Operating earnings of The Travelers Companies (TRV: 49.29 0.00 0.00%) for the second quarter of 2010 was $1.39 per share, lagging the Zacks Consensus estimate of $1.51 by 12 cents. Results compare favorably with operating earnings of $1.25 in the prior-year quarter. Operating income was $690 million, down 5.8% from $732 million in second-quarter 2009.Including net realized investment losses of $20 million or 4 cents per share, Travelers reported a net income of $670 million or $1.35 per share compared with $740 million or $1.27 per share in the second quarter of 2009. The prior-year quarter realized a net investments gain of $8 million or 2 cents per share.
An after-tax decrease in underwriting gain was partially offset by after-tax increase in net investment income leading to a decline in net income. However, net income per share increased year over year due to lower shares outstanding at the end of the quarter compared with second quarter 2009 end.
Net written premiums of Travelers during the quarter totaled $5.7 billion, up 1% from $5.6 billion in the second quarter of 2009, largely attributable to higher net written premiums in Personal Insurance. However, decrease in net written premiums in Business Insurance and Financial, Professional & International Insurance was a partial offset.
New business volumes of Travelers during the quarter declined year over year in Business Insurance and Financial, Professional & International Insurance, partially offset by an increase in Personal Insurance.
Net investment income of Travelers improved 15% year over year to $762 million during the quarter, driven by positive returns in the non-fixed income portfolio.
Travelers’ underwriting gain declined to $220 million in the quarter from $329 million from the prior-year quarter, reflecting a higher combined ratio of 95.2% compared with 93.2% in second-quarter 2009.
Travelers saw an increase in catastrophe losses, due to several severe wind and hail storms as well as flooding, partially offset by the increase in net favorable prior-year reserve development led to an increase in combined ratio.
Segment Update
Segment Update
Business Insurance: Net written premium declined 0.6% year over year to $2.8 billion in the quarter. Revenue totaled $3.3 billion, down 1.2% year-over-year. Combined ratio increased to 91.8% from 89.8% in second-quarter 2009. Operating income increased 1.3% year-over-year to $567 million.
Financial, Professional & International Insurance: Net written premium declined 2.7% year-over-year to $889 million in the quarter. Revenue totaled $972 million, up 1.2% year-over-year. Combined ratio decreased to 83.8% from 90.9% in second-quarter 2009. Operating income increased 29% year-over-year to $172 million.
Personal Insurance: Net written premium improved 6.7% year-over-year to $2.0 billion in the quarter. Revenue totaled $1.9 billion, up 3.2% year-over-year. Combined ratio increased to 105.9% from 99.6% in second-quarter 2009. Operating income declined a substantial 78% year-over-year to $19 million.
Dividend and Share Repurchase
Travelers paid a dividend of $173 million during second-quarter 2010.
Travelers spent $1.4 billion during the second quarter of 2010 to buy back 28 million shares. The company is left with the approval to buy back another $3.7 billion worth of shares.
Since the initial share repurchase program in the second quarter of 2006, Travelers repurchased 248.2 million common shares at a total cost of $12.3 billion.
Full-Year 2010 GuidanceManagement expects pretax Catastrophe losses of $1.274 billion, including $364 million for second half of 2010. After-tax Catastrophe losses are estimated to be $835 million, or $1.71 per share, including $238 million or 51 cents per diluted share, for the back half of 2010.
Management expects to spend $4 billion to repurchase shares.
Management does not expect additional prior-year reserve development, favorable or unfavorable.
Management expects average invested assets (excluding net unrealized investment gains and losses) after taking into account dividends and share repurchases to decrease by low single digits.
Taking into account these factors, management lowered the upper-end of earnings by 10 cents per share to result in full-year earnings guidance of $5.20-$5.45 per share.
Travelers focuses on enhancing its shareholder value through dividend and share buybacks, which continue to positively impact both its earnings per share as well as return on equity. Based on high retention rates, favorable renewal rate changes, favorable prior-year reserve development and prudent underwriting practices, Travelers is poised to perform better going forward.
| Overall Summary: |  60%, Bullish 40%, Bearish | Trade Quality: | Upside 80%, V. Good Downside 25%, Poor |
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