New York, NY – The Travelers Companies, Inc. recently reported net income of $866 million, or $2.83 per diluted share, and return on equity of 14.5% for the quarter ended December 31, 2015, compared to $1.038 billion, $3.11 and 16.6%, respectively, in the prior year quarter. Operating income in the current quarter was $886 million, or $2.90 per diluted share, and operating return on equity was 15.8%, compared to $1.023 billion, $3.07 and 17.7%, respectively, in the prior year quarter. These changes were primarily due to the impact of low interest rates and non-fixed income returns on net investment income and a higher level of net favorable prior year reserve development in the prior year quarter. Per diluted share amounts benefited from the impact of share repurchases.
“We are pleased to report that our fourth quarter operating income of $886 million produced a strong operating return on equity of 15.8%, bringing our full year operating income to $3.437 billion and operating return on equity to 15.2%,” commented Alan Schnitzer, Chief Executive Officer. “Underwriting results for both the quarter and the year, which were strong across all of our businesses, continued to benefit from our superior execution in risk selection and pricing, as well as lower than expected catastrophe losses. Returns from our high-quality fixed income portfolio, which comprises 93% of total investments, declined in line with our expectations. Non-fixed income returns remained positive, but were down primarily due to the impact of declining energy prices. Our results for the year enabled us to return over $3.9 billion in capital to shareholders in 2015, including share repurchases of over $3.2 billion, consistent with our ongoing capital management strategy.
“In both Business and International Insurance and Bond & Specialty Insurance, we were very pleased with our continued ability to generate strong product returns while maintaining historically high levels of retention. Our strategy continues to be to retain those accounts which meet our return thresholds and to take appropriate measures to improve profitability on those accounts that do not, while also seeking attractive new business opportunities. Personal Insurance results were strong in both auto and homeowners. We have delivered on our strategic initiative to lower expenses and improve business volumes at attractive returns, and in that regard, we are particularly pleased with the success of Quantum Auto 2.0. Our results in 2015 across all of our businesses have demonstrated the successful execution of our business strategies, and we remain focused on building on these strategies in 2016 and beyond.
“Since January 1, 2005, we have produced an average annual operating return on equity of 13.5%, consistent with our long-standing objective of delivering superior returns over time to our shareholders. With our focus of building on our strengths, along with a consistent capital management philosophy, we remain well positioned to continue to create shareholder value.”
Fourth Quarter 2015 Results
(All comparisons vs. fourth quarter 2014, unless noted otherwise)
Net income of $866 million after-tax decreased $172 million due to a $137 million decline in operating income and net realized investment losses of $20 million after-tax ($32 million pre-tax). Operating income of $886 million after-tax decreased primarily due to lower net investment income and lower net favorable prior year reserve development.
- The combined ratio remained strong at 86.6%. It increased 1.6 points primarily due to lower net favorable prior year reserve development (1.0 point) and a higher underlying combined ratio (0.5 points) (i.e., excluding net favorable prior year reserve development and catastrophe losses).
- The underlying combined ratio also remained strong at 90.7%. It increased 0.5 points primarily due to higher non-catastrophe weather-related losses.
- Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from flooding and wind storms in the Midwest region of the United States.
Net investment income of $541 million pre-tax ($440 million after-tax) decreased primarily due to lower returns in both the non-fixed income and fixed income portfolios. Non-fixed income returns were primarily impacted by lower valuations for energy-related investments. Fixed income returns declined primarily due to lower reinvestment rates and a modestly lower amount of fixed income investments that were impacted by the Company’s $579 million payment in the first quarter of 2015 related to the settlement of the Asbestos Direct Action Litigation.
Net written premiums of $5.864 billion were comparable to the prior year period, benefiting from positive renewal premium changes, strong retention and increases in new business volumes in each segment, offset by the impact of changes in foreign currency exchange rates.
Full Year 2015 Results
(All comparisons vs. full year 2014, unless noted otherwise)
Net income of $3.439 billion after-tax decreased $253 million due to lower operating income and lower after-tax net realized investment gains. Operating income of $3.437 billion after-tax decreased $204 million primarily due to lower net investment income, partially offset by a higher underwriting gain. The increase in the underwriting gain was primarily due to lower catastrophe losses. The underwriting gain in the current year included a $32 million benefit from the resolution of prior year tax matters, while the underwriting gain in the prior year benefited 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 of 88.3% improved 0.7 points due to lower catastrophe losses (0.9 points), partially offset by a slightly higher underlying combined ratio (0.2 points).
- The underlying combined ratio of 90.1% was comparable to the prior year period.
- Net favorable prior year reserve development occurred in all segments. Catastrophe losses included the fourth quarter 2015 events discussed above, as well as wind and hail storms in the Midwest region of the United States in the third quarter of 2015, wind and hail storms in several regions of the United States in the second quarter of 2015 and a winter storm in the eastern United States in the first quarter of 2015.
Net investment income of $2.379 billion pre-tax ($1.905 billion after-tax) decreased primarily due to the same factors discussed above for the fourth quarter of 2015.
Record net written premiums of $24.121 billion increased 1% due to the same factors discussed above for the fourth quarter of 2015.
Shareholders’ equity of $23.598 billion decreased 5% from year-end 2014, including a decline in after-tax net unrealized investment gains and an increase in after-tax unrealized foreign currency translation losses. After-tax net unrealized investment gains were $1.289 billion ($1.974 billion pre-tax), compared to $1.966 billion ($3.008 billion pre-tax) at year-end 2014. Book value per share of $79.75 and adjusted book value per share of $75.39 increased 3% and 6%, respectively, from year-end 2014.
The Company repurchased 8.8 million shares during the fourth quarter and 30.3 million shares year-to-date at a total cost of $1.001 billion and $3.224 billion, respectively, leaving $3.334 billion of remaining capacity under its existing share repurchase authorization at the end of the fourth quarter. Also, at the end of the fourth quarter, statutory capital and surplus was $20.567 billion and the ratio of debt-to-capital (excluding after-tax net unrealized investment gains) was 22.1%, comfortably within the Company’s target range of 15% to 25%.
The Board of Directors has declared a quarterly dividend of $0.61 per share. This dividend is payable on March 31, 2016, to shareholders of record as of the close of business on March 10, 2016.
The complete earnings release is available here: Travelers Fourth Quarter 2015 Results (PDF)