10-QPeriod: Q1 FY2010

TRAVELERS COMPANIES, INC. Quarterly Report for Q1 Ended Mar 31, 2010

Filed April 23, 2010For Securities:TRV

Summary

The Travelers Companies, Inc. reported net income of $647 million for the first quarter of 2010, translating to $1.25 per diluted share, a slight decrease from $662 million ($1.11 per diluted share) in the prior year quarter. This performance was impacted by a significant increase in catastrophe losses to $471 million compared to $83 million in Q1 2009, partially offset by a strong rise in net investment income and the shift from net realized investment losses in the prior year to gains in the current period. Earned premiums saw a slight decline of 1% to $5.23 billion, with the Business Insurance segment experiencing a 5% decrease due to reduced economic activity affecting insured exposures. The company continued its robust share repurchase program, buying back $1.4 billion of common stock in the quarter, demonstrating a commitment to returning capital to shareholders. The company's investment portfolio remains diversified and high-quality, with total investments at $74.04 billion, predominantly in fixed maturities and short-term securities. Net investment income increased significantly by 39% to $753 million, driven by improved returns from non-fixed maturity investments reflecting better capital market conditions. Despite the increase in catastrophe losses, the company's overall GAAP combined ratio was 96.4%, an improvement from 90.6% in the prior year, though this comparison is affected by a large reduction in prior year reserve estimates in Q1 2009. Travelers maintained a strong capital position with total debt to total capital ratio of 19.7%.

Financial Statements
Beta
Revenue$6.12B
Interest Expense$98.00M
Net Income$647.00M
EPS (Basic)$1.26
EPS (Diluted)$1.25
Shares Outstanding (Basic)508.40M
Shares Outstanding (Diluted)515.10M

Key Highlights

  • 1Net income of $647 million ($1.25 diluted EPS) for Q1 2010, a slight decrease from $662 million ($1.11 diluted EPS) in Q1 2009.
  • 2Catastrophe losses significantly increased to $471 million in Q1 2010 compared to $83 million in Q1 2009.
  • 3Net investment income rose by 39% to $753 million, driven by improved performance in non-fixed maturity investments.
  • 4Earned premiums decreased by 1% to $5.23 billion, primarily due to reduced insured exposures in the Business Insurance segment.
  • 5The company repurchased $1.4 billion of common stock in Q1 2010, underscoring its capital return strategy.
  • 6Total investments remained substantial at $74.04 billion, with a high-quality allocation.
  • 7GAAP combined ratio was 96.4% for Q1 2010, an increase from 90.6% in Q1 2009, influenced by higher catastrophe losses and prior year reserve development.

Frequently Asked Questions

The primary driver of the slight decrease in net income was a significant increase in catastrophe losses to $471 million in the first quarter of 2010, compared to $83 million in the same period of 2009. This was partially offset by a strong increase in net investment income and a favorable shift from net realized investment losses in the prior year to net realized investment gains in the current period.

The company's investment portfolio performed well, with net investment income increasing by 39% to $753 million. This improvement was largely driven by better returns from non-fixed maturity investments, reflecting improving capital market conditions. The total investment portfolio stood at $74.04 billion, with a continued focus on high-quality fixed maturities and short-term securities.

Travelers continued its active share repurchase program, repurchasing $1.4 billion of common stock in the first quarter of 2010. The company has a remaining capacity of $5.11 billion under its share repurchase authorization and expects to repurchase between $2.1 billion and $2.6 billion of its common shares in the remainder of 2010, demonstrating a commitment to enhancing shareholder value.

The report highlights significant risks and uncertainties, including the inherent unpredictability of catastrophe losses, potential impacts from economic downturns on premium volume and underwriting results, and the ongoing challenges associated with asbestos and environmental claims and litigation. The company also notes the potential for reduced investment returns and realized losses, as well as the uncertainty surrounding the adequacy of reserves for these complex claims.