Travelers Reports Solid Q4, Year-End Underwriting; ‘Well Positioned’ for 2009

January 27, 2009

The Travelers Companies, Inc. reported net income of $801 million for the quarter ended Dec. 31, 2008, compared to $1.063 billion, for the quarter ended Dec. 31, 2007. Operating income in the current quarter was $939 million compared to $1.057 billion in the prior year quarter.

Jay Fishman, chairman and CEO, said the results reflected “solid underwriting performance” with a combined ratio of 85.9 percent that was achieved “despite lower net investment income due to difficult investment markets.”

Net written premiums grew slightly in the quarter. Business retention remained at “historically high levels,” according to Fishman, who also said that slightly higher rates were being partially offset by lower coverage demands from existing policyholders due to general economic conditions.

New business volumes increased from the prior year quarter driven by growth in Financial Professional & International Insurance and Personal Insurance.

For the full year 2008, despite significant storm activity and difficult investment markets, Travelers recorded operating income of $3.2 billion and an operating return on equity of 12.4 percent.

Fishman expressed confidence about 2009. “Looking forward to 2009, we believe that Travelers is well positioned in the current uncertain economic environment,” he said.

Current Quarter Highlights
Strong underwriting results in all segments with GAAP combined ratios in Business Insurance of 85.7 percent; Financial, Professional & International Insurance of 87.2 percent; and Personal Insurance of 85.6 percent. Consolidated GAAP combined ratio of 85.9 percent.

Positive impact to net and operating income of $56 million after-tax ($85 million pre-tax) due to a downward adjustment of current year catastrophe losses, compared to catastrophe losses of $45 million after-tax ($68 million pre-tax) in the prior year quarter.

Sale of Unionamerica Holdings Limited, the company’s United Kingdom-based runoff insurance and reinsurance businesses, recording a tax benefit of $89 million in operating income along with an insignificant net realized investment gain.

Net written premiums of $5.385 billion, compared to $5.366 billion in the prior year quarter.

Net investment income of $438 million after-tax ($483 million pre-tax), compared to $696 million after-tax ($882 million pre-tax) in the prior year quarter. Net investment income in the current quarter was impacted by negative returns in the non-fixed income portfolio and very low short-term interest rates.

Full Year 2008 Highlights
Return on equity and operating return on equity of 11.4 percent and 12.4 percent, respectively.

Consolidated GAAP combined ratio of 91.9 percent, compared to 87.4 percent in the prior year.

Catastrophe losses of $919 million after-tax ($1.408 billion pre-tax), compared to $109 million after-tax ($167 million pre-tax) in the prior year.

Net written premiums of $21.683 billion, compared to $21.618 billion in the prior year.

Net investment income of $2.299 billion after-tax ($2.792 billion pre-tax), compared to $2.915 billion after-tax ($3.761 billion pre-tax) in the prior year. Net investment income in the current year was impacted by negative returns in the non-fixed income portfolio and low short-term interest rates.

Fourth Quarter 2008 Consolidated Results
Net and operating income in the current quarter of $801 million and $939 million, respectively, include an after-tax underwriting gain of $545 million and after-tax net investment income of $438 million.

The current quarter underwriting result reflects a GAAP combined ratio of 91.8 percent, excluding net favorable prior year reserve development, catastrophes and re-estimation of the current year loss ratios for the first three quarters of the year, as compared to 90.5 percent in the prior year quarter. This increase of 1.3 points primarily resulted from pricing and loss cost experience that were generally consistent with prior quarters and a small number of large losses that exceeded expectations.

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 company also benefited in the quarter from a downward adjustment in its current year catastrophe loss estimates. The largest component of this favorable adjustment was due to the company’s re-estimation of the Texas Windstorm Insurance Association (TWIA) losses arising out of Hurricane Ike, a storm that occurred late in the third quarter. This resulted in a reduction of the company’s share of TWIA losses.

There was also a favorable re-estimation of direct catastrophe losses primarily related to Hurricanes Ike and Gustav, as additional company-specific information became available. In addition, the current quarter included an $89 million tax benefit related to the sale of Unionamerica, the company’s United Kingdom-based runoff insurance and reinsurance businesses, primarily resulting from the difference between its book basis and tax basis.

Net investment income in the current quarter declined from the prior year quarter due to negative returns in the non-fixed income portfolio as well as a 220 basis point reduction in average after-tax short-term interest rates in the fixed-income portfolio.

Net written premiums of $5.385 billion in the current quarter were slightly higher than in the prior year quarter. Overall, business retention remained at historically high levels and the impact of a slightly improving rate trend was partially offset by lower coverage demands from existing policyholders due to general economic conditions. New business volumes increased from the prior year quarter driven by growth in Financial Professional & International Insurance and Personal Insurance.

Full Year 2008 Consolidated Results
Net and operating income for the twelve-month period ended December 31, 2008 of $2.924 billion and $3.195 billion, respectively, include an after-tax underwriting gain of $1.076 billion and after-tax net investment income of $2.299 billion.

The current year underwriting result reflects a GAAP combined ratio of 92.5 percent, excluding net favorable prior year reserve development and catastrophes, as compared to 90.0 percent in the prior year, which also excludes the timing impact for the transition to the fixed, value-based agent compensation program adopted in the first quarter 2007, which lowered reported expenses in the period from what otherwise would have been reported. This increase of 2.5 points primarily resulted from pricing and loss cost experience that were anticipated, a small number of large losses that exceeded expectations and an increase in non-catastrophe related weather losses.

Net favorable prior year reserve development in the current year resulted from better than expected loss experience in each segment, particularly in Business Insurance. Catastrophe losses in the current year were primarily related to Hurricanes Ike, Gustav and Dolly, as well as other severe weather events in various regions of the United States.

Net investment income in the current year was impacted by negative returns in the non-fixed income portfolio and low short-term interest rates.

Net written premiums in the current year were $21.683 billion, compared to $21.618 billion in the prior year.

Business Insurance Segment Financial Results
For the fourth quarter 2008, the Business Insurance segment reported operating income of $619 million, including an after-tax underwriting gain of $325 million and after-tax net investment income of $291 million.

The current quarter underwriting result reflects a GAAP combined ratio of 93.2 percent, excluding net favorable prior year reserve development, catastrophes and re-estimation of the current year loss ratios for the first three quarters of the year, as compared to 91.3 percent in the prior year quarter. This increase of 1.9 points primarily resulted from pricing and loss cost experience that were generally consistent with prior quarters.

Net favorable prior year reserve development in the current quarter primarily resulted from better than expected loss experience in the general liability, commercial auto and commercial multi-peril product lines. The segment also benefited in the quarter from a downward adjustment in current year catastrophe loss estimates due in large part to favorable re-estimation of losses related to Hurricane Gustav. In addition, the current quarter included the $89 million tax benefit related to the sale of Unionamerica.

Business Insurance net written premiums of $2.756 billion declined 1 percent from the prior year quarter. Retention rates continued to be very strong and improved from the prior year quarter particularly in Commercial Accounts. Renewal price changes, while generally slightly negative, improved from the prior year quarter due to the impact of a slightly improving rate trend across several lines, partially offset by lower coverage demands from existing policyholders due to general economic conditions. New business volumes were consistent with the prior year quarter as growth in Select Accounts was offset by declines in Target Risk Underwriting and Specialized Distribution.
Select Accounts

Net written premiums of $662 million increased 3 percent from the prior year quarter.

Retention rates remained strong and improved from the prior year quarter.

Renewal price changes were slightly lower than recent quarters due to lower coverage demands from existing policyholders.

New business volume increased from the prior year quarter due to significant increases in submission flows related to TravelersExpress, the enhanced quote-to-issue agency platform and multivariate pricing program for smaller businesses, as well as from growth in business from larger accounts served by Select.

Commercial Accounts
Net written premiums of $666 million declined 2 percent from the prior year quarter.

Retention rates remained very strong and improved from the prior year quarter.

Renewal price changes remained negative and generally consistent with recent quarters as the impact of a slightly improving rate trend was partially offset by lower coverage demands from existing policyholders.

New business volumes were generally consistent with the prior year quarter.

National Accounts
Net written premiums of $269 million were consistent with the prior year quarter.

Industry-Focused Underwriting
Net written premiums of $586 million increased 6 percent from the prior year quarter primarily driven by Construction, Oil & Gas and Technology.

Target Risk Underwriting
Net written premiums of $359 million declined 5 percent from the prior year quarter primarily due to the overall pricing environment and lower new business volumes in National Property.

Specialized Distribution
Net written premiums of $208 million declined 15 percent from the prior year quarter primarily due to weaknesses in the commercial trucking industry.

Financial, Professional & International Insurance Segment
For the fourth quarter 2008, the Financial, Professional & International Insurance segment reported operating income of $154 million, including an after-tax underwriting gain of $72 million and after-tax net investment income of $78 million.

The current quarter underwriting result reflects a GAAP combined ratio of 92.4 percent, excluding net favorable prior year reserve development, catastrophes and re-estimation of the current year loss ratios for the first three quarters of the year, as compared to 89.6 percent in the prior year quarter. The significant components of the 2.8 point increase are a small number of large losses that exceeded expectations within International and increased loss activity within the Financial Institutions business unit of Bond & Financial Products resulting from the difficult conditions in financial markets, partially offset by favorable results in the Commercial Surety and Construction Services business units of Bond & Financial Products.

The net favorable prior year reserve development in the current quarter primarily resulted from better than expected loss experience across various lines of business within International. The segment also benefited in the quarter from a downward adjustment in current year catastrophe loss estimates due in large part to favorable re-estimation of direct losses related to Hurricanes Ike and Gustav.

Financial, Professional & International Insurance net written premiums of $938 million declined 3 percent from the prior year quarter primarily due to changes in foreign currency exchange rates.

Personal Insurance Segment Financial Results
For the fourth quarter 2008, the Personal Insurance segment reported operating income of $226 million, including an after-tax underwriting gain of $148 million and after-tax net investment income of $69 million.

The current quarter underwriting result reflects a GAAP combined ratio of 89.2 percent, excluding net favorable prior year reserve development, catastrophes and re-estimation of the current year loss ratios for the first three quarters of the year, as compared to 89.6 percent in the prior year quarter. This decrease of 0.4 points was primarily due to favorable automobile loss trends.

Net favorable prior year reserve development in the current quarter was primarily driven by favorable loss experience related to Hurricane Katrina and other prior year weather-related losses within Homeowners and Other. The segment also benefited in the quarter from a downward adjustment in current year catastrophe loss estimates due in large part to the company’s re-estimation of the TWIA losses arising out of Hurricane Ike. There was also favorable re-estimation of direct catastrophe losses primarily related to Hurricane Ike.

Personal Insurance net written premiums of $1.691 billion increased 4 percent from the prior year quarter. This result was primarily due to continued strong retention rates, positive renewal price changes and higher new business volume.

Automobile
Net written premiums of $876 million increased 3 percent, and policies in force increased 2 percent, from the prior year quarter.

Retention rates were strong and renewal price changes were positive, both generally consistent with recent quarters.

New business volume increased from the prior year quarter due to continued agent and channel expansion of QuantumAuto distribution.

Homeowners and Other
Net written premiums of $815 million increased 5 percent, and policies in force increased 3 percent, from the prior year quarter.

Retention rates were strong and renewal price changes were positive, both generally consistent with recent quarters.

New business volume increased from the prior year quarter as new business growth in non-coastal areas was partially offset by ongoing coastal risk management initiatives.

Source: Travelers
http://investor.travelers.com/

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