Travelers Reports Quarterly Records for Net and Operating Income per Diluted Share of $2.70 and $2.68, Respectively, as Compared to $0.78 and $0.72 in the Prior Year Quarter

The Travelers Companies, Inc. today reported net income of $988 million, or $2.70 per diluted share, for the quarter ended December 31, 2013, compared to $304 million, or $0.78 per diluted share, in the prior year quarter. Operating income in the current quarter was $981 million, or $2.68 per diluted share, compared to $278 million, or $0.72 per diluted share, in the prior year quarter. The increase in net and operating income compared to the prior year quarter primarily resulted from lower catastrophe losses.

“Fourth quarter operating income of almost a billion dollars provided a very strong finish to an excellent 2013,” commented Jay Fishman, Chairman and Chief Executive Officer. “For the full year, we achieved record levels of net and operating income per diluted share of $9.74 and $9.46, respectively. Full year operating return on equity was 15.5%, driven by strong underwriting profitability, solid investment income and our capital management strategy, which permitted us to return more than $3 billion of capital to our shareholders in 2013.

“We continue to be very pleased with the execution of our business strategies. In Business Insurance, our active pricing strategy improved profitability, as well as delivered meaningful written rate gains and higher retention levels. Within the Financial, Professional & International segment, our Management Liability business continued to improve profitability and achieve written rate gains in excess of loss trend. In International, our acquisition of Dominion closed on November 1, and we are on track with the integration. We are also pleased with the profitability of our Personal Insurance business, particularly the improvement in Automobile. Finally, we launched our new auto product, Quantum 2.0, in October and are encouraged in these early days by the market receptivity.

“Our focus on delivering top-tier operating return on equity by generating appropriate returns on our products and right sizing capital has created significant shareholder value. From the beginning of 2005 through the end of 2013, we have delivered an average annual operating return on equity of 13.1%, returned over $27 billion in capital to our shareholders through dividends and share repurchases, and grown book value per share at a compound annual growth rate of 9%. Total return to shareholders over that period, including dividends reinvested, exceeded 200%. We are encouraged by the strength of our 2013 results, and we remain committed to taking the steps necessary to continue to improve returns consistent with our long-held goal of producing mid-teens operating return on equity over time,” concluded Fishman.

Fourth Quarter 2013 Results

(All comparisons vs. fourth quarter 2012, unless noted otherwise)

Net and operating income of $988 million after-tax and $981 million after-tax, respectively, increased $684 million and $703 million, primarily due to lower catastrophe losses.

Underwriting results

• The GAAP combined ratio improved 17.7 points to 87.7% due to lower catastrophe losses (17.8 points) and higher net favorable prior year reserve development (0.4 points), partially offset by lower underlying underwriting margins (0.5 points).
• Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from wind and hail storms in the Midwestern United States and Storm Xaver in the United Kingdom.
• The underlying GAAP combined ratio increased 0.5 points to 91.2% as Business Insurance improved while Personal Insurance and Financial, Professional & International Insurance were negatively impacted by higher levels of non-catastrophe weather-related losses and non-weather related property losses.

Net investment income of $562 million after-tax ($702 million pre-tax) increased modestly primarily due to higher private equity and real estate partnership returns in the non-fixed income portfolio, partially offset by lower reinvestment rates in the fixed income portfolio.

On November 1, 2013, the company acquired The Dominion of Canada General Insurance Company (Dominion) for an aggregate purchase price of approximately $1.034 billion.

Net written premiums of $5.633 billion increased 5% primarily due to the inclusion of Dominion within Financial, Professional & International Insurance, as well as higher net written premiums in Business Insurance. These increases were partially offset by lower net written premiums in Personal Insurance.

Full Year 2013 Results

(All comparisons vs. full year 2012, unless noted otherwise)

Net income of $3.673 billion after-tax increased $1.200 billion or 49%, primarily due to higher operating income. Operating income of $3.567 billion increased $1.126 billion, primarily reflecting improved underwriting results driven by lower catastrophe losses, a higher underlying underwriting gain, a $63 million benefit resulting from the resolution of prior year tax matters and a $59 million after-tax ($91 million pre-tax) gain from the settlement of a legal proceeding. These improvements were partially offset by lower net investment income and lower net favorable prior year reserve development.

Underwriting results

• The GAAP combined ratio improved 7.3 points to 89.8% due to lower catastrophe losses (5.7 points) and higher underlying underwriting margins (2.1 points), partially offset by lower net favorable prior year reserve development (0.5 points).
• Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from tornado, wind and hail storms in several regions of the United States.
• The underlying GAAP combined ratio improved 2.1 points to 90.9%, primarily resulting from earned rate increases exceeding loss cost trends in each segment.

Net investment income of $2.186 billion after-tax ($2.716 billion pre-tax) decreased primarily due to lower reinvestment rates in the fixed income portfolio and lower real estate partnership returns in the non-fixed income portfolio.

Net realized investment gains of $106 million after-tax ($166 million pre-tax) increased primarily, due to an $87 million after-tax ($134 million pre-tax) gain in the second quarter related to a short position in U.S. Treasury futures contracts. The company closed this position by the end of the second quarter.

Net written premiums of $22.767 billion increased 1% reflecting the same factors discussed above for the fourth quarter.

Shareholders’ Equity

Shareholders’ equity of $24.796 billion was generally consistent with the end of the third quarter 2013 but decreased 2% from the end of 2012. Included in shareholders’ equity were after-tax net unrealized investment gains of $1.322 billion, compared to $1.559 billion at the end of the third quarter 2013 and $3.103 billion at the end of the prior year. These lower net unrealized investment gains resulted from increased interest rates. The company repurchased 11.4 million shares during the fourth quarter and 28.4 million shares during the full year under its existing share repurchase authorization at a total cost of $1.0 billion and $2.4 billion, respectively, leaving $4.759 billion of capacity under that authorization for future share repurchases. Statutory surplus was $21.123 billion, and the ratio of debt-to-capital (excluding after-tax net unrealized investment gains) was 21.3%, well within its target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.50 per share. This dividend is payable March 31, 2014, to shareholders of record as of the close of business on March 10, 2014.

Fourth Quarter 2013 Results

(All comparisons vs. fourth quarter 2012, unless noted otherwise)

Operating income of $634 million after-tax increased $308 million or 94%, primarily reflecting improved underwriting results driven by lower catastrophe losses and a higher underlying underwriting gain.

Underwriting results

• The GAAP combined ratio improved 14.6 points to 88.9% due to lower catastrophe losses (13.4 points) and higher underlying underwriting margins (1.3 points).
• Net favorable prior year reserve development primarily resulted from better than expected loss experience related to the general liability product line, which was concentrated in excess coverages for accident years 2006 through 2012, reflecting more favorable legal and judicial environments than what the company previously expected. Catastrophe losses primarily resulted from wind and hail storms in the Midwestern United States.
• The underlying GAAP combined ratio improved 1.3 points to 91.5%, primarily resulting from earned rate increases exceeding loss cost trends and a decrease in the expense ratio.

Business Insurance net written premiums of $2.873 billion increased 3% primarily driven by continued increases in renewal rate change. Retention rates remained strong and higher than recent quarters. New business volumes decreased modestly from the prior year quarter. Net written premiums also benefited from positive exposure change at renewal and positive audit premiums, both of which were slightly higher than the prior year quarter.

Full Year 2013 Results

(All comparisons vs. full year 2012, unless noted otherwise)

Operating income of $2.329 billion after-tax increased $486 million or 26%, primarily reflecting improved underwriting results driven by lower catastrophe losses, a higher underlying underwriting gain, a $59 million after-tax ($91 million pre-tax) gain from the settlement of a legal proceeding and a $43 million benefit resulting from the resolution of prior year tax matters. These improvements were partially offset by lower net favorable prior year reserve development and lower net investment income.

Underwriting results

• The GAAP combined ratio improved 5.5 points to 91.9% due to lower catastrophe losses (4.4 points) and higher underlying underwriting margins (2.4 points), partially offset by lower net favorable prior year reserve development (1.3 points).
• Net favorable prior year reserve development primarily resulted from better than expected loss experience related to the general liability product line for accident years 2012 and prior, the property product line for accident years 2010 through 2012 and the workers’ compensation product line for accident years 2008 and prior. Also included in net favorable prior year reserve development was a $42 million pre-tax ($27 million after-tax) charge that was precipitated by legislation in New York enacted in the first quarter 2013 related to the New York Fund for Reopened Cases for workers’ compensation. Catastrophe losses primarily resulted from tornado, wind and hail storms in several regions of the United States.
• The underlying GAAP combined ratio improved 2.4 points to 92.2%, primarily resulting from earned rate increases exceeding loss cost trends and a decrease in the expense ratio.

Business Insurance net written premiums of $12.233 billion, a record full year level, increased 3%, primarily driven by continued increases in renewal rate change. Retention rates remained strong, while new business volumes increased modestly from the prior year. Net written premiums also benefited from positive exposure change at renewal and positive audit premiums, although at lower levels than the prior year.

Fourth Quarter 2013 Results

(All comparisons vs. fourth quarter 2012, unless noted otherwise)

Operating income of $171 million after-tax increased $40 million or 31%, primarily reflecting improved underwriting results driven by lower catastrophe losses and higher net favorable prior year reserve development.

Underwriting results

• The GAAP combined ratio improved 3.3 points to 85.0% due to lower catastrophe losses (4.9 points) and higher net favorable prior year reserve development (1.6 points), partially offset by lower underlying underwriting margins (3.2 points), primarily reflecting higher levels of large losses and non-catastrophe weather-related losses within International.
• Net favorable prior year reserve development primarily resulted from better than expected loss experience in the surety line of business within Bond & Financial Products for accident years 2010 and prior, reflecting favorable resolutions on certain claims. Catastrophe losses primarily resulted from Storm Xaver in the United Kingdom.
• The underlying GAAP combined ratio increased 3.2 points to 94.7%, due to a higher underlying loss ratio reflecting higher levels of large losses and non-catastrophe weather-related losses within International as well as the inclusion of Dominion, partially offset by earned rate increases exceeding loss cost trends. The increase in the underlying loss ratio was partially offset by a lower expense ratio due to the inclusion of Dominion.

Financial, Professional & International Insurance net written premiums of $1.043 billion increased 29% as result of higher net written premiums in both Bond & Financial Products and International. Bond & Financial Products net written premiums of $551 million increased 7% primarily due to a change in a reinsurance program as well as continued strong retention rates and renewal rate increases in management liability. International net written premiums of $492 million increased 67% primarily due to the inclusion of Dominion.

Full Year 2013 Results

(All comparisons vs. full year 2012, unless noted otherwise)

Operating income of $648 million after-tax increased $6 million or 1%, primarily reflecting improved underwriting results driven by a higher underlying underwriting gain. This improvement was mostly offset by lower net investment income.

Underwriting results

• The GAAP combined ratio of 84.3% was essentially unchanged from the prior year.
• Net favorable prior year reserve development was primarily driven by the same factors discussed above for the fourth quarter, as well as better than expected loss experience in the surety line of business in Canada and the marine line of business in the company’s operations at Lloyd’s within International. Catastrophe losses primarily resulted from the same factor discussed above for the fourth quarter as well as from flooding in Alberta, Canada.
• The underlying GAAP combined ratio improved 0.2 points to 92.0%, primarily resulting from earned rate increases exceeding loss cost trends, partially offset by a higher level of large losses and higher non-catastrophe weather-related losses.

Financial, Professional & International Insurance net written premiums of $3.309 billion increased 11%, primarily driven by the same factors discussed above for the fourth quarter.