旅行家集團 (TRV) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

And welcome to the first quarter earnings review for St. Paul Travelers.

We ask that you hold all questions until the completion of the formal remarks.

At which time we'll be giving instructions for the question-and-answer session.

At this time I'd like to turn the call over to Maria Olivo, Executive Vice President of Investor Relations, and Financial Planning and Analysis.

Mrs. Olivo, you may begin.

Thank you.

Good morning, everyone, and welcome to our first quarter earnings conference call in which we will review the results for the quarter for the newly formed St. Paul Travelers Company, which the results will be for the former Travelers Property Casualty business.

We will also review the results of the former St. Paul companies, which are not included in the results of St. Paul Travelers.

Our discussion today will include an update on the merger, both from a field agent perspective and then how we're doing in respect of internal operations.

A summary of how we will be reporting our results going forward as well as commentary on current market conditions.

Our discussion will be followed by question-and-answer session and myself and Laura Gagnon will be available all day to take any additional questions.

Yesterday evening we released our press release and two statistical supplements.

One for St. Paul Travelers and the other for the former St. Paul.

In addition, this morning we released a presentation, which we will be referring to during this webcast.

All of this material can be found on our website at www.stpaultravelers.com.

Today with us, we have Bob Lipp, our Chairman;

Jay Fishman, our Chief Executive Officer;

Jay Benet, our Chief Financial Officer;

Doug Elliot, who heads up our Commercial and Personal Operations; and Mike Miller will heads up our Specialty Commercial Operations; in addition we have other members of management that are available to answer questions.

Before I turn it over to Jay, I would like to make the following statement.

Our presentation today will include certain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995.

The company cautions investors in any forward-looking statements involving risks and uncertainties are not guarantees of future performance.

Actual results may differ materially from our current expectations due to a variety of factors.

These factors are described in our earnings press release and in our filings made with the Securities and Exchange Commission.

Also in our remarks or responses to questions, we may mention certain financial measures that, we believe, are useful to investors.

These may include operating income, operating return on equity, underwriting gain or loss, and underwriting gain before catastrophes in prior year reserve development.

These are non-GAAP financial measures as defined by SEC rules.

Reconciliation of these when measures to the most correctly comparable GAAP measures are included in our earnings press releases, financial supplements, and other materials that are available on our website www.stpaul.com -- stpaultravelers.com With that I'm going to turn it over to Jay Fishman.

Thank you, Maria.

Good morning, everyone.

And thanks for taking the time to join us this morning.

Just -- I want to take a moment before I get started going through the operations, to just make a comment.

It's a real treat to be back in business with Bob Lipp and all of the folks from the Travelers and we are very, very much off and running.

And feel terrific about what's happened during the first quarter, both from a merger perspective, financial results which won't -- somewhat complicated.

We're going to take you through.

We are very pleased with them.

We feel a tremendous amount of momentum in our business.

The organizations have come together, just, really, exceptionally well.

We hit the ground running and really this is -- we're off to a great start.

First turning to page three in the presentation.

This, obviously, is a map that describes the regional structure of our new organization.

We are a broken down into 14 individual regions.

I think one of the interesting dynamics is to look at the size of some of these regions.

They rake range from $575 million up to 2.5 billion.

Several of these regions are actually larger than some insurance companies against whom we compete.

It is a big organization.

It has broad product depth and reach.

It has a terrific relationships with agents, and it's a foundation on which we can build substantially.

There are 14 regional executives who have been put in place in the organization.

Their jobs principally are to pull our organization together.

We have over 20 individual product lines that we have underwriting claim and risk management expertise in; and our goal is to look in each of these local regions as a single unified company that brings the responsiveness and the local touch of a local company but the financial resources, responsiveness, and strength of a large national company; and so, these 14 folks are important elements of our -- of our structure and, in fact, they have been deeply involved with the agency plan.

We have been out on the road in the, now, four weeks since we've closed.

We've actually been to almost every principal region of the country.

We have visited with agents.

We have visited with employees and customers, and we are very pleased with the response.

It's been very warming and feel very good about our plans and how we're going to execute them.

Now, turning to page 4 for a moment, just to give you a real sense of the status of the integration and where it is.

All of you know that we had the entire management team named before the closing and as a consequence we were able to get to business just immediately upon the closing of the transaction; and I would remind all of you, that in the first quarter our two companies, in fact, competed against each other and for business; so, the results that we're going to speak to in this first quarter still reflect the dynamics of two companies competing against each other in the marketplace as opposed to two companies cooperating and seeking cross marketing and cross-selling opportunities and we rarely give you some information from anecdote perspective, anyway, since success stories that we've had even in these early days.

Every employee within our new structure has been identified and put in place, and in fact, if one looks through those plans, we have from a people perspective identified savings of some $200 million annually and we are well along the implementation of the actions related to realizing those savings.

In the technology arena, all of the major systems have been selected.

People are being cross-trained on the systems.

People, meaning both those who work for the company who have to be fluent in both predecessor company systems as well as our agents, to make it easy for them to place business with either company.

The technology savings so far, and I would tell you, that this is a -- a modest number because, in fact, we're really going to be running dual systems for quite some time; but the identified savings already exceed $10 million.

Facilities and services, this is office consolidation.

Recontracting of various services.

The total of those is $85 million realized to date.

I would say realized.

Identified and in the process of being realized.

And so, as of this point, we had originally identified $350 million of expense opportunities between the two companies; we have already identified 300 million of those 350 and we are quite confident that we will meet or exceed that $350 million target level.

I'm not prepared yet to make comments on the speed of the realization of those savings compared to the original estimate that we provided at the time of the merger but by the time we get to the second quarter results we will be able to comment on that and give you more information on it.

The bottom of the page refers to integration costs.

That, of course, was the provision that would have to be set up to deal with such things as severance and other shut-down costs.

We had identified in our SEC filing that -- that would run between 3 and $4 million.

At this point, the indications are that we will either be at the low end or below that range; and that's where we are in terms of the status of the integration.

Before I turn it over to Jay, I know that many of you will have questions or comments about the revenue picture for the first quarter.

Because it is somewhat complex, let me share with you, at least right now, kind of, an overall view and then we'll dive into it later.

In the first quarter, both companies had taken underwriting actions in a number of lines of business.

In some cases caused by very aggressive action by particularly two companies in one of our segments, being construction.

And so, as we've looked at the results, we've actually sorted them out as follows, if you take a look at the former Travelers companies and you exclude construction and the decline in the Northland companies, again, this is a very strategic underwriting decision,Travelers companies revenues were actually up 10% quarter on quarter.

And the St. Paul companies, I had spoken earlier about are underwriting profiling ensurety, the activity in the construction segment in the first quarter was really quite remarkably competitive.

And as a consequence we made the decision to pull back (thoroughly) aggressively.

That's the line where it was the least room to give way in rate.

As I've said, a couple of competitors acted very aggressively in their quarter, we allowed business to move away from us in those rate declines, if one excludes the (surety), and the construction, and the Lloyd's Personal Line (Syndicate), and we have talked about that previously, the St. Paul revenues are actually up 15% quarter on quarter, so, peeling the onion a little bit in the revenue picture and we'll do a little bit more of that later, but we do actually feel real solid about the revenue profile of the company and continue in a very strong and rewarding market to do business and to allow our revenues to grow where appropriate.

From an earnings standpoint, on a purely combined basis, the operating line we earned $738 million for the quarter.

That terrific performance and really points us to a level that we've -- our own expectations were set some time ago.

If one chooses to exclude the unusual investment income gains and all of the reserve development it actually is $823 million on a combined basis, but, and that's obviously before purchase accounting as well as before the expense savings.

Jay is going to talk more about that later, but we feel very good about the combined earnings performance of the company and we know it's a great foundation for the rest of 2004.

So, with that, let me turn it over to Jay to take you through some of the detailed financials.

Thank you, Jay.

The first quarter presentation is complicated by the purchase accounting that is inherent in this and what we did on page 5 of the webcast is include the second paragraph of the press release, which really gets to how this presentation for financial reporting purposes is made.

Fourth line down for accounting purposes, Travelers is the accounting acquirer.

So, the stand alone results and operations of Travelers for the quarter ended March 31 and all prior periods are the results of St. Paul Travelers; and we'll keep, you know, reiterating that point as we go through.

It's only beginning in the second quarter of '04 that we'll start seeing the combination of the Travelers and St. Paul results.

Flipping to page 6, and again, this is Travelers only representing all of St. Paul Travelers financial performance in the first quarter, we have net written premiums up 10% as Jay had indicated operating income of 614, which is a record for us, if you do it on an earnings per share basis $1.41 and ROE of 21.9% in the quarter.

And I'll get into the components this of in a minute.

On page 7, what we tried to do here is give a little schematic that can act as a reminder of, really, how purchase accounting is going to work.

So, as an example, in the first section, you know, we indicate what's included in the St. Paul Travelers results.

So, you know, Travelers Property Casualty for all periods will be included in the Travelers results, (trapped) in the St. Paul Travelers; and the St. Paul, as I mentioned before, will be included in the second quarter of '04 and subsequent periods.

For the purposes of the financial results of St. Paul Travelers even though the exchange of shares didn't take place until April 1, a day after the quarter ended, the actual share counts for EPS purposes and number of shares outstanding have been adjusted in all prior periods with a .4334 exchange ratio and we'll show you some of these restated amounts in a minute.

So, all, you know, prior EPS calculations, for example, need to be adjusted.

The purchase accounting impact on earnings will be something that will come into play in the second quarter.

Purchase accounting adjustments only are for the St. Paul information and therefore have no bearing on the first quarter of '04 or prior quarters.

And also, in terms of restructure charges we've not reflected anything yet in any of the information you've seen.

That will be something that will be starting to come into play in the second quarter; and just a reminder, any restructure charges that relate to Travelers people and systems will be expensed under GAAP, and anything relating to St. Paul will potentially be -- will be evaluated for potential T-GAAP treatment.

Last but not least, you know, we will be re-evaluating -- are re-evaluating segment structure of the company going forward; and the expectation, at this point, is that the history, because it is just Travelers history, will be continued to report under the basis of what Travelers had reported, that being two segments, Commercial Lines and Personal Lines; and then going forward, we would have four segments of the combined company, Commercial, Specialty, Personal, and Asset Management.

I'm not going to dwell on page 8.

These are the converted or restated share amounts, both on an outstanding basis and a fully diluted basis.

We show you the history of first quarter '03 through first quarter '04.

So, as an example, in the first quarter of '04 the outstanding share is that the financial statements reflect are 437 million; and coincidentally, just, by the way the calculation works, the fully diluted shares are the same amount.

And what we did here, as a reminder, on April 1, the share count will go up -- or has gone up, you know, with the additional -- with the additional shares coming in relating to the merger with St. Paul.

So, the share count on an outstanding basis, on April 1, jumps to 666 and then, of course, the fully diluted shares going forward will also, you know, be increased by some, sort of, like amount based on the measurement.

Page 9 gives an idea of the impact of some of the major purchase accounting adjustments.

There are many purchase accounting adjustments.

This is not meant to be an all-inclusive list, but the three items that will have the most impact on the income statement going forward are the three that are here.

The first one being a mark to market of the St. Paul investment portfolio, which will impact net investment income, and we recently issued a 12/31/03 pro forma statement in an 8-K filing and the annualized pre-tax impact of that would be about 310.

So, it that were an approximation for what the actual T-GAAP adjustment is going to be on April 1, we just want to remind you that on an after-tax basis, nine months of that number would be about $175 million, which would be a reduction to earnings.

Similarly in terms of the intangibles, we've looked at the intangibles as the 8-K filing indicates there are really three levels of intangible.

One, being intangibles subject to amortization; another one being, intangible but aren't subject to amortization because they have an infinite life; and then finally, goodwill which is not subject to amortization.

So, the identification of the St. Paul intangibles with (finite) lives, you know, again, based on what's in the 8-K for 12/31 would have about a $130 million annual impact on amortization in the first year and that would then after tax be a negative of 65.

And then finally, we do have to fair value the insurance liabilities and it's an extremely complicated model that gets used to do that, and what that will do is it will reduce the liabilities by an amount and once that is done that reduction will then have to filter through into the income statement over a period of time.

We're not expecting a very large annual impact associated with that, and actually in the first year, given the way the calculations were up -- we're actually expecting a $30 million after-tax pickup in earnings, but in subsequent years it will actually be a reduction as the amortization components wind out.

But, again, in terms of magnitude, we're not expecting it to be large.

So, net, net, go a nine month pro forma income cut -- impact would be about a negative 210.

Okay, if we then turn to page 10, we get into the analysis of operating income for the St. Paul Travelers entity, and again, this is Travelers only, information.

We're very pleased with the consolidated underwriting gain before CATS and prior year development, which is up to 40% from 151 million in the first quarter of '03 to 212.

CATS were lower this quarter. 13 versus 44.

And, you know, where as in the last year's quarter we had significant prior year development, prior year development for us was only about $28 million after tax this quarter.

Getting down to the underwriting gain, last year was negative 12.

So we had a little bit of a loss, very happy with the positive 160.

And, you know, looking at the net investment income as we disclosed in the press release, we did have a very large one-time gain relating to a private equity partnership where the investment that the private equity partnership made in a particular entity, IPO, and, you know, we're always very pleased to get $83 million gains..

This is an unusual quarter.

So, net investment income up dramatically, which is, again, a major driver of the operating income of 614.

Page 11 shows the combined ratios.

Again, it's Travelers only for the St. Paul Travelers overall results.

We reported an 8 point improvement in the combined ratio from 99.9 down to 91.9.

And looking at 91.9, it's a very nice level that we're at.

And then, if you remove the CATS and prior year development, just to get a feel for the underlying business and how it's performing, those numbers improve even further to 89.5 in the first quarter of '04.

Net investment income, schematically on page 12, you know, shows the large gain on the equity income from the private equity partnership.

I should say that here, that -- that investment that we have is actually comprising two components in terms of the gain.

One is a piece that was actually cash realized and another piece that is a mark to market in the underlying, you know, partnership, so just going forward we'll be adjusting that as -- depending upon the, you know, the continuation of the mark to market.

But, having said that, if you look at the progression of net investment income overall, you can see that net investment income remains very steady and the after-tax yield, of course, was 4.9%.

On page 13, we flip from the St. Paul Travelers Companies to St. Paul only, and again, as the caption indicates this is excluded from the St. Paul Travelers results in the first quarter.

And we've provided the same kind of look that we did for the St. Paul Travelers Companies or Travelers, and shown, you know, what's happened to net written premiums and we'll get into that in a bit.

You know, the operating income of 124 and the net income of 188 up from the 181 of the prior year and we'll analyze this the same way we did for Travelers.

If you turn to page 14, similar to what Travelers had seen on the top line here consolidated underwriting gain before CATS, and prior year reserve development grew 39%, you know, that compares to the Travelers number of 40%, so both companies are performing well.

And we're very happy with the first quarter and what's that's done.

CATS is not a big number and as it relates to prior year development there is an increase of 105 million.

I'll talk about, you know, what gave rise to that in a minute.

And if we look down further we see investment income was steady and Nuveen was up 23%.

So, you know, getting to the underlying operations of St. Paul we feel good about the quarter.

Now, page 15 shows the combined ratios on a GAAP basis.

And, you know, you can see the increase of 4.9 points to 104.5 on a reported basis because of the prior year development.

But if you remove the CATS and prior year development to get back to the basic underlying profitability of the business they are at a very favorable 93.9%.

Page 16 shows the components of what have has taken place in St. Paul in the first quarter related to prior year development and there's two items here that I'd really, you know, want to call out a little bit because they're the larger ones on the page.

Start at the bottom, actually.

The reinsurance recoverable adjustment.

I'll talk about what this isn't.

It is not a credit for a dispute issue.

It really relates to a corporate aggregate stop loss cover and it's only a re-estimation of the recovery, you know, based on all the changing facts and circumstances that have taken place in the first quarter.

So, you know, we've seen these things emerge and, you know, we just decided that it was appropriate to, you know, book an after-tax charge of 53 million.

As it relates to the top item, the contract surety, it does relate to the account that's been referenced in the St. Paul 10-K.

We did receive request for advances in the quarter that exceeded prior estimates of the dollars that might be needed and of course, when that happens you reevaluate the obligations that you have and evaluate whether it makes sense to make further advances or not; and we decided they did make sense to do that, and we booked the additional loss in the quarter and continue to follow this closely.

The other items that are here, are really nothing other than some bits and pieces.

An example would be some unallocated loss adjustment expense strengthening, but there's a lot of little, you know, fives and sixes type items there.

We put in page 17 for net investment income to give people a flavor for, you know, the fixed versus alternative investment type returns that St. Paul has gotten.

So, if you want to look at, you know, this in conjunction with Travelers you'll get a feel for the NII components of the portfolio.

Nothing remarkable to say here other than it's, you know, a very steady performance.

And then finally, on page 18 as it relates to St. Paul only, which again is not included in Travelers results -- St. Paul Travelers results, Nuveen net income is continued to progress, you know, 32 million in the quarter versus the 26 in the first quarter of last year and assets under management reached a real milestone, they now exceed $100 billion.

Okay, going away from St. Paul only, we've shown on page 19 some combined information.

Where we thought it would be appropriate to give you a feel for, you know, what the investment portfolio looks like on a combined basis.

As the notes indicate, you know, this is not purchase accounting adjustment.

It's really just the addition of, you know, the two portfolios and you can see that in total the portfolio is on an average invested asset basis exceeded $60.4 billion in the first quarter.

The makeup of the portfolios as we have indicated, you know, awhile ago when we first talked about the merger of the two companies were very similar.

Each of them had about 90% fixed versus equity type investments and in putting them together we've got a very healthy portfolio with the duration of about 4.0.

An AA quality rating and of a low investment grade, which is actually below the low investment grade percentage that Travelers has historically managed that, we have generally targeted about 6%.

The combined portfolio has about 4.3%.

On page 20, we show the debt and capital structure of the combined company.

We've taken the March 31 historicals and we've done a pro forma March 31T-GAAPed version excluding the FAS 115 adjustments to just get down to, you know, the real, you know, common equity book value, if you will, without the step up for the unrealized gains, as you can see noted.

But when you two do all of this, first of all, looking at the Travelers historical you can see that there's an 18.8% debt to capital ratio.

St. Paul's is higher at 39.8, but when you blend them together and do the purchase accounting, you know, we get back down to a 24.8% debt to capital ratio.

That's all end debt including the hybrids and a book value per share, which does include the unrealized gain of 31.81.

With that, I will turn it back to Jay for discussion of premiums.

Great, thanks, Jay.

You know we're going to confuse you all, you'll have to identify which Jay you are making reference to.

First, and before I turn to page 21, let me give you some sense of the rate that we experienced in the quarter across our book and you can get a feel for the fact that the market remains -- it remains an attractive market.

This is a very good market in most of our segments.

I'm going to speak about the ones that are not, but in most of our segments to continue to be aggressive and be writing business.

Middle market rate gains across our entire book that both companies were between 6 and 7% for the quarter.

The select business, the small commercial business is running mid to high single digits across the entire book and our specialty business is running at 12% across the whole book; so we continue to experience non-insignificant rate gains.

It feels very good about the marketplace.

Obviously, one's view of the market is always impacted by the individual transactions and your view of where things are going.

Chuck Clarke likes to use the phrase that we're in a relaxing market.

And I actually find that appealing as a description, it clearly has not turned soft.

There'll be individual trades and transactions that one questions at -- at one questions the -- the sense, the sanity of some of the prices.

But on the whole, that's not the case.

It is -- it is much more competitive in the construction arena.

I mentioned earlier that there were a couple of companies that, particularly, in the first quarter, became very aggressive and we've elected to back off in that arena.

And secondly, that there are elements of some of the financial products, particularly the excess layers of D and O that have become fairly significantly competitive, and once again, you can make a -- choice to make.

You can either continue to bang away in the marketplace at areas where you're not so confident that profit exists, or you can back away from it and I'm actually pleased, independent of each other, that the company's underwriting profiles are actually quite consistent and the companies made the right decisions to do the right things.

So, we're very pleased with the results.

Turning now to page 21.

We give you the breakdown of the Travelers companies, individual lines, and what's happening in their business.

National accounts premium up 7% but I bring you to bottom of the the page because, really, the business there is one of claims management and a fairly substantial increase in claim volume under administration.

A 19% increase in claim volume under administration and an 18% increase in written fees; so a very strong, very solid continuing performance for national accounts.

Very impressive franchise.

Commercial accounts, while it shows 3%, if one excludes construction, and the Northland group, the Northland group specifically because of certain specialty programs that the company made the decision to exit, it actually is a 9% growth.

Select up four.

Bond up 31.

You can see Gulf down 14%.

That references some of the competitiveness that we've seen in the financial lines that I spoke earlier, particularly in excess D and O, and actually I'd given you a fact when I first started speaking that I believe I mis-spoke, so let me correct it.

While it's 4% overall, if one excludes Construction, Northland and Gulf, it's actually a 10% increase in the lines.

And so, we feel very good.

We're growing where we should be growing.

We're acting responsibly where we should be acting responsibly, and we feel terrific about the performance of the Travelers Companies.

We feel equally as good about the St. Paul companies, if you turn to page 22.

While the Specialty Commercial we ranked the expression ex-lag.

Those of you remember that we eliminated a one-quarter reporting lag at Lloyd's in the first quarter of 2003, so all of those -- all the numbers need to be adjust for that.

If one excludes the construction business, where we have been acting with tremendous discipline, again, in response to the competitive environment, and the surety business where we have, for the last 6 to 9 months, been in an underwriting reduction profile, and while it says Lloyd's it's actually just the Personal Lines syndicate.

Now, you know that St. Paul has had a Personal Lines syndicate that is not Property Casualty oriented.

It's in a series of Accident and Health Lines.

And the pricing there has not been as firm as we would like it to be so we've been backing off from those lines as well.

Excluding those three lines, actually up 23%, so very strong robust performance.

And to give you just a sense of what have that means underneath, the financial and professional business is up 27%.

Our international businesses are up 36%.

This is revenue now, premiums.

Technology up 14%.

Umbrella up 36.

Oil and gas up 19.

And marine up 35.

So, across the board in our specialty businesses as we feel terrific about the revenue profile and continue to take advantage of a good solid strong marketplace.

Our commercial business up 7%.

I think that compares favorably with what other companies have been reporting.

And generally in line with it.

And so, now you have a feel of a little bit for some of the dynamics underneath it; and again, going to the bottom line, excluding surety construction, and the personal, and the Lloyd's lag, and the Lloyd's syndicates, it's actually up 15% year on year in total.

So we feel terrific.

I would add, by the way, in the the commercial of 7, interesting dynamic, small commercial up 13% in the former St. Paul book and middle market up 5%.

So, the small commercial enterprise that we embarked on, you know, two years ago has really come to fruition.

And it's a good solid franchise, it will add significantly to what the Travelers has.

Now, we talked frequently about the combination of the Specialty and the Commercial businesses and what that does to the franchise.

But there are two other elements that are so important here.

A doubling of the middle market field book.

Travelers middle market field at about a billion eight and St. Paul at a billion eight.

A doubling of that business significant economies of scale to be realized and taking a built -- nearly a billion dollars of small Commercial business and folding that into the Travelers very hefty operations.

So, it a -- it's a -- it really is a terrific revenue profile.

I'm going to ask Doug Elliot to cover Personal Lines 23 and 24, and then we'll close and quickly get to your questions.

Thank you, Jay.

If ya'll flip to 23.

And we've talked about a very strong quarter and, I think, that Personal Lines is an excellent reflection of that.

You get a sense of the top line drivers across 23 and see, really, dependent upon both Product Line and also Distribution Channel, it was an excellent quarter.

I would say a combination of our agency marketing efforts both organic and acquisitive.

It was just a terrific 90 day period.

The royal acquisition is moving along very, very well.

We're well into that process, but also organically, we had a terrific quarter.

If you flip to 24 and look at the separate components both auto and home, you get a sense of some of the numbers, and we've shared the sequential quarter tip numbers over the last couple of quarters with you.

You see now, on the auto side, the PIF growth at 12 consecutive quarters.

They're very strong showing.

The combined ratios across the bottom are in terrific shape with both of these products, and as we've said before, the more product and pricing adequacy we see in these Product Lines the more aggressive we become on the top.

And so, I would characterize the auto quarter is very strong. 8% PIF in the quarter.

The combined ratio is clearly improving.

And we feel terrific about how much improvement we've seen over the last couple of years in automobile.

On the right-side of the page with homeowners, again, a very solid profitability picture and now 7 consecutive quarters on the PIF side with 9% in the current quarter.

So, I would characterize the first quarter as a strong quarter for Personal Lines, and one, we think we can build upon as we move forward in 2004.

Good Doug, thanks.

I just want to make a couple of quick comments before we close and turn to your questions.

First, the talent in this organization is really just remarkable.

I think that one of the things that we did just exceptionally well, was to seek the best of both organizations and when you go out and you travel in the field you just have to love the place.

These are -- these are mature people.

These are people deeply experienced in our business.

They know how to do their jobs.

They are very energized, they've turned their attention to the marketplace, and you travel the field and you just feel terrific about the place.

It's really as good as I think it gets.

I don't think there's anybody from a field perspective who is going to be able to compete with us.

Secondly, our intentions are really very narrow in these -- in this next (fifth) call at 90 to 180 days.

First, we've got to make sure the trains are running on time.

We're putting together two fairly big organizations.

There's a tremendous amount of attention being made to make sure that we do the things we need to do; that the financial reporting comes up correctly; that the underwriting profiles are made consistent; that the underwriting appetites are appropriate in the markets that we're in; that the leadership deals is empowered to make decisions; the basic things that make good companies good companies, I mean, there's a tremendous amount of time and attention that' s being dedicated to making sure that we don't miss.

We're spending time with agents, we're spending time with distributors and we feel very comfortable about their acceptance of the transaction, and I would tell you, that I actually believe that much as the experience in '95-'96 was transforming for (Aetna) and Travelers, I believe that this time, too, will be transforming for the Travelers and for St. Paul.

I think we will have a franchise that will, in fact, set the standard for how companies in our business can perform and how they'll behave.

Two, we made commitments with -- to our shareholders to achieve $350 million of expense savings and we're going to stay incredibly focused on accomplishing that.

We are well on our way and we feel very good, very optimistic about it.

And really, for being a month out-of-the-box, I'm not sure that we could be in a much better place.

And then lastly, while the market is a different market than it was a year-ago it is still a very strong market.

We're writing business at really quite remarkable combined ratios.

This is a good time to gather assets.

We have an opportunity to grow our business and we're going to take our strengths, product, and people, and we're going to take it to the street and we're going to -- and we're going to build our business.

We are not going to do it by cutting price.

We are not going to be price leaders.

We're going to maintain our discipline.

We're going to sell what we sell.

We're going to the sell the franchise, we're going to sell our products, our people, our services, we're going to build on our relationships with the agents, and we will be able to build volume over time by trading on those things.

This is not a strategy of cutting price to gain volume.

We actually think that within this franchise we have the capacity to change the dynamic of the way business is conducted.

We're very optimistic, very excited.

And with that, we'll turn it over to you for your questions.

Thank you.

We will now begin the question-and-answer session.

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One moment, please.

The first question is from Larry Greenberg from Lagan McAlenney.

Please state your question.

Good morning.

Two related questions.

One, have you gotten any sense from your agents that other companies are targeting them and trying to take some of the business away that Travelers and St. Paul had separately?

And then, Jay, you didn't really talk to much about the revenue synergy piece of the combined company.

Can you give us an update on your thinking on that?

Sure.

I'm going to ask Doug and Mike to -- to comment on your first one.

In fact, Doug, you know -- well -- I'll come back to the revenue picture in a moment.

Larry, good morning.

It's Doug.

I'm not sure I would characterize the competition as completely just directed as a Travelers or, I think, there's quite a bit of competition.

We have seen it now several quarters, I think we're all working down our various strategies and we're going to stick to ours.

Clearly the first quarter was a challenging one for us because we were competing as two companies and not as one.

And, I think, both Mike and I were probably the two happiest folks inside this place when April 1 rolled around because now we could pull your heads together, and starting the morning of April 2nd we were one place and working hard across the country to be acting as so.

So, I don't characterize the second quarter, really, any differently than I would say normal course of business right now.

Hey, Larry, it's Mike.

I would just add to what Doug is saying.

Agreeing with that wholeheartedly.

I mean, it -- (totally), you've heard a lot of discussion by others about the market as well.

There is no question that we now have a key relationship position with a lot of agents, and we're spending a lot of time with the distribution talking about the strategies of the go-forward company to talk about actually, you know, expanding on that, because we think we've got the product capacity and the capabilities to do so; and so, now that we're combined we have the real opportunity and the energy and focus of the people to go out and do it, and we're excited about being able to go out and really aggressively push on that versus, as Doug mentions in the first quarter, still quite honestly banging on each other.

So, we're excited about it, the initial feel that we get from the distribution is very positive and very supportive and we're going to build on that as we go forward.

In terms of revenue enhancements I'd make a -- just a couple of observations.

First, in all the meetings we've had with agents there isn't the slightest pick up that we get anywhere across-the-board, that agent -- any agent is concerned about the share of business that they have with us.

It's just -- it's just not a topic for discussion.

In fact, I would tell you it's actually the opposite in the following sense -- this place is now pretty big.

And there are agents who do not insignificant amounts of business with us. 5, 6, $7 million who want to know that they're still important to us.

And, indeed, they are.

And so, I think that we're going to have the opportunity to build on those franchises and to demonstrate to them that they are important to us, and that we're prepared to open the franchise in the fullness of its products to them.

We are probably midway through the process of cross training all of our own folks on these various products.

And St. Paul brought a deep wealth of products and Travelers brought some as well.

And we've got to get our own field force up to speed and knowledgeable about the variety of these products so that the cross-selling initiatives can become more of an anecdotal.

I do want to share with you, though, and Doug shared with me the story yesterday, of an agent involved in the public sector business and -- and again this is purely anecdotal, but it'll give you a sense of what we're seeing in these early days.

Two minutes we had our Agency Counsel Personal Lines meeting at Hartford and, I think, and we had about 18 of our agents around the country, and I went over and spoke to them for a few hours, one of the mornings about a series of topics.

One of those agents grabbed me after the meeting and pulled me aside and had a significant public sector book in a part of the country without a St. Paul contract, and so asked how we could become connected and that was a pretty easy conversation and, Mike, within, you know, a few hours was engaged with that agent and now, I think, we have a relationship that really just started with sitting down and talking and trying to figure out how we do more business together.

I think we'll see more of that, this is just the tip of the iceberg, next week we're going to be with many of our top Personal Lines Agents across the country, off-site for two days working on exactly that puzzle.

And I'm very bullish about what we will be the result of some of those actions.

The other Business Line, Larry, that we've gotten a lot of inquiries on are in the international and global accounts capacity of the St. Paul to respond to the upper end in national accounts business of the Travelers.

St. Paul has a fairly significant well performing international network of companies to write business outside the U.S.

It really was a long developed asset.

Not something that the Travelers actually had and we've gotten significant inquiries in extending the coverage of companies that we write in the U.S. to their non-U.S. locations, so again, I, you know, Bob and I have talked often about this.

One of the interesting things in '95-'96 was that the franchise opportunities that emerged, truthfully, surprised us both.

I don't think going into that transaction, that we fully understood what it was going to mean to line those products up together and to make them available to the agents.

I think here we're in some for positive surprises, and the franchise will carry itself.

So the 100 to 150 after tax you gave for revenue synergies, at the time you announced, do you still feel comfortable with that range?

I'm not prepared to change it officially, and I put quotes around that, but I would tell you that we would be disappointed if it wasn't higher than.

Thanks.

And just one numbers question.

Can you give us what Royal and Sun contributed in terms of premiums to the Commercial and Personal Lines of Travelers in the quarter?

We're looking.

Yeah, we actually -- I don't have the information in terms of the quarter in front of me, but I think in terms of an approximation the Personal Lines writing started for the most part in the first quarter of this year.

You know, the transaction was done in the third quarter and then you need systems and product filings to, you know, get everything up and running.

And in the first quarter we did round numbers about 90 million relating to RSA.

Commercial accounts was an area that we probably did in this quarter about 30, $40 million and most of the national account business, because of the nature of the business, was written very, very early in the process.

So the amount in the first quarter, in terms of premiums, is certainly not a very large number; but in terms of the objective that we had said at the time of the transaction, we're very much in place with what that expectation was for national accounts.

Thanks, very much.

The next question is from Elaine Carolyn from Deutsche Banc.

Please, state your question.

Yes, good morning.

A couple of questions.

First, on -- the return on equity going forward, Jay, the Travelers had a goal of achieving 15 or better, which is the historical ROE that they've achieved.

Going forward, do you have some similar goals for the combined entity?

Before the impact of purchase accounting, first of all, it would meet or exceed that.

There's -- there's -- everything that we've done here points us in the direction of those kinds of levels notwithstanding the increase in the equity.

I think the -- the issue is to whether it's precisely 15 or not, is the impact of purchase accounting and the speed with which we can realize and generate the expense savings to, in effect, offset that.

So, we still have a little bit more work to do in terms of timing of it, but longer term, in any event, those are going to continue to be our financial goals.

Okay.

In terms of the purchase GAAP adjustments for the -- that you showed in the presentation, are these indicative of what we can expect in the next few quarters or any adjustment that we should think of when we're projecting?

Yeah, this is Jay Bennett.

In terms of the, you know, the drivers of those, you know, interest rate movements are primarily the biggest driver as it relates to, you know, both the fair value of the liabilities and the fair value of the assets and then the impact that you'd see on the income statement.

I think, you know, in looking at the way interest rates have moved, I don't -- these are not going to change all that significantly.

However, having said that, I do want to caution that, you know, these are preliminary numbers.

We are in the process of doing a very, very complicated balance sheet review of all the (T)-GAAP adjustments and, you know, I do want to, just, say these are preliminary and, you know, we think directionally they're appropriate.

Okay.

And on the St. Paul only side, you had some -- you had businesses in runoff and you were expecting, I believe, the indication was $40 million in losses or expenses in that.

Is there any update, Jay, on that part of the business, the runoff?

That was the -- the guidance that we gave was $40 million on an after-tax basis for the current year of losses related to the runoff businesses and, in fact, so we actually said ten a quarter.

In the first quarter we were, indeed, below that.

What Jay was speaking about was prior period reserve adjustments, which obviously we don't provide guidance because we don't know, but we did, indeed, fall below the indicated guidance.

Okay.

And, but your indicated guidance wouldn't change today?

Yeah, I think given the size of this company at this point, that whether it's 10 million or 9 million or 8 million, I'm not sure it really matters a whole lot; so, unless something changes significantly we wouldn't propose to update that any further.

Okay, thank you.

Pleasure.

The next question is from (Jay Cohen) from Merrill Lynch.

Please, ask your question.

Sure.

A number of questions.

The reinsurance receivable issue, that adjustment you made to an aggregate stop loss contract, is that, sort of, like a catch up adjustment?

Is that something we should see going forward as well as you further adjust those numbers?

No, you won't see again. (Jose) -- It was a -- I hate to use the phrase, mechanical, but that's the best I can think of.

That was technical, it was mechanical, and it's a one-time change to the recoverable.

You won't see it again.

Okay, and I guess, related to that and the other charges that were taken on the St. Paul side in the quarter, you know, right before a merger, you know, a lot of little items, it feels like, kind of, a cleanup quarter.

Is that how you felt about it?

Did you want to get things just done before the actual merger?

Jay, we closed our books in the ordinary course every single quarter, we take the data that comes at us, we see the actual real information, we process it and we close it, and there wasn't anything different from about the closing of this quarter that was different from the one before it or is going to be different from what we're going to do in the second quarter.

Okay, next question.

The increase in yield since quarter end any sense what the impact on -- in mark to market on the portfolio is?

Again, getting back to the prior question, I think the, you know, the mark to market is going to be, you know, fairly similar to the information that's here in broad terms and the P&L impact of that is not going to vary all that significantly from the guidance that we put in here.

I'm just saying, since quarter end Decem -- March 31st.

I'm sorry.

Rates have gone up.

What's the impact on the total portfolio of the company?

Yeah, it's been -- first of all, we don't really get into what takes place after the quarter.

We only deal with what's here, but, you know, we ended up the quarter with very significant unrealized gains at the Travelers in St. Paul.

And the St. Paul unrealized gain disappears with the T-GAAP, but the Travelers unrealized gain was considerable, I think it was about a billion two or so; and, you know, we 'll just go forward from there.

Okay, two more just real quick questions, I promise.

Book value -- pro forma book value per share ex-FAS 115 for the combined company, do you have that?

We have if with FAS 15, but if you give us a minute we'll just recalculate that.

Okay, while you're doing that, maybe a question for Jay Fishman.

Gulf has always been, sort of, an odd ball within the Travelers organization, maybe it can fit in with the new company, maybe it can't.

Any, sort of, strategic thoughts on Gulf, is it going to stay part of this company?

Nothing compelling.

It obviously fits a whole lot better now.

Many of the lines that Gulf is in are lines of business that Mike runs and is comfortable with; so now it's just sorting out appetite, sorting out underwriting profile, and making sure they're consistent.

One of the things you can't allow in a business like this, is to have an underwriting appetite or profile be different in one unit than it is in another; and ultimately integrating it with how we distribute the product.

Gulf distributes on an open-brokage basis, Mike and Doug both distribute on a, basically, an agent -- on an agent basis.

We've got to make sure that we are not competing with ourselves.

Gulf accesses wholesalers, so, in fact, you can get business coming in from two different distribution channels.

But we have some work to do to make it fit.

But it certainly has a better fit now.

Great, thanks.

And Jay, in terms of your question about the book value ex the [inaudible] FAS 113.

On page 20 of the webcast, we did indicate that the, on a pro forma basis the 1.2 billion is the FAS 15 -- FAS 115 adjustment for St. Paul Travelers, so if you divide that by the number of shares, which is, you know, about 666 million, that's worth about $1.80 so it brings the 31.81 down to about 31.01.

Great, thanks for the answer.

I'm sorry 30.01.

Your next question is from Ron Frank from Smith Barney.

Please, state your question.

Two questions, if I can.

One is just a quick one.

Am I under the wrong impression, and it sounds like I am, that the P-GAAP adjustments got fixed on April 1, based on where rates were at the time?

P-GAAP adjustments are done on the basis of the closing date, which is April 1.

Okay, so what -- so, Jay, then, what are you referring to when you're talking about how those could vary with what rates do, or am I mishearing you?

The information that we've presented in this document and the page reference is going back to page 9, Ron.

Yeah.

This is pro forma information that we filed in our recent 8-K that deals with the merger on a 12/31 -- I'm sorry on a, end of the year 12/31/03 basis and within that kind of a filing for income statement purposes, you actually treat the merger as if it took place on January 1, '03.

So it's based on where interest rates were on Jan 1.

Right, right.

But having gone through these, you know, processes and evaluations on a preliminary basis, [inaudible] it's not going to change significantly from what's here.

Okay, thanks.

More substantively, on the market itself, it just sounds from you and from others that, you know, it's, sort of, it's a firm market but it's a firm market except, and the exceptions seem to be growing.

It's a firm market except for construction.

Except for access D and O, except for our select business where the pricing up 8% but we only grew 4 which implies, at least to me, that the business contracted year-over-year, unless I'm missing something, you know, and that all, it just seems to be building up.

It's almost like how you define a recession.

At what point does it become a self-market?

You know, it's a good question and I ask Mike and Doug to give their impressions, too.

I think when you look largely across the book, essentially you continue to have rate gains.

In fact, in construction there continue to be rate gains.

Rate didn't go down.

Rate actually went up.

It simply wasn't enough and in individual (absent) cases other companies come in very aggressively and cut below renewals.

So, I think we're at the stage of the market where -- where things are -- I can't think of a better expression, but these are, kind of, one offs.

The aberrations, the unusual circumstances.

Having said that, we're clearly in a transitioning marketplace; if you go back 6 months ago, rates were continuing to rise and it was, sort of, a deal of the market that rates were going to continue to rise.

I would tell you that we're going to start to -- we are running our business as though rates are beginning to flatten out.

Now, they're not -- they're a long way from flattening.

If you're up 12% in your Specialty business, that 's still pretty heavy rate gains and we're going to continue to take advantage of those; but it's obvious those rate gains were in the low 20's a year ago, so it is moderating and is beginning to flatten out.

Construction, I think, is an unusual business.

There are a number of new competitors in construction.

It is not difficult to get up and running in that business.

The amount of infrastructure that's required to support it is not substantial, and it's, sort of, an easy specialty in which to engage, and it's also a specialty in which you can lose your shirt.

And if people are choosing to be very aggressive in that business without the requisite knowledge behind it, without the claim and without the risk management profile and they want to do that, God bless, let them go do it.

So, it's -- I think, you know, it's a series of individual stories in the market place and clearly the market is changing.

Soft to me is what we had in the mid 90's, Ron.

Soft to me is when you look at the numbers each month and they're down five, and they're down six, and they're down eight, and loss trends going up four, up five, up six and your margins are actually shrinking rapidly.

Jay, I guess what's behind my question is that it strikes me from memory that the hardening of the market started with a few isolated stories, too.

Yeah, I know, we are clearly in a transitioning one.

You know why, why you and I have actually have talked before about whether the dynamics that -- whether (Sarbanes-Oxley) and the changes in the precision of reserving and such, in fact, will moderate behavior.

If you look at the last few soft cycles, it took awhile.

Rates would begin to decline and companies would generally take advantage of capacity in their balance sheets.

The profitability wouldn't decline as rapidly.

Eventually though, that capacity ran out, companies began showing deteriorating profits or losses, and that would help precipitate the recovery of rates.

There was almost a lag between change in rate and change in profitability.

I actually think, for better or for worse, that this time around there's going to be a closer link between changes in rates and changes in profitability; and in most businesses when that happens, that tends to moderate behavior.

Very few people sell (money and there's no) product at a loss but try to make it up in volume, you know.

And given the tradition of the old Abbott & Costello story, we loss money on every sale we make but we make it up in volume.

This is an industry that historically has had the gap between product pricing and company profitability, and I think, as those become increasingly closer your going to see more moderating behavior.

Jay, it's my interpretation that the Travelers Select business contracted year-over-year correct?

And if so, why did that happen, given that pricing presumably is still pretty healthy there?

Pricing was okay.

I should let Doug answer the question.

I think that -- I don't know, do you want to give an observation or?

I think there are a lot of factors.

I -- I think that the characterization that we were down slightly on organic basis is real.

I think of that competing with St. Paul and the other folks we competed within marketplace for the first 90 days, so it was a little confusing for some of our agents and that was a factor.

Also, we talked in the past, there are several environments across the country from a worker's comp respective guaranteed costs, we are concerned about it.

Two big pivotal ones, right now, that, you know, are in some form of discussion with legislative change, California and New York being at the edge of that, and we're significant players in both marketplaces.

So, we're spending an awful lot of time working through loss trend analysis, we feel terrific about the progress we've made the last several years on the profitability curve and where our pricing adequacy is right now, but we want to be careful about it; and with all that said, we have a lot of product to bring to market and it's a challenging time.

Doug, last follow-up, I promise.

You've been worried about comp for as long as I know to you.

So is it fair to say that the new element was maybe the confusion relating to the merger?

No, I think that comp is still the same state by state basis issue that we've talked about in the past, and that is, there are places in the country where rates are very adequate and we're completing aggressively and it's really business as usual, and then there are a few isolated places where we are very concerned about it, even probably more so than we were 6 months ago, and that's just a factor that we have to deal with on a regional basis, Ron, and are doing so.

Hey, Ron, it's Mike.

The comment I'd make, too, I mean, if you want to talk about how the people in the business think about the -- what's going on in the marketplace, I think you have to look a little bit inside, really a differentiation between the property business, and the property marketplace, and the casualty long tail lines; and in all candor, you've heard people talk about including each of the Travelers and St. Paul the last couple of years that the property business has been in a much better position and because of that it is more competitive, and on the long tail casualty lines the market still continues to get relatively strong price increases but people compare those price increases to what we're getting the last couple of years, which were quite exceptional.

So that -- the mindset is more, it's not what it was a couple of years ago, but it's still, you know, quite acceptable.

Another interesting dynamic here too, and we talk about this a lot, if in fact one believes that over time interest rates will rise from where they are right now, the product actually is being priced at a relatively low yield to the extent you capture the assets and ultimately produce investment returns at higher levels, there is an embedded future profit development here that's quite interesting.

This is really not a time, absent some competitive aberration, this is not a time to hunker down, and we're not.

We're not -- we -- to is extent that it was a difficult market in construction, it's okay; and to the extent it was difficult in excess D and O, that's okay; but it is no at time to hunker down.

Okay, thanks a lot for those answers.

Pleasure.

The next question is from Tom Cholnoky from Goldman Sachs.

Please, state your question.

Good morning.

Two questions, Jay.

I guess, in looking at your top line production, how many quarters are we going to be going through this year, and having to explain top line growth with (but for), which is really to give us some idea of what on a reported basis the combined companies can do in terms of top line growth, you know, as you stated, and then obviously, you're going to have some of these more (but for), and then I have got a follow-up?

Yeah, Tom, I just don't see it at all as (but for).

This is a very broad based multiproduct business where the characteristics of our markets vary one from another, and many of your questions, you and your peers' questions, seem to think that a dollar of premium is the same as a dollar of premium.

In fact, we operate in short and long markets.

We operate in different businesses.

We operate in different competitive dynamics.

The fact of the matter is, is that in some lines of business we're going to have terrific growth and in some lines of business because of competitive dynamics we're going to do the right and responsible and appropriate thing to do and not have aggressive growth.

So, in the context of responding to the questions, I don't see these as (but for).

When I actually saw the numbers, I felt very good.

I saw it and I said, you know what, these are results that show growth in the areas where growth is appropriate and restraint in the areas where restraint is appropriate; so, I just, sort of, reject the characterization.

I guess, what I'm just trying to get at, Jay, is that, you know, as we look at the top line growth for the combined entities, it's highly confusing as to, kind of, determine what kind of growth your might generate, at least, and maybe if you could -- I know you don't like to give guidance, but I mean, are we talking about for this year given all the changes, kind of, mid to high single digit [inaudible] growth.

We won't give any guidance, and the reality is, is that I don't know what the competitive environment is going to be in six months.

I don't know -- I don't know whether it will moderate.

I don't know whether it will become more aggressive, you know.

You know, again, there tends to be and maybe we have to think about our own disclosure and the nature of the information that we provide.

We, obviously, are providing a lot more 12 hours later than we did 12 hours before, in terms of the press release, and maybe we should give some more data.

But there's a tendency in the analytical community to look to the very bottom-line of premiums and a draw conclusion about the robustness of the business; when in fact, it's all about growing profitably.

If rates and prices and loss rends in certain lines support growth we're going to go at it we're going at it hard; and if they don't, we're not going to go at it hard and we're going to be very comfortable retracting.

The Property Casualty industry is a waste land of companies that thought that growing the top line indiscriminately was the smart thing to do, and we just don't do business that way.

So, I'm not sure I can help you much more than this.

We're -- we're -- we literally have 25 separate P&L units inside this business. 25 separate product lines.

And the dynamics for National Property are a whole lot different than they are for Lloyd's Marine business, and it just takes -- it just takes an effort on all of our parts, ours to provide you with the information and yours to digest it so that you can understand that these things don't happen accidentally.

They happened very intentionally.

What happened in this quarter, happened with intention.

Things didn't happen to us.

We caused them to happen.

And that's the best way I know how to answer it.

That's fair.

Just one other follow-up.

Can you speak to us about the renewal retention ratio trends in the first quarter for both St. Paul and Travelers, because, I guess, that information is no longer available, just to get a feeling of how of the businesses that you wanted to keep, of whether there was any, kind of, disruption due to the merger and perhaps was there any [inaudible] and in the renewal retention ratios?

No, I would say that they were generally flat.

One or two lines where it was down, literally, kind of, a smij (sic), but no dramatic change in the retentions.

The St. Paul companies generally up in the -- in the, sort of, mid to high 70's.

The Travelers companies in the round numbers 80 -- 80 to low 80's kind of range.

And no, it really -- there's been no dramatic change.

In fact, not even dramatic.

There's been no substantial change in the retention levels.

Okay.

Is that the information that you're no longer going to provide on a quarterly basis?

We're not going to provide it by Product Lline because, candidly, it's competitively important information.

One of the things I used to look forward to was getting a hold of the Travelers statistically supplement to figure out what their underwriting profile was in various areas, so we're going to try and not to make it as easy on some of the competition.

We'll figure out -- maybe we can do it across the business as a whole, because, I think that -- that really isn't competitively significant; but once you get down to individual Product Lines you're actually asking us, you know, if you were Colgate, Palmolive, you'd be asking us what's your pricing strategy for toothpaste in the midwest and they'd say, are you crazy, we're not going to tell you that.

So, it's a -- so, we'll have to just figure it out and perhaps we can do a little bit better job of it.

Okay, great, thank you.

Pleasure.

The next question is from Michael Lewis from UBS Warburg.

Please, go ahead.

Good morning.

And lots of luck, Jay.

Two quick questions.

One is just a numbers question.

With interest rates going down and St. Paul's yield on their portfolio going down, how did Travelers go up 70 basis points in the first quarter?

The second question has to do with, again, cleanliness of numbers in the quarter.

I understand, Jay, you basically, you know, look at the results quarter by quarter and as things fall out they fall out.

Being a skeptic, I could say that the St. Paul's first quarter was a throw away quarter, no one's ever going to see it again.

You know, what you see here will be forgotten.

Again, I guess it was the number of small items that keep hitting and impacting the company.

Whether it's charge off or reserve strengthening.

I guess, what the investor is saying in the stock today is, is there ever going to be an end to this or is anything going to break favorably.

And maybe you can address that, you went through a fourth quarter, you had auditors look at everything, and then getting, you know, nickeled and dimed to death, isn't appreciated by investors.

No, it actually isn't appreciated by the management either.

But you got no choice.

The numbers come up, and I do think that there is -- first of all, there isn't anything again that we did in the first quarter, that we wouldn't have done if we were completely stand alone.

We were stand alone company, and ultimately were going to certify to the results.

We closed our books, as we closed in any other time and we're going to close them in the second quarter just the same way.

And I want to be clear about that.

I didn't consider it a throw-away quarter.

I didn't consider it a clean-up quarter.

I closed the books with as much discipline and attention to the detail as we always do.

I do think that there is value in some of these things in size.

One of the things that we've talked about in terms of the merger, is that if you've got a company that's making on a pro forma basis 750, $800 million in the quarter that there will be lines that go up.

There will be lines that go down, but hopefully you've achieved a level of diversity in those Product Lines, where the result comes out better than it would for either alone.

I -- you now, all of us I'm not sure this is true.

I will tell you that I have struggled a little bit in the new arena, in the new level of precision.

I constantly try every quarter to do the right thing.

I want the way the books are closed to stand on their own and to have the record be solid and be subject to examination by anybody and to have no questions about it.

So, that's how we go about it.

I do think that there is value in size.

And again, you saw it even in the Travelers numbers.

There were -- there was positive development in certain lines, there was negative development in some others.

And it's -- one of the challenges for us is that we're making actuarial projections of what the loss costs are; and ultimately, some are going to be right and some are going to be wrong.

You what you hope on the whole, is that you've got a conservative philosophy and that the positives over time outweigh the negatives.

I believe that that's a mentality that we tried to generate at the St. Paul.

I know it's a mentality that exists at the Travelers.

I was there for ten years as a part of the program.

So, I think over time, that these things will become less troublesome.

I believe that, that over time they will become less troublesome.

Well, just before we get into the, you know, the rising of your yields on our portfolio, you've been basically in charge of St. Paul, I guess almost three years at this point -- you've been in a runoff mode for almost three years, I mean, again, time is time but after a certain amount of time one puts in an element of conservatism and tries to get an issue behind them.

And I guess what's a little discerning is not the 20 million here and there in each item, the fact that it keeps coming three years after you, you know, had an extensive time to look at it and one would hope that it would be put to bed.

I mean, that's my only comment on that and my other question has to be with the increase in the yield in the portfolio.

No, first of all, don't even make a point.

I accept your observation.

I am making no excuses here about it.

We try our best every quarter to close the books with as much information as we have.

And neither to understate nor over overstate.

It's-- it's just as problematic to take an exceptionally conservative view as it is to take an unreasonably aggressive view.

You've got to take it as your best view, best managements, best estimates, and that's what we try and do.

So, but I accept your comment and observation.

I'm -- I'm -- I share your observation that it's been a long time.

Hey, Mike, this is Jay Benet.

Going back to page 12 of the webcast.

And we did break out the rather large item, the equity income from one of the private equity partnerships that we got this quarter is the primary driver of the increase in net investment income, and that was a real driver of the 4.9% yield in this particular quarter.

We've given you enough information where, if you do the math you can back that out and see that the after-tax yield was without that probably around 4%, which was consistent with the other quarters; and, of course, the after-tax yield isn't going to be impacted greatly by short-term movements in interest rates.

Thank you, very much.

Operator we've time to take two more calls if that's all right.

Thank you, the next question is from Charles Gates from Credit Suisse First Boston.

Please, state your question.

Hi, good morning.

My first question, what was the pro forma goodwill in April 1?

Charlie, we are in the process of doing the P-GAAP adjustments at this point, and the goodwill is going to be driven by a great deal -- a great deal of analysis at this point, so it's not something that we're ready to disclose.

My second question, have you identified when you will have the next, what you call, I believe, ground up analysis of your asbestos liability?

That's something that we do every year.

You know, we did a ground up analysis as we told you about in great length in the fourth quarter of '02, and it is something that is just been ongoing analysis that's been completed annually.

We completed the same sort of thing in '03 and, you know, we're already in the process of doing the 04 one, so for Travelers this has been a long-standing, you know, process that's been done annually since, I think, in the 80's or early 90's; and, you know, we'll be doing the same thing for, you know, the combined book of business.

And therefore perhaps reporting the results of that analysis when you report fourth quarter results?

Well it will be completed in the fourth quarter.

Certainly, as we know things during the year, you know, we don't wait until, you know, a later quarter to act.

But, you know, traditionally what we do is we complete it in the fourth quarter.

My third and my final question.

Seemingly, a lot of Jays remarks were a mirror image of what he presented or very, very similar to what he presented back March, April of 1996.

If he could briefly compare and contrast this exercise versus last.

A great question.

First, I think the opportunity is -- is broader and -- and more robust here, in fact, than it was then.

Back in '95-'96 Travelers was the 11th largest and (Aetna) that was the 10th largest.

We're starting from a tremendous position of strength, both companies have, and in fact, you turn around and you create an unparalleled product breadth, and I think, what's so important to understand is that anybody can write product, anybody can issue a piece of paper that has a promise on it; but what stands behind the promise to produce attractive returns is the quality of underwriting, the quality of risk control, the quality of claims management.

And ultimately, the people skills that exist in this business are unequalled.

I'd say it when I opened, I think that -- When we put Travelers and (Aetna) together, I would tell you that it was good, but I will also tell you that this is great.

The quality of the people in this organization to back up the breadth of that product offering is just remarkable.

The ability to take the St. Paul products and put them on to the Traveler system and platform, that's a platform that's 12 (inaudible), and it is truly the industry envy and when before this transaction might have given my eye -- eye, tooth for that platform.

It was truly -- it is remarkable.

It's efficient.

It's productive.

Everything from collecting premiums, collecting receivables to recording earned premiums, to getting audit adjustments done.

The, you know, the business is a complex business.

And to be able to leverage that platform from a St. Paul perspective is just an unequalled opportunity.

I think, though, perhaps the thing that excites me most is in the dialogue with the agents and the distributors because many of you asked, do you have hog shares, do you have too much of an agent's business?

We've since learned, obviously, because now that we can share date, that the largest share of an agent that we have of any consequence, any significant agent is about 20%.

And frankly, they're not concerned about it.

They're relaxed.

They're not doing anything about their business.

They're not taking any action.

They feel very comfortable and it is remarkable how many calls we have gotten from agents with 7, 8, $9 million of business with us, we simply want to make sure that they're still important to us, that they're still going to get attention, and they want to know that we still love them, and we do.

And I think the opportunity here to change in some part, the traditional adversarial dynamic between markets and distributors, I think the opportunity actually exists here to make a difference.

I think ultimately, it can be about helping each other build each other's businesses profitably as opposed to trading on the margin for a point or two of rate either way up or down.

To have an agent support, when you're important to them is critical, and we're going to do everything we can to earn that trust and support; but I will also tell you that having an appointment from this franchise at the agent level is critical for their success.

I'm not sure you'd want to be an agent trying to compete in the big leagues and not have the support of the St. Paul Travelers behind you.

It would not be an easy thing to do.

And that's a different -- it's a different dynamic, I think, than has been in place before.

It's not that they couldn't get it placed with other carriers, of course they can, but in fact, the ability to have this franchise standing behind you with all the strength makes the agents better businessmen.

That's what really -- which we're going to do.

Our commitment here is to make agents and distributors better business people to deliver better products, better priced products.

More responsive to their customers.

We're going to help them build their business and it rocks.

It really does.

Thank you.

The last question from today comes from Bill Wilts from Morgan Stanley.

Please, state your question.

Hi, good morning.

A question for Doug, I suspect.

I'm wondering if you could talk about, I'm thinking of personal auto, wondering if you could talk about the companies pricing and growth strategy there.

With the combined ratio in the mid 90's, and if I'd take back some of the favorable development, I think that puts it up in the higher 90's and that would seemingly give -- give Travelers or then some competitors.

Can you repeat the last part of that?

I missed part of that sentence.

Sure, I was thinking if you -- if you start off with the combined ratio in the mid 90's as reported and take back the favorable developments, I suspect is attributable to personal auto, seeing that that puts the combined ratio in the higher 90's and compared to competitors in the low 90's and even low than that --

Okay.

Is less room to maneuver.

Okay.

Let's start with the first point.

The redundancy that came through the prior year Personal Lines [inaudible] was primarily almost exclusively homeowners, and so, I think on page 24 the graph we shared you, with the combined ratios auto and home split, give you a 10th of that.

Those are the calendar year numbers, but the calendar year is a pretty good reflection of the [inaudible] year, in terms of Personal Lines Auto.

So we're feeling much better than we were several years ago, and mid 90's we still have a little bit of work to be done, but we clearly have turned up our aggressive appetite.

The second part of that question, kind of, deals with underwriting tools and strategies from a marketing perspective in terms of how we're trying to ramp up growth.

I think there are several fronts.

One is, we're trying to provide easier tools for agents to access this online.

Number two, we've worked hard and talked about our spectrum product, which is much more a multi-tiered mid 18 to 20 pricing track product that now is moving out in an integration process across the country.

In fact, we've got in over 15 of the states as we speak today, and that'll be moving over the next 12 months in a more aggressive manner.

So there are a number of ways we're attracting the marketplace, but obviously, doing it in a much more bold fashion today given the combined ratios than the mid 90's.

Very good.

Thank you.

All right, folks, well thank you very, very much.

We, again, appreciate your attention.

We apologize for some of the complexity of the data but the numbers will come together in the next quarter, so it will be easier to understand, they'll clarify themselves, and we appreciate your attention.

Again, thanks.

Thank you, ladies and gentlemen.

This concludes today's teleconference.

Thank you for participating, you may now disconnect.