10-QPeriod: Q1 FY2009

TRAVELERS COMPANIES, INC. Quarterly Report for Q1 Ended Mar 31, 2009

Filed April 30, 2009For Securities:TRV

Summary

The Travelers Companies, Inc. (TRV) reported net income of $662 million, or $1.11 per diluted share, for the first quarter of 2009. This represents a decrease compared to the same period in 2008, largely due to lower net investment income and increased net realized investment losses. Total revenues were $5.74 billion, down from $6.23 billion in the prior year quarter. The company's combined ratio worsened to 90.6% from 87.6% a year ago, reflecting a decrease in underwriting margins and a reduction in prior year reserve development. Despite the decline in profitability, the company maintained a strong financial position with total assets of $110.47 billion and shareholders' equity of $26.50 billion. The company also highlighted its liquidity position and ongoing share repurchase program, although repurchases were minimal in the current quarter. Management noted the challenging economic environment and investment market conditions as key factors impacting performance, while emphasizing efforts to manage costs and maintain competitive pricing.

Financial Highlights

22 data points
Beta

Revenue

$5.74B

Net Income

$662.00M

11.5% Net Margin

EPS (Diluted)

$1.11

Cash & Equivalents

$245.00M

Free Cash Flow

$813.00M

Financial Statements
Beta
Revenue$5.74B
Interest Expense$92.00M
Net Income$662.00M
EPS (Basic)$1.12
EPS (Diluted)$1.11
Shares Outstanding (Basic)584.60M
Shares Outstanding (Diluted)590.40M

Key Highlights

  • 1Net income for Q1 2009 was $662 million, a decrease from $967 million in Q1 2008.
  • 2Diluted earnings per share were $1.11, down from $1.54 in the prior year quarter.
  • 3Total revenues decreased to $5.74 billion from $6.23 billion year-over-year.
  • 4The consolidated GAAP combined ratio deteriorated to 90.6% from 87.6% in the prior year quarter.
  • 5Net investment income declined significantly by 33% to $542 million, primarily due to negative returns from non-fixed maturity investments.
  • 6Net realized investment losses increased to $214 million from $62 million in the prior year, including substantial impairment charges.
  • 7Shareholders' equity stood at $26.50 billion, with book value per common share of $45.12, an increase of 5% from year-end 2008.

Frequently Asked Questions

The primary driver for the decrease in net income was a significant decline in net investment income, which fell by 33% year-over-year. This was exacerbated by an increase in net realized investment losses and reduced net favorable prior year reserve development.

The investment portfolio saw a decline in performance, with net investment income decreasing significantly. This was primarily due to negative returns from non-fixed maturity investments like private equity partnerships and hedge funds, reflecting challenging capital market conditions. Net realized investment losses also increased substantially, including significant impairment charges on both fixed maturity and equity investments.

The company anticipates a challenging environment for the remainder of 2009. They expect continued intense competition, particularly for new business, and anticipate modestly increased loss costs. The investment environment is also expected to remain challenging, especially for non-fixed maturity investments. General economic conditions, if they continue to deteriorate, could adversely affect demand for products, credit risk, and potentially increase fraudulent claims.

The company is involved in several significant legal proceedings, notably concerning asbestos and environmental claims. A key development is the pending Supreme Court ruling on petitions related to direct action lawsuits against TPC concerning asbestos claims. Unless the Supreme Court reverses the Second Circuit's decision and the bankruptcy court's order is reinstated, the company's settlements in these matters will be voided. The company is also engaged in other proceedings such as reinsurance litigation and broker anti-trust litigation, but based on its current assessment, does not expect any of these other matters to have a material adverse effect on its financial position or liquidity.