Travelers Generates $3.88 Billion in Largest Insurance Industry IPO

Travelers Property Casualty Corp.’s shares notched solid gains in Friday’s trading debut, bucking the market’s down trend, after the Citigroup Inc. unit generated $3.88 billion in the biggest U.S. initial public offering this year and the biggest insurance industry IPO ever.

Travelers, which trades under the ticker symbol TAP/A, climbed $1.06 to close at $19.56 on the New York Stock Exchange. With trading volume of 86.2 million shares, it was by far the Big Board’s most active issue.

Shares of financial services giant Citigroup, which plans to keep a 9.9% stake in Travelers and spin off the rest to its shareholders by year’s end, rose 24 cents to $49.84, also on the NYSE.

Although demand for IPOs has slumped with the stock market since 2000, jumbo spinoff deals have been a bright spot. Nestle’s eye-care unit, Alcon, raised $2.3 billion in an initial stock offering Wednesday. Alcon, which went public at $33 a share, closed at $34.75 on Friday, up 75 cents.

Analysts said the Travelers deal, which values the insurer at about $18.5 billion, met with solid demand in part because investors expect insurers’ shares and earnings to get a boost from price increases put in place after the Sept. 11 terrorist attacks.

Just as important, Travelers’ position as an industry leader and its focus on cost controls also attracted buyers, investors said.

Travelers has “great management and a great track record at a time when the insurance industry is benefiting from a surge in pricing,” Tom Davis, an analyst at Loomis Sayles & Co., told Bloomberg News. The IPO price, near the upper end of the expected $16-to-$19 range, was almost twice Travelers’ book value of $9.90 a share, a valuation in line with rivals such as Chubb Corp. and St. Paul Cos. The IPO makes Travelers the second-biggest property casualty insurer by market value, behind Allstate Corp.

Travelers raised an additional $850 million by issuing convertible bonds due in 2023.

The insurance industry has been a lucrative source of underwriting business for Wall Street, which arranged only 90 U.S. IPOs last year--the fewest in more than a decade and less than a quarter of the number in 2000.

Prudential Financial Inc., the second-biggest U.S. insurer, raised $3 billion in an IPO in December. Principal Financial Group Inc. raised $1.9 billion in October.

Other major deals could be in store: General Electric Co., for example, is considering selling a 20% stake of its reinsurance unit, Employers Reinsurance Corp.