Travelers 2007 Annual Report Download - page 3

2007 Annual Report
1
To Our Shareholders:
By any measure, 2007 was a very successful
year for Travelers. We are pleased with our
performance from a number of perspectives,
but I would like to highlight a few specific
accomplishments:
First, we recorded annual operating income of $4.5 bil-
lion, producing a strong return on equity of 18 percent.
The underwriting results in each of our business segments
were solid, and we continued to generally outperform our
peer group in terms of growth, with an average 3 percent
increase in net earned premiums across our operations and
with business retention ratios at historically high levels.
Second, we sidestepped the key investment risks of 2007.
The discipline of our investment group allowed us to
navigate successfully through the most turbulent capital
markets in recent memory by essentially avoiding invest-
ments in – and subsequent losses from – the sub-prime
mortgage market dislocation.
Third, several improvements in our Claim operations will
allow us to provide even better service at claim time, when
our customers need us most. One of our key 2007 accom-
plishments was the launch of our state-of-the-art Claim
training facility.
Finally, we ended the year extremely well capitalized, with
all of our financial strength indicators at or better than
the company’s target levels, including a debt-to-capital
ratio of 19.4 percent compared to our 20 percent target.
At year end, we had $26.5 billion of common equity, up
6 percent since the beginning of the year, after returning
excess capital to shareholders through $2.9 billion of share
repurchases and $738 million of common stock dividends.
Also, notwithstanding the substantial return of capital,
book value per share increased 15 percent.
While we benefited during the year from relatively benign
weather, the key contributor to our success was the strong
underlying performance in our business. We built on the
momentum and success of 2006, producing two consecu-
tive years of very strong results.
Risk and reward revisited
Evaluating risk and reward is at the heart of what we do,
both as underwriters and as investors.
As underwriters, our job is to help our customers manage
the risks of potential financial disruptions in their lives and
in their businesses and to earn an appropriate margin for
doing so. Then, as we engage in the business of insurance,
we generate funds that are invested.
As investors, we have two objectives – the first is to ensure
that the company can meet its obligations to our policy-
holders. We accomplish this by investing a majority of
our portfolio in highly rated fixed income securities that
generate a stable level of investment income. Consequently,
our bond portfolio has an average rating of AA+. A second
objective is to take some incremental investment risk with
the remainder of the investment portfolio to try to generate
greater returns.
In both instances – underwriting and investing – it is our
responsibility to be sure that our shareholders are being
fairly compensated for the risks that we take with their
capital. We believe Travelers is an organization that evaluates
risk and reward with a superior level of informed sophistica-
tion, and we are particularly proud of our 18 percent return
on equity, which we consider an important measure of our
success in evaluating risk and reward appropriately.
Jay S. Fishman
Chairman, Chief Executive Officer & President