The Travelers Companies Inc. Reports Operating Results (10-Q)
The Travelers Companies Inc. has a market cap of $26.27 billion; its shares were traded at around $51.92 with a P/E ratio of 8.4 and P/S ratio of 1.1. The dividend yield of The Travelers Companies Inc. stocks is 2.5%.TRV is in the portfolios of David Einhorn of Greenlight Capital Inc, Richard Snow of Snow Capital Management, L.P., Diamond Hill Capital of Diamond Hill Capital Management Inc, Bill Frels of MAIRS & POWER INC, Richard Aster Jr of Meridian Fund, Irving Kahn of Kahn Brothers & Company Inc., Dodge & Cox, John Buckingham of Al Frank Asset Management, Inc., HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Brian Rogers of T Rowe Price Equity Income Fund, Jim Simons of Renaissance Technologies LLC, NWQ Managers of NWQ Investment Management Co, David Dreman of Dreman Value Management, Jeremy Grantham of GMO LLC, Paul Tudor Jones of The Tudor Group, Steven Cohen of SAC Capital Advisors, Charles Brandes of Brandes Investment, George Soros of Soros Fund Management LLC, John Keeley of Keeley Fund Management, Warren Buffett of Berkshire Hathaway.
Highlight of Business Operations: Diluted net income per share of $1.25 in the first quarter of 2010 increased by 13% over the same period of 2009, despite a 2% decline in reported net income, reflecting the impact of common share repurchases over the previous twelve months that led to a 75 million, or 13%, decline in the number of weighted average diluted shares outstanding in the first quarter of 2010 compared with the same 2009 period. Net income of $647 million in the first quarter of 2010 decreased $15 million from net income of $662 million in the same period of 2009, primarily reflecting the impact of an increase in catastrophe losses, partially offset by net realized investment gains in 2010 (compared with significant net realized investment losses in 2009), a strong increase in net investment income, a decline in non-catastrophe weather-related losses and an increase in net favorable prior year reserve development. Catastrophe losses in the first quarters of 2010 and 2009 totaled $471 million and $83 million, respectively. Net income in the first quarter of 2009 also reflected a reduction in income tax expense of $69 million resulting from the favorable resolution of various prior year tax matters and a $61 million reduction in the estimate of property windpool assessments related to Hurricane Ike that had been recorded in general and administrative expenses in 2008.
Net investment income of $753 million in the first quarter of 2010 increased $211 million, or 39%, over the same period of 2009, primarily resulting from improved returns from non-fixed maturity investments, which generated net investment income of $66 million in the first quarter of 2010, compared with negative net investment income of $175 million in the same period of 2009. This increase was partially offset by a decline in investment income from fixed maturity investments, driven by lower long-term reinvestment interest rates available for maturing securities and lower short-term interest rates. The average pretax yield on the total investment portfolio was 4.1% and 3.0% in the first quarters of 2010 and 2009, respectively. The improved performance from non-fixed income investments in 2010 reflected improving capital market conditions. The amortized cost of the fixed maturity and short-term security portion of the investment portfolio at March 31, 2010 totaled $67.11 billion, $333 million lower than at the same date in 2009, primarily reflecting the impact of $4.78 billion of common share repurchases, $681 million of dividends paid to shareholders and contributions of $260 million to the Companys pension plan during the preceding twelve months, which were largely offset by strong operating cash flows during that time period (a portion of which was invested in fixed maturity securities) and the issuance of $500 million of senior notes in the second quarter of 2009.
Other-Than-Temporary Impairment Losses on Investments In the first quarter of 2010, impairments included in net income totaled $10 million and included $6 million related to the fixed maturity portfolio, $3 million related to other investments and $1 million related to equity securities. In the first quarter of 2009, impairments included in net income totaled $184 million. Impairments in the fixed maturity portfolio in the first quarter of 2009 totaled $107 million, which included $51 million of impairments related to structured mortgage securities, $47 million related to various issuers deteriorated financial position and $9 million related to externally managed securities with respect to which the Company does not have the ability to assert an intention to hold until recovery in market value. Impairments in the first quarter of 2009 also included $74 million related to equity investments and $3 million related to other investments. The majority of equity impairments in the first quarter of 2009 were related to issuers in the financial industry.
Other Net Realized Investment Gains (Losses) Other net realized investment gains in the first quarter of 2010 totaled $35 million, which included $28 million of net realized investment gains related to fixed maturity investments, $18 million of net realized investment gains related to equity securities and other investments, and $8 million of net realized investment gains related to foreign currency exchange. These net realized investment gains were partially offset by $10 million of net realized investment losses related to the Companys holdings of stock purchase warrants of Platinum Underwriters Holdings, Ltd. a publicly held company, and $7 million of net realized investment losses related to U.S. Treasury futures contracts, which are used to shorten the duration of the Companys fixed maturity portfolio. In the first quarter of 2009, the Company incurred $33 million of other net realized investment losses related to its holdings of stock purchase warrants of Platinum Underwriters Holdings, Ltd.
Claims and claim adjustment expenses totaled $3.39 billion in the first quarter of 2010, $198 million, or 6%, higher than the first quarter 2009 total of $3.19 billion. The 2010 total included $471 million of catastrophe losses and $294 million of net favorable prior year reserve development, whereas the 2009 first quarter total included $83 million of catastrophe losses and $258 million of net favorable prior year reserve development. The 2010 total also reflected a decline in non-catastrophe weather-related losses, primarily in the Personal Insurance segment. Catastrophe losses in the first quarter of 2010 primarily resulted from several severe winter, wind and hail storms in the eastern United States, as well as an earthquake in Chile. In the first quarter of 2009, catastrophes primarily resulted from several winter storms, tornadoes and hail storms. The Business Insurance segment accounted for $242 million of net favorable prior year reserve development in the first quarter of 2010, driven by better than expected loss development in the general liability, property and commercial multi-peril product lines for recent accident years. In the Financial, Professional & International Insurance segment, the Bond & Financial Products group and the International group both recorded net favorable prior year reserve development in the first quarter of 2010. The Personal Insurance segment also experienced a small amount of net favorable prior year reserve development in the first quarter of 2010, primarily in various property coverages.
The amortization of deferred acquisition costs totaled $929 million in the first quarter of 2010, $15 million, or 2%, lower than the comparable 2009 total of $944 million, consistent with the decline in earned premiums. General and administrative expenses totaled $847 million in the first quarter of 2010, an increase of $65 million, or 8%, over the comparable 2009 total of $782 million. The 2009 total reflected a $61 million reduction in the estimate of assessments related to Hurricane Ike that had been recorded in general and administrative expenses.
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