Travelers Q4 Profit Down, Hurt by $669M Sandy Loss; Full-Year Profit Up

January 22, 2013

The Travelers Companies Inc. today reported net income of $304 million for the 2012 fourth quarter, down 51 percent compared to $618 million net income posted during the same period in 2011.

Still, the 2012 full-year net income rose. The full-year income was $2.473 billion, up 73 percent from $1.426 billion net income for 2011.

The company said the decline in the 2012 fourth-quarter income compared to the prior year quarter was caused by the impact of higher catastrophe losses, partially offset by higher underlying underwriting margins and higher net favorable prior year reserve development.

Catastrophe losses for the 2012 fourth quarter were $689 million after-tax ($1.054 billion pre-tax), including losses resulting from Superstorm Sandy of $669 million after-tax ($1.024 billion pre-tax). In comparison, the company had catastrophe losses of $68 million after-tax ($102 million pre-tax) during the 2011 fourth quarter.

Total net written premiums written in the 2012 fourth quarter were $5.385 billion, up 2 percent from $5.261 billion in 2011 fourth quarter. Total net written premiums written for the full-year 2012 were $22.447 billion, up 1 percent from $22.187 billion during the full-year 2011.

The GAAP combined ratio for the 2012 fourth quarter was 105.4 percent, compared to 95.9 percent for the 2011 fourth quarter. The GAAP combined ratio for the full-year 2012 improved, to 97.1 percent from 105.1 percent during the full-year 2011.

Underwriting loss, after-tax, for the 2012 fourth quarter was $232 million, compared to $115 million underwriting gain, after-tax, during the 2011 fourth quarter. But for the full-year 2012, the company had underwriting gain, after-tax, of $296 million, compared to underwriting loss, after-tax, of $745 million during the full-year 2011. (Net favorable prior year reserve development for the full-year 2012 was $622 million, after-tax, compared to $473 million for the full-year 2011.)

Net investment income, after tax, for the 2012 fourth quarter was $556 million, up from $541 million one year ago. Net investment income, after tax, for the full-year 2012 was $2.316 billion, down a bit from $2.330 billion during the full-year 2011.

“We are pleased with our fourth quarter results, as well as our full year results, particularly in light of Storm Sandy,” commented CEO Jay Fishman.

“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,” said CEO Fishman.

“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.”

CEO Fishman: ‘Encouraged’ by Pricing Trends

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

He said that given the continued low interest rate environment and uncertain weather patterns, Travelers 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,” said CEO Fishman.

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