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Net Profit At Travelers Falls 82% For Quarter

DISASTER AVERTED

DIANE LEVICK

October 23, 2008

Net profit at The Travelers Cos. plunged 82 percent in the third quarter as hurricane claims blew in, but the company's investment losses paled in comparison to the hits taken by some other insurers.

The storm costs were previously disclosed, so Travelers' announcement Wednesday of a lower earnings forecast for the full year came as no surprise. In fact, investors' positive reaction drove the stock up as much as 6 percent in trading Wednesday before it closed up about 2 percent, or 69 cents a share, at $37.02 in a falling market.

Travelers' third-quarter net income fell to $214 million, or 36 cents a share, from nearly $1.2 billion, or $1.81 a share, in the 2007 third quarter.

Net income included catastrophe claims, mostly from hurricanes Ike, Gustav and Dolly, totaling $682 million after tax, or $1.04 billion pretax, compared with $9 million after tax a year earlier.

Net profit also reflected net realized investment losses of $116 million in this year's quarter. The year-earlier period had no net investment gain or loss. Net investment income dropped to $587 million from $724 million a year earlier.

Jay Fishman, Travelers' chairman and chief executive, said the company couldn't be more pleased with how it has managed through the turmoil in financial markets.

"Even with 20-20 hindsight, there isn't much we would have done differently, and as a consequence we're as well positioned as we could be," Fishman told analysts on a conference call Wednesday.

Travelers has $2.1 billion of liquidity — short-term securities that are easy to sell — which is nearly twice its target level. And all of its financial strength indicators are at or above targets, company officials said.

Travelers' operating income, which is profit, excluding realized investment gains and losses, was $330 million, or 55 cents a share, in the third quarter, down 72 percent from $1.2 billion, or $1.81 a share, a year earlier. The 55-cents-a-share profit was lower than the analysts' consensus of 69 cents a share reported by Thomson Reuters. But the consensus didn't reflect updated estimates by some analysts, and Travelers' return on private equity and hedge fund investments was lower than some expected.

Travelers lowered its forecast for full-year 2008 operating earnings to a range of $4.90 to $5.10 a share. Previous guidance was $5.55 to $5.85 a share.

Also Wednesday, Fishman was asked by an analyst about acquisitions at a time when companies such as AIG are selling businesses to raise money. The CEO said Travelers always looks at opportunities, but knows the risks and would only do a "compelling" deal.

"In our case, we don't need to do anything," Fishman said. "We have the ability to meet our mission to create shareholder value by achieving mid-teens return on equity over time with what we've got."