Travelers reported 2008 fourth-quarter net income dropped 25 percent primarily due to losses in investment income, but solid underwriting produced an improvement in the combined ratio of 2.5 points.

The company reported fourth-quarter net income of $801 million, down $262 million from the same period in 2007 when it reported net income of $1.06 billion. This translated into earnings per share of $1.35 down from $1.64 for the same period in 2007. Revenues in the quarter were down 11 percent, or $686 million, to $5.8 billion.

For the year, Travelers reported net income dropped 36 percent, or $1.7 billion, to $2.92 billion. Earnings per share dropped from $6.86 a share in 2007 to $4.82. Revenues were off 6 percent, or $1.54 billion, to $24.5 billion.

The company reported a combined ratio for the fourth quarter of 85.9, an improvement from 88.4 for the same period in 2007. For the year, the combined ratio deteriorated 4.5 points to 91.9.

During a conference call today with investment analysts, Jay Fishman, chairman and chief executive officer for Travelers, said the results reflected solid underwriting and understanding of the insurance market. He said despite the company's correct evaluation of the insurance marketplace, the investment markets were much more challenging than anyone anticipated.

"However, all things considered, I could not be more pleased with our performance and the position of our investment portfolio," said Mr. Fishman.

He said the company performed as well as it did because it did not underwrite risks that it thought were underpriced and turned out to have losses during the course of the year. If the pricing of some risks had been better, he said, Travelers may have done some underwriting in those risks.

There are recent signs that pricing is beginning to firm, said Mr. Fishman, but it is too soon to say whether that means a definite turn in the marketplace.

"Recent data suggests that we may now be seeing an improvement in the pricing environment," he said. "We are by no means ready to declare a bottom, but we like the data..."

During the conference call, company executives reviewed the company's performance and exposures. In its management liability business the company saw an increase in new business and has built a diversification of business to avoid any concentration in a single risk.

In this area, Travelers said it believes on a year-over-year basis it will see no more claims related to market disruption in 2008 than it did in 2007. However, the company estimates it has $150 million in exposure related to accounts associated with Bernard Madoff, who stands accused of running a $50 billion Ponzi scheme. Losses are estimated to eventually run around $75 million pre-tax ($50 million after tax).

Some of these losses were already recorded in 2008, and more will be recorded in 2009. The line of business is expected to remain profitable.

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Travelers Reports Net Income Dropped 25% In 4Q

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