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The St. Paul Travelers Companies, Inc. ("St. Paul Travelers")(NYSE:STA)
today reported net income of $1.043 billion, or $1.52 per basic share
and $1.47 per diluted share, for the quarter ended September 30, 2006,
compared to $162 million, or $0.24 per basic share and $0.23 per diluted
share, for the quarter ended September 30, 2005. Net income in the prior
year quarter included an $87 million after-tax gain from discontinued
operations, primarily related to the disposition of St. Paul Travelers'
equity stake in Nuveen Investments, Inc. ("Nuveen"). Operating income in
the current quarter was $1.037 billion, or $1.51 per basic share and
$1.46 per diluted share, compared to $50 million, or $0.07 per basic and
diluted share, in the prior year quarter.
Net and operating income in the current quarter included an after-tax
benefit of $55 million ($87 million pre-tax) for net favorable prior
year reserve development. This amount included after-tax charges of $102
million ($155 million pre-tax) and $79 million ($120 million pre-tax)
for asbestos and environmental reserve development, respectively, which
were more than offset by an after-tax benefit of $236 million ($362
million pre-tax) for other net favorable prior year reserve development,
including $66 million after-tax ($113 million pre-tax) due to an
approximately 5 percent reduction in reported pre-tax catastrophe
losses, net of reinsurance, related to Hurricanes Katrina, Rita and
Wilma. Net and operating income in the current quarter also included an
after-tax benefit of $43 million ($67 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two quarters
of 2006. In the prior year quarter, net and operating income included
after-tax benefits of $70 million ($102 million pre-tax) for net
favorable prior year reserve development and $45 million ($70 million
pre-tax) due to the re-estimation of the current year loss ratios for
the first two quarters of 2005.
Catastrophe losses in the current quarter of $10 million after-tax ($15
million pre-tax) were significantly lower than the prior year quarter
due to a very benign wind season. The prior year quarter included
catastrophe losses of $1.009 billion after-tax ($1.524 billion pre-tax),
net of reinsurance and including reinstatement premiums, related to
Hurricanes Katrina and Rita.
Current Quarter Highlights
Return on equity of 17.6 percent and operating return on equity of
17.4 percent.
Net written premiums of $5.284 billion, a 4 percent increase from the
prior year quarter. Excluding the Company’s
runoff operations and adjusting for the estimated impact of
transitioning to six-month policies for personal automobile new
business, net written premiums increased approximately 6 percent.
Net investment income of $668 million after-tax, a 7 percent increase
from the prior year quarter.
Strong GAAP combined ratios in all segments, with Business Insurance
at 92.0 percent; Financial, Professional & International Insurance at
89.0 percent; and Personal Insurance at 78.4 percent.
Net favorable prior year reserve development of $55 million after-tax,
including after-tax charges of $102 million and $79 million for
asbestos and environmental reserve development, respectively.
Book value per share (excluding FAS 115) of $35.10, a 12 percent
increase from year-end 2005.
Repurchased 2.7 million common shares for a total cost of $121 million
under the authorized $2 billion share repurchase program.
Jay Fishman, Chairman and Chief Executive Officer, remarked, “Our
company had another very strong quarter, with $1.037 billion of
operating income and an operating return on equity of 17.4 percent. All
of our business segments produced solid performances, aided by the lack
of any major catastrophes and the continuation of favorable reserve
development.
“Our top line continued to grow in each of our
segments, with net written premiums increasing 4 percent. Retentions
were once again at historically high levels, and margins remain
attractive. Renewal pricing continues to increase for catastrophe-prone
exposures, particularly in the Southeastern U.S. Elsewhere, renewal
pricing is generally flat. Since retentions are high across the
industry, new business flow for our commercial businesses is somewhat
limited and pricing remains more competitive than renewal business.
Nevertheless, we are pleased with the growth that we are experiencing.
In the Personal Insurance segment, we are generating above average
industry growth, which has been driven by the continued success of the
Quantum AutoSM product and our leadership
position in homeowners.
“The initiatives that we have embarked upon
over the last few years are enhancing the value of our franchise. The
fundamentals of our business are strong and reflect the impressive
earnings power of our company,” concluded Mr.
Fishman.
Consolidated Third Quarter Highlights
($ in millions, except for per share amounts, and after-tax except
for premiums)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2006
2005
Change
2006
2005
Change
Gross written premiums
$ 6,100
$ 6,030
1 %
$ 18,107
$ 17,859
1%
excluding Business Insurance Other
6,100
5,936
3
18,084
17,536
3
Net written premiums
5,284
5,096
4
15,713
15,092
4
excluding Business Insurance Other
5,274
5,016
5
15,684
14,900
5
Net earned premiums
5,260
4,977
6
15,432
15,205
1
Underwriting gain (loss)
407
(555)
NMF
1,055
119
787
Net investment income
668
625
7
2,011
1,806
11
Operating income
1,037
50
NMF
3,007
1,875
60
per diluted share
$ 1.46
$ 0.07
NMF
$ 4.22
$ 2.68
57
Income from continuing operations
1,043
75
NMF
3,019
1,883
60
per diluted share
$ 1.47
$ 0.11
NMF
$ 4.23
$ 2.69
57
Net income
1,043
162
544
3,019
1,443
109
per diluted share
$ 1.47
$ 0.23
539
$ 4.23
$ 2.07
104
Book value per share
$ 35.69
$ 32.14
11
$ 35.69
$ 32.14
11
Adjusted book value per share
$ 35.10
$ 31.46
12
$ 35.10
$ 31.46
12
GAAP combined ratio
87.2%
116.2%
(29.0) pts
88.6%
97.9%
(9.3) pts
Operating return on equity
17.4%
0.9%
16.5 pts
17.4%
11.9%
5.5 pts
Continuing operations return on equity
17.6%
1.3%
16.3 pts
17.5%
11.6%
5.9 pts
Return on equity
17.6%
2.9%
14.7 pts
17.5%
8.9%
8.6 pts
See Glossary of Financial Measures for definitions and the
statistical supplement for additional financial data
Net written premiums increased 4 percent from the prior year quarter,
with all three segments contributing to the growth. This result was
primarily driven by strong retention rates, especially for
non-catastrophe exposures, and renewal price increases on Southeastern
U.S. catastrophe-prone exposures. For comparison of period over period
growth, the impact of the increase in property catastrophe reinsurance
costs reflected in the current quarter was approximately offset by the
impact of reinstatement premiums associated with Hurricanes Katrina and
Rita in the prior year quarter.
Net investment income in the current quarter was $668 million after-tax
($858 million pre-tax), a 7 percent increase from the prior year
quarter. The increase was primarily driven by higher fixed income rates
and strong operating cash flows.
The GAAP combined ratio in the current quarter was 87.2 percent, a 29.0
point improvement from the 116.2 percent reported in the prior year
quarter, primarily due to significantly lower catastrophe losses. The
current quarter GAAP combined ratio benefited by 1.7 points due to net
favorable prior year reserve development and by 1.3 points due to the
re-estimation of current year loss ratios for the first two quarters of
2006, partially offset by 0.3 points for catastrophe losses. The prior
year quarter GAAP combined ratio included 30.3 points for catastrophe
losses related to Hurricanes Katrina and Rita, partially offset by the
benefits of 2.0 points due to net favorable prior year reserve
development and 1.4 points due to the re-estimation of the current year
loss ratios for the first two quarters of 2005.
During the third quarter of 2006, the Company repurchased 2.7 million
common shares for a total cost of $121 million under its $2 billion
share repurchase program authorized in the second quarter of 2006. The
Company has repurchased an aggregate of 8.4 million shares for a total
cost of $371 million under the program, including the repurchases during
the third quarter of 2006. Given year-to-date results, the Company
intends to accelerate the pace of its share repurchases in the fourth
quarter of 2006.
Asbestos Reserve Development
The Company increased asbestos reserves by $155 million in the current
quarter in connection with the completion of its annual asbestos review,
resulting in a $102 million after-tax charge. There were no asbestos
reserve adjustments in the prior year quarter. The previous annual
asbestos review was completed in the fourth quarter of 2005. The Company
completed this year’s review in the third
quarter earlier than in previous years due to a number of factors,
including:
the emergence of more stable payment trends for a greater proportion
of policyholders,
a decrease in the number of new claims received,
a decrease in the number of large asbestos exposures reflecting
additional settlement activity,
a decrease in the number and volatility of asbestos-related
bankruptcies, and
the absence of new theories of liability or new classes of defendants.
As in prior years, the review considered active policyholders and
litigation cases for potential product and “non-product”
liability, including the on-going litigation related to ACandS.
Developing payment trends among policyholders in the Home Office and
Field Office as well as Assumed and International categories were also
analyzed. The Home Office and Field Office categories, which account for
the vast majority of the number of policyholders, have experienced an
overall reduction in new claim filings as well as in indemnity and
defense payments over prior years. While indemnity payments declined in
line with previous expectations, defense costs, although decreasing,
were in excess of previous expectations.
Approximately half of the $155 million pre-tax reserve adjustment was
due to an increase in projected defense costs for ten policyholders.
Additionally, $15 million of the pre-tax reserve increase was
attributable to a delay in the approval and expected payment of the
previously announced PPG settlement. The remainder of the reserve
increase was primarily due to continued litigation activity against
smaller, peripheral defendants.
Environmental Reserve Development
The Company increased environmental reserves by $120 million, resulting
in a $79 million after-tax charge. There were no environmental reserve
adjustments in the prior year quarter. While the number of new
policyholders submitting claims continues to decline, the increase to
the reserve was primarily due to higher than expected defense and
settlement costs driven in part by adverse judicial developments in
certain states regarding the availability of coverage.
Year-to-Date 2006 Consolidated Results
For the nine-month period ended September 30, 2006, St. Paul Travelers
reported net income of $3.019 billion, or $4.37 per basic share and
$4.23 per diluted share, compared to $1.443 billion, or $2.14 per basic
share and $2.07 per diluted share, for the nine-month period ended
September 30, 2005. Net income in the prior year period was negatively
impacted by a $440 million after-tax loss from discontinued operations,
primarily due to a tax charge related to the Company’s
decision to divest its 78 percent equity interest in Nuveen.
Income from continuing operations in the first nine months of 2006 was
$3.019 billion, or $4.37 per basic share and $4.23 per diluted share,
compared to $1.883 billion, or $2.79 per basic share and $2.69 per
diluted share, in the prior year period. Operating income in the current
year period was $3.007 billion, or $4.35 per basic share and $4.22 per
diluted share, compared to $1.875 billion, or $2.78 per basic share and
$2.68 per diluted share, in the prior year period.
Net and operating income for the first nine months of 2006 included an
after-tax benefit of $155 million ($237 million pre-tax) for net
favorable prior year reserve development and an after-tax charge of $54
million ($82 million pre-tax) for catastrophe losses. In the prior year
period, net and operating income included an after-tax benefit of $156
million ($232 million pre-tax) for net favorable prior year reserve
development and an after-tax charge of $1.037 billion ($1.566 billion
pre-tax) for catastrophe losses.
The GAAP combined ratio in the current year period was 88.6 percent, a
9.3 point improvement from the 97.9 percent reported in the prior year
period, primarily due to a much lower level of catastrophe losses. The
current year period GAAP combined ratio benefited by 1.5 points for net
favorable prior year reserve development, partially offset by 0.5 points
for catastrophe losses. The prior year period GAAP combined ratio
included 10.2 points for catastrophe losses, partially offset by a
benefit of 1.6 points for net favorable prior year reserve development.
Net investment income in the current year period was a record $2.011
billion after-tax ($2.607 billion pre-tax), an 11 percent increase from
the prior year period. The increase was driven by higher fixed income
rates, strong operating cash flows and the investment of approximately
$2.4 billion of proceeds received from the sale of Nuveen in 2005.
For the first nine months of 2006, operating return on equity was 17.4
percent, compared to 11.9 percent in the prior year period.
Segment Realignment
In August 2006, the Company announced a realignment of two of its three
segments. The former Commercial and Specialty segments were realigned
into two new segments: the Business Insurance segment and the Financial,
Professional & International Insurance segment. The Personal segment was
renamed Personal Insurance. The changes were designed to reflect the
manner in which the Company’s businesses are
currently managed, and represent an aggregation of products and services
based on type of customer, how the business is marketed, and the manner
in which risks are underwritten. Financial data for all periods
presented has been reclassified to be consistent with the new segment
structure.
Business Insurance Segment Financial Results
Business Insurance is organized into the following groups: Select
Accounts, Commercial Accounts, National Accounts, Industry-Focused
Underwriting, Target Risk Underwriting, and Specialized Distribution,
which collectively comprise Business Insurance Core operations. Business
Insurance also includes the Special Liability Group as well as policies
written by Gulf, the Personal Catastrophe Risk operation and other
runoff operations, which collectively are referred to as Business
Insurance Other.
For the third quarter 2006, the Business Insurance segment reported
operating income of $613 million, compared to $30 million in the prior
year quarter. The improvement was primarily due to the absence of
catastrophe losses, the continuation of favorable loss trends and higher
net investment income.
There were no catastrophe losses reported in the current quarter,
compared to an after-tax charge of $621 million ($956 million pre-tax)
for catastrophe losses in the prior year quarter. Loss experience in the
current accident year has trended better than originally estimated due
to favorable claim activity, resulting in an after-tax benefit of $26
million ($40 million pre-tax) from the re-estimation of the current year
loss ratios for the first two quarters of 2006. The prior year quarter
included an after-tax benefit of $33 million ($51 million pre-tax) due
to the re-estimation of the current year loss ratios for the first two
quarters of 2005.
Operating income in the current quarter included an after-tax charge of
$35 million ($46 million pre-tax) for net unfavorable prior year reserve
development. The prior year reserve development was comprised of
after-tax charges for asbestos and environmental reserve development of
$102 million ($155 million pre-tax) and $79 million ($120 million
pre-tax), respectively, partially offset by $146 million ($229 million
pre-tax) for other net favorable prior year development, primarily due
to better than expected frequency and severity loss trends in the
general liability and property lines of business. The prior year quarter
included an after-tax charge of $12 million ($18 million pre-tax) for
net unfavorable prior year reserve development.
The GAAP combined ratio was 92.0 percent in the current quarter, a 33.0
point improvement from the 125.0 percent reported in the prior year
quarter. The improvement was primarily due to the absence of catastrophe
losses in the current quarter, compared to 35.0 points for catastrophe
losses in the prior year quarter. Net unfavorable prior year reserve
development added 1.7 points to the current quarter GAAP combined ratio,
compared to adding 0.7 points in the prior year quarter. The current
quarter GAAP combined ratio benefited by 1.5 points due to the
re-estimation of the current year loss ratios for the first two quarters
of 2006, compared to a similar benefit of 1.9 points related to the
first two quarters of 2005.
Net written premiums, excluding Business Insurance Other, increased 4
percent from the prior year quarter, primarily due to growth in
Industry-Focused Underwriting, Commercial Accounts and Target Risk
Underwriting, partially offset by a decline in National Accounts.
Within Commercial Accounts, retention rates were very strong, consistent
with previous quarters, while new business volume decreased from the
prior year quarter. Renewal price changes increased in both Commercial
Accounts and Target Risk Underwriting, largely related to Southeastern
U.S. catastrophe-prone exposures. Industry-Focused Underwriting
benefited from strong business volumes in the Construction and Oil & Gas
business units, driven by favorable economic conditions in these
industry sectors. Within Select Accounts, excluding the impact of the
transfer of certain small business insurance programs to Specialized
Distribution, net written premiums were approximately level with the
prior year quarter. Retention rates for Select Accounts were strong,
consistent with previous quarters; renewal price changes increased from
recent quarters and new business volume rose from the prior year
quarter. National Accounts net written premiums declined as a result of
a reduction in premiums related to favorable loss experience on
retrospectively rated policies and lower new business volume.
Financial, Professional & International Insurance Segment Financial
Results
The Financial, Professional & International Insurance segment (“FP&II”)
includes the following businesses: Bond, Financial & Professional
Services, and International and Lloyd’s.
For the third quarter 2006, FP&II reported operating income of $144
million, compared to $86 million in the prior year quarter. The increase
was primarily driven by the absence of catastrophe losses and higher net
investment income, partially offset by lower net favorable prior year
reserve development.
There were no catastrophe losses reported in the current quarter,
compared to an after-tax charge of $71 million ($80 million pre-tax) for
catastrophe losses in the prior year quarter. Operating income in the
current quarter included a minimal benefit for net favorable prior year
reserve development, compared to an after-tax benefit of $28 million
($37 million pre-tax) in the prior year quarter.
The GAAP combined ratio was 89.0 percent in the current quarter, a 5.8
point improvement from the 94.8 percent reported in the prior year
quarter. The improvement was primarily due to the absence of catastrophe
losses, partially offset by lower net favorable prior year reserve
development. Catastrophe losses added 10.1 points to the prior year
quarter GAAP combined ratio. The current quarter GAAP combined ratio
benefited by 0.2 points for net favorable prior year reserve
development, compared to 4.8 points in the prior year quarter.
Net written premiums increased 8 percent from the prior year quarter,
primarily due to strong business volumes in Bond and the U.K.
operations, as well as the absence of catastrophe-related reinstatement
premiums in the Company’s Lloyd’s
operations.
For Financial & Professional Services and Bond, excluding the surety
line of business, retention rates were strong, increasing from previous
quarters; renewal price changes continue to be positive and new business
volume decreased from the prior year quarter. For International,
including the Company’s operations in the
U.K., Ireland and Canada, retention rates were very strong, renewal
price changes were consistent with recent quarters and new business
volume increased from the prior year quarter.
Personal Insurance Segment Financial Results
For the third quarter 2006, the Personal Insurance segment reported
operating income of $341 million, compared to an operating loss of $25
million in the prior year quarter. The improvement was primarily driven
by significantly lower catastrophe losses, greater net favorable prior
year reserve development, increased earned premium volume and higher net
investment income.
The current quarter included an after-tax charge of $10 million ($15
million pre-tax) for catastrophe losses, compared to $317 million ($488
million pre-tax) in the prior year quarter. Operating income in the
current quarter included an after-tax benefit of $85 million ($132
million pre-tax) for net favorable prior year reserve development,
primarily due to a reduction in 2005 catastrophe loss estimates. The
prior year quarter included $54 million ($83 million pre-tax) for net
favorable prior year reserve development. In addition, loss experience
in the current accident year has trended better than originally expected
due to favorable automobile claim activity, resulting in an after-tax
benefit of $17 million ($27 million pre-tax) from the re-estimation of
the current year loss ratios for the first two quarters of 2006. The
prior year quarter included an after-tax benefit of $12 million ($19
million pre-tax) due to the re-estimation of the current year loss
ratios for the first two quarters of 2005.
The GAAP combined ratio was 78.4 percent in the current quarter, a 32.9
point improvement from the 111.3 percent reported in the prior year
quarter, primarily due to lower catastrophe losses. The current quarter
GAAP combined ratio included 0.9 points for catastrophe losses, compared
to 32.1 points in the prior year quarter. Net favorable prior year
reserve development benefited the current quarter GAAP combined ratio by
7.9 points, compared to a benefit of 5.5 points in the prior year
quarter. The current quarter GAAP combined ratio benefited by 1.6 points
due to the re-estimation of the current year loss ratios for the first
two quarters of 2006, compared to a similar benefit of 1.3 points
related to the first two quarters of 2005.
Net written premiums increased 6 percent from the prior year quarter.
This result was attributable to continued strong retention rates,
renewal price increases and growth in new business. Net written premium
growth in the current quarter was lower than in recent quarters as a
result of higher catastrophe reinsurance costs for homeowners and the
estimated impact of transitioning to six-month policies for new
automobile business.
Automobile net written premiums increased 4 percent, and policies in
force increased 11 percent from the prior year quarter. Excluding the
estimated impact of transitioning to six-month policies for new
business, net written premiums would have increased approximately 9
percent. Retention rates were strong, consistent with previous quarters,
and renewal price changes were level with recent quarters. New business
volume increased from the prior year quarter due mainly to the continued
roll-out of Quantum AutoSM, the Company’s
multivariate pricing product, which was being offered in 37 states and
the District of Columbia at the end of the quarter.
Homeowners and Other net written premiums increased 9 percent, and
policies in force increased 9 percent from the prior year quarter.
Retention rates were strong, consistent with previous quarters, and
renewal price changes increased slightly from recent quarters. New
business volume increased from the prior year quarter due to strategic
product initiatives and cross-selling efforts with Quantum AutoSM.
2006 Annual Guidance
St. Paul Travelers is increasing its 2006 annual earnings per diluted
share guidance to a range of $5.50 to $5.65, compared to the previously
announced range of $4.90 to $5.10. This guidance is based on a number of
assumptions, including catastrophe losses of $35 million after-tax ($55
million pre-tax) for the remainder of 2006 and no additional prior year
reserve development, favorable or unfavorable. Weighted average
outstanding diluted shares are assumed to be 717 million for the full
year, before the impact of any share repurchase activity in the fourth
quarter.
Financial Supplement and Conference Call
The information in this press release should be read in conjunction with
a financial supplement that is available on our Web site at www.stpaultravelers.com.
The management of St. Paul Travelers will discuss the contents of this
release via Webcast at 9 a.m. Eastern (8 a.m. Central) on Thursday,
October 26, 2006. Prior to the Webcast, a related slide presentation
will be available on the Company's Web site. Following the live event,
an audio playback of the Webcast and the slide presentation will be
available at the Company's Web site.
To view the slides or to listen to the Webcast or the playback, visit
the "Webcasts & Presentations" section of the St. Paul Travelers
investor relations Web site at http://investor.stpaultravelers.com/.
About St. Paul Travelers
St. Paul Travelers is a leading provider of property casualty insurance.
For more information, visit www.stpaultravelers.com.
Glossary of Financial Measures
The following measures are used by the Company’s
management to evaluate financial performance against historical results
and establish targets on a consolidated basis. In some cases, these
measures are considered non-GAAP financial measures under applicable SEC
rules because they are not displayed as separate line items in the
consolidated statement of income or required to be disclosed in the
notes to financial statements, and in some cases, include or exclude
certain items not ordinarily included or excluded in the most comparable
GAAP financial measure. In the opinion of the Company’s
management, a discussion of these measures provides investors with a
better understanding of the significant factors that comprise the Company’s
periodic results of operations and how management evaluates the Company’s
financial performance.
Operating income (loss) is net income (loss) excluding the
after-tax impact of net realized investment gains (losses) and
discontinued operations. Operating income (loss) per share is
operating income (loss) on a per share basis.
Return on equity is the ratio of net income to average equity. Continuing
operations return on equity is the ratio of income from continuing
operations to average equity. Operating return on equity is the
ratio of operating income to average equity excluding net unrealized
investment gains and losses and discontinued operations, net of tax.
In the opinion of the Company's management, operating income, operating
income per share and operating return on equity are meaningful
indicators of underwriting and operating results. These measures exclude
net realized investment gains or losses, which can be significantly
impacted by both discretionary and other economic factors and are not
necessarily indicative of operating trends. Internally, the Company's
management uses operating income, operating income per share and
operating return on equity to evaluate performance against historical
results and establish financial targets on a consolidated basis.
Underwriting gain (loss) is net earned premiums and fee income
less claims and claim adjustment expenses and insurance-related expenses.
A catastrophe is a severe loss, resulting from natural and
manmade events, including risks such as fire, earthquake, windstorm,
explosion, terrorism and other similar events. Each catastrophe has
unique characteristics. Catastrophes are not predictable as to timing or
amount in advance, and therefore their effects are not included in
earnings or claims and claim adjustment expense reserves prior to
occurrence. A catastrophe may result in the payment of reinstatement
premiums and assessments from various pools. In the opinion of the
Company's management, a discussion of the impact of catastrophes is
meaningful for investors to understand the variability in periodic
earnings.
Reinstatement premiums represent additional premiums
payable to reinsurers to restore coverage limits that have been
exhausted as a result of reinsured losses under certain excess of loss
reinsurance treaties.
Loss reserve development is the increase or decrease in incurred
claims and claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive valuation
dates for a given group of claims. Loss reserve development may be
related to prior year or current year development. In the opinion of the
Company's management, discussion of prior year loss reserve development
is useful to investors as it allows them to assess the impact between
prior year and current year development on current earnings and changes
in claims and claim adjustment expense reserve levels from period to
period.
GAAP combined ratio is the sum of the loss and loss adjustment
expense ratio (loss and LAE ratio), the underwriting expense ratio and,
where applicable, the ratio of dividends to policyholders to net
premiums earned. For GAAP, the loss and LAE ratio is the ratio of
incurred losses and loss adjustment expenses reduced by an allocation of
fee income to net earned premiums. The underwriting expense ratio is the
ratio of underwriting expenses incurred reduced by an allocation of fee
income, billing and policy fees to net earned premiums. A GAAP combined
ratio under 100% generally indicates an underwriting profit. A GAAP
combined ratio over 100% generally indicates an underwriting loss. The
GAAP combined ratio is an operating statistic that includes GAAP
measures in the numerator and the denominator.
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to the policyholders for the
effective period of the contract based on the terms and conditions of
the insurance contract. Gross written premiums are a measure of overall
business volume.
Adjusted book value per share represents assets less liabilities
and preferred shareholders' equity excluding the after-tax impact of net
unrealized investment gains and losses, divided by the number of shares
outstanding. In the opinion of the Company’s
management, adjusted book value is useful in an analysis of a property
casualty company’s book value on a nominal
basis as it removes the effect of changing prices on invested assets,
which do not have an equivalent impact on unpaid claims and claim
adjustment expense reserves.
St. Paul Travelers has organized its businesses into the following
operating and reporting segments, beginning with the third quarter 2006:
Business Insurance: The Business Insurance segment offers a broad
array of property and casualty insurance and insurance-related services
in the United States. Business Insurance is organized into the following
groups, which collectively comprise Business Insurance Core
operations: Select Accounts; Commercial Accounts; National Accounts;
Industry-Focused Underwriting including Construction, Technology, Public
Sector Services, Oil & Gas and Agribusiness; Target Risk Underwriting
including National Property, Inland Marine, Ocean Marine, Excess
Casualty, Boiler & Machinery and Global Accounts; and Specialized
Distribution including Northland, National Programs and Underwriting
Facilities. Business Insurance also includes the Special Liability Group
and policies written by Gulf (primarily management and professional
liability coverages), the Personal Catastrophe Risk operation, and other
runoff operations, which collectively are referred to as Business
Insurance Other.
Financial, Professional & International Insurance: The
Financial, Professional & International Insurance segment includes
surety, crime, and financial liability businesses, which primarily use
credit-based underwriting processes, as well as property and casualty
products that are predominantly marketed on an international basis. The
businesses in Financial, Professional & International Insurance are
Bond, Financial & Professional Services, and International and Lloyd's.
Personal Insurance: The Personal Insurance segment writes
virtually all types of property and casualty insurance covering personal
risks. The primary coverages in this segment are personal automobile and
homeowners insurance sold to individuals.
Discontinued Operations (Asset Management) comprises Nuveen
Investments, whose core businesses are asset management and related
research, as well as the development, marketing and distribution of
investment products and services for the affluent, high net worth and
institutional market segments. During the third quarter of 2005, the
Company completed the divestiture of its ownership interest of Nuveen
Investments.
Prior quarter segment results have been reclassified from the
historical presentation to conform with current business segment
definitions where applicable. The Company's historical Commercial
and Specialty segments have been realigned into two new segments: the
Business Insurance segment and the Financial, Professional &
International Insurance segment. As a result, prior quarter results of
certain businesses have been disaggregated from the historical Specialty
segment and are now reported in the Business Insurance segment. In
addition, the Personal segment has been renamed Personal Insurance.
Forward Looking Statement
This press release contains, and management may make, certain “forward-looking
statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, may be forward-looking statements.
Specifically, earnings guidance and statements about our share
repurchase plans are forward looking, and we may make forward-looking
statements about our results of operations (including, among others,
premium volume, income from continuing operations, net and operating
income and return on equity), financial condition and liquidity; the
sufficiency of our asbestos and other reserves (including, among others,
asbestos claim payment patterns); post-merger expense savings; the cost
and availability of reinsurance coverage; and strategic initiatives.
Such statements are subject to risks and uncertainties, many of which
are difficult to predict and generally beyond our control, that could
cause actual results to differ materially from those expressed in, or
implied or projected by, the forward-looking information and statements.
Some of the factors that could cause actual results to differ include,
but are not limited to, the following: catastrophe losses could
materially reduce our profitability and adversely impact our ratings,
our ability to raise capital and the availability and cost of
reinsurance; our business could be harmed because of our potential
exposure to asbestos and environmental claims and related litigation;
reinsurance may not protect us against losses; we are exposed to, and
may face adverse developments involving mass tort claims such as those
relating to exposure to potentially harmful products or substances; if
actual claims exceed our loss reserves, or if changes in the estimated
level of loss reserves are necessary, our financial results could be
significantly and adversely affected; the effects of emerging claim and
coverage issues on our business are uncertain; we may incur loss and
loss adjustment expenses as a result of disclosures by, and
investigations of, companies for which we have written directors' and
officers' insurance relating to possible accounting irregularities,
corporate governance issues and stock option "backdating," "spring
loading" and other stock option grant practices; the insurance industry,
including us, is the subject of a number of investigations by state and
federal authorities in the United States, and we cannot predict the
outcome of these investigations or their impact on our business or
financial results; our businesses are heavily regulated and changes in
regulation may reduce our profitability and limit our growth;
assessments and other surcharges for guaranty funds, second-injury
funds, catastrophe funds and other mandatory pooling arrangements may
reduce our profitability; a downgrade in our claims-paying and financial
strength ratings could significantly reduce our business volumes,
adversely impact our ability to access the capital markets and increase
our borrowing costs; our investment portfolio may suffer reduced returns
or losses which could reduce our profitability; the intense competition
that we face could harm our ability to maintain or increase our
profitability and premium volume; we may not be able to execute
announced and future strategic initiatives as planned; the inability of
our insurance subsidiaries to pay dividends to us in sufficient amounts
would limit our ability to meet our obligations and to pay future
dividends; loss or significant restriction of the use of credit scoring
or other variables in the pricing and underwriting of personal lines
products could reduce our future profitability; disruptions to our
relationships with our distributors, independent agents and brokers
could adversely affect our future income and profitability; if we
experience difficulties with outsourcing relationships, our ability to
conduct our business might be negatively impacted; and the effects of
corporate bankruptcies on surety bond claims.
Our forward-looking statements speak only as of the date of this press
release or as of the date they are made, and we undertake no obligation
to update forward-looking statements. For a more detailed discussion of
these factors, see the information under the caption "Risk Factors" in
our most recent annual report on Form 10-K filed with the Securities and
Exchange Commission.
Summary of Financial Information
Three months ended
Nine months ended
September 30,
September 30,
($ in millions, except per share amounts, and after-tax)
2006
2005
2006
2005
Operating income
$ 1,037
$ 50
$ 3,007
$ 1,875
Net realized investment gains
6
25
12
8
Income from continuing operations
1,043
75
3,019
1,883
Discontinued operations
-
87
-
(440)
Net income
$ 1,043
$ 162
$ 3,019
$ 1,443
Basic earnings per share
Operating income
$ 1.51
$ 0.07
$ 4.35
$ 2.78
Net realized investment gains
0.01
0.04
0.02
0.01
Income from continuing operations
1.52
0.11
4.37
2.79
Discontinued operations
-
0.13
-
(0.65)
Net income
$ 1.52
$ 0.24
$ 4.37
$ 2.14
Diluted earnings per share
Operating income
$ 1.46
$ 0.07
$ 4.22
$ 2.68
Net realized investment gains
0.01
0.04
0.01
0.01
Income from continuing operations
1.47
0.11
4.23
2.69
Discontinued operations
-
0.12
-
(0.62)
Net income
$ 1.47
$ 0.23
$ 4.23
$ 2.07
Weighted average number of common shares outstanding (basic)
685.3
679.2
689.7
672.3
Weighted average number of common shares outstanding and common
stock equivalents (diluted)
714.6
683.81
718.6
711.3
Common shares outstanding at period end
689.5
692.2
689.5
692.2
Common stock dividends declared
$ 180.0
$ 159.0
$ 520.0
$ 462.0
Operating income (loss) by segment
Business Insurance
$ 613
$ 30
$ 1,919
$ 1,154
Financial, Professional & International Insurance
144
86
434
334
Personal Insurance
341
(25)
784
526
1,098
91
3,137
2,014
Interest Expense and Other
(61)
(41)
(130)
(139)
$ 1,037
$ 50
$ 3,007
$ 1,875
Operating return on equity
17.4%
0.9%
17.4%
11.9%
Continuing operations return on equity
17.6%
1.3%
17.5%
11.6%
Return on equity
17.6%
2.9%
17.5%
8.9%
1The calculation of earnings per diluted
share for the three months ended September 30, 2005 excluded the
weighted average effects of the following securities convertible
into the Company’s common shares
because their effect was anti-dilutive: equity units (7.6 million
shares); outstanding convertible preferred stock (4.1 million
shares); zero coupon convertible notes (2.3 million shares); and
convertible junior subordinated notes (16.7 million shares).
See Glossary of Financial Measures and the statistical supplement
for additional financial data.
Three months ended
Nine months ended
September 30,
September 30,
($ in millions, pre-tax)
2006
2005
2006
2005
Revenues
Premiums
$ 5,260
$ 4,977
$ 15,432
$ 15,205
Net investment income
858
812
2,607
2,352
Fee income
150
169
453
505
Net realized investment gains (losses)
12
39
16
(16)
Other revenues
36
45
113
138
$ 6,316
$ 6,042
$ 18,621
$ 18,184
Revenues by segment excluding
net realized investment gains (losses)
Business Insurance
$ 3,505
$ 3,485
$ 10,453
$ 10,677
Financial, Professional & International Insurance
963
858
2,806
2,644
Personal Insurance
1,836
1,647
5,340
4,874
6,304
5,990
18,599
18,195
Interest Expense and Other
-
13
6
5
6,304
6,003
18,605
18,200
Net realized investment gains (losses)
12
39
16
(16)
$ 6,316
$ 6,042
$ 18,621
$ 18,184
Gross written premiums
Business Insurance Core
$ 3,257
$ 3,278
$ 9,802
$ 9,859
Business Insurance Other
-
94
23
323
Total Business Insurance
3,257
3,372
9,825
10,182
Financial, Professional & International Insurance
974
926
2,952
2,797
Personal Insurance
1,869
1,732
5,330
4,880
$ 6,100
$ 6,030
$ 18,107
$ 17,859
Net written premiums
Business Insurance Core
$ 2,634
$ 2,542
$ 8,174
$ 7,949
Business Insurance Other
10
80
29
192
Total Business Insurance
2,644
2,622
8,203
8,141
Financial, Professional & International Insurance
912
847
2,429
2,266
Personal Insurance
1,728
1,627
5,081
4,685
$ 5,284
$ 5,096
$ 15,713
$ 15,092
GAAP combined ratios: 1
Business Insurance 2
Loss and loss adjustment expense ratio
61.5%
95.4%
60.8%
75.3%
Underwriting expense ratio
30.5
29.6
30.1
28.5
Combined ratio
92.0%
125.0%
90.9%
103.8%
Financial, Professional & International Insurance 2
Loss and loss adjustment expense ratio
54.1%
57.4%
53.2%
54.7%
Underwriting expense ratio
34.9
37.4
35.3
36.0
Combined ratio
89.0%
94.8%
88.5%
90.7%
Personal Insurance
Loss and loss adjustment expense ratio
50.2%
84.5%
56.9%
64.2%
Underwriting expense ratio
28.2
26.8
28.0
26.5
Combined ratio
78.4%
111.3%
84.9%
90.7%
Total Company 2
Loss and loss adjustment expense ratio
56.7%
86.3%
58.3%
68.8%
Underwriting expense ratio
30.5
29.9
30.3
29.1
Combined ratio
87.2%
116.2%
88.6%
97.9%
1 For purposes of computing GAAP ratios,
billing and policy fees (which are a component of other revenues)
are allocated as a reduction of other underwriting expenses. In
addition, fee income is allocated as a reduction of losses and
loss adjustment expense and other underwriting expenses.
2 Before policyholder dividends.
See Glossary of Financial Measures and the statistical supplement
for additional financial data.
Three months ended
Nine months ended
September 30,
September 30,
($ in millions; after-tax except as noted)
2006
2005
2006
2005
Reconciliation of underwriting gain (loss) to net income
Pre-tax underwriting gain (loss)
$ 642
$ (828)
$ 1,652
$ 224
Tax expense on underwriting results
(235)
273
(597)
(105)
Underwriting gain (loss)
407
(555)
1,055
119
Net investment income
668
625
2,011
1,806
Other, including interest expense
(38)
(20)
(59)
(50)
Consolidated operating income
1,037
50
3,007
1,875
Net realized investment gains
6
25
12
8
Income from continuing operations
1,043
75
3,019
1,883
Discontinued operations
-
87
-
(440)
Net income
$ 1,043
$ 162
$ 3,019
$ 1,443
See Glossary of Financial Measures and the statistical supplement
for additional financial data.
The St. Paul Travelers Companies, Inc. ("St. Paul
Travelers")(NYSE:STA) today reported net income of $1.043 billion, or
$1.52 per basic share and $1.47 per diluted share, for the quarter
ended September 30, 2006, compared to $162 million, or $0.24 per basic
share and $0.23 per diluted share, for the quarter ended September 30,
2005. Net income in the prior year quarter included an $87 million
after-tax gain from discontinued operations, primarily related to the
disposition of St. Paul Travelers' equity stake in Nuveen Investments,
Inc. ("Nuveen"). Operating income in the current quarter was $1.037
billion, or $1.51 per basic share and $1.46 per diluted share,
compared to $50 million, or $0.07 per basic and diluted share, in the
prior year quarter.
Net and operating income in the current quarter included an
after-tax benefit of $55 million ($87 million pre-tax) for net
favorable prior year reserve development. This amount included
after-tax charges of $102 million ($155 million pre-tax) and $79
million ($120 million pre-tax) for asbestos and environmental reserve
development, respectively, which were more than offset by an after-tax
benefit of $236 million ($362 million pre-tax) for other net favorable
prior year reserve development, including $66 million after-tax ($113
million pre-tax) due to an approximately 5 percent reduction in
reported pre-tax catastrophe losses, net of reinsurance, related to
Hurricanes Katrina, Rita and Wilma. Net and operating income in the
current quarter also included an after-tax benefit of $43 million ($67
million pre-tax) due to the re-estimation of the current year loss
ratios for the first two quarters of 2006. In the prior year quarter,
net and operating income included after-tax benefits of $70 million
($102 million pre-tax) for net favorable prior year reserve
development and $45 million ($70 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two
quarters of 2005.
Catastrophe losses in the current quarter of $10 million after-tax
($15 million pre-tax) were significantly lower than the prior year
quarter due to a very benign wind season. The prior year quarter
included catastrophe losses of $1.009 billion after-tax ($1.524
billion pre-tax), net of reinsurance and including reinstatement
premiums, related to Hurricanes Katrina and Rita.
Current Quarter Highlights
-- Return on equity of 17.6 percent and operating return on
equity of 17.4 percent.
-- Net written premiums of $5.284 billion, a 4 percent increase
from the prior year quarter. Excluding the Company's runoff
operations and adjusting for the estimated impact of
transitioning to six-month policies for personal automobile
new business, net written premiums increased approximately 6
percent.
-- Net investment income of $668 million after-tax, a 7 percent
increase from the prior year quarter.
-- Strong GAAP combined ratios in all segments, with Business
Insurance at 92.0 percent; Financial, Professional &
International Insurance at 89.0 percent; and Personal
Insurance at 78.4 percent.
-- Net favorable prior year reserve development of $55 million
after-tax, including after-tax charges of $102 million and $79
million for asbestos and environmental reserve development,
respectively.
-- Book value per share (excluding FAS 115) of $35.10, a 12
percent increase from year-end 2005.
-- Repurchased 2.7 million common shares for a total cost of $121
million under the authorized $2 billion share repurchase
program.
Jay Fishman, Chairman and Chief Executive Officer, remarked, "Our
company had another very strong quarter, with $1.037 billion of
operating income and an operating return on equity of 17.4 percent.
All of our business segments produced solid performances, aided by the
lack of any major catastrophes and the continuation of favorable
reserve development.
"Our top line continued to grow in each of our segments, with net
written premiums increasing 4 percent. Retentions were once again at
historically high levels, and margins remain attractive. Renewal
pricing continues to increase for catastrophe-prone exposures,
particularly in the Southeastern U.S. Elsewhere, renewal pricing is
generally flat. Since retentions are high across the industry, new
business flow for our commercial businesses is somewhat limited and
pricing remains more competitive than renewal business. Nevertheless,
we are pleased with the growth that we are experiencing. In the
Personal Insurance segment, we are generating above average industry
growth, which has been driven by the continued success of the Quantum
Auto(SM) product and our leadership position in homeowners.
"The initiatives that we have embarked upon over the last few
years are enhancing the value of our franchise. The fundamentals of
our business are strong and reflect the impressive earnings power of
our company," concluded Mr. Fishman.
-0-
*T
Consolidated Third Quarter Highlights
----------------------------------------------------------------------
($ in millions,
except for per
share amounts,
and after-tax
except for Three Months Ended Nine Months Ended
premiums) September 30, September 30,
--------------------------- ---------------------------
2006 2005 Change 2006 2005 Change
-------- ------- ---------- -------- -------- ---------
Gross written
premiums $6,100 $6,030 1 % $18,107 $17,859 1%
excluding
Business
Insurance
Other 6,100 5,936 3 18,084 17,536 3
Net written
premiums 5,284 5,096 4 15,713 15,092 4
excluding
Business
Insurance
Other 5,274 5,016 5 15,684 14,900 5
Net earned
premiums 5,260 4,977 6 15,432 15,205 1
Underwriting NMF
gain (loss) 407 (555) 1,055 119 787
Net investment
income 668 625 7 2,011 1,806 11
Operating NMF
income 1,037 50 3,007 1,875 60
per diluted NMF
share $1.46 $0.07 $4.22 $2.68 57
Income from NMF
continuing
operations 1,043 75 3,019 1,883 60
per diluted NMF
share $1.47 $0.11 $4.23 $2.69 57
Net income 1,043 162 544 3,019 1,443 109
per diluted
share $1.47 $0.23 539 $4.23 $2.07 104
Book value per
share $35.69 $32.14 11 $35.69 $32.14 11
Adjusted book
value per
share $35.10 $31.46 12 $35.10 $31.46 12
GAAP combined
ratio 87.2% 116.2% (29.0) pts 88.6% 97.9% (9.3) pts
Operating
return on
equity 17.4% 0.9% 16.5 pts 17.4% 11.9% 5.5 pts
Continuing
operations
return on
equity 17.6% 1.3% 16.3 pts 17.5% 11.6% 5.9 pts
Return on
equity 17.6% 2.9% 14.7 pts 17.5% 8.9% 8.6 pts
See Glossary of Financial Measures for definitions and the statistical
supplement for additional financial data
----------------------------------------------------------------------
*T
Net written premiums increased 4 percent from the prior year
quarter, with all three segments contributing to the growth. This
result was primarily driven by strong retention rates, especially for
non-catastrophe exposures, and renewal price increases on Southeastern
U.S. catastrophe-prone exposures. For comparison of period over period
growth, the impact of the increase in property catastrophe reinsurance
costs reflected in the current quarter was approximately offset by the
impact of reinstatement premiums associated with Hurricanes Katrina
and Rita in the prior year quarter.
Net investment income in the current quarter was $668 million
after-tax ($858 million pre-tax), a 7 percent increase from the prior
year quarter. The increase was primarily driven by higher fixed income
rates and strong operating cash flows.
The GAAP combined ratio in the current quarter was 87.2 percent, a
29.0 point improvement from the 116.2 percent reported in the prior
year quarter, primarily due to significantly lower catastrophe losses.
The current quarter GAAP combined ratio benefited by 1.7 points due to
net favorable prior year reserve development and by 1.3 points due to
the re-estimation of current year loss ratios for the first two
quarters of 2006, partially offset by 0.3 points for catastrophe
losses. The prior year quarter GAAP combined ratio included 30.3
points for catastrophe losses related to Hurricanes Katrina and Rita,
partially offset by the benefits of 2.0 points due to net favorable
prior year reserve development and 1.4 points due to the re-estimation
of the current year loss ratios for the first two quarters of 2005.
During the third quarter of 2006, the Company repurchased 2.7
million common shares for a total cost of $121 million under its $2
billion share repurchase program authorized in the second quarter of
2006. The Company has repurchased an aggregate of 8.4 million shares
for a total cost of $371 million under the program, including the
repurchases during the third quarter of 2006. Given year-to-date
results, the Company intends to accelerate the pace of its share
repurchases in the fourth quarter of 2006.
Asbestos Reserve Development
The Company increased asbestos reserves by $155 million in the
current quarter in connection with the completion of its annual
asbestos review, resulting in a $102 million after-tax charge. There
were no asbestos reserve adjustments in the prior year quarter. The
previous annual asbestos review was completed in the fourth quarter of
2005. The Company completed this year's review in the third quarter
earlier than in previous years due to a number of factors, including:
-- the emergence of more stable payment trends for a greater
proportion of policyholders,
-- a decrease in the number of new claims received,
-- a decrease in the number of large asbestos exposures
reflecting additional settlement activity,
-- a decrease in the number and volatility of asbestos-related
bankruptcies, and
-- the absence of new theories of liability or new classes of
defendants.
As in prior years, the review considered active policyholders and
litigation cases for potential product and "non-product" liability,
including the on-going litigation related to ACandS. Developing
payment trends among policyholders in the Home Office and Field Office
as well as Assumed and International categories were also analyzed.
The Home Office and Field Office categories, which account for the
vast majority of the number of policyholders, have experienced an
overall reduction in new claim filings as well as in indemnity and
defense payments over prior years. While indemnity payments declined
in line with previous expectations, defense costs, although
decreasing, were in excess of previous expectations.
Approximately half of the $155 million pre-tax reserve adjustment
was due to an increase in projected defense costs for ten
policyholders. Additionally, $15 million of the pre-tax reserve
increase was attributable to a delay in the approval and expected
payment of the previously announced PPG settlement. The remainder of
the reserve increase was primarily due to continued litigation
activity against smaller, peripheral defendants.
Environmental Reserve Development
The Company increased environmental reserves by $120 million,
resulting in a $79 million after-tax charge. There were no
environmental reserve adjustments in the prior year quarter. While the
number of new policyholders submitting claims continues to decline,
the increase to the reserve was primarily due to higher than expected
defense and settlement costs driven in part by adverse judicial
developments in certain states regarding the availability of coverage.
Year-to-Date 2006 Consolidated Results
For the nine-month period ended September 30, 2006, St. Paul
Travelers reported net income of $3.019 billion, or $4.37 per basic
share and $4.23 per diluted share, compared to $1.443 billion, or
$2.14 per basic share and $2.07 per diluted share, for the nine-month
period ended September 30, 2005. Net income in the prior year period
was negatively impacted by a $440 million after-tax loss from
discontinued operations, primarily due to a tax charge related to the
Company's decision to divest its 78 percent equity interest in Nuveen.
Income from continuing operations in the first nine months of 2006
was $3.019 billion, or $4.37 per basic share and $4.23 per diluted
share, compared to $1.883 billion, or $2.79 per basic share and $2.69
per diluted share, in the prior year period. Operating income in the
current year period was $3.007 billion, or $4.35 per basic share and
$4.22 per diluted share, compared to $1.875 billion, or $2.78 per
basic share and $2.68 per diluted share, in the prior year period.
Net and operating income for the first nine months of 2006
included an after-tax benefit of $155 million ($237 million pre-tax)
for net favorable prior year reserve development and an after-tax
charge of $54 million ($82 million pre-tax) for catastrophe losses. In
the prior year period, net and operating income included an after-tax
benefit of $156 million ($232 million pre-tax) for net favorable prior
year reserve development and an after-tax charge of $1.037 billion
($1.566 billion pre-tax) for catastrophe losses.
The GAAP combined ratio in the current year period was 88.6
percent, a 9.3 point improvement from the 97.9 percent reported in the
prior year period, primarily due to a much lower level of catastrophe
losses. The current year period GAAP combined ratio benefited by 1.5
points for net favorable prior year reserve development, partially
offset by 0.5 points for catastrophe losses. The prior year period
GAAP combined ratio included 10.2 points for catastrophe losses,
partially offset by a benefit of 1.6 points for net favorable prior
year reserve development.
Net investment income in the current year period was a record
$2.011 billion after-tax ($2.607 billion pre-tax), an 11 percent
increase from the prior year period. The increase was driven by higher
fixed income rates, strong operating cash flows and the investment of
approximately $2.4 billion of proceeds received from the sale of
Nuveen in 2005.
For the first nine months of 2006, operating return on equity was
17.4 percent, compared to 11.9 percent in the prior year period.
Segment Realignment
In August 2006, the Company announced a realignment of two of its
three segments. The former Commercial and Specialty segments were
realigned into two new segments: the Business Insurance segment and
the Financial, Professional & International Insurance segment. The
Personal segment was renamed Personal Insurance. The changes were
designed to reflect the manner in which the Company's businesses are
currently managed, and represent an aggregation of products and
services based on type of customer, how the business is marketed, and
the manner in which risks are underwritten. Financial data for all
periods presented has been reclassified to be consistent with the new
segment structure.
Business Insurance Segment Financial Results
Business Insurance is organized into the following groups: Select
Accounts, Commercial Accounts, National Accounts, Industry-Focused
Underwriting, Target Risk Underwriting, and Specialized Distribution,
which collectively comprise Business Insurance Core operations.
Business Insurance also includes the Special Liability Group as well
as policies written by Gulf, the Personal Catastrophe Risk operation
and other runoff operations, which collectively are referred to as
Business Insurance Other.
For the third quarter 2006, the Business Insurance segment
reported operating income of $613 million, compared to $30 million in
the prior year quarter. The improvement was primarily due to the
absence of catastrophe losses, the continuation of favorable loss
trends and higher net investment income.
There were no catastrophe losses reported in the current quarter,
compared to an after-tax charge of $621 million ($956 million pre-tax)
for catastrophe losses in the prior year quarter. Loss experience in
the current accident year has trended better than originally estimated
due to favorable claim activity, resulting in an after-tax benefit of
$26 million ($40 million pre-tax) from the re-estimation of the
current year loss ratios for the first two quarters of 2006. The prior
year quarter included an after-tax benefit of $33 million ($51 million
pre-tax) due to the re-estimation of the current year loss ratios for
the first two quarters of 2005.
Operating income in the current quarter included an after-tax
charge of $35 million ($46 million pre-tax) for net unfavorable prior
year reserve development. The prior year reserve development was
comprised of after-tax charges for asbestos and environmental reserve
development of $102 million ($155 million pre-tax) and $79 million
($120 million pre-tax), respectively, partially offset by $146 million
($229 million pre-tax) for other net favorable prior year development,
primarily due to better than expected frequency and severity loss
trends in the general liability and property lines of business. The
prior year quarter included an after-tax charge of $12 million ($18
million pre-tax) for net unfavorable prior year reserve development.
The GAAP combined ratio was 92.0 percent in the current quarter, a
33.0 point improvement from the 125.0 percent reported in the prior
year quarter. The improvement was primarily due to the absence of
catastrophe losses in the current quarter, compared to 35.0 points for
catastrophe losses in the prior year quarter. Net unfavorable prior
year reserve development added 1.7 points to the current quarter GAAP
combined ratio, compared to adding 0.7 points in the prior year
quarter. The current quarter GAAP combined ratio benefited by 1.5
points due to the re-estimation of the current year loss ratios for
the first two quarters of 2006, compared to a similar benefit of 1.9
points related to the first two quarters of 2005.
Net written premiums, excluding Business Insurance Other,
increased 4 percent from the prior year quarter, primarily due to
growth in Industry-Focused Underwriting, Commercial Accounts and
Target Risk Underwriting, partially offset by a decline in National
Accounts.
Within Commercial Accounts, retention rates were very strong,
consistent with previous quarters, while new business volume decreased
from the prior year quarter. Renewal price changes increased in both
Commercial Accounts and Target Risk Underwriting, largely related to
Southeastern U.S. catastrophe-prone exposures. Industry-Focused
Underwriting benefited from strong business volumes in the
Construction and Oil & Gas business units, driven by favorable
economic conditions in these industry sectors. Within Select Accounts,
excluding the impact of the transfer of certain small business
insurance programs to Specialized Distribution, net written premiums
were approximately level with the prior year quarter. Retention rates
for Select Accounts were strong, consistent with previous quarters;
renewal price changes increased from recent quarters and new business
volume rose from the prior year quarter. National Accounts net written
premiums declined as a result of a reduction in premiums related to
favorable loss experience on retrospectively rated policies and lower
new business volume.
Financial, Professional & International Insurance Segment
Financial Results
The Financial, Professional & International Insurance segment
("FP&II") includes the following businesses: Bond, Financial &
Professional Services, and International and Lloyd's.
For the third quarter 2006, FP&II reported operating income of
$144 million, compared to $86 million in the prior year quarter. The
increase was primarily driven by the absence of catastrophe losses and
higher net investment income, partially offset by lower net favorable
prior year reserve development.
There were no catastrophe losses reported in the current quarter,
compared to an after-tax charge of $71 million ($80 million pre-tax)
for catastrophe losses in the prior year quarter. Operating income in
the current quarter included a minimal benefit for net favorable prior
year reserve development, compared to an after-tax benefit of $28
million ($37 million pre-tax) in the prior year quarter.
The GAAP combined ratio was 89.0 percent in the current quarter, a
5.8 point improvement from the 94.8 percent reported in the prior year
quarter. The improvement was primarily due to the absence of
catastrophe losses, partially offset by lower net favorable prior year
reserve development. Catastrophe losses added 10.1 points to the prior
year quarter GAAP combined ratio. The current quarter GAAP combined
ratio benefited by 0.2 points for net favorable prior year reserve
development, compared to 4.8 points in the prior year quarter.
Net written premiums increased 8 percent from the prior year
quarter, primarily due to strong business volumes in Bond and the U.K.
operations, as well as the absence of catastrophe-related
reinstatement premiums in the Company's Lloyd's operations.
For Financial & Professional Services and Bond, excluding the
surety line of business, retention rates were strong, increasing from
previous quarters; renewal price changes continue to be positive and
new business volume decreased from the prior year quarter. For
International, including the Company's operations in the U.K., Ireland
and Canada, retention rates were very strong, renewal price changes
were consistent with recent quarters and new business volume increased
from the prior year quarter.
Personal Insurance Segment Financial Results
For the third quarter 2006, the Personal Insurance segment
reported operating income of $341 million, compared to an operating
loss of $25 million in the prior year quarter. The improvement was
primarily driven by significantly lower catastrophe losses, greater
net favorable prior year reserve development, increased earned premium
volume and higher net investment income.
The current quarter included an after-tax charge of $10 million
($15 million pre-tax) for catastrophe losses, compared to $317 million
($488 million pre-tax) in the prior year quarter. Operating income in
the current quarter included an after-tax benefit of $85 million ($132
million pre-tax) for net favorable prior year reserve development,
primarily due to a reduction in 2005 catastrophe loss estimates. The
prior year quarter included $54 million ($83 million pre-tax) for net
favorable prior year reserve development. In addition, loss experience
in the current accident year has trended better than originally
expected due to favorable automobile claim activity, resulting in an
after-tax benefit of $17 million ($27 million pre-tax) from the
re-estimation of the current year loss ratios for the first two
quarters of 2006. The prior year quarter included an after-tax benefit
of $12 million ($19 million pre-tax) due to the re-estimation of the
current year loss ratios for the first two quarters of 2005.
The GAAP combined ratio was 78.4 percent in the current quarter, a
32.9 point improvement from the 111.3 percent reported in the prior
year quarter, primarily due to lower catastrophe losses. The current
quarter GAAP combined ratio included 0.9 points for catastrophe
losses, compared to 32.1 points in the prior year quarter. Net
favorable prior year reserve development benefited the current quarter
GAAP combined ratio by 7.9 points, compared to a benefit of 5.5 points
in the prior year quarter. The current quarter GAAP combined ratio
benefited by 1.6 points due to the re-estimation of the current year
loss ratios for the first two quarters of 2006, compared to a similar
benefit of 1.3 points related to the first two quarters of 2005.
Net written premiums increased 6 percent from the prior year
quarter. This result was attributable to continued strong retention
rates, renewal price increases and growth in new business. Net written
premium growth in the current quarter was lower than in recent
quarters as a result of higher catastrophe reinsurance costs for
homeowners and the estimated impact of transitioning to six-month
policies for new automobile business.
Automobile net written premiums increased 4 percent, and policies
in force increased 11 percent from the prior year quarter. Excluding
the estimated impact of transitioning to six-month policies for new
business, net written premiums would have increased approximately 9
percent. Retention rates were strong, consistent with previous
quarters, and renewal price changes were level with recent quarters.
New business volume increased from the prior year quarter due mainly
to the continued roll-out of Quantum Auto(SM), the Company's
multivariate pricing product, which was being offered in 37 states and
the District of Columbia at the end of the quarter.
Homeowners and Other net written premiums increased 9 percent, and
policies in force increased 9 percent from the prior year quarter.
Retention rates were strong, consistent with previous quarters, and
renewal price changes increased slightly from recent quarters. New
business volume increased from the prior year quarter due to strategic
product initiatives and cross-selling efforts with Quantum Auto(SM).
2006 Annual Guidance
St. Paul Travelers is increasing its 2006 annual earnings per
diluted share guidance to a range of $5.50 to $5.65, compared to the
previously announced range of $4.90 to $5.10. This guidance is based
on a number of assumptions, including catastrophe losses of $35
million after-tax ($55 million pre-tax) for the remainder of 2006 and
no additional prior year reserve development, favorable or
unfavorable. Weighted average outstanding diluted shares are assumed
to be 717 million for the full year, before the impact of any share
repurchase activity in the fourth quarter.
Financial Supplement and Conference Call
The information in this press release should be read in
conjunction with a financial supplement that is available on our Web
site at www.stpaultravelers.com. The management of St. Paul Travelers
will discuss the contents of this release via Webcast at 9 a.m.
Eastern (8 a.m. Central) on Thursday, October 26, 2006. Prior to the
Webcast, a related slide presentation will be available on the
Company's Web site. Following the live event, an audio playback of the
Webcast and the slide presentation will be available at the Company's
Web site.
To view the slides or to listen to the Webcast or the playback,
visit the "Webcasts & Presentations" section of the St. Paul Travelers
investor relations Web site at http://investor.stpaultravelers.com/.
About St. Paul Travelers
St. Paul Travelers is a leading provider of property casualty
insurance. For more information, visit www.stpaultravelers.com.
Glossary of Financial Measures
The following measures are used by the Company's management to
evaluate financial performance against historical results and
establish targets on a consolidated basis. In some cases, these
measures are considered non-GAAP financial measures under applicable
SEC rules because they are not displayed as separate line items in the
consolidated statement of income or required to be disclosed in the
notes to financial statements, and in some cases, include or exclude
certain items not ordinarily included or excluded in the most
comparable GAAP financial measure. In the opinion of the Company's
management, a discussion of these measures provides investors with a
better understanding of the significant factors that comprise the
Company's periodic results of operations and how management evaluates
the Company's financial performance.
Operating income (loss) is net income (loss) excluding the
after-tax impact of net realized investment gains (losses) and
discontinued operations. Operating income (loss) per share is
operating income (loss) on a per share basis.
Return on equity is the ratio of net income to average equity.
Continuing operations return on equity is the ratio of income from
continuing operations to average equity. Operating return on equity is
the ratio of operating income to average equity excluding net
unrealized investment gains and losses and discontinued operations,
net of tax.
In the opinion of the Company's management, operating income,
operating income per share and operating return on equity are
meaningful indicators of underwriting and operating results. These
measures exclude net realized investment gains or losses, which can be
significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Internally, the Company's management uses operating income, operating
income per share and operating return on equity to evaluate
performance against historical results and establish financial targets
on a consolidated basis.
Underwriting gain (loss) is net earned premiums and fee income
less claims and claim adjustment expenses and insurance-related
expenses.
A catastrophe is a severe loss, resulting from natural and manmade
events, including risks such as fire, earthquake, windstorm,
explosion, terrorism and other similar events. Each catastrophe has
unique characteristics. Catastrophes are not predictable as to timing
or amount in advance, and therefore their effects are not included in
earnings or claims and claim adjustment expense reserves prior to
occurrence. A catastrophe may result in the payment of reinstatement
premiums and assessments from various pools. In the opinion of the
Company's management, a discussion of the impact of catastrophes is
meaningful for investors to understand the variability in periodic
earnings.
Reinstatement premiums represent additional premiums payable to
reinsurers to restore coverage limits that have been exhausted as a
result of reinsured losses under certain excess of loss reinsurance
treaties.
Loss reserve development is the increase or decrease in incurred
claims and claim adjustment expenses as a result of the re-estimation
of claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims. Loss reserve development
may be related to prior year or current year development. In the
opinion of the Company's management, discussion of prior year loss
reserve development is useful to investors as it allows them to assess
the impact between prior year and current year development on current
earnings and changes in claims and claim adjustment expense reserve
levels from period to period.
GAAP combined ratio is the sum of the loss and loss adjustment
expense ratio (loss and LAE ratio), the underwriting expense ratio
and, where applicable, the ratio of dividends to policyholders to net
premiums earned. For GAAP, the loss and LAE ratio is the ratio of
incurred losses and loss adjustment expenses reduced by an allocation
of fee income to net earned premiums. The underwriting expense ratio
is the ratio of underwriting expenses incurred reduced by an
allocation of fee income, billing and policy fees to net earned
premiums. A GAAP combined ratio under 100% generally indicates an
underwriting profit. A GAAP combined ratio over 100% generally
indicates an underwriting loss. The GAAP combined ratio is an
operating statistic that includes GAAP measures in the numerator and
the denominator.
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to the policyholders for the
effective period of the contract based on the terms and conditions of
the insurance contract. Gross written premiums are a measure of
overall business volume.
Adjusted book value per share represents assets less liabilities
and preferred shareholders' equity excluding the after-tax impact of
net unrealized investment gains and losses, divided by the number of
shares outstanding. In the opinion of the Company's management,
adjusted book value is useful in an analysis of a property casualty
company's book value on a nominal basis as it removes the effect of
changing prices on invested assets, which do not have an equivalent
impact on unpaid claims and claim adjustment expense reserves.
St. Paul Travelers has organized its businesses into the following
operating and reporting segments, beginning with the third quarter
2006:
Business Insurance: The Business Insurance segment offers a broad
array of property and casualty insurance and insurance-related
services in the United States. Business Insurance is organized into
the following groups, which collectively comprise Business Insurance
Core operations: Select Accounts; Commercial Accounts; National
Accounts; Industry-Focused Underwriting including Construction,
Technology, Public Sector Services, Oil & Gas and Agribusiness; Target
Risk Underwriting including National Property, Inland Marine, Ocean
Marine, Excess Casualty, Boiler & Machinery and Global Accounts; and
Specialized Distribution including Northland, National Programs and
Underwriting Facilities. Business Insurance also includes the Special
Liability Group and policies written by Gulf (primarily management and
professional liability coverages), the Personal Catastrophe Risk
operation, and other runoff operations, which collectively are
referred to as Business Insurance Other.
Financial, Professional & International Insurance: The Financial,
Professional & International Insurance segment includes surety, crime,
and financial liability businesses, which primarily use credit-based
underwriting processes, as well as property and casualty products that
are predominantly marketed on an international basis. The businesses
in Financial, Professional & International Insurance are Bond,
Financial & Professional Services, and International and Lloyd's.
Personal Insurance: The Personal Insurance segment writes
virtually all types of property and casualty insurance covering
personal risks. The primary coverages in this segment are personal
automobile and homeowners insurance sold to individuals.
Discontinued Operations (Asset Management) comprises Nuveen
Investments, whose core businesses are asset management and related
research, as well as the development, marketing and distribution of
investment products and services for the affluent, high net worth and
institutional market segments. During the third quarter of 2005, the
Company completed the divestiture of its ownership interest of Nuveen
Investments.
Prior quarter segment results have been reclassified from the
historical presentation to conform with current business segment
definitions where applicable. The Company's historical Commercial and
Specialty segments have been realigned into two new segments: the
Business Insurance segment and the Financial, Professional &
International Insurance segment. As a result, prior quarter results of
certain businesses have been disaggregated from the historical
Specialty segment and are now reported in the Business Insurance
segment. In addition, the Personal segment has been renamed Personal
Insurance.
Forward Looking Statement
This press release contains, and management may make, certain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, may be forward-looking statements.
Specifically, earnings guidance and statements about our share
repurchase plans are forward looking, and we may make forward-looking
statements about our results of operations (including, among others,
premium volume, income from continuing operations, net and operating
income and return on equity), financial condition and liquidity; the
sufficiency of our asbestos and other reserves (including, among
others, asbestos claim payment patterns); post-merger expense savings;
the cost and availability of reinsurance coverage; and strategic
initiatives. Such statements are subject to risks and uncertainties,
many of which are difficult to predict and generally beyond our
control, that could cause actual results to differ materially from
those expressed in, or implied or projected by, the forward-looking
information and statements.
Some of the factors that could cause actual results to differ
include, but are not limited to, the following: catastrophe losses
could materially reduce our profitability and adversely impact our
ratings, our ability to raise capital and the availability and cost of
reinsurance; our business could be harmed because of our potential
exposure to asbestos and environmental claims and related litigation;
reinsurance may not protect us against losses; we are exposed to, and
may face adverse developments involving mass tort claims such as those
relating to exposure to potentially harmful products or substances; if
actual claims exceed our loss reserves, or if changes in the estimated
level of loss reserves are necessary, our financial results could be
significantly and adversely affected; the effects of emerging claim
and coverage issues on our business are uncertain; we may incur loss
and loss adjustment expenses as a result of disclosures by, and
investigations of, companies for which we have written directors' and
officers' insurance relating to possible accounting irregularities,
corporate governance issues and stock option "backdating," "spring
loading" and other stock option grant practices; the insurance
industry, including us, is the subject of a number of investigations
by state and federal authorities in the United States, and we cannot
predict the outcome of these investigations or their impact on our
business or financial results; our businesses are heavily regulated
and changes in regulation may reduce our profitability and limit our
growth; assessments and other surcharges for guaranty funds,
second-injury funds, catastrophe funds and other mandatory pooling
arrangements may reduce our profitability; a downgrade in our
claims-paying and financial strength ratings could significantly
reduce our business volumes, adversely impact our ability to access
the capital markets and increase our borrowing costs; our investment
portfolio may suffer reduced returns or losses which could reduce our
profitability; the intense competition that we face could harm our
ability to maintain or increase our profitability and premium volume;
we may not be able to execute announced and future strategic
initiatives as planned; the inability of our insurance subsidiaries to
pay dividends to us in sufficient amounts would limit our ability to
meet our obligations and to pay future dividends; loss or significant
restriction of the use of credit scoring or other variables in the
pricing and underwriting of personal lines products could reduce our
future profitability; disruptions to our relationships with our
distributors, independent agents and brokers could adversely affect
our future income and profitability; if we experience difficulties
with outsourcing relationships, our ability to conduct our business
might be negatively impacted; and the effects of corporate
bankruptcies on surety bond claims.
Our forward-looking statements speak only as of the date of this
press release or as of the date they are made, and we undertake no
obligation to update forward-looking statements. For a more detailed
discussion of these factors, see the information under the caption
"Risk Factors" in our most recent annual report on Form 10-K filed
with the Securities and Exchange Commission.
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Summary of Financial Information
------------------ ------------------
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
($ in millions, except per share
amounts, and after-tax) 2006 2005 2006 2005
----------------------------------------------------------------------
Operating income $1,037 $50 $3,007 $1,875
Net realized investment gains 6 25 12 8
----------------------------------------------------------------------
Income from continuing operations 1,043 75 3,019 1,883
Discontinued operations - 87 - (440)
----------------------------------------------------------------------
Net income $1,043 $162 $3,019 $1,443
----------------------------------------------------------------------
Basic earnings per share
Operating income $1.51 $0.07 $4.35 $2.78
Net realized investment gains 0.01 0.04 0.02 0.01
----------------------------------------------------------------------
Income from continuing operations 1.52 0.11 4.37 2.79
Discontinued operations - 0.13 - (0.65)
----------------------------------------------------------------------
Net income $1.52 $0.24 $4.37 $2.14
----------------------------------------------------------------------
Diluted earnings per share
Operating income $1.46 $0.07 $4.22 $2.68
Net realized investment gains 0.01 0.04 0.01 0.01
----------------------------------------------------------------------
Income from continuing operations 1.47 0.11 4.23 2.69
Discontinued operations - 0.12 - (0.62)
----------------------------------------------------------------------
Net income $1.47 $0.23 $4.23 $2.07
----------------------------------------------------------------------
Weighted average number of common
shares outstanding (basic) 685.3 679.2 689.7 672.3
Weighted average number of common
shares outstanding and common
stock equivalents (diluted) 714.6 683.8(1) 718.6 711.3
Common shares outstanding at
period end 689.5 692.2 689.5 692.2
Common stock dividends declared $180.0 $159.0 $520.0 $462.0
----------------------------------------------------------------------
Operating income (loss) by
segment
Business Insurance $613 $30 $1,919 $1,154
Financial, Professional &
International Insurance 144 86 434 334
Personal Insurance 341 (25) 784 526
----------------------------------------------------------------------
1,098 91 3,137 2,014
Interest Expense and Other (61) (41) (130) (139)
----------------------------------------------------------------------
$1,037 $50 $3,007 $1,875
----------------------------------------------------------------------
Operating return on equity 17.4% 0.9% 17.4% 11.9%
Continuing operations return on
equity 17.6% 1.3% 17.5% 11.6%
Return on equity 17.6% 2.9% 17.5% 8.9%
----------------------------------------------------------------------
(1) The calculation of earnings per diluted share for the three months
ended September 30, 2005 excluded the weighted average effects of the
following securities convertible into the Company's common shares
because their effect was anti-dilutive: equity units (7.6 million
shares); outstanding convertible preferred stock (4.1 million
shares); zero coupon convertible notes (2.3 million shares); and
convertible junior subordinated notes (16.7 million shares).
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
*T
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----------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
($ in millions, pre-tax) 2006 2005 2006 2005
----------------------------------------------------------------------
Revenues
Premiums $5,260 $4,977 $15,432 $15,205
Net investment income 858 812 2,607 2,352
Fee income 150 169 453 505
Net realized investment gains
(losses) 12 39 16 (16)
Other revenues 36 45 113 138
----------------------------------------------------------------------
$6,316 $6,042 $18,621 $18,184
----------------------------------------------------------------------
Revenues by segment excluding
net realized investment gains
(losses)
Business Insurance $3,505 $3,485 $10,453 $10,677
Financial, Professional &
International Insurance 963 858 2,806 2,644
Personal Insurance 1,836 1,647 5,340 4,874
----------------------------------------------------------------------
6,304 5,990 18,599 18,195
Interest Expense and Other - 13 6 5
----------------------------------------------------------------------
6,304 6,003 18,605 18,200
Net realized investment gains
(losses) 12 39 16 (16)
----------------------------------------------------------------------
$6,316 $6,042 $18,621 $18,184
----------------------------------------------------------------------
Gross written premiums
Business Insurance Core $3,257 $3,278 $9,802 $9,859
Business Insurance Other - 94 23 323
----------------------------------------------------------------------
Total Business Insurance 3,257 3,372 9,825 10,182
Financial, Professional &
International Insurance 974 926 2,952 2,797
Personal Insurance 1,869 1,732 5,330 4,880
----------------------------------------------------------------------
$6,100 $6,030 $18,107 $17,859
----------------------------------------------------------------------
Net written premiums
Business Insurance Core $2,634 $2,542 $8,174 $7,949
Business Insurance Other 10 80 29 192
----------------------------------------------------------------------
Total Business Insurance 2,644 2,622 8,203 8,141
Financial, Professional &
International Insurance 912 847 2,429 2,266
Personal Insurance 1,728 1,627 5,081 4,685
----------------------------------------------------------------------
$5,284 $5,096 $15,713 $15,092
----------------------------------------------------------------------
GAAP combined ratios: (1)
Business Insurance (2)
Loss and loss adjustment expense
ratio 61.5% 95.4% 60.8% 75.3%
Underwriting expense ratio 30.5 29.6 30.1 28.5
----------------------------------------------------------------------
Combined ratio 92.0% 125.0% 90.9% 103.8%
----------------------------------------------------------------------
Financial, Professional &
International Insurance (2)
Loss and loss adjustment expense
ratio 54.1% 57.4% 53.2% 54.7%
Underwriting expense ratio 34.9 37.4 35.3 36.0
----------------------------------------------------------------------
Combined ratio 89.0% 94.8% 88.5% 90.7%
----------------------------------------------------------------------
Personal Insurance
Loss and loss adjustment expense
ratio 50.2% 84.5% 56.9% 64.2%
Underwriting expense ratio 28.2 26.8 28.0 26.5
----------------------------------------------------------------------
Combined ratio 78.4% 111.3% 84.9% 90.7%
----------------------------------------------------------------------
Total Company (2)
Loss and loss adjustment expense
ratio 56.7% 86.3% 58.3% 68.8%
Underwriting expense ratio 30.5 29.9 30.3 29.1
----------------------------------------------------------------------
Combined ratio 87.2% 116.2% 88.6% 97.9%
----------------------------------------------------------------------
(1) For purposes of computing GAAP ratios, billing and policy fees
(which are a component of other revenues) are allocated as a
reduction of other underwriting expenses. In addition, fee income is
allocated as a reduction of losses and loss adjustment expense and
other underwriting expenses.
(2) Before policyholder dividends.
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
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Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
($ in millions; after-tax except
as noted) 2006 2005 2006 2005
----------------------------------------------------------------------
Reconciliation of underwriting
gain (loss) to net income
Pre-tax underwriting gain (loss) $642 $(828) $1,652 $224
Tax expense on underwriting
results (235) 273 (597) (105)
----------------------------------------------------------------------
Underwriting gain (loss) 407 (555) 1,055 119
Net investment income 668 625 2,011 1,806
Other, including interest expense (38) (20) (59) (50)
----------------------------------------------------------------------
Consolidated operating income 1,037 50 3,007 1,875
Net realized investment gains 6 25 12 8
----------------------------------------------------------------------
Income from continuing operations 1,043 75 3,019 1,883
Discontinued operations - 87 - (440)
----------------------------------------------------------------------
Net income $1,043 $162 $3,019 $1,443
----------------------------------------------------------------------
See Glossary of Financial Measures and the statistical supplement for
additional financial data.
*T