The Travelers Companies Inc. (TRV) has reported fourth quarter 2009 earnings of $2.12 per share, exceeding the Zacks Consensus Estimate of $1.49 per share. The results were driven by a significant increase in investment income and favorable prior years’ reserve development. The company had earned $1.58 per share in the prior-year period.

Including the impact of realized investment gains, Travelers reported a net income of $1.3 billion or $2.36 per share, compared to $801 million or $1.35 per share in the year-ago quarter. For full year 2009, the company reported net income of $3.6 billion or $6.33 per share, compared to $2.9 billion or $4.81 per share a year ago.

However, Travelers reported a drop in premium writings. Net premiums written were $5.2 billion, down 4% year-over-year, primarily due to lower levels of economic activity. Though retention rates remained high, the company has experienced a slight decline in new business volumes.

Nevertheless, Travelers reported an underwriting gain of $856 million, up 17% from the prior-year period, primarily due to favorable reserve development from prior years. Combined ratio improved to 83.4% from 85.9% reported in the prior year quarter.

Travelers reported an investment income of $813 million compared to $483 million in the year-ago quarter. This was primarily driven by positive returns in the non-fixed income portfolio in the reported quarter, compared to negative returns in the year-ago quarter, and is mainly due to private equity and hedge fund performance.

Net realized investment gains were $189 million, compared to realized losses of $219 million in the prior-year period. This increase is due to the sale of 50% of the company’s Verisk Analytics Inc. holdings in connection with its initial public offering, which contributed $103 million after-tax ($159 million pre-tax).

Book value per share was $52.54, up 22% from $43.12 reported a year ago. Adjusted book value per share was $48.96, up 13% from $43.37 reported in the prior-year period. While the statutory surplus was $23.2 billion, the company’s debt-to-capital ratio was 20.3%.

During the reported quarter, the company repurchased 30.1 million of its common shares under its share repurchase authorization for a total cost of $1.55 billion. For fiscal 2009, the company repurchased 69.4 million common shares for $3.30 billion. At the end of 2009, the company had $6.5 billion of capacity remaining under its share repurchase authorization.

Outlook 2010

Travelers expects 2010 operating earnings to range between $5.20 and $5.55 per share. This forecast includes catastrophe losses of $600 million pre-tax ($390 million after-tax), no prior-year reserve development, share repurchases worth $3.5 billion to $4.0 billion for the full year and low-single-digit percentage change in average invested assets.

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