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No. of Recommendations: 7
Dear y'all,

Here is some information I've been able to glean about Travelers Property and Casualty. Travelers is the insurance arm of Citigroup, which has been partially spun off (NYSE:TAPa).

1) Introduction: Travelers is a leading P&C insurer operating in two segments, commercial lines and personal lines. Commercial lines accounted for 58% of net premiums in 2001, with personal lines accounting for the remaining 42%. In commercial lines, Travelers is the third largest writer in the US, with coverage including workers compensation, general liability, commercial auto insurance and others. Commercial lines generated net written premiums of $5.7 billion in 2001. In personal lines, Travelers is the eighth largest writer in the US and second largest via independant agents. Primary coverages are personal auto and homeowners to individuals. Personal lines generated net written premiums of $4.1 billion in 2001.


2) Historical Results:

Here are some historical results for the last 5 years:

YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)

INCOME STATEMENT DATA:
Revenues:
Premiums.............................................. $ 9,411 $ 8,462 $ 8,009 $ 7,796 $7,225
Net investment income................................. 2,034 2,162 2,093 2,102 2,052
Fee income............................................ 347 312 275 306 365
Realized investment gains............................. 323 47 112 145 182
Other revenues........................................ 116 88 84 105 103
------- ------- ------- ------- ------
Total revenues...................................... 12,231 11,071 10,573 10,454 9,927
------- ------- ------- ------- ------
Claims and expenses:
Claims and claim adjustment expenses.................. 7,765 6,473 6,059 5,947 5,484
Amortization of deferred acquisition costs............ 1,539 1,298 1,260 1,197 1,127
Interest expense...................................... 205 296 238 185 163
General and administrative expenses................... 1,333 1,140 1,177 1,311 1,386
------- ------- ------- ------- ------
Total claims and expenses........................... 10,842 9,207 8,734 8,640 8,160
------- ------- ------- ------- ------
Income before federal income taxes, minority interest
and cumulative effect of changes in accounting
principles............................................ 1,389 1,864 1,839 1,814 1,767
Federal income taxes.................................... 327 492 479 487 521
------- ------- ------- ------- ------
Income before minority interest and cumulative effect of
changes in accounting principles...................... 1,062 1,372 1,360 1,327 1,246
Minority interest, net of tax........................... -- 60 224 223 212
------- ------- ------- ------- ------
Income before cumulative effect of changes
in accounting principles.............................. 1,062 1,312 1,136 1,104 1,034
Cumulative effect of changes in accounting principles,
net of tax and minority interest(a)................... 3 -- (112) -- --
------- ------- ------- ------- ------
Net income.............................................. $ 1,065 $ 1,312 $ 1,024 $ 1,104 $1,034
======= ======= ======= ======= ======




YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)

OTHER DATA:
Statutory data(d):
Ratio of net premiums written to surplus................. 1.36x 1.28x 1.07x 1.14x 1.27x
Policyholders' surplus (at period end)................... $7,687 $6,904 $7,656 $7,079 $6,188
Loss and loss adjustment expense (LAE) ratio(e).......... 80.7% 75.1% 74.3% 73.6% 72.4%
Underwriting expense ratio(d)............................ 27.3 27.0 28.8 28.6 29.9
Combined ratio before policyholder dividends(e).......... 108.0 102.1 103.1 102.2 102.3
Combined ratio(e)........................................ 108.3 102.5 103.7 102.7 103.5
Statutory industry data:
Combined ratio for property and casualty insurers........ 114.4(e) 110.4 107.9 106.0 102.0

Again I have not yet gone through "float" information. Underwriting results on the surface don't look that great. OTOH it seems that Travelers has been able to post profits despite poor underwriting. I'm assuming that it means their business has a reasonably long tail.


Here's the balance sheet data included:

AS OF
DECEMBER 31,
-----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(IN MILLIONS)

BALANCE SHEET DATA:
Total investments...................................... $32,619 $30,754 $29,843 $31,901 $31,138
Total assets........................................... 57,778 53,850 50,795 51,751 51,230
Claims and claim adjustment expense reserves........... 30,737 28,442 29,003 29,589 30,324
Total debt............................................. 2,077 3,006 2,148 3,192 1,357
Total liabilities(g)................................... 46,192 43,736 43,455 45,080 43,740
TIGHI-obligated mandatorily redeemable securities of
subsidiary trusts holding solely junior subordinated
debt securities of TIGHI............................. 900 900 900 900 900
Shareholder's equity................................... 10,686 9,214 6,440 5,771 6,590
Shareholder's equity excluding accumulated other
changes in equity from nonowner sources.............. 10,444 8,813 6,611 5,006 5,991

3) Payout Pattern: I'll follow the pattern given in these posts:

http://boards.fool.com/Message.asp?mid=16987927
http://boards.fool.com/Message.asp?mid=17366600

Again note that the table, as I present it, is not the standard format. Instead there are generally two tables, one with the dollar amounts paid, one with the dollar adjusted reserves.

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Reserves for Loss and Loss
Adjustment Expense Originally
Estimated:................... $8,360 $8,955 $ 9,319 $ 9,712 $10,090 $21,816 $21,406 $20,763 $19,983 $19,435 $20,197

% underestimate
(overestimate)............... 14.4 6.9 0.6 (2.7) (4.3) (6.4) (5.8) (3.8) (1.9) (0.2)


Cumulative % paid as of
One year later............... 22.3 22.3 18.3 16.4 15.1 17.0 18.8 20.0 20.4 22.5
Two years later.............. 37.8 35.6 30.5 27.1 27.8 30.3 32.1 33.3 34.8
Three years later............ 48.3 45.2 38.7 39.1 38.7 40.5 41.3 43.4
Four years later............. 56.3 51.8 49.0 48.1 47.2 47.5 49.0
Five years later............. 62.0 60.8 56.6 55.5 52.7 53.4
Six years later.............. 70.3 67.6 63.1 60.3 57.9
Seven years later............ 76.8 73.6 67.5 65.1
Eight years later............ 82.7 77.6 72.1
Nine years later............. 86.7 82.1
Ten years later.............. 91.2

Some comments:

a) Payout is faster than Berkshire; however it is somewhat slower than Allstate. This explains why net income is decent despite apparently rather poor underwriting (longer tail). I'm assuming that Travelers auto is similar to Allstate and other auto, i.e. having a fairly short tail, so perhaps commercial lines have longer tails. At some point I'll get to looking at Chubb (commercial lines). Payout patterns have been pretty stable over the years.

b) In most years, and in the last 7 in a row, the initial estimate was too high. But they blew it big time in 1991.

c) There is a large jump in reserves in 1996. This is because Travelers bought Aetna P&C's reserves.

Best,

Lleweilun Smith
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