New York, NY – The Travelers Companies, Inc. recently reported net income of $833 million, or $2.55 per diluted share, for the quarter ended March 31, 2015, compared to net income of $1.052 billion, or $2.95 per diluted share, in the prior year quarter. Operating income in the current quarter was $827 million, or $2.53 per diluted share, compared to $1.052 billion, or $2.95 per diluted share, in the prior year quarter. The decrease in net and operating income primarily resulted from the factors described above. Per diluted share amounts also benefited from the impact of share repurchases.
“We were very pleased with our first quarter operating income of $827 million and operating return on equity of 14.5%,” commented Jay Fishman, Chairman and Chief Executive Officer. “Underwriting results remained very strong, as evidenced by our combined ratio of 88.9%, while net investment income declined due to lower private equity and fixed income returns. Also during the quarter, we returned $850 million to shareholders, including $178 million of dividends and $672 million in share repurchases. Today, our Board of Directors announced an 11% increase in our quarterly dividend, raising it to $0.61 per share, marking 11 consecutive years of dividend increases with a compound annual growth rate of nearly 10%. The Board also authorized an additional $5 billion of share repurchases.
“Business and International Insurance posted a strong combined ratio of 93.3%. We were particularly pleased that in our domestic business we achieved a record level of retention while posting positive renewal rate change. New business was up 16% domestically as cumulative price increases over the past four years resulted in an increase in the number of new business opportunities that met our return thresholds. Bond & Specialty Insurance results also remained very strong, producing a combined ratio of 76.1%. In Personal Insurance, we posted a very solid combined ratio of 83.5%. Our Agency Auto business continued to perform well with net written premium growth of 4% and policies in force growth of nearly 2% in the quarter.
“Our performance this quarter is an encouraging start to the year, and our strategies remain unchanged. We do continue to note the severity of weather patterns, as evidenced by another very difficult winter on the East Coast and prolonged drought on the West Coast. In that regard, we continue to refine our highly segmented underwriting and pricing analytics to ensure that we are appropriately reflecting this uncertainty. We remain committed to delivering superior profitability and returns on equity over time.”
First Quarter 2015 Results
(All comparisons vs. first quarter 2014, unless noted otherwise)
Net income of $833 million after-tax and operating income of $827 million after-tax decreased $219 million and $225 million, respectively, primarily driven by lower net investment income, a lower underlying underwriting gain (i.e., excluding net favorable prior year reserve development and catastrophe losses), and lower net favorable prior year reserve development. The underlying underwriting gain in the prior year quarter benefitted from a $49 million after-tax ($76 million pre-tax) reduction in the estimated liability for state assessments to be paid by the Company related to workers’ compensation premiums due to a change in state law.
- The combined ratio increased 3.2 points to 88.9% due to a higher underlying combined ratio (2.1 points), lower net favorable prior year reserve development (1.0 points) and higher catastrophe losses (0.1 points).
- The underlying combined ratio increased 2.1 points to 90.3%, primarily driven by an increase in the expense ratio (1.8 points) and the underlying loss ratio (0.3 points). The expense ratio increased primarily due to the inclusion in the prior year quarter of the above mentioned state assessments benefit (1.3 points).
- Net favorable prior year reserve development occurred in all segments. Catastrophe losses were due to a winter storm in the eastern United States.
Net investment income of $592 million pre-tax ($478 million after-tax) decreased primarily due to lower private equity and fixed income returns. Private equity returns were particularly high in the prior year quarter and were impacted in the current quarter by lower valuations for energy-related investments. Fixed income returns declined due to lower reinvestment rates and modestly lower fixed income investments, reflecting a reduction in operating cash flows this quarter driven by the impact of the Company’s $579 million payment related to the settlement of the Asbestos Direct Action Litigation.
Net written premiums of $5.897 billion increased slightly from the prior year quarter, benefitting from positive renewal premium changes in all segments and higher retention and new business volumes in Business and International Insurance and Personal Insurance, partially offset by the impact of changes in the timing and structure of certain of the Company’s reinsurance treaties and the impact of changes in foreign currency exchange rates.
Shareholders’ equity of $24.847 billion increased slightly compared to year-end 2014. Included in shareholders’ equity were after-tax net unrealized investment gains of $2.076 billion, compared to $1.966 billion at year-end 2014. Book value per share of $77.96 and adjusted book value per share of $71.45 both increased 1% from year-end 2014. Book value per share and adjusted book value per share were both reduced by approximately $0.75 per share in the current quarter due to the impact of changes in foreign currency exchange rates.
The Company repurchased 6.3 million shares during the first quarter at an average price of $107.04 for a total cost of $672 million. At the end of first quarter 2015, statutory capital and surplus was $20.944 billion and the ratio of debt-to-capital (excluding after-tax net unrealized investment gains) was 21.8%, well within the Company’s target range of 15% to 25%.
The Board of Directors today declared a quarterly dividend of $0.61 per share, an increase of 11%. This dividend is payable on June 30, 2015, to shareholders of record as of the close of business on June 10, 2015. The Board of Directors also authorized an additional $5.0 billion of share repurchases. This amount is in addition to the $884 million that remained from previous authorizations as of March 31, 2015. This authorization does not have a stated expiration date. The timing and actual number of shares to be repurchased will depend on a variety of factors, including the factors described below in the Forward-Looking Statement section.
The complete results release is available here: Travelers Q1 2015 Results