Travelers Takes Q3 Hit from Hurricanes

Travelers Cos. Inc.’s net income dropped to $214 million for the third quarter, down from $1.2 billion for the same period last year, as the company absorbed losses from Hurricanes Ike, Gustav and Dolly.

The insurer’s catastrophe losses reached $682 million after taxes, compared to $9 million in the same quarter last year.

Operating income for the quarter was $330 million.

The combined ratio was 104.7 percent for the current quarter. Catastrophe losses added 19.1 points, partially offset by net favorable prior year reserve development of 6.2 points. Excluding these impacts, the GAAP combined ratio was 91.8 percent.

“Notwithstanding the significant storm activity in the quarter, our underlying businesses continued to perform strongly,” said Jay Fishman, chairman and chief executive officer. “While our results for the quarter were impacted by catastrophe losses of $682 million after-tax, our losses were consistent overall with our risk models and pricing assumptions.”

Net written premiums came in at $5.481 billion in the current quarter, a 2 percent increase from the prior year quarter. The company said that overall retention rates continued to be strong and renewal price changes were generally consistent with recent quarters, while new business volumes increased slightly from the prior year quarter driven by growth in Personal Insurance. This increase was partially offset by a decline in new business volumes in Business Insurance and Financial, Professional and International Insurance due to competitive market conditions.

Net investment income of $587 million after-tax ($716 million pre-tax) in the current quarter, compared to $724 million after-tax ($929 million pre-tax) in the prior year quarter.

Net realized investment losses of $116 million after-tax ($170 million pre-tax) in the current quarter, compared to no net realized investment gains or losses in the prior year quarter. Net realized investment losses in the current quarter were driven by impairments of $102 million after-tax ($156 million pre-tax), including impairments of $44 million after-tax ($67 million pre-tax) with respect to securities issued by Lehman Brothers Holdings Inc. and its subsidiaries. The prior year quarter had no net realized investment gains or losses. At the end of the third quarter 2008, the company was not a party to any credit default swaps and had approximately $15 million of loans outstanding under its securities lending program, for which the company believes it has no exposure to loss. Additionally, at the end of the third quarter 2008, the fair value of the company’s financial assets classified as Level 3 under FAS 157 continued to represent less than 1 percent of the total fair value of the company’s investment portfolio.

Source: Travelers