The Travelers Companies' CEO Discusses Q4 2011 Results - Earnings Call Transcript

The Travelers Companies (TRV)

Q4 2011 Earnings Call

January 24, 2012 9:00 am ET


Greg Toczydlowski - President of Personal Insurance

Jay S. Fishman - Chairman, Chief Executive Officer and Chairman of Executive Committee

Bill Malugen -

Jay S. Benet - Vice Chairman and Chief Financial Officer

Doreen Spadorcia - Chief Executive Officer of Personal Insurance and Executive Vice President of Claim Services

Gabriella Nawi - Senior Vice President of Investor Relations and Member of Operating Committee

William E. Cunningham - Executive Vice President of Business Insurance

William H. Heyman - Vice Chairman and Chief Investment Officer

Brian W. MacLean - President and Chief Operating Officer


Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Jay Gelb - Barclays Capital, Research Division

Cliff Gallant - Keefe, Bruyette, & Woods, Inc., Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Unknown Analyst

Gregory Locraft - Morgan Stanley, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Jay A. Cohen - BofA Merrill Lynch, Research Division

Keith F. Walsh - Citigroup Inc, Research Division



Good morning, ladies and gentlemen, and welcome to the fourth quarter and full year results conference for Travelers. [Operator Instructions] As a reminder, this conference call is being recorded on Tuesday, January 24, 2012. 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 begin.

Gabriella Nawi

Thank you, Carlos. Good morning, and welcome to Travelers discussion of our fourth quarter and 2011 results. Hopefully, all of you have seen our press release, financial supplements and webcast presentation released earlier this morning. All of the these materials can be found on our website at 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 as they go through prepared remarks, and then we will open it up for questions.

Before I turn it over to Jay, I would like to draw your attention to the explanatory note included at the end 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 on the Investor section on our website. And now Jay Fishman.

Jay S. Fishman

Thank you, Gabby. Good morning, everyone, and thank you for joining us today. I'm pleased that we posted solid results in the fourth quarter with net income per share at $1.51 and return on equity of 10%. The story for the full year, of course, was the remarkable weather. Weather losses were far and away the worse in our history, and as a consequence, net earnings per share of $3.36 for the year were considerably lower than what we've become accustomed to. Nevertheless, we price our product for the long term, and of course, we don't control the weather. There will be years such as 2006 and '07 in which weather losses are surprisingly low, and of course, there will be years, but hopefully not too many, in which losses will be high.

Also a less financially significant but nonetheless important piece of the 2011 story was the persistent low fixed-income investment environment. A 1.5 years ago, in the middle of 2010, we made the important decision that we were going to actively take steps in terms of rate terms and conditions to improve future returns in light of the insurance pricing environment and our view that it was increasingly likely that we would be facing low fixed-income yields for some time to come. We increased those efforts in the middle of 2011 in recognition of the possibility that weather patterns might be changing prospectively for the worst, particularly given the active weather we experienced in 2010 and into the first half of 2011.

We've shared with you before that we are just not big believers in magic market cycles. We understand that our business is about one underwriter and one agent discussing one account at a time. But we believe that our franchise were strong enough that we could seek improved profitability through improved rate terms and conditions without adverse effect to our business. And 18 months later, we have proven that to be the case in most of our commercial businesses. We take these actions selectively where analytics suggest they are warranted, and we try very hard never to be disruptive to our agents or insureds. In our judgment, the success we've experienced speaks to the value that we bring to agents and customers and the success we've had positions the company very well going into 2012. In particular, Business Insurance, excluding National Accounts, had a pure renewal rate gain of more than 6% for the quarter and 8% for December. As a result, given our current view of loss trends, we anticipate widening of the underlying underwriting margins in Business Insurance in the first half of 2012.

In Personal Insurance, the regulatory environment is such that while the progress we've made is important, the real evidence of success remains ahead of us as we continue to roll out the pricing and underwriting changes that we have decided to pursue. But I want to emphasize that the steps we are taking are not limited to rate. There are a number of levers available to us in addition to rate as we pursue improved returns. It include underwriting actions, particularly with respect to risk selection and location, as well as changing underwriting standards with respect to roofs and loss history in Personal Insurance. We've always been attentive to our expense base and we continue to be very thoughtful to that regard.

Our commitment to improving perspective returns in Personal Insurance is no less than that which we had in Business Insurance when we began this program 18 months ago. Every personalized franchise is unique. Every company's agent group is different, and importantly, the value proposition to the insureds is quite different company to company. We believe that we will be successful given our agents, our insureds and the value that we bring. So while the bottom line financial results this year were less than we would hoped, we couldn't be more pleased and more proud of our people when we look at the progress we've made to achieve improved returns, particularly given the difficult environment that continues to confront the U.S. economy.

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