The St. Paul Travelers Companies, Inc. ("St. Paul
Travelers")(NYSE:STA) today reported net income of $1.043 billion,
or $1.52 per basic share and $1.47 per diluted share, for the
quarter ended September 30, 2006, compared to $162 million, or
$0.24 per basic share and $0.23 per diluted share, for the quarter
ended September 30, 2005. Net income in the prior year quarter
included an $87 million after-tax gain from discontinued
operations, primarily related to the disposition of St. Paul
Travelers' equity stake in Nuveen Investments, Inc. ("Nuveen").
Operating income in the current quarter was $1.037 billion, or
$1.51 per basic share and $1.46 per diluted share, compared to $50
million, or $0.07 per basic and diluted share, in the prior year
quarter. Net and operating income in the current quarter included
an after-tax benefit of $55 million ($87 million pre-tax) for net
favorable prior year reserve development. This amount included
after-tax charges of $102 million ($155 million pre-tax) and $79
million ($120 million pre-tax) for asbestos and environmental
reserve development, respectively, which were more than offset by
an after-tax benefit of $236 million ($362 million pre-tax) for
other net favorable prior year reserve development, including $66
million after-tax ($113 million pre-tax) due to an approximately 5
percent reduction in reported pre-tax catastrophe losses, net of
reinsurance, related to Hurricanes Katrina, Rita and Wilma. Net and
operating income in the current quarter also included an after-tax
benefit of $43 million ($67 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two
quarters of 2006. In the prior year quarter, net and operating
income included after-tax benefits of $70 million ($102 million
pre-tax) for net favorable prior year reserve development and $45
million ($70 million pre-tax) due to the re-estimation of the
current year loss ratios for the first two quarters of 2005.
Catastrophe losses in the current quarter of $10 million after-tax
($15 million pre-tax) were significantly lower than the prior year
quarter due to a very benign wind season. The prior year quarter
included catastrophe losses of $1.009 billion after-tax ($1.524
billion pre-tax), net of reinsurance and including reinstatement
premiums, related to Hurricanes Katrina and Rita. Current Quarter
Highlights Return on equity of 17.6 percent and operating return on
equity of 17.4 percent. Net written premiums of $5.284 billion, a 4
percent increase from the prior year quarter. Excluding the
Company�s runoff operations and adjusting for the estimated impact
of transitioning to six-month policies for personal automobile new
business, net written premiums increased approximately 6 percent.
Net investment income of $668 million after-tax, a 7 percent
increase from the prior year quarter. Strong GAAP combined ratios
in all segments, with Business Insurance at 92.0 percent;
Financial, Professional & International Insurance at 89.0
percent; and Personal Insurance at 78.4 percent. Net favorable
prior year reserve development of $55 million after-tax, including
after-tax charges of $102 million and $79 million for asbestos and
environmental reserve development, respectively. Book value per
share (excluding FAS 115) of $35.10, a 12 percent increase from
year-end 2005. Repurchased 2.7 million common shares for a total
cost of $121 million under the authorized $2 billion share
repurchase program. Jay Fishman, Chairman and Chief Executive
Officer, remarked, �Our company had another very strong quarter,
with $1.037 billion of operating income and an operating return on
equity of 17.4 percent. All of our business segments produced solid
performances, aided by the lack of any major catastrophes and the
continuation of favorable reserve development. �Our top line
continued to grow in each of our segments, with net written
premiums increasing 4 percent. Retentions were once again at
historically high levels, and margins remain attractive. Renewal
pricing continues to increase for catastrophe-prone exposures,
particularly in the Southeastern U.S. Elsewhere, renewal pricing is
generally flat. Since retentions are high across the industry, new
business flow for our commercial businesses is somewhat limited and
pricing remains more competitive than renewal business.
Nevertheless, we are pleased with the growth that we are
experiencing. In the Personal Insurance segment, we are generating
above average industry growth, which has been driven by the
continued success of the Quantum AutoSM product and our leadership
position in homeowners. �The initiatives that we have embarked upon
over the last few years are enhancing the value of our franchise.
The fundamentals of our business are strong and reflect the
impressive earnings power of our company,� concluded Mr. Fishman.
Consolidated Third Quarter Highlights � � � � � � � � � � � � ($ in
millions, except for per share amounts, and after-tax except for
premiums) Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2006 2005 Change 2006 2005 Change � � Gross
written premiums $ 6,100� $ 6,030� 1 % $ 18,107� $ 17,859� 1% �
excluding Business Insurance Other 6,100� 5,936� 3� 18,084� 17,536�
3� � Net written premiums 5,284� 5,096� 4� 15,713� 15,092� 4� �
excluding Business Insurance Other 5,274� 5,016� 5� 15,684� 14,900�
5� � Net earned premiums 5,260� 4,977� 6� 15,432� 15,205� 1� �
Underwriting gain (loss) 407� (555) NMF 1,055� 119� 787� � Net
investment income 668� 625� 7� 2,011� 1,806� 11� � Operating income
1,037� 50� NMF 3,007� 1,875� 60� � per diluted share $ 1.46� $
0.07� NMF $ 4.22� $ 2.68� 57� � Income from continuing operations
1,043� 75� NMF 3,019� 1,883� 60� � per diluted share $ 1.47� $
0.11� NMF $ 4.23� $ 2.69� 57� � Net income 1,043� 162� 544� 3,019�
1,443� 109� � per diluted share $ 1.47� $ 0.23� 539� $ 4.23� $
2.07� 104� � Book value per share $ 35.69� $ 32.14� 11� $ 35.69� $
32.14� 11� � Adjusted book value per share $ 35.10� $ 31.46� 12� $
35.10� $ 31.46� 12� � GAAP combined ratio 87.2% 116.2% (29.0) pts
88.6% 97.9% (9.3) pts � Operating return on equity 17.4% 0.9% 16.5
pts 17.4% 11.9% 5.5 pts � Continuing operations return on equity
17.6% 1.3% 16.3 pts 17.5% 11.6% 5.9 pts � Return on equity 17.6%
2.9% 14.7 pts 17.5% 8.9% 8.6 pts � See Glossary of Financial
Measures for definitions and the statistical supplement for
additional financial data Net written premiums increased 4 percent
from the prior year quarter, with all three segments contributing
to the growth. This result was primarily driven by strong retention
rates, especially for non-catastrophe exposures, and renewal price
increases on Southeastern U.S. catastrophe-prone exposures. For
comparison of period over period growth, the impact of the increase
in property catastrophe reinsurance costs reflected in the current
quarter was approximately offset by the impact of reinstatement
premiums associated with Hurricanes Katrina and Rita in the prior
year quarter. Net investment income in the current quarter was $668
million after-tax ($858 million pre-tax), a 7 percent increase from
the prior year quarter. The increase was primarily driven by higher
fixed income rates and strong operating cash flows. The GAAP
combined ratio in the current quarter was 87.2 percent, a 29.0
point improvement from the 116.2 percent reported in the prior year
quarter, primarily due to significantly lower catastrophe losses.
The current quarter GAAP combined ratio benefited by 1.7 points due
to net favorable prior year reserve development and by 1.3 points
due to the re-estimation of current year loss ratios for the first
two quarters of 2006, partially offset by 0.3 points for
catastrophe losses. The prior year quarter GAAP combined ratio
included 30.3 points for catastrophe losses related to Hurricanes
Katrina and Rita, partially offset by the benefits of 2.0 points
due to net favorable prior year reserve development and 1.4 points
due to the re-estimation of the current year loss ratios for the
first two quarters of 2005. During the third quarter of 2006, the
Company repurchased 2.7 million common shares for a total cost of
$121 million under its $2 billion share repurchase program
authorized in the second quarter of 2006. The Company has
repurchased an aggregate of 8.4 million shares for a total cost of
$371 million under the program, including the repurchases during
the third quarter of 2006. Given year-to-date results, the Company
intends to accelerate the pace of its share repurchases in the
fourth quarter of 2006. Asbestos Reserve Development The Company
increased asbestos reserves by $155 million in the current quarter
in connection with the completion of its annual asbestos review,
resulting in a $102 million after-tax charge. There were no
asbestos reserve adjustments in the prior year quarter. The
previous annual asbestos review was completed in the fourth quarter
of 2005. The Company completed this year�s review in the third
quarter earlier than in previous years due to a number of factors,
including: the emergence of more stable payment trends for a
greater proportion of policyholders, a decrease in the number of
new claims received, a decrease in the number of large asbestos
exposures reflecting additional settlement activity, a decrease in
the number and volatility of asbestos-related bankruptcies, and the
absence of new theories of liability or new classes of defendants.
As in prior years, the review considered active policyholders and
litigation cases for potential product and �non-product� liability,
including the on-going litigation related to ACandS. Developing
payment trends among policyholders in the Home Office and Field
Office as well as Assumed and International categories were also
analyzed. The Home Office and Field Office categories, which
account for the vast majority of the number of policyholders, have
experienced an overall reduction in new claim filings as well as in
indemnity and defense payments over prior years. While indemnity
payments declined in line with previous expectations, defense
costs, although decreasing, were in excess of previous
expectations. Approximately half of the $155 million pre-tax
reserve adjustment was due to an increase in projected defense
costs for ten policyholders. Additionally, $15 million of the
pre-tax reserve increase was attributable to a delay in the
approval and expected payment of the previously announced PPG
settlement. The remainder of the reserve increase was primarily due
to continued litigation activity against smaller, peripheral
defendants. Environmental Reserve Development The Company increased
environmental reserves by $120 million, resulting in a $79 million
after-tax charge. There were no environmental reserve adjustments
in the prior year quarter. While the number of new policyholders
submitting claims continues to decline, the increase to the reserve
was primarily due to higher than expected defense and settlement
costs driven in part by adverse judicial developments in certain
states regarding the availability of coverage. Year-to-Date 2006
Consolidated Results For the nine-month period ended September 30,
2006, St. Paul Travelers reported net income of $3.019 billion, or
$4.37 per basic share and $4.23 per diluted share, compared to
$1.443 billion, or $2.14 per basic share and $2.07 per diluted
share, for the nine-month period ended September 30, 2005. Net
income in the prior year period was negatively impacted by a $440
million after-tax loss from discontinued operations, primarily due
to a tax charge related to the Company�s decision to divest its 78
percent equity interest in Nuveen. Income from continuing
operations in the first nine months of 2006 was $3.019 billion, or
$4.37 per basic share and $4.23 per diluted share, compared to
$1.883 billion, or $2.79 per basic share and $2.69 per diluted
share, in the prior year period. Operating income in the current
year period was $3.007 billion, or $4.35 per basic share and $4.22
per diluted share, compared to $1.875 billion, or $2.78 per basic
share and $2.68 per diluted share, in the prior year period. Net
and operating income for the first nine months of 2006 included an
after-tax benefit of $155 million ($237 million pre-tax) for net
favorable prior year reserve development and an after-tax charge of
$54 million ($82 million pre-tax) for catastrophe losses. In the
prior year period, net and operating income included an after-tax
benefit of $156 million ($232 million pre-tax) for net favorable
prior year reserve development and an after-tax charge of $1.037
billion ($1.566 billion pre-tax) for catastrophe losses. The GAAP
combined ratio in the current year period was 88.6 percent, a 9.3
point improvement from the 97.9 percent reported in the prior year
period, primarily due to a much lower level of catastrophe losses.
The current year period GAAP combined ratio benefited by 1.5 points
for net favorable prior year reserve development, partially offset
by 0.5 points for catastrophe losses. The prior year period GAAP
combined ratio included 10.2 points for catastrophe losses,
partially offset by a benefit of 1.6 points for net favorable prior
year reserve development. Net investment income in the current year
period was a record $2.011 billion after-tax ($2.607 billion
pre-tax), an 11 percent increase from the prior year period. The
increase was driven by higher fixed income rates, strong operating
cash flows and the investment of approximately $2.4 billion of
proceeds received from the sale of Nuveen in 2005. For the first
nine months of 2006, operating return on equity was 17.4 percent,
compared to 11.9 percent in the prior year period. Segment
Realignment In August 2006, the Company announced a realignment of
two of its three segments. The former Commercial and Specialty
segments were realigned into two new segments: the Business
Insurance segment and the Financial, Professional &
International Insurance segment. The Personal segment was renamed
Personal Insurance. The changes were designed to reflect the manner
in which the Company�s businesses are currently managed, and
represent an aggregation of products and services based on type of
customer, how the business is marketed, and the manner in which
risks are underwritten. Financial data for all periods presented
has been reclassified to be consistent with the new segment
structure. Business Insurance Segment Financial Results Business
Insurance is organized into the following groups: Select Accounts,
Commercial Accounts, National Accounts, Industry-Focused
Underwriting, Target Risk Underwriting, and Specialized
Distribution, which collectively comprise Business Insurance Core
operations. Business Insurance also includes the Special Liability
Group as well as policies written by Gulf, the Personal Catastrophe
Risk operation and other runoff operations, which collectively are
referred to as Business Insurance Other. For the third quarter
2006, the Business Insurance segment reported operating income of
$613 million, compared to $30 million in the prior year quarter.
The improvement was primarily due to the absence of catastrophe
losses, the continuation of favorable loss trends and higher net
investment income. There were no catastrophe losses reported in the
current quarter, compared to an after-tax charge of $621 million
($956 million pre-tax) for catastrophe losses in the prior year
quarter. Loss experience in the current accident year has trended
better than originally estimated due to favorable claim activity,
resulting in an after-tax benefit of $26 million ($40 million
pre-tax) from the re-estimation of the current year loss ratios for
the first two quarters of 2006. The prior year quarter included an
after-tax benefit of $33 million ($51 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two
quarters of 2005. Operating income in the current quarter included
an after-tax charge of $35 million ($46 million pre-tax) for net
unfavorable prior year reserve development. The prior year reserve
development was comprised of after-tax charges for asbestos and
environmental reserve development of $102 million ($155 million
pre-tax) and $79 million ($120 million pre-tax), respectively,
partially offset by $146 million ($229 million pre-tax) for other
net favorable prior year development, primarily due to better than
expected frequency and severity loss trends in the general
liability and property lines of business. The prior year quarter
included an after-tax charge of $12 million ($18 million pre-tax)
for net unfavorable prior year reserve development. The GAAP
combined ratio was 92.0 percent in the current quarter, a 33.0
point improvement from the 125.0 percent reported in the prior year
quarter. The improvement was primarily due to the absence of
catastrophe losses in the current quarter, compared to 35.0 points
for catastrophe losses in the prior year quarter. Net unfavorable
prior year reserve development added 1.7 points to the current
quarter GAAP combined ratio, compared to adding 0.7 points in the
prior year quarter. The current quarter GAAP combined ratio
benefited by 1.5 points due to the re-estimation of the current
year loss ratios for the first two quarters of 2006, compared to a
similar benefit of 1.9 points related to the first two quarters of
2005. Net written premiums, excluding Business Insurance Other,
increased 4 percent from the prior year quarter, primarily due to
growth in Industry-Focused Underwriting, Commercial Accounts and
Target Risk Underwriting, partially offset by a decline in National
Accounts. Within Commercial Accounts, retention rates were very
strong, consistent with previous quarters, while new business
volume decreased from the prior year quarter. Renewal price changes
increased in both Commercial Accounts and Target Risk Underwriting,
largely related to Southeastern U.S. catastrophe-prone exposures.
Industry-Focused Underwriting benefited from strong business
volumes in the Construction and Oil & Gas business units,
driven by favorable economic conditions in these industry sectors.
Within Select Accounts, excluding the impact of the transfer of
certain small business insurance programs to Specialized
Distribution, net written premiums were approximately level with
the prior year quarter. Retention rates for Select Accounts were
strong, consistent with previous quarters; renewal price changes
increased from recent quarters and new business volume rose from
the prior year quarter. National Accounts net written premiums
declined as a result of a reduction in premiums related to
favorable loss experience on retrospectively rated policies and
lower new business volume. Financial, Professional &
International Insurance Segment Financial Results The Financial,
Professional & International Insurance segment (�FP&II�)
includes the following businesses: Bond, Financial &
Professional Services, and International and Lloyd�s. For the third
quarter 2006, FP&II reported operating income of $144 million,
compared to $86 million in the prior year quarter. The increase was
primarily driven by the absence of catastrophe losses and higher
net investment income, partially offset by lower net favorable
prior year reserve development. There were no catastrophe losses
reported in the current quarter, compared to an after-tax charge of
$71 million ($80 million pre-tax) for catastrophe losses in the
prior year quarter. Operating income in the current quarter
included a minimal benefit for net favorable prior year reserve
development, compared to an after-tax benefit of $28 million ($37
million pre-tax) in the prior year quarter. The GAAP combined ratio
was 89.0 percent in the current quarter, a 5.8 point improvement
from the 94.8 percent reported in the prior year quarter. The
improvement was primarily due to the absence of catastrophe losses,
partially offset by lower net favorable prior year reserve
development. Catastrophe losses added 10.1 points to the prior year
quarter GAAP combined ratio. The current quarter GAAP combined
ratio benefited by 0.2 points for net favorable prior year reserve
development, compared to 4.8 points in the prior year quarter. Net
written premiums increased 8 percent from the prior year quarter,
primarily due to strong business volumes in Bond and the U.K.
operations, as well as the absence of catastrophe-related
reinstatement premiums in the Company�s Lloyd�s operations. For
Financial & Professional Services and Bond, excluding the
surety line of business, retention rates were strong, increasing
from previous quarters; renewal price changes continue to be
positive and new business volume decreased from the prior year
quarter. For International, including the Company�s operations in
the U.K., Ireland and Canada, retention rates were very strong,
renewal price changes were consistent with recent quarters and new
business volume increased from the prior year quarter. Personal
Insurance Segment Financial Results For the third quarter 2006, the
Personal Insurance segment reported operating income of $341
million, compared to an operating loss of $25 million in the prior
year quarter. The improvement was primarily driven by significantly
lower catastrophe losses, greater net favorable prior year reserve
development, increased earned premium volume and higher net
investment income. The current quarter included an after-tax charge
of $10 million ($15 million pre-tax) for catastrophe losses,
compared to $317 million ($488 million pre-tax) in the prior year
quarter. Operating income in the current quarter included an
after-tax benefit of $85 million ($132 million pre-tax) for net
favorable prior year reserve development, primarily due to a
reduction in 2005 catastrophe loss estimates. The prior year
quarter included $54 million ($83 million pre-tax) for net
favorable prior year reserve development. In addition, loss
experience in the current accident year has trended better than
originally expected due to favorable automobile claim activity,
resulting in an after-tax benefit of $17 million ($27 million
pre-tax) from the re-estimation of the current year loss ratios for
the first two quarters of 2006. The prior year quarter included an
after-tax benefit of $12 million ($19 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two
quarters of 2005. The GAAP combined ratio was 78.4 percent in the
current quarter, a 32.9 point improvement from the 111.3 percent
reported in the prior year quarter, primarily due to lower
catastrophe losses. The current quarter GAAP combined ratio
included 0.9 points for catastrophe losses, compared to 32.1 points
in the prior year quarter. Net favorable prior year reserve
development benefited the current quarter GAAP combined ratio by
7.9 points, compared to a benefit of 5.5 points in the prior year
quarter. The current quarter GAAP combined ratio benefited by 1.6
points due to the re-estimation of the current year loss ratios for
the first two quarters of 2006, compared to a similar benefit of
1.3 points related to the first two quarters of 2005. Net written
premiums increased 6 percent from the prior year quarter. This
result was attributable to continued strong retention rates,
renewal price increases and growth in new business. Net written
premium growth in the current quarter was lower than in recent
quarters as a result of higher catastrophe reinsurance costs for
homeowners and the estimated impact of transitioning to six-month
policies for new automobile business. Automobile net written
premiums increased 4 percent, and policies in force increased 11
percent from the prior year quarter. Excluding the estimated impact
of transitioning to six-month policies for new business, net
written premiums would have increased approximately 9 percent.
Retention rates were strong, consistent with previous quarters, and
renewal price changes were level with recent quarters. New business
volume increased from the prior year quarter due mainly to the
continued roll-out of Quantum AutoSM, the Company�s multivariate
pricing product, which was being offered in 37 states and the
District of Columbia at the end of the quarter. Homeowners and
Other net written premiums increased 9 percent, and policies in
force increased 9 percent from the prior year quarter. Retention
rates were strong, consistent with previous quarters, and renewal
price changes increased slightly from recent quarters. New business
volume increased from the prior year quarter due to strategic
product initiatives and cross-selling efforts with Quantum AutoSM.
2006 Annual Guidance St. Paul Travelers is increasing its 2006
annual earnings per diluted share guidance to a range of $5.50 to
$5.65, compared to the previously announced range of $4.90 to
$5.10. This guidance is based on a number of assumptions, including
catastrophe losses of $35 million after-tax ($55 million pre-tax)
for the remainder of 2006 and no additional prior year reserve
development, favorable or unfavorable. Weighted average outstanding
diluted shares are assumed to be 717 million for the full year,
before the impact of any share repurchase activity in the fourth
quarter. Financial Supplement and Conference Call The information
in this press release should be read in conjunction with a
financial supplement that is available on our Web site at
www.stpaultravelers.com. The management of St. Paul Travelers will
discuss the contents of this release via Webcast at 9 a.m. Eastern
(8 a.m. Central) on Thursday, October 26, 2006. Prior to the
Webcast, a related slide presentation will be available on the
Company's Web site. Following the live event, an audio playback of
the Webcast and the slide presentation will be available at the
Company's Web site. To view the slides or to listen to the Webcast
or the playback, visit the "Webcasts & Presentations" section
of the St. Paul Travelers investor relations Web site at
http://investor.stpaultravelers.com/. About St. Paul Travelers St.
Paul Travelers is a leading provider of property casualty
insurance. For more information, visit www.stpaultravelers.com.
Glossary of Financial Measures The following measures are used by
the Company�s management to evaluate financial performance against
historical results and establish targets on a consolidated basis.
In some cases, these measures are considered non-GAAP financial
measures under applicable SEC rules because they are not displayed
as separate line items in the consolidated statement of income or
required to be disclosed in the notes to financial statements, and
in some cases, include or exclude certain items not ordinarily
included or excluded in the most comparable GAAP financial measure.
In the opinion of the Company�s management, a discussion of these
measures provides investors with a better understanding of the
significant factors that comprise the Company�s periodic results of
operations and how management evaluates the Company�s financial
performance. Operating income (loss) is net income (loss) excluding
the after-tax impact of net realized investment gains (losses) and
discontinued operations. Operating income (loss) per share is
operating income (loss) on a per share basis. Return on equity is
the ratio of net income to average equity. Continuing operations
return on equity is the ratio of income from continuing operations
to average equity. Operating return on equity is the ratio of
operating income to average equity excluding net unrealized
investment gains and losses and discontinued operations, net of
tax. In the opinion of the Company's management, operating income,
operating income per share and operating return on equity are
meaningful indicators of underwriting and operating results. These
measures exclude net realized investment gains or losses, which can
be significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Internally, the Company's management uses operating income,
operating income per share and operating return on equity to
evaluate performance against historical results and establish
financial targets on a consolidated basis. Underwriting gain (loss)
is net earned premiums and fee income less claims and claim
adjustment expenses and insurance-related expenses. A catastrophe
is a severe loss, resulting from natural and manmade events,
including risks such as fire, earthquake, windstorm, explosion,
terrorism and other similar events. Each catastrophe has unique
characteristics. Catastrophes are not predictable as to timing or
amount in advance, and therefore their effects are not included in
earnings or claims and claim adjustment expense reserves prior to
occurrence. A catastrophe may result in the payment of
reinstatement premiums and assessments from various pools. In the
opinion of the Company's management, a discussion of the impact of
catastrophes is meaningful for investors to understand the
variability in periodic earnings. Reinstatement premiums represent
additional premiums payable to reinsurers to restore coverage
limits that have been exhausted as a result of reinsured losses
under certain excess of loss reinsurance treaties. Loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims. Loss reserve
development may be related to prior year or current year
development. In the opinion of the Company's management, discussion
of prior year loss reserve development is useful to investors as it
allows them to assess the impact between prior year and current
year development on current earnings and changes in claims and
claim adjustment expense reserve levels from period to period. GAAP
combined ratio is the sum of the loss and loss adjustment expense
ratio (loss and LAE ratio), the underwriting expense ratio and,
where applicable, the ratio of dividends to policyholders to net
premiums earned. For GAAP, the loss and LAE ratio is the ratio of
incurred losses and loss adjustment expenses reduced by an
allocation of fee income to net earned premiums. The underwriting
expense ratio is the ratio of underwriting expenses incurred
reduced by an allocation of fee income, billing and policy fees to
net earned premiums. A GAAP combined ratio under 100% generally
indicates an underwriting profit. A GAAP combined ratio over 100%
generally indicates an underwriting loss. The GAAP combined ratio
is an operating statistic that includes GAAP measures in the
numerator and the denominator. Gross written premiums reflect the
direct and assumed contractually determined amounts charged to the
policyholders for the effective period of the contract based on the
terms and conditions of the insurance contract. Gross written
premiums are a measure of overall business volume. Adjusted book
value per share represents assets less liabilities and preferred
shareholders' equity excluding the after-tax impact of net
unrealized investment gains and losses, divided by the number of
shares outstanding. In the opinion of the Company�s management,
adjusted book value is useful in an analysis of a property casualty
company�s book value on a nominal basis as it removes the effect of
changing prices on invested assets, which do not have an equivalent
impact on unpaid claims and claim adjustment expense reserves. St.
Paul Travelers has organized its businesses into the following
operating and reporting segments, beginning with the third quarter
2006: Business Insurance: The Business Insurance segment offers a
broad array of property and casualty insurance and
insurance-related services in the United States. Business Insurance
is organized into the following groups, which collectively comprise
Business Insurance Core operations: Select Accounts; Commercial
Accounts; National Accounts; Industry-Focused Underwriting
including Construction, Technology, Public Sector Services, Oil
& Gas and Agribusiness; Target Risk Underwriting including
National Property, Inland Marine, Ocean Marine, Excess Casualty,
Boiler & Machinery and Global Accounts; and Specialized
Distribution including Northland, National Programs and
Underwriting Facilities. Business Insurance also includes the
Special Liability Group and policies written by Gulf (primarily
management and professional liability coverages), the Personal
Catastrophe Risk operation, and other runoff operations, which
collectively are referred to as Business Insurance Other.
Financial, Professional & International Insurance: The
Financial, Professional & International Insurance segment
includes surety, crime, and financial liability businesses, which
primarily use credit-based underwriting processes, as well as
property and casualty products that are predominantly marketed on
an international basis. The businesses in Financial, Professional
& International Insurance are Bond, Financial &
Professional Services, and International and Lloyd's. Personal
Insurance: The Personal Insurance segment writes virtually all
types of property and casualty insurance covering personal risks.
The primary coverages in this segment are personal automobile and
homeowners insurance sold to individuals. Discontinued Operations
(Asset Management) comprises Nuveen Investments, whose core
businesses are asset management and related research, as well as
the development, marketing and distribution of investment products
and services for the affluent, high net worth and institutional
market segments. During the third quarter of 2005, the Company
completed the divestiture of its ownership interest of Nuveen
Investments. Prior quarter segment results have been reclassified
from the historical presentation to conform with current business
segment definitions where applicable. The Company's historical
Commercial and Specialty segments have been realigned into two new
segments: the Business Insurance segment and the Financial,
Professional & International Insurance segment. As a result,
prior quarter results of certain businesses have been disaggregated
from the historical Specialty segment and are now reported in the
Business Insurance segment. In addition, the Personal segment has
been renamed Personal Insurance. Forward Looking Statement This
press release contains, and management may make, certain
�forward-looking statements� within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, may be forward-looking
statements. Specifically, earnings guidance and statements about
our share repurchase plans are forward looking, and we may make
forward-looking statements about our results of operations
(including, among others, premium volume, income from continuing
operations, net and operating income and return on equity),
financial condition and liquidity; the sufficiency of our asbestos
and other reserves (including, among others, asbestos claim payment
patterns); post-merger expense savings; the cost and availability
of reinsurance coverage; and strategic initiatives. Such statements
are subject to risks and uncertainties, many of which are difficult
to predict and generally beyond our control, that could cause
actual results to differ materially from those expressed in, or
implied or projected by, the forward-looking information and
statements. Some of the factors that could cause actual results to
differ include, but are not limited to, the following: catastrophe
losses could materially reduce our profitability and adversely
impact our ratings, our ability to raise capital and the
availability and cost of reinsurance; our business could be harmed
because of our potential exposure to asbestos and environmental
claims and related litigation; reinsurance may not protect us
against losses; we are exposed to, and may face adverse
developments involving mass tort claims such as those relating to
exposure to potentially harmful products or substances; if actual
claims exceed our loss reserves, or if changes in the estimated
level of loss reserves are necessary, our financial results could
be significantly and adversely affected; the effects of emerging
claim and coverage issues on our business are uncertain; we may
incur loss and loss adjustment expenses as a result of disclosures
by, and investigations of, companies for which we have written
directors' and officers' insurance relating to possible accounting
irregularities, corporate governance issues and stock option
"backdating," "spring loading" and other stock option grant
practices; the insurance industry, including us, is the subject of
a number of investigations by state and federal authorities in the
United States, and we cannot predict the outcome of these
investigations or their impact on our business or financial
results; our businesses are heavily regulated and changes in
regulation may reduce our profitability and limit our growth;
assessments and other surcharges for guaranty funds, second-injury
funds, catastrophe funds and other mandatory pooling arrangements
may reduce our profitability; a downgrade in our claims-paying and
financial strength ratings could significantly reduce our business
volumes, adversely impact our ability to access the capital markets
and increase our borrowing costs; our investment portfolio may
suffer reduced returns or losses which could reduce our
profitability; the intense competition that we face could harm our
ability to maintain or increase our profitability and premium
volume; we may not be able to execute announced and future
strategic initiatives as planned; the inability of our insurance
subsidiaries to pay dividends to us in sufficient amounts would
limit our ability to meet our obligations and to pay future
dividends; loss or significant restriction of the use of credit
scoring or other variables in the pricing and underwriting of
personal lines products could reduce our future profitability;
disruptions to our relationships with our distributors, independent
agents and brokers could adversely affect our future income and
profitability; if we experience difficulties with outsourcing
relationships, our ability to conduct our business might be
negatively impacted; and the effects of corporate bankruptcies on
surety bond claims. Our forward-looking statements speak only as of
the date of this press release or as of the date they are made, and
we undertake no obligation to update forward-looking statements.
For a more detailed discussion of these factors, see the
information under the caption "Risk Factors" in our most recent
annual report on Form 10-K filed with the Securities and Exchange
Commission. � � � � � � � � Summary of Financial Information � � �
� � � Three months ended Nine months ended September 30, September
30, ($ in millions, except per share amounts, and after-tax) 2006 �
2005 � 2006 � 2005 � Operating income $ 1,037� $ 50� $ 3,007� $
1,875� Net realized investment gains 6� � 25� � 12� � 8� Income
from continuing operations 1,043� 75� 3,019� 1,883� Discontinued
operations -� � 87� � -� � (440) Net income $ 1,043� � $ 162� � $
3,019� � $ 1,443� � Basic earnings per share Operating income $
1.51� $ 0.07� $ 4.35� $ 2.78� Net realized investment gains 0.01� �
0.04� � 0.02� � 0.01� Income from continuing operations 1.52� 0.11�
4.37� 2.79� Discontinued operations -� � 0.13� � -� � (0.65) Net
income $ 1.52� � $ 0.24� � $ 4.37� � $ 2.14� � Diluted earnings per
share Operating income $ 1.46� $ 0.07� $ 4.22� $ 2.68� Net realized
investment gains 0.01� � 0.04� � 0.01� � 0.01� Income from
continuing operations 1.47� 0.11� 4.23� 2.69� Discontinued
operations -� � 0.12� � -� � (0.62) Net income $ 1.47� � $ 0.23� �
$ 4.23� � $ 2.07� � Weighted average number of common shares
outstanding (basic) 685.3� 679.2� 689.7� 672.3� Weighted average
number of common shares outstanding and common stock equivalents
(diluted) 714.6� 683.81 718.6� 711.3� Common shares outstanding at
period end 689.5� 692.2� 689.5� 692.2� � Common stock dividends
declared $ 180.0� � $ 159.0� � $ 520.0� � $ 462.0� � Operating
income (loss) by segment Business Insurance $ 613� $ 30� $ 1,919� $
1,154� Financial, Professional & International Insurance 144�
86� 434� 334� Personal Insurance 341� � (25) � 784� � 526� 1,098�
91� 3,137� 2,014� Interest Expense and Other (61) � (41) � (130) �
(139) � $ 1,037� � $ 50� � $ 3,007� � $ 1,875� � Operating return
on equity 17.4% 0.9% 17.4% 11.9% Continuing operations return on
equity 17.6% 1.3% 17.5% 11.6% Return on equity 17.6% � 2.9% � 17.5%
� 8.9% � 1The calculation of earnings per diluted share for the
three months ended September 30, 2005 excluded the weighted average
effects of the following securities convertible into the Company�s
common shares because their effect was anti-dilutive: equity units
(7.6 million shares); outstanding convertible preferred stock (4.1
million shares); zero coupon convertible notes (2.3 million
shares); and convertible junior subordinated notes (16.7 million
shares). � See Glossary of Financial Measures and the statistical
supplement for additional financial data. � � � � � � � Three
months ended Nine months ended September 30, September 30, ($ in
millions, pre-tax) 2006 2005 � 2006 2005 � Revenues Premiums $
5,260� $ 4,977� $ 15,432� $ 15,205� Net investment income 858� 812�
2,607� 2,352� Fee income 150� 169� 453� 505� Net realized
investment gains (losses) 12� 39� 16� (16) Other revenues 36� 45� �
113� 138� � $ 6,316� $ 6,042� � $ 18,621� $ 18,184� � Revenues by
segment excluding net realized investment gains (losses) Business
Insurance $ 3,505� $ 3,485� $ 10,453� $ 10,677� Financial,
Professional & International Insurance 963� 858� 2,806� 2,644�
Personal Insurance 1,836� 1,647� � 5,340� 4,874� 6,304� 5,990�
18,599� 18,195� Interest Expense and Other -� 13� � 6� 5� 6,304�
6,003� 18,605� 18,200� Net realized investment gains (losses) 12�
39� � 16� (16) � $ 6,316� $ 6,042� � $ 18,621� $ 18,184� � Gross
written premiums Business Insurance Core $ 3,257� $ 3,278� $ 9,802�
$ 9,859� Business Insurance Other -� 94� � 23� 323� Total Business
Insurance 3,257� 3,372� 9,825� 10,182� Financial, Professional
& International Insurance 974� 926� 2,952� 2,797� Personal
Insurance 1,869� 1,732� � 5,330� 4,880� � $ 6,100� $ 6,030� � $
18,107� $ 17,859� � Net written premiums Business Insurance Core $
2,634� $ 2,542� $ 8,174� $ 7,949� Business Insurance Other 10� 80�
� 29� 192� Total Business Insurance 2,644� 2,622� 8,203� 8,141�
Financial, Professional & International Insurance 912� 847�
2,429� 2,266� Personal Insurance 1,728� 1,627� � 5,081� 4,685� � $
5,284� $ 5,096� � $ 15,713� $ 15,092� � GAAP combined ratios: 1
Business Insurance 2 Loss and loss adjustment expense ratio 61.5%
95.4% 60.8% 75.3% Underwriting expense ratio 30.5� 29.6� � 30.1�
28.5� Combined ratio 92.0% 125.0% � 90.9% 103.8% � Financial,
Professional & International Insurance 2 Loss and loss
adjustment expense ratio 54.1% 57.4% 53.2% 54.7% Underwriting
expense ratio 34.9� 37.4� � 35.3� 36.0� Combined ratio 89.0% 94.8%
� 88.5% 90.7% � Personal Insurance Loss and loss adjustment expense
ratio 50.2% 84.5% 56.9% 64.2% Underwriting expense ratio 28.2�
26.8� � 28.0� 26.5� Combined ratio 78.4% 111.3% � 84.9% 90.7% �
Total Company 2 Loss and loss adjustment expense ratio 56.7% 86.3%
58.3% 68.8% Underwriting expense ratio 30.5� 29.9� � 30.3� 29.1�
Combined ratio 87.2% 116.2% � 88.6% 97.9% � 1 For purposes of
computing GAAP ratios, billing and policy fees (which are a
component of other revenues) are allocated as a reduction of other
underwriting expenses. In addition, fee income is allocated as a
reduction of losses and loss adjustment expense and other
underwriting expenses. � 2 Before policyholder dividends. � See
Glossary of Financial Measures and the statistical supplement for
additional financial data. � � � � � � � � Three months ended Nine
months ended September 30, September 30, ($ in millions; after-tax
except as noted) 2006 � 2005 � 2006 � 2005 Reconciliation of
underwriting gain (loss) to net income � Pre-tax underwriting gain
(loss) $ 642� $ (828) $ 1,652� $ 224� Tax expense on underwriting
results (235) � 273� � (597) � (105) Underwriting gain (loss) 407�
(555) 1,055� 119� Net investment income 668� 625� 2,011� 1,806�
Other, including interest expense (38) � (20) � (59) � (50)
Consolidated operating income 1,037� 50� 3,007� 1,875� Net realized
investment gains 6� � 25� � 12� � 8� Income from continuing
operations 1,043� 75� 3,019� 1,883� Discontinued operations -� �
87� � -� � (440) Net income $ 1,043� � $ 162� � $ 3,019� � $ 1,443�
� See Glossary of Financial Measures and the statistical supplement
for additional financial data. The St. Paul Travelers Companies,
Inc. ("St. Paul Travelers")(NYSE:STA) today reported net income of
$1.043 billion, or $1.52 per basic share and $1.47 per diluted
share, for the quarter ended September 30, 2006, compared to $162
million, or $0.24 per basic share and $0.23 per diluted share, for
the quarter ended September 30, 2005. Net income in the prior year
quarter included an $87 million after-tax gain from discontinued
operations, primarily related to the disposition of St. Paul
Travelers' equity stake in Nuveen Investments, Inc. ("Nuveen").
Operating income in the current quarter was $1.037 billion, or
$1.51 per basic share and $1.46 per diluted share, compared to $50
million, or $0.07 per basic and diluted share, in the prior year
quarter. Net and operating income in the current quarter included
an after-tax benefit of $55 million ($87 million pre-tax) for net
favorable prior year reserve development. This amount included
after-tax charges of $102 million ($155 million pre-tax) and $79
million ($120 million pre-tax) for asbestos and environmental
reserve development, respectively, which were more than offset by
an after-tax benefit of $236 million ($362 million pre-tax) for
other net favorable prior year reserve development, including $66
million after-tax ($113 million pre-tax) due to an approximately 5
percent reduction in reported pre-tax catastrophe losses, net of
reinsurance, related to Hurricanes Katrina, Rita and Wilma. Net and
operating income in the current quarter also included an after-tax
benefit of $43 million ($67 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two
quarters of 2006. In the prior year quarter, net and operating
income included after-tax benefits of $70 million ($102 million
pre-tax) for net favorable prior year reserve development and $45
million ($70 million pre-tax) due to the re-estimation of the
current year loss ratios for the first two quarters of 2005.
Catastrophe losses in the current quarter of $10 million after-tax
($15 million pre-tax) were significantly lower than the prior year
quarter due to a very benign wind season. The prior year quarter
included catastrophe losses of $1.009 billion after-tax ($1.524
billion pre-tax), net of reinsurance and including reinstatement
premiums, related to Hurricanes Katrina and Rita. Current Quarter
Highlights -- Return on equity of 17.6 percent and operating return
on equity of 17.4 percent. -- Net written premiums of $5.284
billion, a 4 percent increase from the prior year quarter.
Excluding the Company's runoff operations and adjusting for the
estimated impact of transitioning to six-month policies for
personal automobile new business, net written premiums increased
approximately 6 percent. -- Net investment income of $668 million
after-tax, a 7 percent increase from the prior year quarter. --
Strong GAAP combined ratios in all segments, with Business
Insurance at 92.0 percent; Financial, Professional &
International Insurance at 89.0 percent; and Personal Insurance at
78.4 percent. -- Net favorable prior year reserve development of
$55 million after-tax, including after-tax charges of $102 million
and $79 million for asbestos and environmental reserve development,
respectively. -- Book value per share (excluding FAS 115) of
$35.10, a 12 percent increase from year-end 2005. -- Repurchased
2.7 million common shares for a total cost of $121 million under
the authorized $2 billion share repurchase program. Jay Fishman,
Chairman and Chief Executive Officer, remarked, "Our company had
another very strong quarter, with $1.037 billion of operating
income and an operating return on equity of 17.4 percent. All of
our business segments produced solid performances, aided by the
lack of any major catastrophes and the continuation of favorable
reserve development. "Our top line continued to grow in each of our
segments, with net written premiums increasing 4 percent.
Retentions were once again at historically high levels, and margins
remain attractive. Renewal pricing continues to increase for
catastrophe-prone exposures, particularly in the Southeastern U.S.
Elsewhere, renewal pricing is generally flat. Since retentions are
high across the industry, new business flow for our commercial
businesses is somewhat limited and pricing remains more competitive
than renewal business. Nevertheless, we are pleased with the growth
that we are experiencing. In the Personal Insurance segment, we are
generating above average industry growth, which has been driven by
the continued success of the Quantum Auto(SM) product and our
leadership position in homeowners. "The initiatives that we have
embarked upon over the last few years are enhancing the value of
our franchise. The fundamentals of our business are strong and
reflect the impressive earnings power of our company," concluded
Mr. Fishman. -0- *T Consolidated Third Quarter Highlights
----------------------------------------------------------------------
($ in millions, except for per share amounts, and after-tax except
for Three Months Ended Nine Months Ended premiums) September 30,
September 30, ---------------------------
--------------------------- 2006 2005 Change 2006 2005 Change
-------- ------- ---------- -------- -------- --------- Gross
written premiums $6,100 $6,030 1 % $18,107 $17,859 1% excluding
Business Insurance Other 6,100 5,936 3 18,084 17,536 3 Net written
premiums 5,284 5,096 4 15,713 15,092 4 excluding Business Insurance
Other 5,274 5,016 5 15,684 14,900 5 Net earned premiums 5,260 4,977
6 15,432 15,205 1 Underwriting NMF gain (loss) 407 (555) 1,055 119
787 Net investment income 668 625 7 2,011 1,806 11 Operating NMF
income 1,037 50 3,007 1,875 60 per diluted NMF share $1.46 $0.07
$4.22 $2.68 57 Income from NMF continuing operations 1,043 75 3,019
1,883 60 per diluted NMF share $1.47 $0.11 $4.23 $2.69 57 Net
income 1,043 162 544 3,019 1,443 109 per diluted share $1.47 $0.23
539 $4.23 $2.07 104 Book value per share $35.69 $32.14 11 $35.69
$32.14 11 Adjusted book value per share $35.10 $31.46 12 $35.10
$31.46 12 GAAP combined ratio 87.2% 116.2% (29.0) pts 88.6% 97.9%
(9.3) pts Operating return on equity 17.4% 0.9% 16.5 pts 17.4%
11.9% 5.5 pts Continuing operations return on equity 17.6% 1.3%
16.3 pts 17.5% 11.6% 5.9 pts Return on equity 17.6% 2.9% 14.7 pts
17.5% 8.9% 8.6 pts See Glossary of Financial Measures for
definitions and the statistical supplement for additional financial
data
----------------------------------------------------------------------
*T Net written premiums increased 4 percent from the prior year
quarter, with all three segments contributing to the growth. This
result was primarily driven by strong retention rates, especially
for non-catastrophe exposures, and renewal price increases on
Southeastern U.S. catastrophe-prone exposures. For comparison of
period over period growth, the impact of the increase in property
catastrophe reinsurance costs reflected in the current quarter was
approximately offset by the impact of reinstatement premiums
associated with Hurricanes Katrina and Rita in the prior year
quarter. Net investment income in the current quarter was $668
million after-tax ($858 million pre-tax), a 7 percent increase from
the prior year quarter. The increase was primarily driven by higher
fixed income rates and strong operating cash flows. The GAAP
combined ratio in the current quarter was 87.2 percent, a 29.0
point improvement from the 116.2 percent reported in the prior year
quarter, primarily due to significantly lower catastrophe losses.
The current quarter GAAP combined ratio benefited by 1.7 points due
to net favorable prior year reserve development and by 1.3 points
due to the re-estimation of current year loss ratios for the first
two quarters of 2006, partially offset by 0.3 points for
catastrophe losses. The prior year quarter GAAP combined ratio
included 30.3 points for catastrophe losses related to Hurricanes
Katrina and Rita, partially offset by the benefits of 2.0 points
due to net favorable prior year reserve development and 1.4 points
due to the re-estimation of the current year loss ratios for the
first two quarters of 2005. During the third quarter of 2006, the
Company repurchased 2.7 million common shares for a total cost of
$121 million under its $2 billion share repurchase program
authorized in the second quarter of 2006. The Company has
repurchased an aggregate of 8.4 million shares for a total cost of
$371 million under the program, including the repurchases during
the third quarter of 2006. Given year-to-date results, the Company
intends to accelerate the pace of its share repurchases in the
fourth quarter of 2006. Asbestos Reserve Development The Company
increased asbestos reserves by $155 million in the current quarter
in connection with the completion of its annual asbestos review,
resulting in a $102 million after-tax charge. There were no
asbestos reserve adjustments in the prior year quarter. The
previous annual asbestos review was completed in the fourth quarter
of 2005. The Company completed this year's review in the third
quarter earlier than in previous years due to a number of factors,
including: -- the emergence of more stable payment trends for a
greater proportion of policyholders, -- a decrease in the number of
new claims received, -- a decrease in the number of large asbestos
exposures reflecting additional settlement activity, -- a decrease
in the number and volatility of asbestos-related bankruptcies, and
-- the absence of new theories of liability or new classes of
defendants. As in prior years, the review considered active
policyholders and litigation cases for potential product and
"non-product" liability, including the on-going litigation related
to ACandS. Developing payment trends among policyholders in the
Home Office and Field Office as well as Assumed and International
categories were also analyzed. The Home Office and Field Office
categories, which account for the vast majority of the number of
policyholders, have experienced an overall reduction in new claim
filings as well as in indemnity and defense payments over prior
years. While indemnity payments declined in line with previous
expectations, defense costs, although decreasing, were in excess of
previous expectations. Approximately half of the $155 million
pre-tax reserve adjustment was due to an increase in projected
defense costs for ten policyholders. Additionally, $15 million of
the pre-tax reserve increase was attributable to a delay in the
approval and expected payment of the previously announced PPG
settlement. The remainder of the reserve increase was primarily due
to continued litigation activity against smaller, peripheral
defendants. Environmental Reserve Development The Company increased
environmental reserves by $120 million, resulting in a $79 million
after-tax charge. There were no environmental reserve adjustments
in the prior year quarter. While the number of new policyholders
submitting claims continues to decline, the increase to the reserve
was primarily due to higher than expected defense and settlement
costs driven in part by adverse judicial developments in certain
states regarding the availability of coverage. Year-to-Date 2006
Consolidated Results For the nine-month period ended September 30,
2006, St. Paul Travelers reported net income of $3.019 billion, or
$4.37 per basic share and $4.23 per diluted share, compared to
$1.443 billion, or $2.14 per basic share and $2.07 per diluted
share, for the nine-month period ended September 30, 2005. Net
income in the prior year period was negatively impacted by a $440
million after-tax loss from discontinued operations, primarily due
to a tax charge related to the Company's decision to divest its 78
percent equity interest in Nuveen. Income from continuing
operations in the first nine months of 2006 was $3.019 billion, or
$4.37 per basic share and $4.23 per diluted share, compared to
$1.883 billion, or $2.79 per basic share and $2.69 per diluted
share, in the prior year period. Operating income in the current
year period was $3.007 billion, or $4.35 per basic share and $4.22
per diluted share, compared to $1.875 billion, or $2.78 per basic
share and $2.68 per diluted share, in the prior year period. Net
and operating income for the first nine months of 2006 included an
after-tax benefit of $155 million ($237 million pre-tax) for net
favorable prior year reserve development and an after-tax charge of
$54 million ($82 million pre-tax) for catastrophe losses. In the
prior year period, net and operating income included an after-tax
benefit of $156 million ($232 million pre-tax) for net favorable
prior year reserve development and an after-tax charge of $1.037
billion ($1.566 billion pre-tax) for catastrophe losses. The GAAP
combined ratio in the current year period was 88.6 percent, a 9.3
point improvement from the 97.9 percent reported in the prior year
period, primarily due to a much lower level of catastrophe losses.
The current year period GAAP combined ratio benefited by 1.5 points
for net favorable prior year reserve development, partially offset
by 0.5 points for catastrophe losses. The prior year period GAAP
combined ratio included 10.2 points for catastrophe losses,
partially offset by a benefit of 1.6 points for net favorable prior
year reserve development. Net investment income in the current year
period was a record $2.011 billion after-tax ($2.607 billion
pre-tax), an 11 percent increase from the prior year period. The
increase was driven by higher fixed income rates, strong operating
cash flows and the investment of approximately $2.4 billion of
proceeds received from the sale of Nuveen in 2005. For the first
nine months of 2006, operating return on equity was 17.4 percent,
compared to 11.9 percent in the prior year period. Segment
Realignment In August 2006, the Company announced a realignment of
two of its three segments. The former Commercial and Specialty
segments were realigned into two new segments: the Business
Insurance segment and the Financial, Professional &
International Insurance segment. The Personal segment was renamed
Personal Insurance. The changes were designed to reflect the manner
in which the Company's businesses are currently managed, and
represent an aggregation of products and services based on type of
customer, how the business is marketed, and the manner in which
risks are underwritten. Financial data for all periods presented
has been reclassified to be consistent with the new segment
structure. Business Insurance Segment Financial Results Business
Insurance is organized into the following groups: Select Accounts,
Commercial Accounts, National Accounts, Industry-Focused
Underwriting, Target Risk Underwriting, and Specialized
Distribution, which collectively comprise Business Insurance Core
operations. Business Insurance also includes the Special Liability
Group as well as policies written by Gulf, the Personal Catastrophe
Risk operation and other runoff operations, which collectively are
referred to as Business Insurance Other. For the third quarter
2006, the Business Insurance segment reported operating income of
$613 million, compared to $30 million in the prior year quarter.
The improvement was primarily due to the absence of catastrophe
losses, the continuation of favorable loss trends and higher net
investment income. There were no catastrophe losses reported in the
current quarter, compared to an after-tax charge of $621 million
($956 million pre-tax) for catastrophe losses in the prior year
quarter. Loss experience in the current accident year has trended
better than originally estimated due to favorable claim activity,
resulting in an after-tax benefit of $26 million ($40 million
pre-tax) from the re-estimation of the current year loss ratios for
the first two quarters of 2006. The prior year quarter included an
after-tax benefit of $33 million ($51 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two
quarters of 2005. Operating income in the current quarter included
an after-tax charge of $35 million ($46 million pre-tax) for net
unfavorable prior year reserve development. The prior year reserve
development was comprised of after-tax charges for asbestos and
environmental reserve development of $102 million ($155 million
pre-tax) and $79 million ($120 million pre-tax), respectively,
partially offset by $146 million ($229 million pre-tax) for other
net favorable prior year development, primarily due to better than
expected frequency and severity loss trends in the general
liability and property lines of business. The prior year quarter
included an after-tax charge of $12 million ($18 million pre-tax)
for net unfavorable prior year reserve development. The GAAP
combined ratio was 92.0 percent in the current quarter, a 33.0
point improvement from the 125.0 percent reported in the prior year
quarter. The improvement was primarily due to the absence of
catastrophe losses in the current quarter, compared to 35.0 points
for catastrophe losses in the prior year quarter. Net unfavorable
prior year reserve development added 1.7 points to the current
quarter GAAP combined ratio, compared to adding 0.7 points in the
prior year quarter. The current quarter GAAP combined ratio
benefited by 1.5 points due to the re-estimation of the current
year loss ratios for the first two quarters of 2006, compared to a
similar benefit of 1.9 points related to the first two quarters of
2005. Net written premiums, excluding Business Insurance Other,
increased 4 percent from the prior year quarter, primarily due to
growth in Industry-Focused Underwriting, Commercial Accounts and
Target Risk Underwriting, partially offset by a decline in National
Accounts. Within Commercial Accounts, retention rates were very
strong, consistent with previous quarters, while new business
volume decreased from the prior year quarter. Renewal price changes
increased in both Commercial Accounts and Target Risk Underwriting,
largely related to Southeastern U.S. catastrophe-prone exposures.
Industry-Focused Underwriting benefited from strong business
volumes in the Construction and Oil & Gas business units,
driven by favorable economic conditions in these industry sectors.
Within Select Accounts, excluding the impact of the transfer of
certain small business insurance programs to Specialized
Distribution, net written premiums were approximately level with
the prior year quarter. Retention rates for Select Accounts were
strong, consistent with previous quarters; renewal price changes
increased from recent quarters and new business volume rose from
the prior year quarter. National Accounts net written premiums
declined as a result of a reduction in premiums related to
favorable loss experience on retrospectively rated policies and
lower new business volume. Financial, Professional &
International Insurance Segment Financial Results The Financial,
Professional & International Insurance segment ("FP&II")
includes the following businesses: Bond, Financial &
Professional Services, and International and Lloyd's. For the third
quarter 2006, FP&II reported operating income of $144 million,
compared to $86 million in the prior year quarter. The increase was
primarily driven by the absence of catastrophe losses and higher
net investment income, partially offset by lower net favorable
prior year reserve development. There were no catastrophe losses
reported in the current quarter, compared to an after-tax charge of
$71 million ($80 million pre-tax) for catastrophe losses in the
prior year quarter. Operating income in the current quarter
included a minimal benefit for net favorable prior year reserve
development, compared to an after-tax benefit of $28 million ($37
million pre-tax) in the prior year quarter. The GAAP combined ratio
was 89.0 percent in the current quarter, a 5.8 point improvement
from the 94.8 percent reported in the prior year quarter. The
improvement was primarily due to the absence of catastrophe losses,
partially offset by lower net favorable prior year reserve
development. Catastrophe losses added 10.1 points to the prior year
quarter GAAP combined ratio. The current quarter GAAP combined
ratio benefited by 0.2 points for net favorable prior year reserve
development, compared to 4.8 points in the prior year quarter. Net
written premiums increased 8 percent from the prior year quarter,
primarily due to strong business volumes in Bond and the U.K.
operations, as well as the absence of catastrophe-related
reinstatement premiums in the Company's Lloyd's operations. For
Financial & Professional Services and Bond, excluding the
surety line of business, retention rates were strong, increasing
from previous quarters; renewal price changes continue to be
positive and new business volume decreased from the prior year
quarter. For International, including the Company's operations in
the U.K., Ireland and Canada, retention rates were very strong,
renewal price changes were consistent with recent quarters and new
business volume increased from the prior year quarter. Personal
Insurance Segment Financial Results For the third quarter 2006, the
Personal Insurance segment reported operating income of $341
million, compared to an operating loss of $25 million in the prior
year quarter. The improvement was primarily driven by significantly
lower catastrophe losses, greater net favorable prior year reserve
development, increased earned premium volume and higher net
investment income. The current quarter included an after-tax charge
of $10 million ($15 million pre-tax) for catastrophe losses,
compared to $317 million ($488 million pre-tax) in the prior year
quarter. Operating income in the current quarter included an
after-tax benefit of $85 million ($132 million pre-tax) for net
favorable prior year reserve development, primarily due to a
reduction in 2005 catastrophe loss estimates. The prior year
quarter included $54 million ($83 million pre-tax) for net
favorable prior year reserve development. In addition, loss
experience in the current accident year has trended better than
originally expected due to favorable automobile claim activity,
resulting in an after-tax benefit of $17 million ($27 million
pre-tax) from the re-estimation of the current year loss ratios for
the first two quarters of 2006. The prior year quarter included an
after-tax benefit of $12 million ($19 million pre-tax) due to the
re-estimation of the current year loss ratios for the first two
quarters of 2005. The GAAP combined ratio was 78.4 percent in the
current quarter, a 32.9 point improvement from the 111.3 percent
reported in the prior year quarter, primarily due to lower
catastrophe losses. The current quarter GAAP combined ratio
included 0.9 points for catastrophe losses, compared to 32.1 points
in the prior year quarter. Net favorable prior year reserve
development benefited the current quarter GAAP combined ratio by
7.9 points, compared to a benefit of 5.5 points in the prior year
quarter. The current quarter GAAP combined ratio benefited by 1.6
points due to the re-estimation of the current year loss ratios for
the first two quarters of 2006, compared to a similar benefit of
1.3 points related to the first two quarters of 2005. Net written
premiums increased 6 percent from the prior year quarter. This
result was attributable to continued strong retention rates,
renewal price increases and growth in new business. Net written
premium growth in the current quarter was lower than in recent
quarters as a result of higher catastrophe reinsurance costs for
homeowners and the estimated impact of transitioning to six-month
policies for new automobile business. Automobile net written
premiums increased 4 percent, and policies in force increased 11
percent from the prior year quarter. Excluding the estimated impact
of transitioning to six-month policies for new business, net
written premiums would have increased approximately 9 percent.
Retention rates were strong, consistent with previous quarters, and
renewal price changes were level with recent quarters. New business
volume increased from the prior year quarter due mainly to the
continued roll-out of Quantum Auto(SM), the Company's multivariate
pricing product, which was being offered in 37 states and the
District of Columbia at the end of the quarter. Homeowners and
Other net written premiums increased 9 percent, and policies in
force increased 9 percent from the prior year quarter. Retention
rates were strong, consistent with previous quarters, and renewal
price changes increased slightly from recent quarters. New business
volume increased from the prior year quarter due to strategic
product initiatives and cross-selling efforts with Quantum
Auto(SM). 2006 Annual Guidance St. Paul Travelers is increasing its
2006 annual earnings per diluted share guidance to a range of $5.50
to $5.65, compared to the previously announced range of $4.90 to
$5.10. This guidance is based on a number of assumptions, including
catastrophe losses of $35 million after-tax ($55 million pre-tax)
for the remainder of 2006 and no additional prior year reserve
development, favorable or unfavorable. Weighted average outstanding
diluted shares are assumed to be 717 million for the full year,
before the impact of any share repurchase activity in the fourth
quarter. Financial Supplement and Conference Call The information
in this press release should be read in conjunction with a
financial supplement that is available on our Web site at
www.stpaultravelers.com. The management of St. Paul Travelers will
discuss the contents of this release via Webcast at 9 a.m. Eastern
(8 a.m. Central) on Thursday, October 26, 2006. Prior to the
Webcast, a related slide presentation will be available on the
Company's Web site. Following the live event, an audio playback of
the Webcast and the slide presentation will be available at the
Company's Web site. To view the slides or to listen to the Webcast
or the playback, visit the "Webcasts & Presentations" section
of the St. Paul Travelers investor relations Web site at
http://investor.stpaultravelers.com/. About St. Paul Travelers St.
Paul Travelers is a leading provider of property casualty
insurance. For more information, visit www.stpaultravelers.com.
Glossary of Financial Measures The following measures are used by
the Company's management to evaluate financial performance against
historical results and establish targets on a consolidated basis.
In some cases, these measures are considered non-GAAP financial
measures under applicable SEC rules because they are not displayed
as separate line items in the consolidated statement of income or
required to be disclosed in the notes to financial statements, and
in some cases, include or exclude certain items not ordinarily
included or excluded in the most comparable GAAP financial measure.
In the opinion of the Company's management, a discussion of these
measures provides investors with a better understanding of the
significant factors that comprise the Company's periodic results of
operations and how management evaluates the Company's financial
performance. Operating income (loss) is net income (loss) excluding
the after-tax impact of net realized investment gains (losses) and
discontinued operations. Operating income (loss) per share is
operating income (loss) on a per share basis. Return on equity is
the ratio of net income to average equity. Continuing operations
return on equity is the ratio of income from continuing operations
to average equity. Operating return on equity is the ratio of
operating income to average equity excluding net unrealized
investment gains and losses and discontinued operations, net of
tax. In the opinion of the Company's management, operating income,
operating income per share and operating return on equity are
meaningful indicators of underwriting and operating results. These
measures exclude net realized investment gains or losses, which can
be significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Internally, the Company's management uses operating income,
operating income per share and operating return on equity to
evaluate performance against historical results and establish
financial targets on a consolidated basis. Underwriting gain (loss)
is net earned premiums and fee income less claims and claim
adjustment expenses and insurance-related expenses. A catastrophe
is a severe loss, resulting from natural and manmade events,
including risks such as fire, earthquake, windstorm, explosion,
terrorism and other similar events. Each catastrophe has unique
characteristics. Catastrophes are not predictable as to timing or
amount in advance, and therefore their effects are not included in
earnings or claims and claim adjustment expense reserves prior to
occurrence. A catastrophe may result in the payment of
reinstatement premiums and assessments from various pools. In the
opinion of the Company's management, a discussion of the impact of
catastrophes is meaningful for investors to understand the
variability in periodic earnings. Reinstatement premiums represent
additional premiums payable to reinsurers to restore coverage
limits that have been exhausted as a result of reinsured losses
under certain excess of loss reinsurance treaties. Loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims. Loss reserve
development may be related to prior year or current year
development. In the opinion of the Company's management, discussion
of prior year loss reserve development is useful to investors as it
allows them to assess the impact between prior year and current
year development on current earnings and changes in claims and
claim adjustment expense reserve levels from period to period. GAAP
combined ratio is the sum of the loss and loss adjustment expense
ratio (loss and LAE ratio), the underwriting expense ratio and,
where applicable, the ratio of dividends to policyholders to net
premiums earned. For GAAP, the loss and LAE ratio is the ratio of
incurred losses and loss adjustment expenses reduced by an
allocation of fee income to net earned premiums. The underwriting
expense ratio is the ratio of underwriting expenses incurred
reduced by an allocation of fee income, billing and policy fees to
net earned premiums. A GAAP combined ratio under 100% generally
indicates an underwriting profit. A GAAP combined ratio over 100%
generally indicates an underwriting loss. The GAAP combined ratio
is an operating statistic that includes GAAP measures in the
numerator and the denominator. Gross written premiums reflect the
direct and assumed contractually determined amounts charged to the
policyholders for the effective period of the contract based on the
terms and conditions of the insurance contract. Gross written
premiums are a measure of overall business volume. Adjusted book
value per share represents assets less liabilities and preferred
shareholders' equity excluding the after-tax impact of net
unrealized investment gains and losses, divided by the number of
shares outstanding. In the opinion of the Company's management,
adjusted book value is useful in an analysis of a property casualty
company's book value on a nominal basis as it removes the effect of
changing prices on invested assets, which do not have an equivalent
impact on unpaid claims and claim adjustment expense reserves. St.
Paul Travelers has organized its businesses into the following
operating and reporting segments, beginning with the third quarter
2006: Business Insurance: The Business Insurance segment offers a
broad array of property and casualty insurance and
insurance-related services in the United States. Business Insurance
is organized into the following groups, which collectively comprise
Business Insurance Core operations: Select Accounts; Commercial
Accounts; National Accounts; Industry-Focused Underwriting
including Construction, Technology, Public Sector Services, Oil
& Gas and Agribusiness; Target Risk Underwriting including
National Property, Inland Marine, Ocean Marine, Excess Casualty,
Boiler & Machinery and Global Accounts; and Specialized
Distribution including Northland, National Programs and
Underwriting Facilities. Business Insurance also includes the
Special Liability Group and policies written by Gulf (primarily
management and professional liability coverages), the Personal
Catastrophe Risk operation, and other runoff operations, which
collectively are referred to as Business Insurance Other.
Financial, Professional & International Insurance: The
Financial, Professional & International Insurance segment
includes surety, crime, and financial liability businesses, which
primarily use credit-based underwriting processes, as well as
property and casualty products that are predominantly marketed on
an international basis. The businesses in Financial, Professional
& International Insurance are Bond, Financial &
Professional Services, and International and Lloyd's. Personal
Insurance: The Personal Insurance segment writes virtually all
types of property and casualty insurance covering personal risks.
The primary coverages in this segment are personal automobile and
homeowners insurance sold to individuals. Discontinued Operations
(Asset Management) comprises Nuveen Investments, whose core
businesses are asset management and related research, as well as
the development, marketing and distribution of investment products
and services for the affluent, high net worth and institutional
market segments. During the third quarter of 2005, the Company
completed the divestiture of its ownership interest of Nuveen
Investments. Prior quarter segment results have been reclassified
from the historical presentation to conform with current business
segment definitions where applicable. The Company's historical
Commercial and Specialty segments have been realigned into two new
segments: the Business Insurance segment and the Financial,
Professional & International Insurance segment. As a result,
prior quarter results of certain businesses have been disaggregated
from the historical Specialty segment and are now reported in the
Business Insurance segment. In addition, the Personal segment has
been renamed Personal Insurance. Forward Looking Statement This
press release contains, and management may make, certain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, may be forward-looking
statements. Specifically, earnings guidance and statements about
our share repurchase plans are forward looking, and we may make
forward-looking statements about our results of operations
(including, among others, premium volume, income from continuing
operations, net and operating income and return on equity),
financial condition and liquidity; the sufficiency of our asbestos
and other reserves (including, among others, asbestos claim payment
patterns); post-merger expense savings; the cost and availability
of reinsurance coverage; and strategic initiatives. Such statements
are subject to risks and uncertainties, many of which are difficult
to predict and generally beyond our control, that could cause
actual results to differ materially from those expressed in, or
implied or projected by, the forward-looking information and
statements. Some of the factors that could cause actual results to
differ include, but are not limited to, the following: catastrophe
losses could materially reduce our profitability and adversely
impact our ratings, our ability to raise capital and the
availability and cost of reinsurance; our business could be harmed
because of our potential exposure to asbestos and environmental
claims and related litigation; reinsurance may not protect us
against losses; we are exposed to, and may face adverse
developments involving mass tort claims such as those relating to
exposure to potentially harmful products or substances; if actual
claims exceed our loss reserves, or if changes in the estimated
level of loss reserves are necessary, our financial results could
be significantly and adversely affected; the effects of emerging
claim and coverage issues on our business are uncertain; we may
incur loss and loss adjustment expenses as a result of disclosures
by, and investigations of, companies for which we have written
directors' and officers' insurance relating to possible accounting
irregularities, corporate governance issues and stock option
"backdating," "spring loading" and other stock option grant
practices; the insurance industry, including us, is the subject of
a number of investigations by state and federal authorities in the
United States, and we cannot predict the outcome of these
investigations or their impact on our business or financial
results; our businesses are heavily regulated and changes in
regulation may reduce our profitability and limit our growth;
assessments and other surcharges for guaranty funds, second-injury
funds, catastrophe funds and other mandatory pooling arrangements
may reduce our profitability; a downgrade in our claims-paying and
financial strength ratings could significantly reduce our business
volumes, adversely impact our ability to access the capital markets
and increase our borrowing costs; our investment portfolio may
suffer reduced returns or losses which could reduce our
profitability; the intense competition that we face could harm our
ability to maintain or increase our profitability and premium
volume; we may not be able to execute announced and future
strategic initiatives as planned; the inability of our insurance
subsidiaries to pay dividends to us in sufficient amounts would
limit our ability to meet our obligations and to pay future
dividends; loss or significant restriction of the use of credit
scoring or other variables in the pricing and underwriting of
personal lines products could reduce our future profitability;
disruptions to our relationships with our distributors, independent
agents and brokers could adversely affect our future income and
profitability; if we experience difficulties with outsourcing
relationships, our ability to conduct our business might be
negatively impacted; and the effects of corporate bankruptcies on
surety bond claims. Our forward-looking statements speak only as of
the date of this press release or as of the date they are made, and
we undertake no obligation to update forward-looking statements.
For a more detailed discussion of these factors, see the
information under the caption "Risk Factors" in our most recent
annual report on Form 10-K filed with the Securities and Exchange
Commission. -0- *T
----------------------------------------------------------------------
Summary of Financial Information ------------------
------------------ Three months ended Nine months ended September
30, September 30, ------------------ ------------------ ($ in
millions, except per share amounts, and after-tax) 2006 2005 2006
2005
----------------------------------------------------------------------
Operating income $1,037 $50 $3,007 $1,875 Net realized investment
gains 6 25 12 8
----------------------------------------------------------------------
Income from continuing operations 1,043 75 3,019 1,883 Discontinued
operations - 87 - (440)
----------------------------------------------------------------------
Net income $1,043 $162 $3,019 $1,443
----------------------------------------------------------------------
Basic earnings per share Operating income $1.51 $0.07 $4.35 $2.78
Net realized investment gains 0.01 0.04 0.02 0.01
----------------------------------------------------------------------
Income from continuing operations 1.52 0.11 4.37 2.79 Discontinued
operations - 0.13 - (0.65)
----------------------------------------------------------------------
Net income $1.52 $0.24 $4.37 $2.14
----------------------------------------------------------------------
Diluted earnings per share Operating income $1.46 $0.07 $4.22 $2.68
Net realized investment gains 0.01 0.04 0.01 0.01
----------------------------------------------------------------------
Income from continuing operations 1.47 0.11 4.23 2.69 Discontinued
operations - 0.12 - (0.62)
----------------------------------------------------------------------
Net income $1.47 $0.23 $4.23 $2.07
----------------------------------------------------------------------
Weighted average number of common shares outstanding (basic) 685.3
679.2 689.7 672.3 Weighted average number of common shares
outstanding and common stock equivalents (diluted) 714.6 683.8(1)
718.6 711.3 Common shares outstanding at period end 689.5 692.2
689.5 692.2 Common stock dividends declared $180.0 $159.0 $520.0
$462.0
----------------------------------------------------------------------
Operating income (loss) by segment Business Insurance $613 $30
$1,919 $1,154 Financial, Professional & International Insurance
144 86 434 334 Personal Insurance 341 (25) 784 526
----------------------------------------------------------------------
1,098 91 3,137 2,014 Interest Expense and Other (61) (41) (130)
(139)
----------------------------------------------------------------------
$1,037 $50 $3,007 $1,875
----------------------------------------------------------------------
Operating return on equity 17.4% 0.9% 17.4% 11.9% Continuing
operations return on equity 17.6% 1.3% 17.5% 11.6% Return on equity
17.6% 2.9% 17.5% 8.9%
----------------------------------------------------------------------
(1) The calculation of earnings per diluted share for the three
months ended September 30, 2005 excluded the weighted average
effects of the following securities convertible into the Company's
common shares because their effect was anti-dilutive: equity units
(7.6 million shares); outstanding convertible preferred stock (4.1
million shares); zero coupon convertible notes (2.3 million
shares); and convertible junior subordinated notes (16.7 million
shares). See Glossary of Financial Measures and the statistical
supplement for additional financial data. *T -0- *T
----------------------------------------------------------------------
Three months ended Nine months ended September 30, September 30,
------------------ ------------------ ($ in millions, pre-tax) 2006
2005 2006 2005
----------------------------------------------------------------------
Revenues Premiums $5,260 $4,977 $15,432 $15,205 Net investment
income 858 812 2,607 2,352 Fee income 150 169 453 505 Net realized
investment gains (losses) 12 39 16 (16) Other revenues 36 45 113
138
----------------------------------------------------------------------
$6,316 $6,042 $18,621 $18,184
----------------------------------------------------------------------
Revenues by segment excluding net realized investment gains
(losses) Business Insurance $3,505 $3,485 $10,453 $10,677
Financial, Professional & International Insurance 963 858 2,806
2,644 Personal Insurance 1,836 1,647 5,340 4,874
----------------------------------------------------------------------
6,304 5,990 18,599 18,195 Interest Expense and Other - 13 6 5
----------------------------------------------------------------------
6,304 6,003 18,605 18,200 Net realized investment gains (losses) 12
39 16 (16)
----------------------------------------------------------------------
$6,316 $6,042 $18,621 $18,184
----------------------------------------------------------------------
Gross written premiums Business Insurance Core $3,257 $3,278 $9,802
$9,859 Business Insurance Other - 94 23 323
----------------------------------------------------------------------
Total Business Insurance 3,257 3,372 9,825 10,182 Financial,
Professional & International Insurance 974 926 2,952 2,797
Personal Insurance 1,869 1,732 5,330 4,880
----------------------------------------------------------------------
$6,100 $6,030 $18,107 $17,859
----------------------------------------------------------------------
Net written premiums Business Insurance Core $2,634 $2,542 $8,174
$7,949 Business Insurance Other 10 80 29 192
----------------------------------------------------------------------
Total Business Insurance 2,644 2,622 8,203 8,141 Financial,
Professional & International Insurance 912 847 2,429 2,266
Personal Insurance 1,728 1,627 5,081 4,685
----------------------------------------------------------------------
$5,284 $5,096 $15,713 $15,092
----------------------------------------------------------------------
GAAP combined ratios: (1) Business Insurance (2) Loss and loss
adjustment expense ratio 61.5% 95.4% 60.8% 75.3% Underwriting
expense ratio 30.5 29.6 30.1 28.5
----------------------------------------------------------------------
Combined ratio 92.0% 125.0% 90.9% 103.8%
----------------------------------------------------------------------
Financial, Professional & International Insurance (2) Loss and
loss adjustment expense ratio 54.1% 57.4% 53.2% 54.7% Underwriting
expense ratio 34.9 37.4 35.3 36.0
----------------------------------------------------------------------
Combined ratio 89.0% 94.8% 88.5% 90.7%
----------------------------------------------------------------------
Personal Insurance Loss and loss adjustment expense ratio 50.2%
84.5% 56.9% 64.2% Underwriting expense ratio 28.2 26.8 28.0 26.5
----------------------------------------------------------------------
Combined ratio 78.4% 111.3% 84.9% 90.7%
----------------------------------------------------------------------
Total Company (2) Loss and loss adjustment expense ratio 56.7%
86.3% 58.3% 68.8% Underwriting expense ratio 30.5 29.9 30.3 29.1
----------------------------------------------------------------------
Combined ratio 87.2% 116.2% 88.6% 97.9%
----------------------------------------------------------------------
(1) For purposes of computing GAAP ratios, billing and policy fees
(which are a component of other revenues) are allocated as a
reduction of other underwriting expenses. In addition, fee income
is allocated as a reduction of losses and loss adjustment expense
and other underwriting expenses. (2) Before policyholder dividends.
See Glossary of Financial Measures and the statistical supplement
for additional financial data. *T -0- *T
----------------------------------------------------------------------
Three months ended Nine months ended September 30, September 30,
------------------ ------------------ ($ in millions; after-tax
except as noted) 2006 2005 2006 2005
----------------------------------------------------------------------
Reconciliation of underwriting gain (loss) to net income Pre-tax
underwriting gain (loss) $642 $(828) $1,652 $224 Tax expense on
underwriting results (235) 273 (597) (105)
----------------------------------------------------------------------
Underwriting gain (loss) 407 (555) 1,055 119 Net investment income
668 625 2,011 1,806 Other, including interest expense (38) (20)
(59) (50)
----------------------------------------------------------------------
Consolidated operating income 1,037 50 3,007 1,875 Net realized
investment gains 6 25 12 8
----------------------------------------------------------------------
Income from continuing operations 1,043 75 3,019 1,883 Discontinued
operations - 87 - (440)
----------------------------------------------------------------------
Net income $1,043 $162 $3,019 $1,443
----------------------------------------------------------------------
See Glossary of Financial Measures and the statistical supplement
for additional financial data. *T
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