The Travelers Companies, Inc Management Discusses Q3 2010 Earnings Call Transcript

The Travelers Companies, Inc Management Discusses Q3 2010 Earnings Call Transcript
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The Travelers Companies, Inc (

TRV

)

Q3 2010 Earnings Call

October 21, 2010 09:00 a.m. ET

Executives

Gabriella Nawi - SVP, IR

Jay Fishman - CEO

Jay Benet - CFO

Brian MacLean - President & COO

Greg Toczydlowski - President, Personal Insurance

Doreen Spadorcia - EVP & CEO, Claim Services & Personal Insurance

Bill Cunningham - EVP, Business Insurance

Analysts

Keith Walsh - Citi

Jay Cohen - Bank of America Merrill Lynch

Brian Meredith - UBS

Cliff Gallant - KBW

Matthew Heimermann - JPMorgan

Jay Gelb - Barclays Capital

Vinay Misquith - Credit Suisse

Greg Locraft - Morgan Stanley

John Hall - Wells Fargo Securities

Presentation

Operator

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Previous Statements by TRV
» The Travelers Companies, Inc. Q2 2010 Earnings Call Transcript
» The Travelers Companies Inc. Q1 2010 Earnings Call Transcript
» The Travelers Companies Inc. Q4 2009 Earnings Call Transcript
» The Travelers Companies, Inc. Q3 2009 Earnings Call Transcript

Good morning ladies and gentlemen and welcome to the third quarter earnings review for Travelers. (Operator Instructions) As a reminder, this call is being recorded today Thursday, October 23, 2010.

At this time, I would like to turn the call over to Ms. Gabriella Nawi, Senior Vice President of Investor Relations. Ms. Nawi, you may now begin.

Gabriella Nawi

Thank you Frank. Good morning and welcome to Travelers discussion of our third quarter 2010 results. Hopefully all of you have seen our press release, financial supplements and webcast presentation released earlier this morning. All of these materials can be found on our website at www.travelers.com under the investor section.

Speaking today will be Jay Fishman, Chairman and CEO; Jay Benet, Chief Financial Officer; and Brian MacLean, President and Chief Operating Officer. Other members of senior management are also in the room, available for the question-and-answer period.

They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation and then we will open it for questions. Before I turn it to Jay, I would like to draw your attention to the explanatory note on page one of the webcast.

Our presentation today includes forward-looking statements. The Company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These factors are described in our earnings press release and in our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements.

Also in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement and other materials that are available in the Investor section on our website, travelers.com.

With that out of the way, here is Jay Fishman.

Jay Fishman

Well thank you Gabby. Good morning everyone and thank you for joining us today. We're very pleased with our third quarter results, having posted net income of $2.11 per share, an increase of 28% over last year and operating income of $1.81 per share, a 12% increase over last year's amount

Operating return on equity was a strong 14.3% and we experienced very solid underwriting results across each of our business segments. Our consolidated GAAP combined ratio was 19.6%.

In an insurance pricing environment that remains largely flat in the commercial businesses, we were pleased to produce an increase of 2% net written premiums for the quarter.

Investment returns remained reduced from historical patterns as remarkably low interest rates, particularly short rates continue to impact net investment income. Lastly we've grown our book value from year-end 2009 by 13% to $59.11, a in a very strong quarter.

This morning we're going to do things a bit differently than we have in previous quarters. All of the data that we have historically provided is still included in our webcast.

However we're only going to hit the highlights and you can review the details on your own and obviously Gabby is available later to take any questions you may have. Instead, we're going to take the opportunity to share a few additional insights into our business that we think you'll find interesting.

First, we've spoken at length in previous presentations about our program's design to grow our business organically. This morning we're going to share with you summery analytics of our business insurance account growth and we suspect that a number of you will be surprised with the growth we've achieved. Second, a number of you have asked about the impact of reduced interest rates on our net investment income.

Jay Benet shared an analysis of the impact of reinvestment rates at an investor conference in September and we've updated it for current conditions. We've analyzed the maturities in our fixed income portfolio for the next three years and we'll share with you the projected impact on net investment income if re investment rates remain at current levels.

The municipal bond environment remains a topic of some interest. We've updated an analysis of our municipal bond portfolio that we did for the second quarter webcast based on current ratings and market conditions. As we've said before, it is an actively managed portfolio where we are constantly evaluating risk and return of individual securities. There are never any guarantees but we couldn't be more pleased with the positioning of the portfolio.

Finally, before I turn it over to Jay Benet, I want to comment on a topic that we're thinking about regularly. As we've discussed before we believe the most thoughtful way to run a property casualty business for the long term is to produce superior returns on equity. As many of your understand, we can't promise consistent growth in either revenues or earnings and do so maintaining a thoughtful risk profile.

Consequently a number of years ago consistent with our aspiration for superior returns on equity and given what we viewed as typical underwriting and investment environments. We determined that we will target a mid-teens return on equity overtime and do so by achieving top tier profitability and returning access capital to shareholders.

Two very important origin that previous sentence are overtime. Since January 2005 the first full year after the merger of St. Paul and Travelers, our average annual operating return on equity is 14.1%, then we have recorded more than $20 billion in operating income and have returned nearly $17 billion in total shareholders, $13 billion in share repurchases and nearly $4 billion in dividends. Given the current general economic and investment environments few people have asked whether we intend to change our goal now.

We are certainly not economists nor do we what the future holds. However, the underlying assumption we are making is that the economy will eventually return to a more typical investment environment particularly with respect to the fixed income world.

Consequently we are not changing our goal now, having said that we have been very clear in the recent past that the current environment simply doesn't permit achievement of a consistent mid-teens return right now if one assumes no favorable reserve development and normal catastrophes in weather costs.

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