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Section 1: 10-Q (10-Q)

Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017

 

or

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to              

 


 

Commission file number: 001-10898

 


 

The Travelers Companies, Inc.

(Exact name of registrant as specified in its charter)

 


 

Minnesota

 

41-0518860

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

485 Lexington Avenue

New York, NY 10017

(Address of principal executive offices) (Zip Code)

 

(917) 778-6000

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes x    No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

x

Accelerated filer

o

 

 

 

 

Non-accelerated filer

o

Smaller reporting company

o

(Do not check if a smaller reporting company)

 

 

 

 

Emerging growth company

o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes o    No x

 

The number of shares of the Registrant’s Common Stock, without par value, outstanding at April 17, 2017 was 279,415,829.

 

 

 



Table of Contents

 

The Travelers Companies, Inc.

 

Quarterly Report on Form 10-Q

 

For Quarterly Period Ended March 31, 2017

 


 

TABLE OF CONTENTS

 

 

 

Page

 

Part I — Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Consolidated Statement of Income (Unaudited) — Three Months Ended March 31, 2017 and 2016

3

 

 

 

 

Consolidated Statement of Comprehensive Income (Unaudited) — Three Months Ended March 31, 2017 and 2016

4

 

 

 

 

Consolidated Balance Sheet — March 31, 2017 (Unaudited) and December 31, 2016

5

 

 

 

 

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Three Months Ended March 31, 2017 and 2016

6

 

 

 

 

Consolidated Statement of Cash Flows (Unaudited) — Three Months Ended March 31, 2017 and 2016

7

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

63

 

 

 

Item 4.

Controls and Procedures

63

 

 

 

 

Part II — Other Information

 

 

 

 

Item 1.

Legal Proceedings

64

 

 

 

Item 1A.

Risk Factors

64

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

Item 5.

Other Information

65

 

 

 

Item 6.

Exhibits

65

 

 

 

 

SIGNATURES

66

 

 

 

 

EXHIBIT INDEX

67

 

2



Table of Contents

 

PART 1 — FINANCIAL INFORMATION

 

Item 1.  FINANCIAL STATEMENTS

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

(in millions, except per share amounts)

 

For the three months ended March 31,

 

2017

 

2016

 

Revenues

 

 

 

 

 

Premiums

 

$

6,183

 

$

5,981

 

Net investment income

 

610

 

544

 

Fee income

 

113

 

117

 

Net realized investment gains (losses) (1)

 

5

 

(9

)

Other revenues

 

31

 

53

 

 

 

 

 

 

 

Total revenues

 

6,942

 

6,686

 

 

 

 

 

 

 

Claims and expenses

 

 

 

 

 

Claims and claim adjustment expenses

 

4,094

 

3,712

 

Amortization of deferred acquisition costs

 

1,003

 

971

 

General and administrative expenses

 

996

 

995

 

Interest expense

 

89

 

91

 

 

 

 

 

 

 

Total claims and expenses

 

6,182

 

5,769

 

 

 

 

 

 

 

Income before income taxes

 

760

 

917

 

Income tax expense

 

143

 

226

 

 

 

 

 

 

 

Net income

 

$

617

 

$

691

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

Basic

 

$

2.19

 

$

2.33

 

 

 

 

 

 

 

Diluted

 

$

2.17

 

$

2.30

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

Basic

 

279.7

 

294.2

 

 

 

 

 

 

 

Diluted

 

282.4

 

297.9

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.67

 

$

0.61

 

 


(1)  Total other-than-temporary impairment (OTTI) losses were $(1) million and $(28) million for the three months ended March 31, 2017 and 2016, respectively.  Of total OTTI, credit losses of $(2) million and $(18) million for the three months ended March 31, 2017 and 2016, respectively, were recognized in net realized investment gains (losses).  In addition, unrealized gains (losses) from other changes in total OTTI of $1 million and $(10) million for the three months ended March 31, 2017 and 2016, respectively, were recognized in other comprehensive income as part of changes in net unrealized gains on investment securities having credit losses recognized in the consolidated statement of income.

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

(in millions)

 

For the three months ended March 31,

 

2017

 

2016

 

 

 

 

 

 

 

Net income

 

$

617

 

$

691

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

Changes in net unrealized gains on investment securities:

 

 

 

 

 

Having no credit losses recognized in the consolidated statement of income

 

144

 

714

 

Having credit losses recognized in the consolidated statement of income

 

 

5

 

Net changes in benefit plan assets and obligations

 

17

 

16

 

Net changes in unrealized foreign currency translation

 

41

 

103

 

 

 

 

 

 

 

Other comprehensive income before income taxes

 

202

 

838

 

Income tax expense

 

62

 

267

 

 

 

 

 

 

 

Other comprehensive income, net of taxes

 

140

 

571

 

 

 

 

 

 

 

Comprehensive income

 

$

757

 

$

1,262

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

 

 

 

March 31, 
2017

 

December  31, 
2016

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost $60,269 and $59,650)

 

$

61,268

 

$

60,515

 

Equity securities, available for sale, at fair value (cost $512 and $504)

 

751

 

732

 

Real estate investments

 

926

 

928

 

Short-term securities

 

4,817

 

4,865

 

Other investments

 

3,495

 

3,448

 

 

 

 

 

 

 

Total investments

 

71,257

 

70,488

 

 

 

 

 

 

 

Cash

 

249

 

307

 

Investment income accrued

 

575

 

630

 

Premiums receivable

 

7,012

 

6,722

 

Reinsurance recoverables

 

8,199

 

8,287

 

Ceded unearned premiums

 

745

 

589

 

Deferred acquisition costs

 

1,987

 

1,923

 

Deferred taxes

 

261

 

465

 

Contractholder receivables

 

4,668

 

4,609

 

Goodwill

 

3,584

 

3,580

 

Other intangible assets

 

266

 

268

 

Other assets

 

2,443

 

2,377

 

 

 

 

 

 

 

Total assets

 

$

101,246

 

$

100,245

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Claims and claim adjustment expense reserves

 

$

48,320

 

$

47,949

 

Unearned premium reserves

 

12,814

 

12,329

 

Contractholder payables

 

4,668

 

4,609

 

Payables for reinsurance premiums

 

429

 

273

 

Debt

 

6,438

 

6,437

 

Other liabilities

 

4,965

 

5,427

 

 

 

 

 

 

 

Total liabilities

 

77,634

 

77,024

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock (1,750.0 shares authorized; 279.4 and 279.6 shares issued and outstanding)

 

22,724

 

22,614

 

Retained earnings

 

32,623

 

32,196

 

Accumulated other comprehensive loss

 

(615

)

(755

)

Treasury stock, at cost (491.9 and 489.5 shares)

 

(31,120

)

(30,834

)

 

 

 

 

 

 

Total shareholders’ equity

 

23,612

 

23,221

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

101,246

 

$

100,245

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)

 

For the three months ended March 31,

 

2017

 

2016

 

Common stock

 

 

 

 

 

Balance, beginning of year

 

$

22,614

 

$

22,172

 

Employee share-based compensation

 

68

 

47

 

Compensation amortization under share-based plans and other changes

 

42

 

50

 

 

 

 

 

 

 

Balance, end of period

 

22,724

 

22,269

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

Balance, beginning of year

 

32,196

 

29,945

 

Net income

 

617

 

691

 

Dividends

 

(190

)

(181

)

Other

 

 

(1

)

 

 

 

 

 

 

Balance, end of period

 

32,623

 

30,454

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss), net of tax

 

 

 

 

 

Balance, beginning of year

 

(755

)

(157

)

Other comprehensive income

 

140

 

571

 

 

 

 

 

 

 

Balance, end of period

 

(615

)

414

 

 

 

 

 

 

 

Treasury stock (at cost)

 

 

 

 

 

Balance, beginning of year

 

(30,834

)

(28,362

)

Treasury stock acquired — share repurchase authorization

 

(225

)

(550

)

Net shares acquired related to employee share-based compensation plans

 

(61

)

(59

)

 

 

 

 

 

 

Balance, end of period

 

(31,120

)

(28,971

)

 

 

 

 

 

 

Total shareholders’ equity

 

$

23,612

 

$

24,166

 

 

 

 

 

 

 

Common shares outstanding

 

 

 

 

 

Balance, beginning of year

 

279.6

 

295.9

 

Treasury stock acquired — share repurchase authorization

 

(1.9

)

(5.1

)

Net shares issued under employee share-based compensation plans

 

1.7

 

1.6

 

 

 

 

 

 

 

Balance, end of period

 

279.4

 

292.4

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

6



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(in millions)

 

For the three months ended March 31,

 

2017

 

2016

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

617

 

$

691

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Net realized investment (gains) losses

 

(5

)

9

 

Depreciation and amortization

 

211

 

213

 

Deferred federal income tax expense

 

151

 

105

 

Amortization of deferred acquisition costs

 

1,003

 

971

 

Equity in income from other investments

 

(109

)

(17

)

Premiums receivable

 

(286

)

(393

)

Reinsurance recoverables

 

94

 

126

 

Deferred acquisition costs

 

(1,065

)

(1,014

)

Claims and claim adjustment expense reserves

 

334

 

226

 

Unearned premium reserves

 

475

 

328

 

Other

 

(645

)

(395

)

 

 

 

 

 

 

Net cash provided by operating activities

 

775

 

850

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from maturities of fixed maturities

 

2,218

 

1,748

 

Proceeds from sales of investments:

 

 

 

 

 

Fixed maturities

 

188

 

421

 

Equity securities

 

21

 

14

 

Real estate investments

 

11

 

69

 

Other investments

 

195

 

186

 

Purchases of investments:

 

 

 

 

 

Fixed maturities

 

(3,056

)

(2,700

)

Equity securities

 

(22

)

(12

)

Real estate investments

 

(16

)

(7

)

Other investments

 

(124

)

(162

)

Net sales of short-term securities

 

49

 

85

 

Securities transactions in course of settlement

 

157

 

291

 

Other

 

(63

)

(79

)

 

 

 

 

 

 

Net cash used in investing activities

 

(442

)

(146

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Treasury stock acquired — share repurchase authorization

 

(225

)

(550

)

Treasury stock acquired — net employee share-based compensation

 

(61

)

(59

)

Dividends paid to shareholders

 

(190

)

(180

)

Issuance of common stock — employee share options

 

83

 

64

 

 

 

 

 

 

 

Net cash used in financing activities

 

(393

)

(725

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

2

 

2

 

 

 

 

 

 

 

Net decrease in cash

 

(58

)

(19

)

Cash at beginning of year

 

307

 

380

 

 

 

 

 

 

 

Cash at end of period

 

$

249

 

$

361

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Income taxes paid

 

$

2

 

$

63

 

Interest paid

 

$

43

 

$

42

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

7



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

Basis of Presentation

 

The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited.  In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  All material intercompany transactions and balances have been eliminated.  The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the Company’s 2016 Annual Report).

 

The preparation of the interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements and the reported amounts of revenues and claims and expenses during the reporting period.  Actual results could differ from those estimates.

 

On March 13, 2017, the Company announced an agreement to acquire Simply Business from Aquiline Capital Partners LLC for total consideration of approximately $490 million, which includes the repayment of debt and other obligations at the completion of the transaction.  Simply Business is a leading digital provider of insurance policies to small businesses in the United Kingdom, offering products online on behalf of a broad panel of carriers.  The Company expects to fund the transaction, subject to market conditions, through a combination of debt financing and internal resources. The transaction is expected to close in the third quarter of 2017, subject to regulatory approvals and other customary closing conditions.

 

Adoption of Accounting Standards

 

Investments — Equity Method and Joint Ventures:  Simplifying the Transition to the Equity Method of Accounting

 

In March 2016, the Financial Accounting Standards Board (FASB) issued updated guidance that eliminates the requirement to retroactively apply the equity method of accounting when an investment that was previously accounted for using another method of accounting becomes qualified to apply the equity method due to an increase in the level of ownership interest or degree of influence.  If the investment was previously accounted for as an available-for-sale security, any related unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for the equity method is recognized through earnings.  The updated guidance was effective for reporting periods beginning after December 15, 2016, and was applied prospectively.  The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

 

Derivatives and Hedging:  Contingent Put and Call Options in Debt Instruments

 

In March 2016, the FASB issued updated guidance clarifying that when a call (put) option in a debt instrument can accelerate the repayment of principal on the debt instrument, a reporting entity does not need to assess whether the contingent event that triggers the ability to exercise the call (put) option is related to interest rates or credit risk in determining whether the option should be accounted for separately.  The updated guidance was effective for reporting periods beginning after December 15, 2016. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

 

Compensation — Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

 

In March 2017, the FASB issued updated guidance to improve the presentation of net periodic pension cost and net periodic post retirement cost (net benefit costs). Net benefit costs comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees.  The update requires that the

 

8



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

 

employer service cost component be reported in the same lines as other employee compensation cost and that the other components (non-service costs) be presented separately from the service cost and outside of a subtotal of income from operations if one is presented.  The update also allows only the service cost component to be eligible for capitalization in assets when applicable.

 

The updated guidance is effective for reporting periods beginning after December 15, 2017. The update is to be applied retrospectively with respect to the presentation of service cost and non-service cost and prospectively with respect to applying the service cost only eligible for capitalization in assets guidance. Early adoption is permitted as of the first interim period of an annual period if an entity issues interim financial statements.

 

The Company adopted the updated guidance effective January 1, 2017. See note 11 which has been expanded to disclose the amount of service cost and non-service cost components of net periodic benefit cost and the line items in the consolidated statement of income in which such amounts are reported. The updated guidance with respect to only service costs being eligible for capitalization in assets was not applicable.

 

For information regarding accounting standards that the Company adopted during the years presented, see the “Adoption of Accounting Standards section of note 1 of notes to the consolidated financial statements in the Company’s 2016 Annual Report.

 

Accounting Standards Not Yet Adopted

 

For information regarding accounting standards that the Company has not yet adopted, see the “Other Accounting Standards Not Yet Adopted section of note 1 of notes to the consolidated financial statements in the Company’s 2016 Annual Report.

 

Nature of Operations

 

For the periods presented in these financial statements, the Company was organized into three reportable business segments: Business and International Insurance; Bond & Specialty Insurance; and Personal Insurance. These segments reflected the manner in which the Company’s businesses were managed and represented an aggregation of products and services based on type of customer, how the business was marketed and the manner in which risks were underwritten.  For more information regarding the Company’s business segment structure in effect for the periods presented in these financial statements, see the Nature of Operations” section of note 1 of notes to the consolidated financial statements in the Company’s 2016 Annual Report.

 

Effective April 1, 2017, the Company’s results will be reported in the following three business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance, reflecting a change in the manner in which the Company’s businesses will be managed.  While the segmentation of the Company’s domestic businesses will be unchanged, the Company’s international businesses, which were previously reported in total within the Business and International Insurance segment, will now be disaggregated among these three newly aligned business segments.  The newly aligned segments will be presented in the Company’s financial statements beginning with the period ending June 30, 2017, and prior periods presented therein will be reclassified to conform to the new presentation.

 

9



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

2.                                      SEGMENT INFORMATION

 

The following tables summarize the components of the Company’s revenues, income and total assets by reportable business segments.

 

(for the three months
ended March 31,
in millions)

 

Business and
International
Insurance

 

Bond & Specialty
Insurance

 

Personal
Insurance

 

Total
Reportable
Segments

 

2017

 

 

 

 

 

 

 

 

 

Premiums

 

$

3,620

 

$

514

 

$

2,049

 

$

6,183

 

Net investment income

 

470

 

52

 

88

 

610

 

Fee income

 

109

 

 

4

 

113

 

Other revenues

 

10

 

5

 

15

 

30

 

Total segment revenues (1)

 

$

4,209

 

$

571

 

$

2,156

 

$

6,936

 

Segment income (1)

 

$

468

 

$

129

 

$

79

 

$

676

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

Premiums

 

$

3,599

 

$

508

 

$

1,874

 

$

5,981

 

Net investment income

 

415

 

52

 

77

 

544

 

Fee income

 

114

 

 

3

 

117

 

Other revenues

 

33

 

3

 

14

 

50

 

Total segment revenues (1)

 

$

4,161

 

$

563

 

$

1,968

 

$

6,692

 

Segment income (1)

 

$

476

 

$

144

 

$

139

 

$

759

 

 


(1)                  Segment revenues for reportable business segments exclude net realized investment gains (losses). Segment income for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).

 

10



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

2.                       SEGMENT INFORMATION, Continued

 

Business Segment Reconciliations

 

 

 

Three Months Ended
March 31,

 

(in millions)

 

2017

 

2016

 

Revenue reconciliation

 

 

 

 

 

Earned premiums

 

 

 

 

 

Business and International Insurance:

 

 

 

 

 

Domestic:

 

 

 

 

 

Workers’ compensation

 

$

976

 

$

981

 

Commercial automobile

 

506

 

491

 

Commercial property

 

435

 

437

 

General liability

 

491

 

482

 

Commercial multi-peril

 

774

 

782

 

Other

 

7

 

5

 

Total Domestic

 

3,189

 

3,178

 

International

 

431

 

421

 

Total Business and International Insurance

 

3,620

 

3,599

 

 

 

 

 

 

 

Bond & Specialty Insurance:

 

 

 

 

 

Fidelity and surety

 

234

 

230

 

General liability

 

235

 

234

 

Other

 

45

 

44

 

Total Bond & Specialty Insurance

 

514

 

508

 

 

 

 

 

 

 

Personal Insurance:

 

 

 

 

 

Automobile

 

1,094

 

936

 

Homeowners and Other

 

955

 

938

 

Total Personal Insurance

 

2,049

 

1,874

 

Total earned premiums

 

6,183

 

5,981

 

Net investment income

 

610

 

544

 

Fee income

 

113

 

117

 

Other revenues

 

30

 

50

 

Total segment revenues

 

6,936

 

6,692

 

Other revenues

 

1

 

3

 

Net realized investment gains (losses)

 

5

 

(9

)

Total revenues

 

$

6,942

 

$

6,686

 

 

 

 

 

 

 

Income reconciliation, net of tax

 

 

 

 

 

Total segment income

 

$

676

 

$

759

 

Interest Expense and Other (1)

 

(62

)

(61

)

Core income

 

614

 

698

 

Net realized investment gains (losses)

 

3

 

(7

)

Net income

 

$

617

 

$

691

 

 


(1)  The primary component of Interest Expense and Other for the three months ended March 31, 2017 and 2016 was after-tax interest expense of $58 million and $59 million, respectively.

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

2.                       SEGMENT INFORMATION, Continued

 

(in millions)

 

March 31,
2017

 

December 31,
2016

 

Asset reconciliation:

 

 

 

 

 

Business and International Insurance

 

$

80,397

 

$

79,468

 

Bond & Specialty Insurance

 

7,358

 

7,296

 

Personal Insurance

 

13,146

 

13,118

 

Total segment assets

 

100,901

 

99,882

 

Other assets (1)

 

345

 

363

 

Total consolidated assets

 

$

101,246

 

$

100,245

 

 


(1)                  The primary components of other assets at both March 31, 2017 and December 31, 2016 were other intangible assets and deferred taxes.

 

3.                       INVESTMENTS

 

Fixed Maturities

 

The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

(at March 31, 2017, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities

 

$

2,043

 

$

10

 

$

4

 

$

2,049

 

Obligations of states, municipalities and political subdivisions:

 

 

 

 

 

 

 

 

 

Local general obligation

 

14,082

 

303

 

159

 

14,226

 

Revenue

 

11,349

 

238

 

134

 

11,453

 

State general obligation

 

1,653

 

36

 

20

 

1,669

 

Pre-refunded

 

4,428

 

184

 

 

4,612

 

Total obligations of states, municipalities and political subdivisions

 

31,512

 

761

 

313

 

31,960

 

 

 

 

 

 

 

 

 

 

 

Debt securities issued by foreign governments

 

1,559

 

33

 

2

 

1,590

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

1,690

 

97

 

7

 

1,780

 

All other corporate bonds

 

23,378

 

528

 

111

 

23,795

 

Redeemable preferred stock

 

87

 

7

 

 

94

 

Total

 

$

60,269

 

$

1,436

 

$

437

 

$

61,268

 

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

3.                       INVESTMENTS, Continued

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

(at December 31, 2016, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities

 

$

2,031

 

$

9

 

$

5

 

$

2,035

 

Obligations of states, municipalities and political subdivisions:

 

 

 

 

 

 

 

 

 

Local general obligation

 

13,955

 

271

 

182

 

14,044

 

Revenue

 

10,910

 

215

 

147

 

10,978

 

State general obligation

 

1,717

 

36

 

22

 

1,731

 

Pre-refunded

 

4,968

 

190

 

1

 

5,157

 

Total obligations of states, municipalities and political subdivisions

 

31,550

 

712

 

352

 

31,910

 

 

 

 

 

 

 

 

 

 

 

Debt securities issued by foreign governments

 

1,631

 

34

 

3

 

1,662

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

1,614

 

100

 

6

 

1,708

 

All other corporate bonds

 

22,737

 

508

 

138

 

23,107

 

Redeemable preferred stock

 

87

 

6

 

 

93

 

Total

 

$

59,650

 

$

1,369

 

$

504

 

$

60,515

 

 

Pre-refunded bonds of $4.61 billion and $5.16 billion at March 31, 2017 and December 31, 2016, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities.  These trusts were created to fund the payment of principal and interest due under the bonds.

 

Proceeds from sales of fixed maturities classified as available for sale were $188 million and $421 million during the three months ended March 31, 2017 and 2016, respectively. Gross gains of $7 million and $23 million and gross losses of $2 million and $7 million were realized on those sales during the three months ended March 31, 2017 and 2016, respectively.

 

Equity Securities

 

The cost and fair value of investments in equity securities were as follows:

 

 

 

 

 

Gross Unrealized

 

Fair

 

(at March 31, 2017, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

Public common stock

 

$

398

 

$

223

 

$

2

 

$

619

 

Non-redeemable preferred stock

 

114

 

23

 

5

 

132

 

Total

 

$

512

 

$

246

 

$

7

 

$

751

 

 

 

 

 

 

Gross Unrealized

 

Fair

 

(at December 31, 2016, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

Public common stock

 

$

390

 

$

216

 

$

3

 

$

603

 

Non-redeemable preferred stock

 

114

 

20

 

5

 

129

 

Total

 

$

504

 

$

236

 

$

8

 

$

732

 

 

Proceeds from sales of equity securities classified as available for sale were $21 million and $14 million during the three months ended March 31, 2017 and 2016, respectively.  Gross gains of $6 million and $3 million and gross losses of less than $1 million and $2 million were realized on those sales during the three months ended March 31, 2017 and 2016, respectively.

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

3.                       INVESTMENTS, Continued

 

Unrealized Investment Losses

 

The following tables summarize, for all investments in an unrealized loss position at March 31, 2017 and December 31, 2016, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position.  The fair value amounts reported in the tables are estimates that are prepared using the process described in note 4 herein and in note 4 of notes to the consolidated financial statements in the Company’s 2016 Annual Report.  The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements in the Company’s 2016 Annual Report, in determining whether such investments are other-than-temporarily impaired.

 

 

 

Less than 12 months

 

12 months or longer

 

Total

 

(at March 31, 2017, in millions)

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fixed maturities

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities

 

$

1,275

 

$

4

 

$

 

$

 

$

1,275

 

$

4

 

Obligations of states, municipalities and political subdivisions

 

9,185

 

313

 

44

 

 

9,229

 

313

 

Debt securities issued by foreign governments

 

243

 

2

 

 

 

243

 

2

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

529

 

6

 

40

 

1

 

569

 

7

 

All other corporate bonds

 

5,718

 

96

 

343

 

15

 

6,061

 

111

 

Total fixed maturities

 

16,950

 

421

 

427

 

16

 

17,377

 

437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Public common stock

 

35

 

 

16

 

2

 

51

 

2

 

Non-redeemable preferred stock

 

 

 

60

 

5

 

60

 

5

 

Total equity securities

 

35

 

 

76

 

7

 

111

 

7

 

Total

 

$

16,985

 

$

421

 

$

503

 

$

23

 

$

17,488

 

$

444

 

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

3.                       INVESTMENTS, Continued

 

 

 

Less than 12 months

 

12 months or
longer

 

Total

 

(at December 31, 2016, in millions)

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fixed maturities

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities

 

$

1,124

 

$

5

 

$

 

$

 

$

1,124

 

$

5

 

Obligations of states, municipalities and political subdivisions

 

9,781

 

352

 

12

 

 

9,793

 

352

 

Debt securities issued by foreign governments

 

360

 

3

 

 

 

360

 

3

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

528

 

5

 

43

 

1

 

571

 

6

 

All other corporate bonds

 

6,470

 

115

 

437

 

23

 

6,907

 

138

 

Total fixed maturities

 

18,263

 

480

 

492

 

24

 

18,755

 

504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Public common stock

 

45

 

2

 

10

 

1

 

55

 

3

 

Non-redeemable preferred stock

 

2

 

 

59

 

5

 

61

 

5

 

Total equity securities

 

47

 

2

 

69

 

6

 

116

 

8

 

Total

 

$

18,310

 

$

482

 

$

561

 

$

30

 

$

18,871

 

$

512

 

 

Unrealized losses for all fixed maturities and equity securities reported at fair value for which fair value is less than 80% of amortized cost at March 31, 2017 totaled $1 million, representing less than 1% of the combined fixed maturity and equity security portfolios on a pre-tax basis and less than 1% of shareholders’ equity on an after-tax basis.

 

Impairment Charges

 

Impairment charges included in net realized investment gains (losses) in the consolidated statement of income were $2 million and $18 million for the three months ended March 31, 2017 and 2016, respectively.

 

The cumulative amount of credit losses on fixed maturities held at March 31, 2017 and 2016, that were recognized in the consolidated statement of income from other-than-temporary impairments (OTTI) and for which a portion of the OTTI was recognized in other comprehensive income (loss) in the consolidated balance sheet was $83 million and $92 million, respectively.  These credit losses represent less than 1% of the fixed maturity portfolio on a pre-tax basis and less than 1% of shareholders’ equity on an after-tax basis at both dates.  There were no significant changes in the credit component of OTTI during the three months ended March 31, 2017 and 2016 from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2016 Annual Report.

 

Derivative Financial Instruments

 

From time to time, the Company enters into U.S. Treasury note futures contracts to modify the effective duration of specific assets within the investment portfolio.  U.S. Treasury futures contracts require a daily mark-to-market and settlement with the broker.  At both March 31, 2017 and December 31, 2016, the Company had $400 million notional value of open U.S. Treasury futures contracts.  Net realized investment losses related to U.S. Treasury futures contracts were $3 million and $19 million in the three months ended March 31, 2017 and 2016, respectively.

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

4.     FAIR VALUE MEASUREMENTS

 

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance.  The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available.  The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable.  In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.  The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety.  The three levels of the hierarchy are as follows:

 

·                  Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

·                  Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

 

·                  Level 3 - Valuations based on models where significant inputs are not observable.  The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

 

Valuation of Investments Reported at Fair Value in Financial Statements

 

The Company utilized a pricing service to estimate fair value measurements for approximately 98% of its fixed maturities at both March 31, 2017 and December 31, 2016.

 

While the vast majority of the Company’s fixed maturities are included in Level 2, the Company holds a number of municipal bonds and corporate bonds which are not valued by the pricing service and estimates the fair value of these bonds using an internal pricing matrix with some unobservable inputs that are significant to the valuation.  Due to the limited amount of observable market information, the Company includes the fair value estimates for these particular bonds in Level 3.  The fair value of the fixed maturities for which the Company used an internal pricing matrix was $179 million and $99 million at March 31, 2017 and December 31, 2016, respectively.  Additionally, the Company holds a small amount of other fixed maturity investments that have characteristics that make them unsuitable for matrix pricing.  For these fixed maturities, the Company obtains a quote from a broker (primarily the market maker).  The fair value of the fixed maturities for which the Company received a broker quote was $83 million and $85 million at March 31, 2017 and December 31, 2016, respectively.  Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.

 

For more information regarding the valuation of the Company’s fixed maturities, equity securities and other investments, see note 4 of notes to the consolidated financial statements in the Company’s 2016 Annual Report.

 

Fair Value Hierarchy

 

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis.  An investment transferred between levels during a period is transferred at its fair value as of the beginning of that period.

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

4.     FAIR VALUE MEASUREMENTS, Continued

 

(at March 31, 2017, in millions)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Invested assets:

 

 

 

 

 

 

 

 

 

Fixed maturities

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities

 

$

2,049

 

$

2,049

 

$

 

$

 

Obligations of states, municipalities and political subdivisions

 

31,960

 

 

31,956

 

4

 

Debt securities issued by foreign governments

 

1,590

 

 

1,590

 

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

1,780

 

 

1,692

 

88

 

All other corporate bonds

 

23,795

 

5

 

23,620

 

170

 

Redeemable preferred stock

 

94

 

3

 

91

 

 

Total fixed maturities

 

61,268

 

2,057

 

58,949

 

262

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

Public common stock

 

619

 

619

 

 

 

Non-redeemable preferred stock

 

132

 

67

 

65

 

 

Total equity securities

 

751

 

686

 

65

 

 

Other investments

 

53

 

17

 

 

36

 

Total

 

$

62,072

 

$

2,760

 

$

59,014

 

$

298

 

 

(at December 31, 2016, in millions)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Invested assets:

 

 

 

 

 

 

 

 

 

Fixed maturities

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities

 

$

2,035

 

$

2,035

 

$

 

$

 

Obligations of states, municipalities and political subdivisions

 

31,910

 

 

31,898

 

12

 

Debt securities issued by foreign governments

 

1,662

 

 

1,662

 

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

1,708

 

 

1,704

 

4

 

All other corporate bonds

 

23,107

 

 

22,939

 

168

 

Redeemable preferred stock

 

93

 

3

 

90

 

 

Total fixed maturities

 

60,515

 

2,038

 

58,293

 

184

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

Public common stock

 

603

 

603

 

 

 

Non-redeemable preferred stock

 

129

 

51

 

78

 

 

Total equity securities

 

732

 

654

 

78

 

 

Other investments

 

53

 

17

 

 

36

 

Total

 

$

61,300

 

$

2,709

 

$

58,371

 

$

220

 

 

During the three months ended March 31, 2017 and the year ended December 31, 2016, the Company’s transfers between Level 1 and Level 2 were not significant.

 

There was no significant activity in Level 3 of the hierarchy during the three months ended March 31, 2017 or the year ended December 31, 2016.

 

17



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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

4.                       FAIR VALUE MEASUREMENTS, Continued

 

Financial Instruments Disclosed, But Not Carried, At Fair Value

 

The following tables present the carrying value and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such assets and liabilities are categorized.

 

(at March 31, 2017, in millions)

 

Carrying
Value

 

Fair
Value

 

Level 1

 

Level 2

 

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Short-term securities

 

$

4,817

 

$

4,817

 

$

991

 

$

3,791

 

$

35

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Debt

 

$

6,338

 

$

7,306

 

$

 

$

7,306

 

$

 

Commercial paper

 

$

100

 

$

100

 

$

 

$

100

 

$

 

 

(at December 31, 2016, in millions)

 

Carrying
Value

 

Fair
Value

 

Level 1

 

Level 2

 

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Short-term securities

 

$

4,865

 

$

4,865

 

$

1,223

 

$

3,607

 

$

35

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Debt

 

$

6,337

 

$

7,262

 

$

 

$

7,262

 

$

 

Commercial paper

 

$

100

 

$

100

 

$

 

$

100

 

$

 

 

The Company utilized a pricing service to estimate fair value for approximately 98% of short-term securities at both March 31, 2017 and December 31, 2016. For a description of the process and inputs used by the pricing service to estimate fair value, see the “Fixed Maturities” section in note 4 of notes to the consolidated financial statements in the Company’s 2016 Annual Report.

 

The Company utilized a pricing service to estimate fair value for 100% of its debt, including commercial paper, at March 31, 2017 and December 31, 2016.

 

The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the three months ended March 31, 2017 or year ended December 31, 2016.

 

5.                       GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill

 

The following table presents the carrying amount of the Company’s goodwill by segment:

 

(in millions)

 

March 31,
2017

 

December 31,
2016

 

Business and International Insurance (1)

 

$

2,449

 

$

2,446

 

Bond & Specialty Insurance

 

497

 

496

 

Personal Insurance

 

612

 

612

 

Other

 

26

 

26

 

Total

 

$

3,584

 

$

3,580

 

 


(1)  Includes goodwill associated with the Company’s international business which is subject to the impact of changes in foreign currency exchange rates.

 

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Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

5.                       GOODWILL AND OTHER INTANGIBLE ASSETS, Continued

 

Other Intangible Assets

 

The following tables present a summary of the Company’s other intangible assets by major asset class:

 

(at March 31, 2017, in millions)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Subject to amortization (1)

 

$

210

 

$

161

 

$

49

 

Not subject to amortization

 

217

 

 

217

 

Total

 

$

427

 

$

161

 

$

266

 

 

(at December 31, 2016, in millions)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Subject to amortization (1)

 

$

210

 

$

159

 

$

51

 

Not subject to amortization

 

217

 

 

217

 

Total

 

$

427

 

$

159

 

$

268

 

 


(1)   Intangible assets subject to amortization are comprised of fair value adjustments on claims and claim adjustment expense reserves, reinsurance recoverables and other contract and customer-related intangibles.  The time value of money and the risk adjustment (cost of capital) components of the intangible asset run off at different rates, and, as such, the amount recognized in income may be a net benefit in some periods and a net expense in other periods.

 

Amortization expense of intangible assets was $3 million for each of the three months ended March 31, 2017 and 2016.  Intangible asset amortization expense is estimated to be $7 million for the remainder of 2017, $8 million in 2018, $6 million in 2019, $5 million in 2020 and $5 million in 2021.

 

6.                       INSURANCE CLAIM RESERVES

 

Claims and claim adjustment expense reserves were as follows:

 

(in millions)

 

March 31,
2017

 

December 31,
2016

 

Property-casualty

 

$

48,301

 

$

47,929

 

Accident and health

 

19

 

20

 

Total

 

$

48,320

 

$

47,949

 

 

The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim adjustment expenses for the three months ended March 31, 2017 and 2016:

 

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Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

6.                       INSURANCE CLAIM RESERVES, Continued

 

(for the three months ended March 31, in millions)

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Claims and claim adjustment expense reserves at beginning of year

 

$

47,929

 

$

48,272

 

Less reinsurance recoverables on unpaid losses

 

7,981

 

8,449

 

Net reserves at beginning of year

 

39,948

 

39,823

 

 

 

 

 

 

 

Estimated claims and claim adjustment expenses for claims arising in the current year

 

4,126

 

3,843

 

Estimated decrease in claims and claim adjustment expenses for claims arising in prior years

 

(50

)

(149

)

Total increases

 

4,076

 

3,694

 

Claims and claim adjustment expense payments for claims arising in:

 

 

 

 

 

Current year

 

887

 

789

 

Prior years

 

2,812

 

2,563

 

Total payments

 

3,699

 

3,352

 

Unrealized foreign exchange loss

 

34

 

102

 

Net reserves at end of period

 

40,359

 

40,267

 

Plus reinsurance recoverables on unpaid losses

 

7,942

 

8,351

 

Claims and claim adjustment expense reserves at end of period

 

$

48,301

 

$

48,618

 

 

Gross claims and claim adjustment expense reserves at March 31, 2017 increased by $372 million from December 31, 2016, primarily reflecting the impacts of (i) higher volumes of insured exposures and loss cost trends for the current accident year and (ii) catastrophe losses incurred in the first quarter of 2017, partially offset by the impacts of (iii) payments related to operations in runoff and (iv) net favorable prior year reserve development.

 

Reinsurance recoverables on unpaid losses at March 31, 2017 decreased by $39 million from December 31, 2016, primarily reflecting the impact of cash collections in the first three months of 2017.

 

Prior Year Reserve Development

 

The following disclosures regarding reserve development are on a “net of reinsurance” basis.

 

For the three months ended March 31, 2017 and 2016, estimated claims and claim adjustment expenses incurred included $50 million and $149 million, respectively, of net favorable development for claims arising in prior years, including $81 million and $180 million, respectively, of net favorable prior year reserve development impacting the Company’s results of operations and $13 million of accretion of discount in each period.

 

Business and International Insurance. Net favorable prior year reserve development in the first quarter of 2017 totaled $71 million, primarily driven by better than expected loss experience in the Company’s domestic operations in (i) the workers’ compensation product line for multiple accident years and (ii) the general liability product line for both primary and excess coverages for accident years 2009 and prior as well as accident year 2014, partially offset by (iii) net unfavorable prior year reserve development in the Company’s international operations in Europe due to the U.K. Ministry of Justice’s recent “Ogden” discount rate adjustment applied to lump sum bodily injury payouts.  Net favorable prior year reserve development in the first quarter of 2016 totaled $93 million, primarily driven by better than expected loss experience in the Company’s domestic operations in (i) the workers’ compensation product line for excess coverages for accident years 2006 and prior, (ii) the general liability product line, primarily related to excess coverages for accident years 2011 and 2013 and (iii) the commercial automobile product line for accident years 2010 and prior, as well as in the Company’s international operations in Europe and Canada.

 

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Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

6.                       INSURANCE CLAIM RESERVES, Continued

 

Bond & Specialty Insurance.  Net favorable prior year reserve development in the first quarter of 2017 totaled $10 million.  Net favorable prior year reserve development in first quarter 2016 totaled $60 million, primarily driven by better than expected loss experience in the surety product line for accident years 2012 through 2014.

 

Personal Insurance.  There was no net prior year reserve development in the first quarter of 2017.  Net favorable prior year reserve development in first quarter 2016 totaled $27 million, primarily driven by better than expected loss experience in (i) the Homeowners and Other product line for liability coverages for accident year 2014 and (ii) in the Automobile product line for accident year 2014.

 

7.                       OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

 

The following table presents the changes in the Company’s accumulated other comprehensive income (AOCI) for the three months ended March 31, 2017.

 

 

 

Changes in Net Unrealized Gains on
Investment Securities

 

Net Benefit Plan

 

 

 

 

 

(in millions)

 

Having No Credit
Losses Recognized in
the Consolidated
Statement of Income

 

Having Credit Losses
Recognized in the
Consolidated
Statement of Income

 

Assets and
Obligations
Recognized in
Shareholders’ Equity