10-QPeriod: Q2 FY2012

TRAVELERS COMPANIES, INC. Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 19, 2012For Securities:TRV

Summary

Travelers Companies, Inc. reported a significant turnaround in its financial performance for the second quarter and first six months of 2012 compared to the same periods in 2011. The company posted a net income of $499 million ($1.26 per diluted share) for the quarter, a substantial improvement from a net loss of $364 million ($0.88 per diluted share) in the prior year. This positive shift was driven by a considerable reduction in catastrophe losses, which decreased from $1.67 billion in Q2 2011 to $549 million in Q2 2012, alongside higher underlying underwriting margins and increased net favorable prior year reserve development. For the first six months of 2012, net income reached $1.31 billion ($3.29 per diluted share), up from $475 million ($1.10 per diluted share) in the corresponding period of 2011. The company's combined ratio improved significantly to 100.5% in Q2 2012 from 125.0% in Q2 2011, indicating better operational efficiency and profitability. The balance sheet remained robust, with total investments of $72.94 billion and shareholders' equity of $25.05 billion. Travelers also continued its capital return strategy, repurchasing $350 million of its common stock during the quarter.

Financial Highlights

29 data points
Beta

Revenue

$6.36B

Net Income

$499.00M

7.8% Net Margin

EPS (Diluted)

$1.26

Total Assets

$104.33B

Cash & Equivalents

$230.00M

Free Cash Flow

$451.00M

Financial Statements
Beta
Revenue$6.36B
Operating Income$495.00M
Interest Expense$96.00M
Net Income$499.00M
EPS (Basic)$1.27
EPS (Diluted)$1.26
Shares Outstanding (Basic)388.00M
Shares Outstanding (Diluted)391.60M

Key Highlights

  • 1Net income for Q2 2012 was $499 million ($1.26/share), a significant improvement from a net loss of $364 million ($0.88/share) in Q2 2011.
  • 2Catastrophe losses significantly decreased to $549 million in Q2 2012 from $1.67 billion in Q2 2011.
  • 3The GAAP combined ratio improved to 100.5% in Q2 2012, down from 125.0% in Q2 2011.
  • 4Earned premiums were relatively stable year-over-year, with slight increases in Business Insurance and Personal Insurance, offset by a decrease in Financial, Professional & International Insurance.
  • 5Net investment income saw a slight decline to $738 million from $758 million in the prior year quarter, primarily due to lower reinvestment yields.
  • 6Travelers returned $350 million to shareholders through share repurchases in Q2 2012, with $2.91 billion remaining capacity under its repurchase program.
  • 7Shareholders' equity increased to $25.05 billion at June 30, 2012, with book value per share up 9% from June 30, 2011.

Frequently Asked Questions

The primary driver of the improved profitability was a significant reduction in catastrophe losses. Catastrophe losses decreased from $1.67 billion in the second quarter of 2011 to $549 million in the second quarter of 2012. This, combined with higher underlying underwriting margins and increased net favorable prior year reserve development, led to a net income of $499 million compared to a net loss in the prior year.

Net investment income decreased slightly to $738 million from $758 million in the prior year's second quarter. This decline was primarily attributed to lower long-term reinvestment yields available in the market. The company maintained a conservative investment philosophy, with 93% of its investments in fixed maturity and short-term securities, characterized by high quality and liquidity.

Travelers continued its commitment to returning capital to shareholders. During the second quarter of 2012, the company repurchased 5.6 million shares of its common stock for approximately $350 million under its share repurchase authorization. As of June 30, 2012, the company had $2.91 billion of capacity remaining under this authorization.

The company anticipates continued modest growth in earned premiums, driven by renewal premium increases across its segments. While the pricing environment for new business remains competitive, Travelers expects to achieve higher underlying underwriting margins in the upcoming periods due to repricing efforts, improved terms and conditions, and managed expenses, despite some anticipated increases in underlying losses and the continued low-interest-rate environment.