St. Paul Net Up, Sees Property Prices Flattening

For the quarter, the St. Paul, Minn.-based insurer posted $233 million in operating earnings, nearly doubling the $121 million recorded during the year-ago period. Total net written premiums for the quarter also improved to $1.95 billion, up 6.9 percent compared to last year.

Net written premiums for The St. Paul's ongoing insurance segments, which represented 97 percent of total net written premiums, rose to $1.89 billion, up 25 percent from one year ago.

"We had a terrific quarter and posted record operating earnings, both in terms of overall dollars and earnings per share. Operating earnings are up over 90 percent from the same quarter last year. Our annualized operating return on equity stands at 15.4 percent," said Jay Fishman, chief executive officer at The St. Paul, during today's conference call with analysts.

Mr. Fishman remarked that the improving profitability reflects "successful execution of [ St. Paul's] strategies, combined with an attractive market dynamic of improved pricing, albeit at a slower pace."

"Our strategy to broaden our relationships with our distribution channel members to become their key trading partner began to show accelerated net written premium growth last quarter, and that growth continued strong into the third quarter," he observed.

"Our ongoing premiums are up 25 percent; total premiums, including the impact of runoff operations, are up seven percent."

Mr. Fishman also noted that the insurer's new business continues to accelerate, and "as we discussed in the second quarter, this we think is the measure of our continued success strategically."

In total, The St. Paul wrote $540 million of new business in this third quarter, compared to $418 million in the second quarter and $372 million in the first quarter of this year.

Breaking down $540 million of new business from this third quarter by line, $109 million was in small commercial, while $140 million was in the middle market and some $300 million was from the specialty business.

Mr. Fishman noted the company's acquisition of renewal rights to Kemper business, announced in May, is contributing to this growth.

The St. Paul's Nuveen Investments unit also posted higher profit, contributing operating earnings of $29 million for the quarter, up 17.5 percent from one year ago.

"Nuveen Investments continue to generate a base of stable growing earnings for our shareholders, contributing $29 million, or 12.5 percent, of our third-quarter operating earnings," Mr. Fishman said. "In the future, we expect Nuveen to continue to be a substantial contributor to our shareholders' returns, enhancing improvement we expect in returns generated by our insurance operations."

During the conference call, The St. Paul management also offered its view of the high-priced market trends.

Commenting on small and medium-size commercial marketplaces, Marita Zuraitis, chief executive officer for commercial lines at St. Paul, said that "we are seeing some deceleration on the property side, but we are still seeing increases on the casualty side."

"We've had no problem being able to get the price required to capture the loss trend," Ms. Zuraitis added. "We are making it very clear to the underwriters that when they can't get their price to write the account, just walk away. But we are not having an issue getting prices we need."

Mr. Fishman also added that price hikes continue, but they are decelerating. "They remain in the high-teens for specialty commercial and lower in commercial lines."

But he stressed that "there is no sea change going on."

"It's not as though the pricing was heading up and all of a sudden it hit a wall and it has stopped heading up," he told analysts. "First of all, these things happen account by account–so any trends we talk about aren't homogeneous. There are thousands and thousands of transactions that make up a rate change. Clearly, what we are seeing are rate increases, but at a slower pace."

Overall, Mr. Fishman observed casualty lines continue to experience rate hikes that are significant compared to property.

"Property is at a slower pace. And I think, as you look at 2004, property probably flattens out," he forecast.

"So we anticipate, as we look to 2004, still robust increases in pricing in casualty lines, but a flattening in the property lines by the time we get into 2004."

The St. Paul offers liability and casualty, property, workers' comp, auto, marine, and other commercial coverage. Its international operations include Lloyd's of London syndicates that specialize in niche markets, including kidnap and ransom, personal accident, and creditor coverage.