The St. Paul Travelers Companies, Inc. ("St. Paul
Travelers,")(NYSE:STA) today reported net income of $1.189 billion,
or $1.75 per basic share and $1.68 per diluted share, for the
quarter ended December 31, 2006, compared to $179 million, or $0.26
per basic and diluted share, for the quarter ended December 31,
2005. Operating income in the current quarter was $1.193 billion,
or $1.75 per basic share and $1.69 per diluted share, compared to
$151 million, or $0.22 per basic and diluted share, in the prior
year quarter. Net and operating income in the current quarter
included after-tax benefits of $100 million ($157 million pre-tax)
for net favorable prior year reserve development and $43 million
($66 million pre-tax) due to the re-estimation of the current year
loss ratios for the first three quarters of 2006. Catastrophe
losses negatively impacted current quarter net and operating income
by $13 million after-tax ($21 million pre-tax). In the prior year
quarter, net and operating income included an after-tax charge of
$372 million ($557 million pre-tax) for net unfavorable prior year
reserve development, primarily due to increases to asbestos and
environmental reserves, and an after-tax benefit of $45 million
($70 million pre-tax) due to the re-estimation of the current year
loss ratios for the first three quarters of 2005. Catastrophe
losses in the prior year quarter negatively impacted net and
operating income by $435 million after-tax ($623 million pre-tax).
Full year 2006 net income and income from continuing operations was
$4.208 billion, or $6.12 per basic share and $5.91 per diluted
share. For full year 2005, net income was $1.622 billion, or $2.39
per basic share and $2.33 per diluted share, and income from
continuing operations was $2.061 billion, or $3.04 per basic share
and $2.95 per diluted share. Net income in the prior year was
negatively impacted by a $439 million after-tax loss in
discontinued operations, primarily due to a tax charge related to
the Company�s divestiture of its 78 percent equity interest in
Nuveen Investments, Inc. ("Nuveen"). Operating income for full year
2006 was $4.200 billion, or $6.11 per basic share and $5.90 per
diluted share, compared to $2.026 billion, or $2.99 per basic share
and $2.90 per diluted share, in the prior year. Catastrophe losses
in the prior year negatively impacted net and operating income by
$1.472 billion after-tax ($2.189 billion pre-tax). Highlights
Operating return on equity of 19.6 percent for the quarter and 17.9
percent for the full year. Book value per share (excluding FAS 115)
of $36.20, a 15 percent increase from year-end 2005. Net written
premiums of $5.437 billion, a 3 percent increase from the prior
year quarter. Excluding Business Insurance Other, the Company�s
runoff operations, net written premiums increased 4 percent. Record
net investment income of $701 million after-tax, an 11 percent
increase from the prior year quarter. Strong GAAP combined ratios
in all segments in the current quarter, with Business Insurance at
90.9 percent; Financial, Professional & International Insurance
at 90.4 percent; and Personal Insurance at 78.1 percent.
Repurchased 14.4 million common shares for a total cost of $750
million in the quarter, under the previously authorized $2 billion
share repurchase program. Jay Fishman, Chairman and Chief Executive
Officer, remarked, �We are extremely pleased with our company�s
performance in the fourth quarter and for the full year. Operating
income for the quarter was approximately $1.2 billion, with a very
strong operating return on equity of 19.6 percent. For the first
time in our company�s history, our annual revenues exceeded $25
billion. We grew net written premiums 5 percent for the year,
excluding our run-off operations, by continuing to deliver
high-quality products and services to meet our agents�, brokers�
and customers� needs. �In keeping with our commitment to active
capital management, we repurchased $750 million of our company�s
stock in the fourth quarter, bringing our full year repurchases to
more than $1.1 billion under our share repurchase program. I am
also pleased to announce that our Board has authorized an increase
of $3 billion to our program, bringing the total authorization
remaining to approximately $3.9 billion, or 11 percent of our
outstanding shares based on yesterday�s closing price. We are
targeting to complete the entire program over the next 24 months.
�Margins remained very healthy, as evidenced by our full year
combined ratio of 88.1 percent. This was driven in some measure by
a benign year for catastrophe losses � the opposite of what we
experienced in the preceding two years � as well as favorable
reserve development. Retentions were high throughout the year, a
reflection that our customers continue to find value in their
relationships with us, and new business volume was up for the year.
�Looking ahead to 2007, our company is in a great financial and
competitive position, and we have the resources necessary to
continue building upon our success,� concluded Mr. Fishman.
Consolidated Fourth Quarter and Full Year Highlights ($ in
millions, except for per share amounts, and after-tax except for
premiums) Three Months Ended December 31, Twelve Months Ended
December 31, � 2006 2005 Change 2006 2005 Change Gross written
premiums $ 5,932� $ 5,877� 1� % $ 24,039� $ 23,736� 1� % �
excluding Business Insurance Other 5,925� 5,822� 2� 24,009� 23,358�
3� � Net written premiums 5,437� 5,294� 3� 21,150� 20,386� 4� �
excluding Business Insurance Other 5,441� 5,239� 4� 21,125� 20,139�
5� � Net earned premiums 5,328� 5,136� 4� 20,760� 20,341� 2� �
Underwriting gain (loss) 487� (463) NMF 1,542� (344) NMF � Net
investment income 701� 632� 11� 2,712� 2,438� 11� � Operating
income 1,193� 151� 690� 4,200� 2,026� 107� � per diluted share $
1.69� $ 0.22� 668� $ 5.90� $ 2.90� 103� � Income from continuing
operations 1,189� 178� 568� 4,208� 2,061� 104� � per diluted share
$ 1.68� $ 0.26� 546� $ 5.91� $ 2.95� 100� � Net income 1,189� 179�
564� 4,208� 1,622� 159� � per diluted share $ 1.68� $ 0.26� 546� $
5.91� $ 2.33� 154� � Book value per share $ 36.86� $ 31.94� 15� $
36.86� $ 31.94� 15� � Adjusted book value per share $ 36.20� $
31.47� 15� $ 36.20� $ 31.47� 15� � GAAP combined ratio 86.7% 111.1%
(24.4) pts 88.1% 101.3% (13.2) pts � Operating return on equity
19.6% 2.8% 16.8� pts 17.9% 9.6% 8.3� pts � Continuing operations
return on equity 19.1% 3.2% 15.9� pts 17.9% 9.5% 8.4� pts � Return
on equity 19.1% 3.2% 15.9� pts 17.9% 7.5% 10.4� pts � See Glossary
of Financial Measures for definitions and the statistical
supplement for additional financial data Fourth Quarter 2006
Consolidated Results Net written premiums increased 3 percent from
the prior year quarter. This result was primarily driven by strong
retention rates, modest renewal price increases across most
businesses and improved new business volume, due in part to
initiatives to increase new business submission flow. Net
investment income in the current quarter was a record $701 million
after-tax ($910 million pre-tax), an 11 percent increase from the
prior year quarter. The increase was primarily driven by higher
fixed income investment returns, strong operating cash flows and
greater non-fixed income investment returns. The GAAP combined
ratio in the current quarter was 86.7 percent, a 24.4 point
improvement from the 111.1 percent reported in the prior year
quarter. The current quarter GAAP combined ratio benefited by 3.0
points due to net favorable prior year reserve development,
partially offset by 0.4 points for catastrophe losses. The prior
year quarter GAAP combined ratio included 12.2 points for
catastrophe losses and 10.8 points for net unfavorable prior year
reserve development. In the current and prior year quarter, the
re-estimation of current year loss ratios benefited the GAAP
combined ratio by 1.2 and 1.4 points, respectively. Capital
Management St. Paul Travelers� Board of Directors has authorized a
$3 billion increase to the current share repurchase program,
bringing the total remaining authorization to approximately $3.9
billion. Under the program, repurchases may be made from time to
time in the open-market, in private transactions, pursuant to
pre-set trading plans meeting the requirements of Rule 10b5-1 of
the Securities Exchange Act of 1934 or otherwise. This program does
not have a stated expiration date. The timing and actual number of
shares to be repurchased will depend on a variety of factors,
including corporate and regulatory requirements, price, weather and
other market conditions. During the fourth quarter of 2006, the
Company repurchased 14.4 million of its common shares for a total
cost of $750 million under the previously authorized share
repurchase program. Through December 31, 2006, the Company has
repurchased an aggregate of 22.8 million shares for a total cost of
$1.121 billion under the program. Also, during the fourth quarter
of 2006, the Company fully redeemed its St. Paul Capital Trust I
7.6% Trust Preferred Securities for a total cost of $593 million.
The redemption was funded by the issuance of senior debt earlier in
2006 and resulted in an after-tax gain of $27 million ($42 million
pre-tax). Full Year 2006 Consolidated Results Net and operating
income of $4.208 billion and $4.200 billion, respectively, for the
year ended December 31, 2006, included an after-tax benefit of $255
million ($394 million pre-tax) for net favorable prior year reserve
development and an after-tax charge of $67 million ($103 million
pre-tax) for catastrophe losses. In the prior year, net and
operating income of $1.622 billion and $2.026 billion,
respectively, included after-tax charges of $216 million ($325
million pre-tax) for net unfavorable prior year reserve development
and $1.472 billion ($2.189 billion pre-tax) for catastrophe losses.
The GAAP combined ratio in the current year was 88.1 percent, a
13.2 point improvement from the 101.3 percent reported in the prior
year. The current year GAAP combined ratio benefited by 1.9 points
for net favorable prior year reserve development, partially offset
by 0.5 points for catastrophe losses. The prior year GAAP combined
ratio included 10.7 points for catastrophe losses and 1.6 points
for net unfavorable prior year reserve development. Net investment
income in the current year was a record $2.712 billion after-tax
($3.517 billion pre-tax), an 11 percent increase from the prior
year. The increase was driven by higher fixed income investment
returns, strong operating cash flows, the investment of
approximately $2.4 billion of proceeds received from the sale of
Nuveen in 2005, and greater non-fixed income investment returns.
For the full year 2006, operating return on equity was 17.9
percent, compared to 9.6 percent in the prior year period. Business
Insurance Segment Financial Results For the fourth quarter 2006,
the Business Insurance segment reported operating income of $703
million, compared to an operating loss of $110 million in the prior
year quarter. The current quarter benefited from net favorable
prior year reserve development, the absence of catastrophe losses
and higher net investment income. The current quarter included an
after-tax benefit of $7 million ($14 million pre-tax) for net
favorable prior year reserve development, compared to an after-tax
charge of $438 million ($657 million pre-tax) for net unfavorable
prior year reserve development in the prior year quarter, due to
increases to asbestos and environmental reserves. There were no
catastrophe losses reported in the current quarter, compared to an
after-tax charge of $293 million ($449 million pre-tax) for
catastrophe losses in the prior year quarter. The current quarter
included a minimal benefit from the re-estimation of the current
year loss ratios for the first three quarters of 2006. In
comparison, the prior year quarter included an after-tax benefit of
$32 million ($50 million pre-tax) due to the re-estimation of the
current year loss ratios for the first three quarters of 2005. The
GAAP combined ratio was 90.9 percent in the current quarter, a 39.5
point improvement from the 130.4 percent reported in the prior year
quarter. There were no catastrophe losses in the current quarter,
while catastrophe losses added 16.3 points to the prior year
quarter GAAP combined ratio. The current quarter GAAP combined
ratio benefited by 0.5 points for net favorable prior year reserve
development, compared to an impact of 24.0 points for net
unfavorable prior year reserve development in the prior year
quarter. The current quarter GAAP combined ratio benefited by 0.3
points due to the re-estimation of the current year loss ratios for
the first three quarters of 2006, compared to a benefit of 1.8
points related to the first three quarters of 2005. Net written
premiums, excluding Business Insurance Other, increased 2 percent
from the prior year quarter, primarily due to growth in Target Risk
Underwriting and Industry-Focused Underwriting, partially offset by
a decline in National Accounts. Within Select Accounts, excluding
the impact of the transfer of certain small business insurance
programs to Specialized Distribution, net written premiums
increased slightly from the prior year quarter. Retention rates
were strong, consistent with recent quarters; renewal price changes
were positive, consistent with recent quarters; and new business
volume increased from the prior year quarter. Commercial Accounts
net written premiums were level with the prior year quarter.
Retention rates continued to be strong, consistent with recent
quarters; renewal price changes were slightly negative, a change
from recent quarters; and new business volume increased from the
prior year quarter, due to successful marketing efforts to increase
submission volume. Industry-Focused Underwriting net written
premiums increased due to strong business volumes in the
Construction, Technology and Oil & Gas business units,
benefiting from favorable economic conditions in these industry
sectors. Growth in Target Risk Underwriting net written premiums
was primarily driven by renewal price increases for
catastrophe-prone exposures in National Property, Inland Marine and
Ocean Marine. National Accounts net written premiums declined as a
result of lower volumes in the Discover Re unit, favorable loss
experience on retrospectively rated policies and lower workers�
compensation rates in California. Financial, Professional &
International Insurance Segment Financial Results For the fourth
quarter 2006, the Financial, Professional & International
Insurance segment reported operating income of $175 million,
compared to $57 million in the prior year quarter. The current
quarter benefited from the absence of catastrophe losses and
certain positive tax impacts from non-U.S. operations. There were
no catastrophe losses reported in the current quarter, compared to
an after-tax charge of $89 million ($92 million pre-tax) for
catastrophe losses in the prior year quarter. Operating income in
the current quarter included an after-tax benefit of $3 million ($4
million pre-tax) for net favorable prior year reserve development,
compared to an after-tax benefit of $13 million ($18 million
pre-tax) in the prior year quarter. The GAAP combined ratio was
90.4 percent in the current quarter, a 7.1 point improvement from
the 97.5 percent reported in the prior year quarter. The
improvement was primarily due to the absence of catastrophe losses,
which added 11.1 points to the prior year quarter GAAP combined
ratio. The current quarter GAAP combined ratio benefited by 0.4
points for net favorable prior year reserve development, compared
to a benefit of 2.1 points in the prior year quarter. Gross written
premiums increased 2 percent from the prior year quarter due to
modest growth in all businesses, while net written premiums
increased 8 percent, primarily due to the timing of certain
reinsurance transactions. Gross and net written premiums in the
prior year quarter benefited from the inclusion of an extra
reporting month for the Company's Lloyd's operations, which
eliminated a one-month reporting lag. Excluding this impact, gross
and net written premiums increased 4 and 10 percent, respectively.
The Bond and Financial & Professional Services units have been
combined and are now being reported as Bond & Financial
Products. For Bond & Financial Products, excluding the surety
line of business for which the following statistics do not apply,
retention rates were strong, consistent with recent quarters;
renewal price changes were positive, but lower than recent
quarters; and new business volume decreased from the prior year
quarter, due to competitive pressures. For International, which
includes the Company�s operations in the U.K., Ireland and Canada,
retention rates were very strong, increasing from recent quarters;
renewal price changes were positive, increasing from recent
quarters; and new business volume increased slightly from the prior
year quarter. Personal Insurance Segment Financial Results For the
fourth quarter 2006, the Personal Insurance segment reported
operating income of $348 million, compared to $249 million in the
prior year quarter. The current quarter benefited from lower
catastrophe losses, greater net favorable prior year reserve
development, increased earned premium volume, the continuation of
favorable loss trends and higher net investment income. The current
quarter included an after-tax charge of $13 million ($21 million
pre-tax) for catastrophe losses, compared to $53 million ($82
million pre-tax) in the prior year quarter. The current quarter
also included an after-tax benefit of $90 million ($139 million
pre-tax) for net favorable prior year reserve development,
primarily due to better than expected automobile loss experience
resulting in part from claim initiatives and non-catastrophe
homeowners claim severity resulting in part from less than expected
repair costs. The prior year quarter included an after-tax benefit
of $53 million ($82 million pre-tax) for net favorable prior year
reserve development. Loss experience has trended favorably in the
current accident year due to lower than expected automobile claim
activity, resulting in an after-tax benefit of $37 million ($56
million pre-tax) from the re-estimation of the current year loss
ratios for the first three 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 three quarters of 2005. The GAAP combined ratio was 78.1
percent in the current quarter, a 6.4 point improvement from the
84.5 percent reported in the prior year quarter. Catastrophe losses
added 1.3 points to the current quarter GAAP combined ratio,
compared to 5.2 points in the prior year quarter. Net favorable
prior year reserve development benefited the current quarter GAAP
combined ratio by 8.2 points, compared to a benefit of 5.3 points
in the prior year quarter. The current quarter GAAP combined ratio
benefited by 3.3 points due to the re-estimation of the current
year loss ratios for the first three quarters of 2006, compared to
a similar benefit in the prior year quarter of 1.2 points related
to the first three quarters of 2005. Personal Insurance net written
premiums increased 6 percent from the prior year quarter. This
result was primarily attributable to continued strong retention
rates and renewal price increases. Automobile net written premiums
increased 3 percent, and policies in force increased 10 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 6 percent. Retention
rates were strong and renewal price changes were positive, both
consistent with recent quarters. New business volume increased
slightly from the prior year quarter, after adjusting for the
six-month policy impact. Homeowners and Other net written premiums
increased 9 percent, and policies in force increased 8 percent from
the prior year quarter. Retention rates were strong, consistent
with recent quarters, and renewal price changes increased from
recent quarters. New business volume decreased from the prior year
quarter, due in part to coastal risk management. 2007 Annual
Guidance St. Paul Travelers expects 2007 earnings per diluted share
in the range of $5.20 to $5.45. This guidance is based on a number
of assumptions, including: Catastrophe losses of $530 million
pre-tax and $355 million after-tax; No prior year reserve
development, favorable or unfavorable; Growth in average invested
assets in the low single digits, after taking into account
dividends and approximately $2 billion of share repurchases for the
year; and Weighted average diluted shares of approximately 690
million, including the impact of the assumed share repurchases and
normal growth in share count from employee equity awards. 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,
February 1, 2007. 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 (which was sold in 2005), 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 Products 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, investment income, return on
equity and combined ratio), financial condition (including, among
others, invested assets and liquidity); and the sufficiency of our
asbestos and other reserves (including, among others, asbestos
claim payment patterns); the cost and availability of reinsurance
coverage; catastrophe losses; 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; 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; reinsurance may not protect
us against losses; 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; 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; assessments and other
surcharges for guaranty funds, second-injury funds, catastrophe
funds and other mandatory pooling arrangements may reduce our
profitability; 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. � � � � � � � � � � � � � � Three months ended Twelve
months ended December 31, � December 31, ($ in millions, except per
share amounts, and after-tax) 2006 � 2005 � 2006 � 2005 � Operating
income $ 1,193� $ 151� $ 4,200� $ 2,026� Net realized investment
gains (losses) (4) � 27� � 8� � 35� Income from continuing
operations 1,189� 178� 4,208� 2,061� Discontinued operations -� �
1� � -� � (439) Net income $ 1,189� � $ 179� � $ 4,208� � $ 1,622�
� Basic earnings per share Operating income $ 1.75� $ 0.22� $ 6.11�
$ 2.99� Net realized investment gains -� � 0.04� � 0.01� � 0.05�
Income from continuing operations 1.75� 0.26� 6.12� 3.04�
Discontinued operations -� � -� � -� � (0.65) Net income $ 1.75� �
$ 0.26� � $ 6.12� � $ 2.39� � Diluted earnings per share Operating
income $ 1.69� $ 0.22� $ 5.90� $ 2.90� Net realized investment
gains (losses) (0.01) � 0.04� � 0.01� � 0.05� Income from
continuing operations 1.68� 0.26� 5.91� 2.95� Discontinued
operations -� � -� � -� � (0.62) Net income $ 1.68� � $ 0.26� � $
5.91� � $ 2.33� � Weighted average number of common shares
outstanding (basic) 679.2� 688.3� 687.1� 676.3� Weighted average
number of common shares outstanding and common stock equivalents
(diluted) 711.0� 694.11 716.7� 712.8� Common shares outstanding at
period end 678.3� 693.4� 678.3� 693.4� � Common stock dividends
declared $ 176.0� � $ 160.0� � $ 696.0� � $ 622.0� � Operating
income (loss) by segment Business Insurance $ 703� $ (110) $ 2,622�
$ 1,044� Financial, Professional & International Insurance 175�
57� 609� 391� Personal Insurance 348� � 249� � 1,132� � 775� 1,226�
196� 4,363� 2,210� Interest Expense and Other (33) � (45) � (163) �
(184) � $ 1,193� � $ 151� � $ 4,200� � $ 2,026� � Operating return
on equity 19.6% 2.8% 17.9% 9.6% Continuing operations return on
equity 19.1% 3.2% 17.9% 9.5% Return on equity 19.1% � 3.2% � 17.9%
� 7.5% � 1 The calculation of earnings per diluted share for the
three months ended December 31, 2005 excluded the weighted average
effects of the following securities convertible into the Company�s
common shares because their effect was anti-dilutive: outstanding
convertible preferred stock (3.8 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 Twelve months
ended December 31, December 31, ($ in millions, pre-tax) 2006 �
2005 � 2006 � 2005 � Revenues Premiums $ 5,328� $ 5,136� $20,760�
$20,341� Net investment income 910� 813� 3,517� 3,165� Fee income
138� 159� 591� 664� Net realized investment gains (losses) (5) 33�
11� 17� Other revenues 98� � 40� � 211� � 178� � $ 6,469� � $
6,181� � $25,090� � $24,365� � � Revenues Business Insurance $
3,596� $ 3,507� $14,049� $14,184� Financial, Professional &
International Insurance 970� 934� 3,776� 3,578� Personal Insurance
1,865� � 1,707� � 7,205� � 6,581� Total Segment Revenues 6,431�
6,148� 25,030� 24,343� Interest Expense and Other 43� � -� � 49� �
5� 6,474� 6,148� 25,079� 24,348� Net realized investment gains
(losses) (5) � 33� � 11� � 17� � $ 6,469� � $ 6,181� � $25,090� �
$24,365� � Gross written premiums Business Insurance Core $ 3,215�
$ 3,216� $13,017� $13,075� Business Insurance Other 7� � 55� � 30�
� 378� Total Business Insurance 3,222� 3,271� 13,047� 13,453�
Financial, Professional & International Insurance 1,029� 1,012�
3,981� 3,809� Personal Insurance 1,681� � 1,594� � 7,011� � 6,474�
� $ 5,932� � $ 5,877� � $24,039� � $23,736� � Net written premiums
Business Insurance Core $ 2,847� $ 2,803� $11,021� $10,752�
Business Insurance Other (4) � 55� � 25� � 247� Total Business
Insurance 2,843� 2,858� 11,046� 10,999� Financial, Professional
& International Insurance 964� 893� 3,393� 3,159� Personal
Insurance 1,630� � 1,543� � 6,711� � 6,228� � $ 5,437� � $ 5,294� �
$21,150� � $20,386� � GAAP combined ratios: 1 Business Insurance 2
Loss and loss adjustment expense ratio 59.1% 100.5% 60.3% 81.5%
Underwriting expense ratio 31.8� � 29.9� � 30.6� � 28.9� Combined
ratio 90.9% � 130.4% � 90.9% � 110.4% � Financial, Professional
& International Insurance 2 Loss and loss adjustment expense
ratio 54.9% 62.7% 53.7% 56.8% Underwriting expense ratio 35.5� �
34.8� � 35.3� � 35.7� Combined ratio 90.4% � 97.5% � 89.0% � 92.5%
� Personal Insurance Loss and loss adjustment expense ratio 48.7%
56.4% 54.8% 62.2% Underwriting expense ratio 29.4� � 28.1� � 28.3�
� 26.9� Combined ratio 78.1% � 84.5% � 83.1% � 89.1% � Total
Company 2 Loss and loss adjustment expense ratio 55.1% 81.0% 57.5%
71.9% Underwriting expense ratio 31.6� � 30.1� � 30.6� � 29.4�
Combined ratio 86.7% � 111.1% � 88.1% � 101.3% � 1 For purposes of
computing GAAP ratios, billing and policy fees (which are a
component of other revenues) are allocated as a reduction of other
underwriting expenses. In addition, fee income is allocated as a
reduction of losses and loss adjustment expense and other
underwriting expenses. � 2 Before policyholder dividends. � See
Glossary of Financial Measures and the statistical supplement for
additional financial data. � � � � � � � � Three months ended
Twelve months ended December 31, December 31, ($ in millions;
after-tax except as noted) 2006 � 2005 � 2006 � 2005 Reconciliation
of underwriting gain (loss) to net income � Pre-tax underwriting
gain (loss) $ 674� $ (612) $ 2,325� $ (389) Tax expense on
underwriting results (187) � 149� � (783) � 45� Underwriting gain
(loss) 487� (463) 1,542� (344) Net investment income 701� 632�
2,712� 2,438� Other, including interest expense 5� � (18) � (54) �
(68) Consolidated operating income 1,193� 151� 4,200� 2,026� Net
realized investment gains (4) � 27� � 8� � 35� Income from
continuing operations 1,189� 178� 4,208� 2,061� Discontinued
operations -� � 1� � -� � (439) Net income $ 1,189� � $ 179� � $
4,208� � $ 1,622� � See Glossary of Financial Measures and the
statistical supplement for additional financial data.
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