On its own: travelers CEO Robert I. Lipp describes the company's new life, now that it has separated from Citigroup. (Companies).

On March 22, Travelers Property Casualty Corp. re-emerged as a public company through the largest initial public stock offering ever in the insurance industry. The debut of Travelers Property Casualty on Wall Street brought in net proceeds of $4.1 billion.

Citigroup plans to distribute all but 9.9% of its 77% share of Travelers stock to Citigroup shareholders before the end of 2002 and to divest the remaining holding within five years.

Before the IPO, Citigroup asked Robert I. Lipp to return to Travelers as its chairman and chief executive officer, a post he held from 1993 to 1998. Lipp led Travelers' turnaround and integration with Aetna's property and casualty business in the 1990s.

During a wide-ranging interview with Best's Review, Lipp talked about Travelers' strategy, its goals as a public company and the underwriting challenges it faces in the wake of Sept. 11.

Q. What do you see as the biggest challenges over the next year?

Now that we're public, the challenges are probably not that different from anyone else in the industry. We have all the normal external challenges--whether it's asbestos or terrorism--and we have those that are specific to the company, and these are positives: further distinguishing the company in operational excellence, growing the company and refining the areas that we are most interested in.

I would think that our real emphasis--our opportunities--is to write business, and do it well. In the medium and long term, it's the ability to stay true to our core principle of disciplined underwriting. To do that, we must ensure that all of us, including our underwriters in the field, have the right information. This allows us to know what business to underwrite and at what price and at what coverage terms. Those are the things that will ultimately determine how successful we will be.

That's the big picture: not only coping with the environment but also trying to continue the trend and the history of Travelers Property Casualty, which is built on very good underwriters, very good management information systems, good people and good claims handling. Continuing on this path will allow us to distinguish ourselves now as an independent company. As part of Citigroup, we had less visibility, certainly with the investing public. In the next year or two, we have an opportunity to produce the results and gain recognition for our performance.

Q. On the premium side, about 58% of your business is commercial and 42% is personal lines. Do you expect to maintain that mix?

We don't have a specific goal for our mix of businesses. We like both commercial and personal lines. It's difficult to predict what the percentage breakdown will be in the future. That would be based on our growth opportunities and potential acquisition opportunities in the longer term. We think we have a very good position in each, especially with independent agents, where we are the second largest by premium and, according to a survey by Goldman Sachs last year, we are the top preference of independent agents in both personal and commercial lines. In sum, we like both businesses, and we'd like to see them both grow.

Q . Certainly, State Farm is a competitor in personal lines. What do you think of the year that State Farm has been having, and what does it mean to nonmutual competitors like your company?

Historically, the conventional wisdom has been that mutual companies are less responsive to the bottom line than publicly traded companies, which are under pressure to produce appropriate results on a quarterly basis. But the mutual companies are becoming much more responsive to the same issues. Whether it's a commercial, personal or life company, I think they're more conscious of the bottom line, which is evident in their becoming more rational in the way they do business. I think the mutuals-vs.-public-companies issue is fading.

Q. Citigroup recently announced a proposed purchase of Golden State Bancorp--the fourth-largest bank in California. How is Citigroup cross-selling Travelers' Property Casualty products? Is Travelers also trying to cross-sell Citi products?

Interestingly enough, when Travelers Group merged with Citicorp to form Citigroup in 1998, there were several cross-selling opportunities that turned out to have been quite significant. Probably the most significant one has been the cross-selling of the products of Travelers Life & Annuity, which is still part of Citigroup. Cross-selling has been less of a factor in the property/casualty business. We have had some cross-selling on the commercial side because Citigroup has a relationship with major companies, especially major global companies. In personal lines, we continue to sell to the credit-card holders, and we will look for other opportunities. But in terms of the ongoing business of Travelers Property Casualty today, we have $10 billion in annual premiums; so the cross-selling efforts with Citigroup are actually quite small.

Q. Is Travelers' future success tied at all to Citigroup's?

I'd like to be able to say "yes," because they've been so successful. But the answer is, it's now entirely up to us.

Q. Travelers had a big exposure to the PPG asbestos settlement. Experts say that the next wave of lawsuits will shift to companies that used asbestos in their products rather than those that manufactured it. Could that also have an impact on Travelers down the road?

It's a trend that's had an impact on the whole industry. Some three dozen carriers are involved in this one case alone. Pittsburgh Corning, which is 50% owned by PPG, was one of the major manufacturers of asbestos, and because Pittsburgh Corning is in bankruptcy, this case offers an opportunity to settle all existing and future claims. Certainly, a lot of the claims and legal issues extend beyond the original manufacturers, and these have been around for a while. We have an excellent organization within our company called the Special Liability Group, which handles environmental, asbestos and other issues that require specialized expertise. They have a well-deserved reputation for effectively dealing with these issues.

We also have significant resources set aside to deal with this exposure: approximately $800 million in reserves and an indemnity agreement with Citigroup that can provide up to an additional $800 million, reduced by related tax benefits. The future direction of the issue is hard to predict, but asbestos is an industrywide issue that needs to be re-examined by the courts and addressed by Congress. Even the trial bar is split over how the courts are handling the issue and how it's affecting those who've been truly harmed by asbestos.

Q. Several major pieces of commercial real estate have recently had trouble finding insurance. How much business is Travelers turning down these days and how much have commercial rates escalated?

There's no question it's a new world for property underwriting since Sept. 11. Before this point, no one had really thought about this kind of exposure from terrorism for prime real estate areas. Today, we're more selective in our underwriting and, of course, prices have gone up because everyone realizes the risks after the World Trade Center disaster. I would say we're probably not that different from anyone else. But the issue goes beyond property. Workers' compensation is another product line that is of significant concern. A lot of the losses in the World Trade Center disaster came through workers' comp. Now we, as a nation, face the prospect of terrorists using nuclear, biological and chemical weapons. And where, by law, you cannot exclude workers' comp coverage, you must take large concentrations of people into account when evaluating a commercial account. Clearly, there's a real need for government assistance.

Q. A recent equity analyst report called Travelers "an industry leader in credit scoring." What does that mean, and how do you think the company might be impacted by the recent wave of state legislation limiting insurers' use of credit-based insurance scoring?

It's an evolving issue, but I don't think the impact on us will be significant. Our ability to use credit scoring actually has been very beneficial for consumers because we can do better underwriting and provide cheaper prices for the majority of our customers. At the same time, we understand from a consumer point of view the concerns about the use of credit information and the possible issues relating to them. We will obviously work within the context of the laws and regulations in each state.

From a legislative standpoint, if there are industry abuses that come up through the use of insurance scores, rather than throwing the whole thing out, our hope is the industry will modify or reduce anything that is seen as a problem. In fact, over 60% of our customers receive lower rates as a result of insurance scoring.

Q. The same report said Travelers' executives "think like owners"-- in other words, management is offered large stock-option and bonus incentives. How important is that philosophy at Travelers?

It's very important because our incentive plans extend to field-office level. But let's back up for a moment and put the incentive plans into context. Our goal is to create an environment where everyone--throughout the organization--is encouraged to think more like owners than employees. To do this, we've created performance-measurement systems that allow business managers, down to the local unit level, to be evaluated on their own controllable results. This system allows everyone to be evaluated--and compensated--for their results, not whether they make good presentations or write eloquent memos.

Q . What is it like for you to come back to Travelers as CEO?

It's fun in the sense that I knew the company well and I know the people. I also like the business very much. It's certainly an intellectually stimulating business. To be an underwriter in the property/casualty business, or a claims person or an actuary--it's mentally stretching. You can pick up any newspaper, and it either has a direct impact on risk or at least starts to key some thoughts about what potential risks there might be. I like the intellectual piece of the business.