 3.4 % 10.2 pts 11.7 % 10.9 % 0.8 pts
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.
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Third Quarter 2009 Consolidated Results
The current and prior year quarters included the following:
($ in millions) Three Months Ended September 30,
2009 2008 2009 2008
Pre-tax After-tax
Underwriting gain (loss) $ 524 $ (288 ) $ 338 $ (208 )
Underwriting gain (loss) includes:
Net favorable prior year reserve development 309 334 202 210
Catastrophes, net of reinsurance (158 ) (1,042 ) (103 ) (682 )
Re-estimation of the current year loss ratios for the first two quarters of the year 71 - 46 -
Net investment income 763 716 616 587
Other, including interest expense (66 ) (70 ) (40 ) (49 )
Operating Income 1,221 358 914 330
Net realized investment gains (losses) 29 (170 ) 21 (116 )
Income before income taxes $ 1,250 $ 188
Net Income $ 935 $ 214
GAAP combined ratio 89.7 % 104.7 %
GAAP combined ratio excluding incremental impact of direct to consumer initiative 89.1 % 104.5 %
Impact on GAAP combined ratio
Net favorable prior year reserve development (5.7 ) pts (6.2 ) pts
Catastrophes, net of reinsurance 2.9 pts 19.1 pts
Re-estimation of the current year loss ratios for the first two quarters of the year (1.3 ) pts - pts
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The current quarter underwriting gain reflects a GAAP combined ratio,
excluding net favorable prior year reserve development and catastrophe
losses, of 92.5 percent, as compared to 91.8 percent in the prior year
quarter. This increase of 0.7 points primarily resulted from reduced
underwriting margins related to pricing and loss cost trends, higher
non-catastrophe weather-related losses within Personal Insurance as well
as the impact of the company's recently announced direct to consumer
initiative. The GAAP combined ratio in the current quarter benefited
from 1.3 points of favorable re-estimation of current year loss ratios
which reflects better than expected frequency trends in Business
Insurance for the first two quarters of the year.
Net favorable prior year reserve development in the current quarter
resulted from better than expected loss experience in each segment,
particularly in Business Insurance. The net favorable prior year
development in Business Insurance included a $120 million after-tax
($185 million pre-tax) increase to asbestos reserves that was primarily
driven by a slight increase in the company's assumption for projected
defense costs related to many policyholders. Overall, the company's
assessment of the underlying asbestos environment did not change
significantly from recent periods.
Catastrophe losses in the current quarter, which were considerably lower
than the prior year quarter, were related to multiple severe weather
events across various regions of the United States.
The investment portfolio, which grew to $76 billion at the end of the
current quarter reflective of an increase to net unrealized investment
gains of $2.1 billion pre-tax from June 30, 2009, performed very well
during the quarter. Net investment income in the current quarter
increased from the prior year quarter for the first time since the third
quarter 2007, despite lower short-term interest rates. This increase was
driven by positive returns in the non-fixed income portfolio in the
current quarter, compared to negative returns in the prior year quarter,
and is primarily due to improved investment market conditions for hedge
funds and private equity funds. Net investment income in the fixed
income portfolio declined slightly from the prior year quarter due to a
150 basis point reduction in average after-tax short-term interest
rates. The current quarter results also include net realized investment
gains compared to net realized investment losses in the prior year
quarter. The current quarter included other-than-temporary impairments
of only $12 million after-tax ($19 million pre-tax), compared to $102
million after-tax ($156 million pre-tax) in the prior year quarter.
Net written premiums of $5.340 billion in the current quarter declined 3
percent from the prior year quarter. Business retention remained at high
levels. Renewal rate changes were positive in each business segment,
more than offsetting the impact of lower coverage demands from existing
policyholders due to general economic conditions. New business volumes
were down slightly from the prior year quarter as modest growth in
Business Insurance and Financial, Professional and International
Insurance was offset by lower volumes in Personal Insurance.
Capital Management
"This quarter once again demonstrated the company's significant balance
sheet strength," said Jay Benet, Vice Chairman and Chief Financial
Officer. "During the current quarter we grew shareholders' equity by 5
percent to $28.2 billion after returning $1.2 billion to our
shareholders through common share dividends and common share
repurchases. As further acknowledgement of our balance sheet strength,
during the quarter S&P affirmed our financial strength ratings of AA-
and debt ratings of A- and revised the outlook for these ratings to
positive from stable with a one year time horizon for consideration of
an upgrade."
At the end of the third quarter 2009, all of the company's financial
strength indicators were at or better than target levels. Statutory
surplus was $22.1 billion, the company's debt to capital ratio of 20.1
percent (excluding net unrealized investment gains and losses) was at
its target level and holding company liquidity of $2.6 billion was more
than twice the company's target level.
Travelers' Board of Directors has approved an additional $6.0 billion of
common share repurchases. This amount is in addition to the $2.1 billion
that remained from previous authorizations as of September 30, 2009.
Repurchases may be made from time to time in the open-market, in private
transactions, pursuant to pre-set trading plans meeting the requirements
of Rule 10b5-1 of the Securities Exchange Act of 1934 or otherwise. This
authorization does not have a stated expiration date. The timing and
actual number of shares to be repurchased will depend on a variety of
factors, including corporate and regulatory requirements, price,
catastrophe experience and other market conditions.
The Board of Directors also declared a regular quarterly dividend of
$0.33 per common share. This dividend, which is $0.03 higher than the
last regular quarterly dividend, is payable December 31, 2009, to
shareholders of record as of the close of business December 10, 2009.
Business Insurance Segment Financial Results
"We continue to focus on effective execution and further strengthening
our position in the marketplace," said Brian MacLean, President and
Chief Operating Officer. "This has enabled us to once again achieve
positive renewal rate change, strong retentions and overall attractive
margin levels within Business Insurance. Furthermore, lower than
expected frequency trends have resulted in better than expected loss
cost trends. Although we continue to see the impact of the economic
downturn in many of our businesses, we remain pleased with the results
in the quarter."
The current and prior year quarters included the following:
($ in millions) Three Months Ended September 30,
2009 2008 2009 2008
Pre-tax After-tax
Underwriting gain (loss) $ 366 $ (40 ) $ 228 $ (35 )
Underwriting gain (loss) includes:
Net favorable prior year reserve development 262 247 170 152
Catastrophes, net of reinsurance (86 ) (488 ) (56 ) (318 )
Re-estimation of the current year loss ratios for the first two quarters of the year 77 - 50 -
Net investment income 529 494 429 409
Other, including interest expense 15 8 11 4
Operating Income $ 910 $ 462 $ 668 $ 378
GAAP combined ratio 86.5 % 101.3 %
Impact on GAAP combined ratio
Net favorable prior year reserve development (9.5 ) pts (8.7 ) pts
Catastrophes, net of reinsurance 3.1 pts 17.3 pts
Re-estimation of the current year loss ratios for the first two quarters of the year (2.8 ) pts - pts
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The current quarter underwriting gain reflects a GAAP combined ratio,
excluding net favorable prior year reserve development and catastrophe
losses, of 92.9 percent, as compared to 92.7 percent in the prior year
quarter.
