accounting diffrences
leverage than at anytime in their history. They reduced debt to 35% of equity from 40% of equity, achieved primarily through the sale of their stake in Commonwealth title. Duffs and Phelps and Standard and Poor raised Reliance Group's senior debt ratings. (These ratings were short lived as they were downgraded in the third quarter of 1999). - Insider information. The management of Reliance Group was hoping that A.M. Best, a key insurance industry rating agency, would raise Reliance's rating from A- (excellent) to A (superior) in response to the 1998 results. This did not happen much to the disappointment of senior management. This rating increase has been a goal of Reliance Group for several years. Outlook Property and Casualty market will continue to be challenging but the management notes some signs of a hardening in the market. Reliance plans to continue to differentiate themselves through disciplined, selected, and sophisticated underwriting and offering outstanding service. Travelers Property Casualty Corp. 1998 Annual Report Letter to the Shareholders by Jay Fishman, President and Chief Executive Officer Revenues and earnings in 1998 achieved all time highs with operating earnings increasing 11% on revenue increase of 5%. This is before an adjustment for FAS 115 (I need to find out what this was). Strategy is to build Travelers as an efficient low cost provider. Commercial lines had an 11% increase in operating profits. Personal lines had sufficient price increases to invest in the capital necessary to grow aggressively. Strategies Applied - Create a culture that recognizes the importance of efficient, low cost provider of high quality products and services. Reduced operating expenses $300m since the company's inception in 1996. - Achieve earnings growth while maintaining balance sheet strength. - Reduction in exposure to areas with high catastrophic exposure. - Substantially resolve major portion of outstanding environmental Claims. (These claims are related to Asbestos and other environmental claims on policies written 20 + years ago. Policies written in last 20 years include and Environmental exclusion. At the time these policies were written, no person realized the long-term detrimental effects of what were, at the time, not known to be hazardous materials. Almost all old-line property and casualty companies have had to recognize their exposure to these types of claims.) -Successfully develop new distribution channels for personal lines products. Key Rating Upgrade In December of 1998, the A.M. Best Company upgrades Travelers to A+. A++ is the highest possible rating. As a result, Travelers is now well positioned to take advantage of what we see as significant changes taking place in today's Property and Casualty industry. Capitalizing on Market trends Personal lines agents are generally attempting to consolidate their writings to one or two companies within each agency. Due to favorable pricing, Travelers was able to invest in book transfers where an agent moves their entire book of business from another carrier to travelers. This helped to provide a 13.5% increase in revenue for personal lines to $3.5 billion. Commercial lines revenue was flat despite 4-5% decreases [next page]