10-QPeriod: Q3 FY2011

TRAVELERS COMPANIES, INC. Quarterly Report for Q3 Ended Sep 30, 2011

Filed October 19, 2011For Securities:TRV

Summary

The Travelers Companies, Inc. (TRV) reported a net income of $333 million, or $0.79 per diluted share, for the third quarter of 2011. This represents a significant decrease from the $1,005 million in net income reported in the same period of the prior year. The decline was primarily driven by a substantial increase in catastrophe losses, notably from Hurricane Irene and Tropical Storm Lee, which amounted to $606 million. Additionally, the company experienced reduced underwriting margins, lower net favorable prior year reserve development, and a decline in net investment income. Despite the lower net income, the company demonstrated a commitment to returning capital to shareholders by repurchasing 7.3 million common shares for $375 million. Total investments remained substantial at $73.65 billion, with a conservative allocation to high-quality fixed maturities. The company's financial condition remained solid, with total assets of $106.93 billion and a debt-to-total capital ratio of 20.8%. Investors should note the significant impact of catastrophe events on quarterly results and monitor underlying underwriting performance and reserve development trends in future filings.

Financial Statements
Beta
Revenue$6.41B
Operating Income$332.00M
Interest Expense$97.00M
Net Income$333.00M
EPS (Basic)$0.80
EPS (Diluted)$0.79
Shares Outstanding (Basic)415.00M
Shares Outstanding (Diluted)418.50M

Key Highlights

  • 1Net income decreased significantly to $333 million ($0.79/share) in Q3 2011 from $1,005 million ($2.11/share) in Q3 2010, largely due to $606 million in catastrophe losses.
  • 2Net earned premiums increased by 3% to $5.61 billion in Q3 2011 compared to the prior year period.
  • 3The GAAP combined ratio deteriorated to 104.5% in Q3 2011 from 90.6% in Q3 2010, primarily driven by higher catastrophe losses and reduced underlying underwriting margins.
  • 4Total investments stood at $73.65 billion, with 93% in fixed maturities and short-term securities, reflecting a conservative investment strategy.
  • 5The company repurchased 7.3 million common shares for $375 million during the quarter, demonstrating a commitment to returning capital to shareholders.
  • 6Shareholders' equity increased by 3% year-over-year to $25.17 billion, with book value per common share at $60.98.
  • 7The Business Insurance segment experienced a significant drop in operating income to $294 million from $543 million, impacted by increased catastrophe losses and reduced net favorable prior year reserve development.

Frequently Asked Questions

The primary driver for the decrease in net income was a significant increase in catastrophe losses, totaling $606 million in the third quarter of 2011, primarily from Hurricane Irene and Tropical Storm Lee. Additionally, reduced underwriting margins and lower net favorable prior year reserve development contributed to the decline.

Travelers actively managed its capital by repurchasing 7.3 million common shares for $375 million. The company also maintained a strong capital position with total investments of $73.65 billion and a debt-to-total capital ratio of 20.8%.

The company expects continued growth in earned premiums, driven by renewal business and new business. They anticipate positive renewal premium changes and generally stable market conditions, although they are actively seeking improved pricing and terms and conditions due to volatile weather patterns and low interest rates.

Asbestos and environmental claims remain a significant area of focus and potential liability for Travelers. While the company believes its reserves are appropriately established, there is ongoing uncertainty and potential for material future charges due to the complex nature of litigation, evolving legal theories, and the bankruptcy of defendants.