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Section 1: 10-Q (10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
FORM 10-Q
_________________________________________________________
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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 ý    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 ý    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
ý
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 ý 
The number of shares of the Registrant’s Common Stock, without par value, outstanding at April 19, 2018 was 270,261,296.




Table of Contents

The Travelers Companies, Inc.
 
Quarterly Report on Form 10-Q
 
For Quarterly Period Ended March 31, 2018
_________________________________________________________
 
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Statement of Income (Unaudited) — Three Months Ended March 31, 2018 and 2017
 
 
 
 
Consolidated Statement of Comprehensive Income (Loss) (Unaudited) — Three Months Ended March 31, 2018 and 2017
 
 
 
 
Consolidated Balance Sheet — March 31, 2018 (Unaudited) and December 31, 2017
 
 
 
 
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Three Months Ended March 31, 2018 and 2017
 
 
 
 
Consolidated Statement of Cash Flows (Unaudited) — Three Months Ended March 31, 2018 and 2017
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 


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,
 
2018
 
2017
 
 
 
 
 
Revenues
 
 

 
 

Premiums
 
$
6,537

 
$
6,183

Net investment income
 
603

 
610

Fee income
 
103

 
113

Net realized investment gains (losses)(1)
 
(11
)
 
5

Other revenues
 
54

 
31

 
 
 
 
 
Total revenues
 
7,286

 
6,942

 
 
 
 
 
Claims and expenses
 
 

 
 

Claims and claim adjustment expenses
 
4,296

 
4,094

Amortization of deferred acquisition costs
 
1,061

 
1,003

General and administrative expenses
 
1,062

 
996

Interest expense
 
89

 
89

Total claims and expenses
 
6,508

 
6,182

 
 
 
 
 
Income before income taxes
 
778

 
760

Income tax expense
 
109

 
143

Net income
 
$
669

 
$
617

 
 
 
 
 
Net income per share
 
 

 
 

Basic
 
$
2.45

 
$
2.19

Diluted
 
$
2.42

 
$
2.17

 
 
 
 
 
Weighted average number of common shares outstanding
 
 

 
 

Basic
 
271.0

 
279.7

Diluted
 
273.9

 
282.4

 
 
 
 
 
Cash dividends declared per common share
 
$
0.72

 
$
0.67


________________________________________________________
(1)
Total other-than-temporary impairment (OTTI) gains (losses) were $0 and $(1) million for the three months ended March 31, 2018 and 2017, respectively.  Of total OTTI, credit losses of $0 and $(2) million for the three months ended March 31, 2018 and 2017, respectively, were recognized in net realized investment gains (losses).  In addition, unrealized gains from other changes in total OTTI of $0 and $1 million for the three months ended March 31, 2018 and 2017, respectively, were recognized in other comprehensive income (loss) 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 (LOSS) (Unaudited)
(in millions)
 
For the three months ended March 31,
 
2018
 
2017
 
 
 
 
 
Net income
 
$
669

 
$
617

 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
Changes in net unrealized gains on investment securities:
 
 

 
 

Having no credit losses recognized in the consolidated statement of income
 
(1,203
)
 
144

Having credit losses recognized in the consolidated statement of income
 
(2
)
 

Net changes in benefit plan assets and obligations
 
22

 
17

Net changes in unrealized foreign currency translation
 
6

 
41

Other comprehensive income (loss) before income taxes
 
(1,177
)
 
202

Income tax expense (benefit)
 
(244
)
 
62

Other comprehensive income (loss), net of taxes
 
(933
)
 
140

Comprehensive income (loss)
 
$
(264
)
 
$
757

 


































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,
2018
 
December 31,
2017
 
 
(Unaudited)
 
 
Assets
 
 

 
 

Fixed maturities, available for sale, at fair value (amortized cost $62,093 and $61,316)
 
$
62,266

 
$
62,694

Equity securities, at fair value  (cost $431 and $440)
 
430

 
453

Real estate investments
 
954

 
932

Short-term securities
 
4,486

 
4,895

Other investments
 
3,588

 
3,528

Total investments
 
71,724

 
72,502

Cash
 
397

 
344

Investment income accrued
 
567

 
606

Premiums receivable
 
7,536

 
7,144

Reinsurance recoverables
 
8,298

 
8,309

Ceded unearned premiums
 
777

 
551

Deferred acquisition costs
 
2,086

 
2,025

Deferred taxes
 
368

 
70

Contractholder receivables
 
4,835

 
4,775

Goodwill
 
3,959

 
3,951

Other intangible assets
 
341

 
342

Other assets
 
2,788

 
2,864

Total assets
 
$
103,676

 
$
103,483

 
 
 
 
 
Liabilities
 
 

 
 

Claims and claim adjustment expense reserves
 
$
49,810

 
$
49,650

Unearned premium reserves
 
13,424

 
12,915

Contractholder payables
 
4,835

 
4,775

Payables for reinsurance premiums
 
498

 
274

Debt
 
6,963

 
6,571

Other liabilities
 
5,167

 
5,567

Total liabilities
 
80,697

 
79,752

 
 
 
 
 
Shareholders’ equity
 
 

 
 

Common stock (1,750.0 shares authorized; 270.3 and 271.5 shares issued, 270.2 and 271.4 shares outstanding)
 
22,995

 
22,886

Retained earnings
 
33,981

 
33,462

Accumulated other comprehensive loss
 
(1,322
)
 
(343
)
Treasury stock, at cost (503.7 and 500.9 shares)
 
(32,675
)
 
(32,274
)
Total shareholders’ equity
 
22,979

 
23,731

Total liabilities and shareholders’ equity
 
$
103,676

 
$
103,483





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,
 
2018
 
2017
 
 
 
 
 
Common stock
 
 

 
 

Balance, beginning of year
 
$
22,886

 
$
22,614

Employee share-based compensation
 
65

 
68

Compensation amortization under share-based plans
 
44

 
42

Balance, end of period
 
22,995

 
22,724

 
 
 
 
 
Retained earnings
 
 

 
 

Balance, beginning of year
 
33,462

 
32,196

Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
 
22

 

Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
 
24

 

Net income
 
669

 
617

Dividends
 
(197
)
 
(190
)
Other
 
1

 

Balance, end of period
 
33,981

 
32,623

 
 
 
 
 
Accumulated other comprehensive income (loss), net of tax
 
 

 
 

Balance, beginning of year
 
(343
)
 
(755
)
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
 
(22
)
 

Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
 
(24
)
 

Other comprehensive income (loss)
 
(933
)
 
140

Balance, end of period
 
(1,322
)
 
(615
)
 
 
 
 
 
Treasury stock, at cost
 
 

 
 

Balance, beginning of year
 
(32,274
)
 
(30,834
)
Treasury stock acquired — share repurchase authorization
 
(350
)
 
(225
)
Net shares acquired related to employee share-based compensation plans
 
(51
)
 
(61
)
Balance, end of period
 
(32,675
)
 
(31,120
)
 
 
 
 
 
Total shareholders’ equity
 
$
22,979

 
$
23,612

 
 
 
 
 
Common shares outstanding
 
 

 
 

Balance, beginning of year
 
271.4

 
279.6

Treasury stock acquired — share repurchase authorization
 
(2.5
)
 
(1.9
)
Net shares issued under employee share-based compensation plans
 
1.3

 
1.7

Balance, end of period
 
270.2

 
279.4

 




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,
 
2018
 
2017
Cash flows from operating activities
 
 

 
 

Net income
 
$
669

 
$
617

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

 
 

Net realized investment (gains) losses
 
11

 
(5
)
Depreciation and amortization
 
212

 
211

Deferred federal income tax expense (benefit)
 
(56
)
 
151

Amortization of deferred acquisition costs
 
1,061

 
1,003

Equity in income from other investments
 
(95
)
 
(109
)
Premiums receivable
 
(397
)
 
(286
)
Reinsurance recoverables
 
5

 
94

Deferred acquisition costs
 
(1,124
)
 
(1,065
)
Claims and claim adjustment expense reserves
 
180

 
334

Unearned premium reserves
 
518

 
475

Other
 
(430
)
 
(572
)
Net cash provided by operating activities
 
554

 
848

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Proceeds from maturities of fixed maturities
 
1,950

 
2,218

Proceeds from sales of investments:
 
 

 
 

Fixed maturities
 
1,085

 
188

Equity securities
 
26

 
21

Real estate investments
 

 
11

Other investments
 
114

 
122

Purchases of investments:
 
 

 
 

Fixed maturities
 
(3,920
)
 
(3,056
)
Equity securities
 
(20
)
 
(22
)
Real estate investments
 
(33
)
 
(16
)
Other investments
 
(142
)
 
(124
)
Net sales of short-term securities
 
410

 
49

Securities transactions in course of settlement
 
202

 
157

Other
 
(53
)
 
(63
)
Net cash used in investing activities
 
(381
)
 
(515
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Treasury stock acquired — share repurchase authorization
 
(350
)
 
(225
)
Treasury stock acquired — net employee share-based compensation
 
(51
)
 
(61
)
Dividends paid to shareholders
 
(197
)
 
(190
)
Payment of debt
 
(100
)
 

Issuance of debt
 
491

 

Issuance of common stock — employee share options
 
85

 
83

Net cash used in financing activities
 
(122
)
 
(393
)
Effect of exchange rate changes on cash
 
2

 
2

Net increase (decrease) in cash
 
53

 
(58
)
Cash at beginning of year
 
344

 
307

Cash at end of period
 
$
397

 
$
249

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Income taxes paid
 
$
56

 
$
2

Interest paid
 
$
39

 
$
43

 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, 2017 (the Company’s 2017 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. Certain reclassifications have been made to the 2017 financial statements to conform to the 2018 presentation.
 
Adoption of Accounting Standards
 
Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the Financial Accounting Standards Board (FASB) issued updated guidance to address the recognition, measurement, presentation and disclosure of certain financial instruments. The updated guidance requires equity investments, except those accounted for under the equity method of accounting, that have readily determinable fair value to be measured at fair value with any changes in fair value recognized in net income. Equity securities that do not have readily determinable fair values may be measured at estimated fair value or cost less impairment, if any, adjusted for subsequent observable price changes, with changes in the carrying value recognized in net income. A qualitative assessment for impairment is required for equity investments without readily determinable fair values. The updated guidance also eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet. The updated guidance was effective for the quarter ended March 31, 2018. The adoption of this guidance resulted in the recognition of $22 million of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased accumulated other comprehensive income (AOCI) by the same amount. The Company elected to report changes in the fair value of equity investments in net realized investment gains (losses). At December 31, 2017, equity investments were classified as available-for-sale on the Company's balance sheet. However, upon adoption, the updated guidance eliminated the available-for-sale balance sheet classification for equity investments.
 
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On February 14, 2018, the FASB issued updated guidance that allows a reclassification from AOCI to retained earnings of the stranded tax effects that occurred due to the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA). The updated guidance is effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which there are items impacted by the TCJA remaining in AOCI or at the beginning of the period of adoption. Early adoption is permitted. The Company adopted the updated guidance effective January 1, 2018 and elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings as of January 1, 2018. This reclassification resulted in an increase in retained earnings of $24 million as of January 1, 2018 and a decrease in AOCI by the same amount.
 
Revenue from Contracts with Customers

In May 2014, the FASB issued updated guidance to clarify the principles for recognizing revenue. The updated guidance was effective for reporting periods beginning after December 15, 2017, and requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. For the three months ended March 31, 2018, approximately $40 million,

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Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

or less than 1% of the Company's total revenues, were within the scope of this updated guidance and were generated from the services described below.

While insurance contracts are not within the scope of this updated guidance, the Company’s revenue related to certain services with no underlying insurance risk is subject to the updated guidance. These services include the following: (i) insurance-related services, such as risk management services, claims administration, loss control and risk management information services on behalf of non-insureds; (ii) servicing carrier fees for various residual market pools and associations; and (iii) administrative fees related to servicing third-party insurers’ obligations to participate in the Workers' Compensation Residual Market Plans in certain states. The revenues earned from these service contracts were not impacted by the adoption of the updated guidance. These revenues are earned on a pro rata basis over the contract service period and reported in fee income in the Company’s consolidated statement of income.

Commissions earned from on-line insurance brokerage services are also subject to this updated guidance and were also not impacted by the adoption of the updated guidance. Commissions are earned upon collection of the gross premium in accordance with the contracts and an accrual is made to recognize policy cancellations, either at the policyholder’s direction or for non-payment. Commissions are reported in other revenues in the Company's consolidated statement of income.

The Company does not capitalize the costs to obtain or fulfill the contracts for which revenues are reported in fee income and other income, and has not recognized any impairment losses on the receivables related to these contracts during the three months ended March 31, 2018.

The Company adopted the updated guidance effective January 1, 2018. The adoption did not have an effect on the Company’s results of operations, financial position or liquidity.

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued updated guidance on the classification of cash flows related to certain activities in the statement of cash flows to reduce diversity in practice. The updated guidance was effective for reporting periods beginning after December 15, 2017 and was applied retrospectively to all periods presented. Under the new guidance, distributions received on equity method investments that are considered to be a return on investment are reported as cash flows from operating activities. These distributions were previously reported as cash flows from investing activities. The adoption of this guidance had no effect on the Company’s results of operations, financial position or liquidity.
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 2017 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 2017 Annual Report.
 
Nature of Operations
 
The Company’s results are reported in the following three business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance. These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on the type of customer, how the business is marketed and the manner in which risks are underwritten. For more information regarding the Company’s nature of operations, see the “Nature of Operations section of note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.
 

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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
Insurance
 
Bond & Specialty
Insurance
 
Personal
Insurance
 
Total
Reportable
Segments
 
 
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

 
 

Premiums
 
$
3,568

 
$
582

 
$
2,387

 
$
6,537

Net investment income
 
446

 
58

 
99

 
603

Fee income
 
99

 

 
4

 
103

Other revenues
 
31

 
6

 
17

 
54

Total segment revenues (1)
 
$
4,144

 
$
646

 
$
2,507

 
$
7,297

 
 
 
 
 
 
 
 
 
Segment income (1)
 
$
452

 
$
173

 
$
129

 
$
754

 
 
 
 
 
 
 
 
 
2017
 
 

 
 

 
 

 
 

Premiums
 
$
3,429

 
$
555

 
$
2,199

 
$
6,183

Net investment income
 
453

 
61

 
96

 
610

Fee income
 
109

 

 
4

 
113

Other revenues
 
9

 
5

 
16

 
30

Total segment revenues (1)
 
$
4,000

 
$
621

 
$
2,315

 
$
6,936

 
 
 
 
 
 
 
 
 
Segment income (1)
 
 
$
442

 
$
145

 
$
89

 
$
676

_________________________________________________________
(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).
 


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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)
 
2018
 
2017
Revenue reconciliation
 
 

 
 

Earned premiums
 
 

 
 

Business Insurance:
 
 

 
 

Domestic:
 
 

 
 

Workers’ compensation
 
$
971

 
$
976

Commercial automobile
 
562

 
506

Commercial property
 
438

 
435

General liability
 
521

 
491

Commercial multi-peril
 
805

 
774

Other
 
7

 
7

Total Domestic
 
3,304

 
3,189

International
 
264

 
240

Total Business Insurance
 
3,568

 
3,429

Bond & Specialty Insurance:
 
 

 
 

Domestic:
 
 

 
 

Fidelity and surety
 
246

 
234

General liability
 
242

 
235

Other
 
47

 
45

Total Domestic
 
535

 
514

International
 
47

 
41

Total Bond & Specialty Insurance
 
582

 
555

Personal Insurance:
 
 

 
 

Domestic:
 
 

 
 

Automobile
 
1,225

 
1,094

Homeowners and Other
 
995

 
955

Total Domestic
 
2,220

 
2,049

International
 
167

 
150

Total Personal Insurance
 
2,387

 
2,199

Total earned premiums
 
6,537

 
6,183

Net investment income
 
603

 
610

Fee income
 
103

 
113

Other revenues
 
54

 
30

Total segment revenues
 
7,297

 
6,936

Other revenues
 

 
1

Net realized investment gains (losses)
 
(11
)
 
5

Total revenues
 
$
7,286

 
$
6,942

Income reconciliation, net of tax
 
 

 
 

Total segment income
 
$
754

 
$
676

Interest Expense and Other (1)
 
(76
)
 
(62
)
Core income
 
678

 
614

Net realized investment gains (losses)
 
(9
)
 
3

Net income
 
$
669

 
$
617

_________________________________________________________
(1) The primary component of Interest Expense and Other was after-tax interest expense of $70 million and $58 million in the three months ended March 31, 2018 and 2017, respectively.

11

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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,
2018
 
December 31,
2017
Asset reconciliation
 
 

 
 

Business Insurance
 
$
78,747

 
$
78,082

Bond & Specialty Insurance
 
8,787

 
8,776

Personal Insurance
 
15,605

 
15,949

Total segment assets
 
103,139

 
102,807

Other assets (1)
 
537

 
676

Total consolidated assets
 
$
103,676

 
$
103,483

 _________________________________________________________
(1)
The primary components of other assets at March 31, 2018 were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan and other intangible assets, and the primary components at December 31, 2017 were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan, 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, 2018, in millions)
 
Cost
 
Gains
 
Losses
 
Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,051

 
$
2

 
$
19

 
$
2,034

Obligations of states, municipalities and political subdivisions:
 
 

 
 

 
 

 
 

Local general obligation
 
13,593

 
215

 
127

 
13,681

Revenue
 
10,512

 
177

 
91

 
10,598

State general obligation
 
1,391

 
21

 
12

 
1,400

Pre-refunded
 
3,638

 
123

 

 
3,761

Total obligations of states, municipalities and political subdivisions
 
29,134

 
536

 
230

 
29,440

Debt securities issued by foreign governments
 
1,326

 
9

 
8

 
1,327

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,495

 
76

 
40

 
2,531

All other corporate bonds
 
27,000

 
231

 
389

 
26,842

Redeemable preferred stock
 
87

 
5

 

 
92

Total
 
$
62,093

 
$
859

 
$
686

 
$
62,266


 

12

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3.             INVESTMENTS, Continued

 
 
Amortized
 
Gross Unrealized
 
Fair
(at December 31, 2017, in millions)
 
Cost
 
Gains
 
Losses
 
Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,080

 
$
4

 
$
8

 
$
2,076

Obligations of states, municipalities and political subdivisions:
 
 

 
 

 
 

 
 

Local general obligation
 
13,488

 
444

 
26

 
13,906

Revenue
 
11,307

 
338

 
19

 
11,626

State general obligation
 
1,443

 
44

 
3

 
1,484

Pre-refunded
 
3,758

 
142

 
1

 
3,899

Total obligations of states, municipalities and political subdivisions
 
29,996

 
968

 
49

 
30,915

Debt securities issued by foreign governments
 
1,505

 
14

 
10

 
1,509

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,334

 
87

 
11

 
2,410

All other corporate bonds
 
25,311

 
478

 
100

 
25,689

Redeemable preferred stock
 
90

 
5

 

 
95

Total
 
$
61,316

 
$
1,556

 
$
178

 
$
62,694

 
Pre-refunded bonds of $3.76 billion and $3.90 billion at March 31, 2018 and December 31, 2017, 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 $1.09 billion and $188 million during the three months ended March 31, 2018 and 2017, respectively. Gross gains of $6 million and $7 million and gross losses of $6 million and $2 million were realized on those sales during the three months ended March 31, 2018 and 2017, respectively.
 
Equity Securities
 
The cost and fair value of investments in equity securities were as follows:
 
 
 
 
 
 
Fair
(at March 31, 2018, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
330

 
$
4

 
$
10

 
$
324

Non-redeemable preferred stock
 
101

 
11

 
6

 
106

Total
 
$
431

 
$
15

 
$
16

 
$
430

 
 
 
 
 
 
 
Fair
(at December 31, 2017, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
332

 
$
8

 
$
1

 
$
339

Non-redeemable preferred stock
 
108

 
12

 
6

 
114

Total
 
$
440

 
$
20

 
$
7

 
$
453

 
For the three months ended March 31, 2018, the Company recognized $13 million of net losses on equity securities still held as of March 31, 2018.



13

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3.             INVESTMENTS, Continued

Proceeds from sales of equity securities previously classified as available for sale were $21 million during the three months ended March 31, 2017.  Gross gains of $6 million and gross losses of less than $1 million were realized on those sales during the three months ended March 31, 2017.
 
Unrealized Investment Losses
 
The following tables summarize, for all investments in an unrealized loss position at March 31, 2018 and December 31, 2017, 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 2017 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 2017 Annual Report in determining whether such investments are other-than-temporarily impaired.
 
 
Less than 12 months
 
12 months or longer
 
Total
(at March 31, 2018, 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
 
$
1,332

 
$
15

 
$
549

 
$
4

 
$
1,881

 
$
19

Obligations of states, municipalities and political subdivisions
 
5,823

 
94

 
2,863

 
136

 
8,686

 
230

Debt securities issued by foreign governments
 
431

 
7

 
32

 
1

 
463

 
8

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
1,474

 
32

 
235

 
8

 
1,709

 
40

All other corporate bonds
 
14,816

 
294

 
1,910

 
95

 
16,726

 
389

Total fixed maturities
 
$
23,876

 
$
442

 
$
5,589

 
$
244

 
$
29,465

 
$
686

 

14

Table of Contents
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, 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
 
$
1,150

 
$
5

 
$
470

 
$
3

 
$
1,620

 
$
8

Obligations of states, municipalities and political subdivisions
 
505

 
2

 
2,959

 
47

 
3,464

 
49

Debt securities issued by foreign governments
 
394

 
6

 
111

 
4

 
505

 
10

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
1,021

 
7

 
250

 
4

 
1,271

 
11

All other corporate bonds
 
6,062

 
48

 
1,990

 
52

 
8,052

 
100

Total fixed maturities
 
9,132

 
68

 
5,780

 
110

 
14,912

 
178

Equity securities
 
 
 
 

 
 

 
 

 
 

 
 

Public common stock
 
18

 

 
34

 
1

 
52

 
1

Non-redeemable preferred stock
 
3

 

 
56

 
6

 
59

 
6

Total equity securities
 
21

 

 
90

 
7

 
111

 
7

Total
 
$
9,153

 
$
68

 
$
5,870

 
$
117

 
$
15,023

 
$
185

 
At March 31, 2018, the Company had no fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost.
 
Impairment Charges
 
Impairment charges included in net realized investment gains (losses) in the consolidated statement of income were $0 and $2 million for the three months ended March 31, 2018 and 2017, respectively.
 
The cumulative amount of credit losses on fixed maturities held at March 31, 2018 and 2017 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 $75 million and $83 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, 2018 and 2017 from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2017 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 March 31, 2018 and December 31, 2017, the Company had $250 million and $400 million notional value of open U.S. Treasury futures contracts, respectively.  Net realized investment gains and losses related to U.S. Treasury futures contracts for the three months ended March 31, 2018 and 2017 were not significant.
 

15

Table of Contents
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, 2018 and December 31, 2017.
 
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 $146 million and $127 million at March 31, 2018 and December 31, 2017, 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 $101 million and $77 million at March 31, 2018 and December 31, 2017, 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 2017 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.
 

16

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4.     FAIR VALUE MEASUREMENTS, Continued

(at March 31, 2018, 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
 
$
2,034

 
$
2,034

 
$

 
$

Obligations of states, municipalities and political subdivisions
 
29,440

 

 
29,428

 
12

Debt securities issued by foreign governments
 
1,327

 

 
1,327

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,531

 

 
2,491

 
40

All other corporate bonds
 
26,842

 
1

 
26,646

 
195

Redeemable preferred stock
 
92

 
3

 
89

 

Total fixed maturities
 
62,266

 
2,038

 
59,981

 
247

Equity securities
 
 

 
 

 
 

 
 

Public common stock
 
324

 
324

 

 

Non-redeemable preferred stock
 
106

 
42

 
64

 

Total equity securities
 
430

 
366

 
64

 

Other investments
 
55

 
17

 

 
38

Total
 
$
62,751

 
$
2,421

 
$
60,045

 
$
285

 
(at December 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
 
$
2,076

 
$
2,076

 
$

 
$

Obligations of states, municipalities and political subdivisions
 
30,915

 

 
30,910

 
5

Debt securities issued by foreign governments
 
1,509

 

 
1,509

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,410

 

 
2,371

 
39

All other corporate bonds
 
25,689

 
11

 
25,518

 
160

Redeemable preferred stock
 
95

 
3

 
92

 

Total fixed maturities
 
62,694

 
2,090

 
60,400

 
204

Equity securities
 
 

 
 

 
 

 
 

Public common stock
 
339

 
339

 

 

Non-redeemable preferred stock
 
114

 
45

 
69

 

Total equity securities
 
453

 
384

 
69

 

Other investments
 
57

 
19

 

 
38

Total
 
$
63,204

 
$
2,493

 
$
60,469

 
$
242

 
During the three months ended March 31, 2018 and the year ended December 31, 2017, 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, 2018 or the year ended December 31, 2017.
 

17

Table of Contents
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, 2018, in millions)
 
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 

 
 

 
 

 
 

 
 

Short-term securities
 
$
4,486

 
$
4,486

 
$
835

 
$
3,612

 
$
39

Financial liabilities:
 
 

 
 

 
 

 
 

 
 

Debt
 
$
6,963

 
$
7,835

 
$

 
$
7,835

 
$

 
(at December 31, 2017, in millions)
 
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 

 
 

 
 

 
 

 
 

Short-term securities
 
$
4,895

 
$
4,895

 
$
1,238

 
$
3,622

 
$
35

Financial liabilities:
 
 

 
 

 
 

 
 

 
 

Debt
 
$
6,471

 
$
7,702

 
$

 
$
7,702

 
$

Commercial paper
 
$
100

 
$
100

 
$

 
$
100

 
$

 
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, 2018 or year ended December 31, 2017.

5.                       GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill
 
The following table presents the carrying amount of the Company’s goodwill by segment.  Each reportable segment includes goodwill associated with the Company’s international business which is subject to the impact of changes in foreign currency exchange rates.
(in millions)
 
March 31,
2018
 
December 31,
2017
Business Insurance
 
$
2,597

 
$
2,585

Bond & Specialty Insurance
 
550

 
550

Personal Insurance
 
786

 
790

Other
 
26

 
26

Total
 
$
3,959

 
$
3,951

Other Intangible Assets
 
The following tables present a summary of the Company’s other intangible assets by major asset class.
(at March 31, 2018, in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Subject to amortization
 
 
 
 
 
 
Customer-related
 
$
80

 
$
5

 
$
75

Contract-based (1)
 
209

 
170

 
39

Total subject to amortization
 
289

 
175

 
114

Not subject to amortization
 
227

 

 
227

Total
 
$
516

 
$
175

 
$
341


18

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
5.     GOODWILL AND OTHER INTANGIBLE ASSETS, Continued

 
(at December 31, 2017, in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Subject to amortization
 
 
 
 
 
 
Customer-related
 
$
77

 
$
4

 
$
73

Contract-based (1)
 
209

 
167

 
42

Total subject to amortization
 
286

 
171

 
115

Not subject to amortization
 
227

 

 
227

Total
 
$
513

 
$
171

 
$
342

 _________________________________________________________
(1)
Contract-based intangible assets subject to amortization are comprised of fair value adjustments on claims and claim adjustment expense reserves, reinsurance recoverables and other contract-related intangible assets. Fair value adjustments recorded in connection with insurance acquisitions were based on management’s estimate of nominal claims and claim adjustment expense reserves and reinsurance recoverables. The method used calculated a risk adjustment to a risk-free discounted reserve that would, if reserves ran off as expected, produce results that yielded the assumed cost-of-capital on the capital supporting the loss reserves.  The fair value adjustments are reported as other intangible assets on the consolidated balance sheet, and the amounts measured in accordance with the acquirer’s accounting policies for insurance contracts have been reported as part of the claims and claim adjustment expense reserves and reinsurance recoverables. The intangible assets are being recognized into income over the expected payment pattern. Because the time value of money and the risk adjustment (cost of capital) components of the intangible assets run off at different rates, 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 $4 million and $3 million for the three months ended March 31, 2018 and 2017, respectively.  Intangible asset amortization expense is estimated to be $11 million for the remainder of 2018, $14 million in 2019, $13 million in 2020, $12 million in 2021 and $11 million in 2022.

6.             INSURANCE CLAIM RESERVES
 
Claims and claim adjustment expense reserves were as follows:
(in millions)
 
March 31,
2018
 
December 31,
2017
Property-casualty
 
$
49,794

 
$
49,633

Accident and health
 
16

 
17

Total
 
$
49,810

 
$
49,650

 

19

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
6.             INSURANCE CLAIM RESERVES, Continued

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, 2018 and 2017:
 
(for the three months ended March 31, in millions)
 
2018
 
2017
Claims and claim adjustment expense reserves at beginning of year
 
$
49,633

 
$
47,929

Less reinsurance recoverables on unpaid losses
 
8,123

 
7,981

Net reserves at beginning of year
 
41,510

 
39,948

 
 
 
 
 
Estimated claims and claim adjustment expenses for claims arising in the current year
 
4,391

 
4,126

Estimated decrease in claims and claim adjustment expenses for claims arising in prior years
 
(116
)
 
(50
)
Total increases
 
4,275

 
4,076

 
 
 
 
 
Claims and claim adjustment expense payments for claims arising in:
 
 

 
 

Current year
 
1,009

 
887

Prior years
 
3,040

 
2,812

Total payments
 
4,049

 
3,699

Unrealized foreign exchange (gain) loss
 
(10
)
 
34

Net reserves at end of period
 
41,726

 
40,359

Plus reinsurance recoverables on unpaid losses
 
8,068

 
7,942

Claims and claim adjustment expense reserves at end of period
 
$
49,794

 
$
48,301

 
Gross claims and claim adjustment expense reserves at March 31, 2018 increased by $161 million from December 31, 2017, primarily reflecting the impacts of (i) higher volumes of insured exposures and loss cost trends for the current accident year and (ii) catastrophe losses in the first quarter of 2018, partially offset by the impacts of (iii)  payments related to catastrophe losses incurred in 2017, (iv) net favorable prior year reserve development and (v) payments related to operations in runoff.
 
Reinsurance recoverables on unpaid losses at March 31, 2018 decreased by $55 million from December 31, 2017, primarily reflecting the impacts of cash collections in the first three months of 2018.
 
Prior Year Reserve Development
 
The following disclosures regarding reserve development are on a “net of reinsurance” basis.
 
For the three months ended March 31, 2018 and 2017, estimated claims and claim adjustment expenses incurred included $116 million and $50 million, respectively, of net favorable development for claims arising in prior years, including $150 million and $81 million, respectively, of net favorable prior year reserve development and $13 million of accretion of discount in each period that impacted the Company's results of operations.
 
Business Insurance. Net favorable prior year reserve development in the first quarter of 2018 totaled $66 million, primarily driven by better than expected loss experience in the segment’s domestic operations in (i) the workers’ compensation product line for recent accident years and (ii) the commercial property product line for accident year 2016, partially offset by (iii) higher than expected loss experience in the commercial automobile product line for recent accident years.  Net favorable prior year reserve development in the first quarter of 2017 totaled $61 million, primarily driven by better than expected loss experience in the segment'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 “Ogden” discount rate adjustment applied to lump sum bodily injury payouts.
 

20

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 2018 totaled $35 million, primarily driven by better than expected loss experience in the segment’s domestic operations in the general liability product line for multiple accident years. Net favorable prior year reserve development in the first quarter of 2017 totaled $14 million.
 
Personal Insurance.  Net favorable prior year reserve development in the first quarter of 2018 totaled $49 million, primarily driven by better than expected loss experience in the segment's domestic operations in the Homeowners and Other product line for accident years 2016 and 2017 and in the Automobile product line for accident year 2017. Net favorable prior year reserve development in the first quarter of 2017 totaled $6 million.

7.             OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
 
The following table presents the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the three months ended March 31, 2018.
 
 
Changes in Net Unrealized Gains on
Investment Securities
 
 
 
 
 
 
(in millions)
 
Having No Credit
Losses Recognized in
the Consolidated
Statement of Income
 
Having Credit 
Losses Recognized 
in the Consolidated
Statement of 
Income
 
Net Benefit Plan Assets and
Obligations
Recognized in
Shareholders’ 
Equity
 
Net Unrealized
Foreign Currency
Translation
 
Total Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
$
747

 
$
207

 
$
(686
)
 
$
(611
)
 
$
(343
)
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
 
(34
)
 

 

 

 
(34
)
Income tax benefit
 
(12
)
 

 

 

 
(12
)
Net of income taxes
 
(22
)
 

 

 

 
(22
)