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TRAVELERS COMPANIES, INC. Annual Report, Year Ended Dec 31, 1998

Filing Date
Filed March 31, 1999
Period End
December 31, 1998
Security
TRV
In the record · 2016–202610-K1110-Q338-K91

TRV filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 91 current reports (8-K) between 2016 and 2026.

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01—Abstract

Summary

Summary of the 10-K filed March 31, 1999. Cited figures are marked; the original filing is the authoritative source.

The St. Paul Companies, Inc. reported a sharp earnings decline for 1998, with net income of $89 milliona ($0.32 per diluted share), down from $929 million in 1997.

The year was shaped by the April 24, 1998 merger with USF&G Corporation, accounted for as a pooling of interests, which added 66.5 million common shares and was valued at about $3.7 billionb. The company recorded $617 million of pretax charges in 1998, including a $292 million merger-related charge, a $250 million provision to strengthen loss reserves, a $41 million DPAC writedown in life insurance, and a $34 million restructuring charge. Catastrophe losses exceeded $400 million, and the GAAP combined ratio for property-liability insurance rose to 116.2 from 103.8 in 1997.

Pretax loss from continuing operations was $46 millionc, compared with pretax income of $1.34 billion in 1997. Balance sheet strength was maintained. Common shareholders' equity was $6.62 billion at year-end, book value per share was $28.32, and the ratio of debt to total capitalization was 15%.

Management expects market conditions to remain difficult in 1999, with Commercial Lines premiums projected to fall by about $250 milliond, but it anticipates substantial earnings improvement from merger savings of roughly $200 million annually and a restructuring expected to save about $50 million in 1999. The company also raised its quarterly dividend to $0.26 per share, or $1.04 annualized, and had repurchased $295 million of stock under a $500 million program through March 1, 1999.

02—Key points

Key Highlights

  1. Net income fell to $89 million ($0.32 diluted EPS) in 1998 from $929 million ($3.69) in 1997, reflecting $617 million of pretax charges.
  2. The USF&G merger, completed April 24, 1998, issued 66.5 million shares and is expected to produce about $200 million in annualized pretax expense savings.
  3. Catastrophe losses exceeded $400 million, and the property-liability GAAP combined ratio worsened to 116.2 from 103.8.
  4. A $250 million reserve strengthening provision was recorded for USF&G's loss and LAE reserves, with $196.7 million allocated to Commercial Lines.
  5. Written premiums declined 3% to $6.69 billion, with Commercial Lines down 11% and Reinsurance down 12%.
  6. Common shareholders' equity was $6.62 billion, book value per share was $28.32, and debt to total capitalization was 15%.
  7. The quarterly dividend was increased to $0.26 per share in February 1999, and $295 million had been repurchased under a $500 million program through March 1, 1999.

03—Questions

Frequently Asked Questions

  1. Why did earnings decline so sharply in 1998?

    Results were hurt by catastrophe losses above $400 million, the $250 million loss reserve strengthening, the $292 million merger-related charge, a $41 million writedown of deferred policy acquisition costs in life insurance, and a $34 million restructuring charge. Property-liability pretax income fell to $131 million from $1.39 billion in 1997, and the company recorded a pretax loss from continuing operations of $46 million.

  2. What did the USF&G merger involve?

    The St. Paul issued 66.5 million common shares in a pooling-of-interests merger with USF&G Corporation, a Baltimore-based property-liability and life insurance holding company. The transaction was valued at about $3.7 billion, including USF&G's assumed debt and capital securities. Management expects annualized pretax expense savings of about $200 million, measured against the combined 1997 expenses.

  3. Which segments were most affected by the poor 1998 results?

    Commercial Lines posted a combined ratio of 127.3, up from 104.9, and an underwriting loss of $659 million. Specialty Commercial's combined ratio rose to 111.8, driven by Medical Services losses, and Personal Insurance's combined ratio rose to 113.1. Surety, Financial and Professional Services, and Technology were profitable, and the Reinsurance combined ratio was 98.7.

  4. What is management's outlook for 1999?

    Management said it does not expect market conditions to improve in 1999 and expects Commercial Lines written premiums to fall by about $250 million. It expects substantial earnings improvement from merger savings and from a restructuring expected to save about $50 million in 1999. It also expects pretax investment income to fall below 1998 levels.

04—Continue

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