Travelers Reports Fourth Quarter Net Income of $304 Million or $0.78 per Diluted Share After Catastr

Travelers Reports Fourth Quarter Net Income of $304 Million or $0.78 per Diluted Share After Catastrophe Losses of $689 Million After-tax, Including Storm Sandy, or $1.78 Per Diluted Share

Full Year Net Income of $2.5 Billion and Return on Equity and Operating Return on Equity of 9.8% and 11.0%, Respectively

NEW YORK--(BUSINESS WIRE)-- The Travelers Companies, Inc. (NYS: TRV) :

  • Fourth quarter operating income of $278 million or $0.72 per diluted share.
  • Substantial improvement in underlying underwriting margin.
  • Strong net investment income attributable to alternative investment returns.
  • Written rate gains strong in all segments, with renewal rate change of approximately 8% in Business Insurance.
  • Book value per share of $67.31, up 8% from year-end 2011.
  • Repurchased 5.4 million shares for $400 million in the quarter and 22.4 million shares for $1.450 billion in the full year.
  • Board of Directors approved quarterly dividend per share of $0.46.

The Travelers Companies, Inc. today reported net income of $304 million, or $0.78 per diluted share, for the quarter ended December 31, 2012, compared to $618 million, or $1.51 per diluted share, in the prior year quarter. Operating income in the current quarter was $278 million, or $0.72 per diluted share, compared to $609 million, or $1.48 per diluted share, in the prior year quarter. The decrease in net and operating income in the current quarter compared to the prior year quarter resulted from the after-tax impact of higher catastrophe losses, partially offset by higher underlying underwriting margins and higher net favorable prior year reserve development. Catastrophe losses in the current quarter were $689 million after-tax ($1.054 billion pre-tax), including losses resulting from Storm Sandy of $669 million after-tax ($1.024 billion pre-tax), compared to $68 million after-tax ($102 million pre-tax) in the prior year quarter.

Consolidated Highlights

 

($ in millions, except for per share amounts, and after-tax, except for premiums & revenues)

 

Three Months Ended December 31,

   

Twelve Months Ended December 31,

2012

 

2011

 

Change

2012

 

2011

 

Change

 
Net written premiums $ 5,385 $ 5,261 2 % $ 22,447 $ 22,187 1 %
                           
 
Total revenues $ 6,477 $ 6,373 2 $ 25,740 $ 25,446 1
 
Operating income $ 278 $ 609 (54 ) $ 2,441 $ 1,390 76
per diluted share $ 0.72 $ 1.48 (51 ) $ 6.21 $ 3.28 89
 
Net income $ 304 $ 618 (51 ) $ 2,473 $ 1,426 73
per diluted share $ 0.78 $ 1.51 (48 ) $ 6.30 $ 3.36 88
 

Diluted weighted average shares outstanding

385.3 407.0 (5 ) 389.8 420.5 (7 )
 
GAAP combined ratio 105.4 % 95.9 % 9.5 pts 97.1 % 105.1 % (8.0 ) pts
 
Operating return on equity 5.0 % 11.1 % (6.1 ) pts 11.0 % 6.1 % 4.9 pts
Return on equity 4.7 % 10.0 % (5.3 ) pts 9.8 % 5.7 % 4.1 pts
 
As of December 31,

2012

2011

Change

Book value per share $ 67.31 $ 62.32 8 %
Adjusted book value per share $ 59.09 $ 55.01 7
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.
 

"We are pleased with our fourth quarter results, as well as our full year results, particularly in light of Storm Sandy," commented Jay Fishman, Chairman and Chief Executive Officer. "Our full year operating income was $2.4 billion, which included $1.2 billion in after-tax catastrophe losses, compared to operating income of $1.4 billion in the prior year, which included $1.7 billion in after-tax catastrophe losses. In addition to the lower level of catastrophe losses, higher underlying underwriting margins contributed significantly to the year over year improvement. The underlying underwriting margins improved in each of our businesses, attributable to improved non-catastrophe weather-related losses and the significant pricing gains we have been realizing. Our high quality investment portfolio continued to perform very well. Finally, in light of the overall economic environment, we remained highly disciplined in managing our expenses but continue to invest strategically in our businesses where appropriate.

"We are very encouraged by pricing trends across all three business segments. Renewal rate change in Business Insurance was approximately 8%, up from nearly 6% in the fourth quarter of last year and consistent with recent quarters. Renewal rate change in Financial, Professional and International Insurance improved to 4%, and we once again achieved double-digit pricing improvements in Personal Insurance.

"Given the continued low interest rate environment and uncertain weather patterns, we will continue to seek improved pricing. In addition, we remain committed to returning excess capital to shareholders, and in that regard we are especially pleased that notwithstanding the high level of catastrophe losses we again experienced in 2012, we were able to return more than $2.1 billion to shareholders through dividends and share repurchases.

"This was another year in which unusual severe weather events affected many of our customers, and we remain committed to delivering on our promise of helping them restore their lives. Our entire Claim organization has again been called upon to work under difficult circumstances and has responded with their customary care and professionalism. We are deeply appreciative for all that they have done over these difficult months to make sure Travelers does it right," concluded Fishman.

Fourth Quarter 2012 Consolidated Results

 
       
($ in millions) Three Months Ended December 31,
2012 2011 2012 2011

 

Pre-tax After-tax
 
Underwriting gain (loss) $ (338 ) $ 187 $ (232 ) $ 115

Underwriting gain (loss) includes :

Net favorable prior year reserve development 222 126 146 83
Catastrophes, net of reinsurance (1,054 ) (102 ) (689 ) (68 )
 
Net investment income 689 652 556 541
 
Other, including interest expense   (79 )   (75 )   (46 )   (47 )
Operating income 272 764 278 609
Net realized investment gains   39     14     26     9  
Income before income taxes $ 311   $ 778  
Net income $ 304   $ 618  
                       
 
GAAP combined ratio 105.4 % 95.9 %
 

GAAP combined ratio excluding incremental impact of direct to consumer initiative

104.6 % 95.1 %
 

Impact on GAAP combined ratio

Net favorable prior year reserve development (4.0 ) pts (2.3 ) pts
Catastrophes, net of reinsurance 18.7 pts 1.8 pts
 

Operating income of $278 million after-tax decreased $331 million from the prior year quarter due to a $347 million after-tax decrease in the underwriting results, reflecting the after-tax impact of higher catastrophe losses that were partially offset by higher underlying underwriting margins (which excludes net favorable prior year reserve development and catastrophe losses) and higher net favorable prior year reserve development.

The underwriting results in the current quarter reflected a GAAP combined ratio of 105.4 percent, as compared to 95.9 percent in the prior year quarter. This increase of 9.5 points in the combined ratio resulted from higher catastrophe losses (16.9 points), partially offset by higher underlying underwriting margins (5.7 points) and higher net favorable prior year reserve development (1.7 points). Catastrophe losses in the current quarter were mostly due to Storm Sandy. Net favorable prior year reserve development in the current quarter occurred in all three business segments.

The current quarter underlying GAAP combined ratio was 90.7 percent (which excludes net favorable prior year reserve development and catastrophe losses) as compared to 96.4 percent in the prior year quarter. This improvement of 5.7 points primarily resulted from lower non-weather related property losses in Personal Insurance and earned rate increases exceeding loss cost trends in all three business segments.

Total revenues of $6.477 billion in the current quarter increased 2 percent from the prior year quarter. Within total revenues, net investment income of $689 million increased $37 million from the prior year quarter due to private equity performance in the non-fixed income portfolio, partially offset by a slight reduction in fixed income returns due to lower reinvestment rates.

Net written premiums of $5.385 billion in the current quarter increased 2 percent from the prior year quarter. Renewal rate gains continued across all segments. Retention rates remained strong across all three business segments and were generally consistent with recent quarters. New business volumes in Business Insurance increased slightly from the prior year quarter but decreased in Financial, Professional & International Insurance and Personal Insurance. Net written premiums in Business Insurance also benefited from continued positive exposure change at renewal, as well as a modestly higher level of positive audit premiums compared to the prior year quarter.

Capital Management

"Our cash position remained strong as we ended the year with holding company liquidity of $2.0 billion," commented Jay S. Benet, Vice Chairman and Chief Financial Officer. "Even with the elevated claim payments related to Storm Sandy and a discretionary contribution of $150 million to our qualified pension plan to maintain our high funding ratio, operating cash flows were over $450 million in the quarter. Further, we repurchased 5.4 million shares for $400 million, and dividends were $178 million during the quarter, bringing the full year total capital returned to shareholders to more than $2.1 billion."

During full year 2012, the company repurchased 22.4 million common shares under its existing share repurchase authorization at a total cost of $1.450 billion, leaving $2.159 billion of capacity under that authorization for future share repurchases. Shareholders' equity was $25.405 billion at year-end 2012, a 4 percent increase from the end of the prior year. Included in shareholders' equity at year-end 2012 were after-tax net unrealized investment gains of $3.103 billion, compared to $2.871 billion at year-end 2011. Statutory surplus was $20.048 billion, a 5 percent increase from the beginning of the year. The company's debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 22.2 percent, well within its target range.

The Board of Directors declared a quarterly dividend of $0.46 per share. This dividend is payable March 29, 2013, to shareholders of record as of the close of business on March 8, 2013.

Business Insurance Segment Financial Results

"We were pleased with the profitability in Business Insurance, particularly in light of Storm Sandy," commented Brian MacLean, President and Chief Operating Officer. "We were especially pleased that the underlying combined ratio improved over 4 points from the prior year quarter driven primarily by earned rate increases which exceeded loss cost trends. Written rate gains were between 6% and 10% across all lines, led by Workers' Compensation and Commercial Auto, with stable retentions and slightly improved new business levels. Going forward we will continue to execute on our targeted pricing strategy to further improve underwriting margins."


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($ in millions) Three Months Ended December 31,
2012 2011 2012 2011
Pre-tax After-tax
 
Underwriting gain (loss) $ (119 ) $ 106 $ (82 ) $ 63

Underwriting gain (loss) includes :

Net favorable prior year reserve development 120 49 78 32
Catastrophes, net of reinsurance (439 ) (14 ) (285 ) (9 )
 
Net investment income 498 457 402 379
 
Other 9 4 6 3
       
Operating income $ 388   $ 567   $ 326   $ 445  
   
TWX +1.46 83.74

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