Travelers Property Casualty Corp. reported a net loss for the fourth quarter of $793.4 million or $0.79 per share, basic and diluted, compared to net income of $303.3 million or $0.39 per share in the prior year quarter. The net loss was attributable to the previously announced $1.297 billion after tax charge for strengthening Travelers asbestos reserves.
“Our Commercial and Personal Lines businesses continued to perform very well,” Robert Lipp, chairman and CEO, said. “Commercial Lines recorded a 23 percent rise in net written premiums driven by continued rate increases, selective growth in new business, and higher customer retention. In Personal Lines, we recorded an 11 percent increase in net written premiums primarily resulting from continued rate increases and strong retention.
“During the quarter, we also completed our previously announced asbestos study and strengthened our asbestos reserves to $3.4 billion. This reserve strengthening reflects a conservative view of trends that have become clearer over the last few quarters and our estimate of the projected ultimate cost of our asbestos liabilities.
“As we enter 2003, Travelers holds a solid market position, has a strong balance sheet and has significant earnings potential. We are currently projecting record net and operating income for the full year 2003 of $1.7 billion to $1.8 billion, with projected return on equity of 16.7 percent to 17 percent,” Lipp continued. These estimates are based on various assumptions, including normal catastrophe losses, no net realized investment gains or losses and no asbestos incurrals.
Operating loss for the quarter was $925.3 million compared to operating income of $314.3 million in the prior year quarter. The loss reflects the $1.297 billion asbestos reserve charge, net of the benefit of $360.7 million, which is included in other income, related to the remaining recoveries under the indemnification agreement with Citigroup Inc., Travelers former parent. Net realized investment gains were $131.9 million in the quarter compared to net realized investment losses of $10.2 million in the prior year quarter. There were no cumulative effects of changes in accounting principles in the current or prior year quarter.
The consolidated underwriting gain, excluding catastrophes, prior year reserve development and goodwill amortization, improved by $67.6 million due to the continuing favorable rate environment, higher retention, and selective growth in new business.
After tax, net investment income was down 1.3 percent, or $4.9 million, from the 2001 quarter. Lower average yields were mostly offset by the benefit of higher average invested assets resulting from strong cash flows from underwriting. Compared to the third quarter of 2002, net investment income increased $31.2 million after tax, reflecting improved returns in the alternative investment portfolio.
Net written premiums increased $473.0 million, or 18 percent, from the prior year quarter primarily due to higher rates and strong retention. Earned premiums of $2.939 billion for the quarter were up 14 percent from the previous year quarter.
Travelers strengthened its environmental reserves in the quarter by $100.0 million, bringing the total to $385.5 million, and reduced its reserves for cumulative injuries other than asbestos by $94.8 million, bringing the total to $553.6 million. These actions were taken as a result of modest changes in recent payment and settlement experience. In addition, Travelers strengthened prior year reserves for certain run-off lines of business including assumed reinsurance, and experienced favorable current year development in certain on-going businesses, including Personal Lines Auto.
Commercial Lines underwriting results, excluding catastrophes, prior year reserve development and goodwill amortization, continue to benefit from the favorable rate environment.
Net written premiums increased by $361.6 million, or 23 percent, in the current quarter compared to the prior year quarter. Increased retention, selective growth in new business and a strong pricing environment continued to drive premiums higher.
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