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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________
 FORM 8-K
 _______________________________________

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  January 22, 2019
 _______________________________________________
The Travelers Companies, Inc.
(Exact name of registrant as specified in its charter)
 _______________________________________________
 
Minnesota
 
001-10898
 
41-0518860
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(I.R.S. Employer
Identification No.)
 
485 Lexington Avenue
New York, New York
 
10017
(Address of principal executive offices)
 
(Zip Code)
 
(917) 778-6000
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)
 _________________________________________________

 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
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






Item 2.02.  Results of Operations and Financial Condition.
 
On January 22, 2019, The Travelers Companies, Inc. (the “Company”) issued a press release announcing the results of the Company’s operations for the quarter ended December 31, 2018, and the availability of the Company’s fourth quarter financial supplement on the Company’s web site.  The press release and the financial supplement are furnished as Exhibits 99.1 and 99.2 to this Report and are hereby incorporated by reference in this Item 2.02.
 
As provided in General Instruction B.2 of Form 8-K, the information and exhibits contained in this Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
 
Item 9.01.  Financial Statements and Exhibits.
 
(d)                                 Exhibits.
 
Exhibit No.
 
Description
99.1
 
 
 
 
99.2
 






SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, The Travelers Companies, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
THE TRAVELERS COMPANIES, INC.
 
 
 
 
 
 
 
 
Date:
January 22, 2019
By
/s/   CHRISTINE K. KALLA
 
 
 
Name: Christine K. Kalla
 
 
 
Executive Vice President and General Counsel


(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


396432381_g34651mo25i001b12.gifExhibit 99.1
The Travelers Companies, Inc.
485 Lexington Avenue
New York, NY 10017-2630
www.travelers.com
NYSE: TRV

Travelers Reports Fourth Quarter 2018 Net Income per Diluted Share of $2.32, up 17%,
and Return on Equity of 10.9%

Fourth Quarter 2018 Core Income per Diluted Share of $2.13 and Core Return on Equity of 10.0%

Full Year Net Income of $2.523 billion and Return on Equity of 11.0%

Full Year Core Income of $2.430 billion and Core Return on Equity of 10.7%

Fourth quarter net income of $621 million and core income of $571 million.
Catastrophe losses of $610 million pre-tax increased from $499 million pre-tax in the prior year quarter.
Fourth quarter consolidated combined ratio of 97.5%; underlying combined ratio of 91.1%.
Fourth quarter net written premiums of $6.691 billion, up 4%; record full year net written premiums of $27.708 billion, up 6%; both periods reflect growth in all segments.
Total capital returned to shareholders of $375 million in the quarter, including $170 million of share repurchases.
Year-to-date total capital returned to shareholders of $2.139 billion, including $1.321 billion of share repurchases.
Book value per share of $86.84, down 1% from year-end 2017, due to the impact of higher interest rates on net unrealized investment gains (losses). Adjusted book value per share of $87.27, up 5% from year-end 2017.
Board of Directors declared quarterly dividend per share of $0.77.

New York, January 22, 2019 — The Travelers Companies, Inc. today reported net income of $621 million, or $2.32 per diluted share, for the quarter ended December 31, 2018, compared to $551 million, or $1.98 per diluted share, in the prior year quarter. Core income in the current quarter was $571 million, or $2.13 per diluted share, compared to $633 million, or $2.28 per diluted share, in the prior year quarter. Core income before income taxes decreased primarily due to a decrease in net favorable prior year reserve development of $126 million and an increase in catastrophe losses of $111 million, partially offset by an increase in underlying underwriting gain (i.e., excluding net favorable prior year reserve development and catastrophe losses) of $106 million and an increase in net investment income of $29 million. Core income benefited from a lower U.S. corporate income tax rate. Net income in the prior year quarter included a charge of $129 million related to the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). Per diluted share amounts benefited from the impact of share repurchases.

Consolidated Highlights
($ in millions, except for per share amounts, and after-tax, except for premiums and revenues)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
Net written premiums
 
$
6,691

 
$
6,424

 
4
 %
 
$
27,708

 
$
26,219

 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
7,796

 
$
7,451

 
5

 
$
30,282

 
$
28,902

 
5

 
Net income
 
$
621

 
$
551

 
13

 
$
2,523

 
$
2,056

 
23

 
per diluted share
 
$
2.32

 
$
1.98

 
17

 
$
9.28

 
$
7.33

 
27

 
Core income
 
$
571

 
$
633

 
(10
)
 
$
2,430

 
$
2,043

 
19

 
per diluted share
 
$
2.13

 
$
2.28

 
(7
)
 
$
8.94

 
$
7.28

 
23

 
Diluted weighted average shares outstanding
 
266.0

 
275.7

 
(4
)
 
269.8

 
278.6

 
(3
)
 
Combined ratio
 
97.5
%
 
95.5
%
 
2.0

pts
96.9
%
 
97.9
%
 
(1.0
)
pts
Underlying combined ratio
 
91.1
%
 
92.4
%
 
(1.3
)
pts
92.5
%
 
92.6
%
 
(0.1
)
pts
Return on equity
 
10.9
%
 
9.3
%
 
1.6

pts
11.0
%
 
8.7
%
 
2.3

pts
Core return on equity
 
10.0
%
 
11.1
%
 
(1.1
)
pts
10.7
%
 
9.0
%
 
1.7

pts
 
 
As of
 
 
 
 
December 31,
2018
 
December 31,
2017
 
Change
Book value per share
 
$
86.84

 
$
87.46

 
(1
)%
Adjusted book value per share
 
87.27

 
83.36

 
5
 %
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.

1



“Fourth quarter core income of $571 million and core return on equity of 10.0% were both impacted by a high level of catastrophe losses arising from the California wildfires and Hurricane Michael,” said Alan Schnitzer, Chairman and Chief Executive Officer. “Our consolidated underlying results remained strong, benefiting from the continued successful execution of our strategy to create top-line opportunities and improve productivity and efficiency. This resulted in a 5% increase in net earned premiums to a record $6.9 billion and a reduction in the expense ratio to 29.5%. The underlying combined ratio improved to 91.1%, the lowest level since the first quarter of 2016. We were pleased with strong underlying performance across our diversified product portfolio, particularly in the Workers' Compensation, Surety, Management Liability and Personal Auto product lines, while our results in Commercial Auto were impacted by higher loss estimates for the full year. Net investment income of $630 million pre-tax was strong, up 5% over the prior year quarter due to higher returns in our fixed income portfolio. These results, together with our strong balance sheet, enabled us to return $375 million of excess capital to shareholders this quarter, including $170 million of share repurchases. For the full year, we returned over $2.1 billion of excess capital to shareholders, including $1.3 billion in share repurchases.
“We remain very pleased with our performance in the market, as net written premiums increased by 4% to $6.7 billion, with each of our business segments contributing. Net written premiums in Business Insurance increased by 3%, benefiting from renewal premium change of nearly 5% and continued historically high levels of retention. In our Middle Market business, renewal premium change increased over the prior year and was stable sequentially with retention at a fourth quarter record of 88%. In Bond & Specialty Insurance, net written premiums increased by 8%, with strong production in both our Management Liability and Surety businesses. In Personal Insurance, net written premiums increased by 5%. In Agency Auto, net written premiums increased by 5%, with strong retention and renewal premium change that continued to moderate, consistent with our objective of balancing growth and profitability. In our leading Agency Homeowners business, net written premiums increased by 6%, with strong retention and pricing up nearly a point over the prior year quarter.
“For the full year, we were pleased to have achieved record net written premiums of $27.7 billion and core income of $2.4 billion that generated core ROE of 10.7% despite an elevated level of $1.4 billion of after-tax catastrophe losses. These results demonstrate the strength of our franchise. We continue to pursue our ambitious innovation agenda and identify opportunities to leverage our long-standing competitive advantages in a rapidly changing world. For example, we recently announced an agreement to become the exclusive provider of U.S. auto insurance claim management for Lyft. Our significant competitive advantages, including a strong balance sheet, superior talent and leading position with agents and brokers, together with our capital management strategy and the strategic initiatives we have underway, position us well to continue to deliver shareholder value over time.”
 






2



Consolidated Results
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
Underwriting gain:
 
$
135

 
$
266

 
$
(131
)
 
$
681

 
$
404

 
$
277

 
Underwriting gain includes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
 
167

 
293

 
(126
)
 
517

 
592

 
(75
)
 
Catastrophes, net of reinsurance
 
(610
)
 
(499
)
 
(111
)
 
(1,716
)
 
(1,949
)
 
233

 
Net investment income
 
630

 
601

 
29

 
2,474

 
2,397

 
77

 
Other income (expense), including interest expense
 
(79
)
 
(77
)
 
(2
)
 
(308
)
 
(287
)
 
(21
)
 
Core income before income taxes
 
686

 
790

 
(104
)
 
2,847

 
2,514

 
333

 
Income tax expense
 
115

 
157

 
(42
)
 
417

 
471

 
(54
)
 
Core income
 
571

 
633

 
(62
)
 
2,430

 
2,043

 
387

 
Net realized investment gains after income taxes
 
50

 
47

 
3

 
93

 
142

 
(49
)
 
Impact of TCJA at enactment
 

 
(129
)
 
129

 

 
(129
)
 
129

 
Net income
 
$
621

 
$
551

 
$
70

 
$
2,523

 
$
2,056

 
$
467

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
 
97.5
 %
 
95.5
 %
 
2.0

pts
96.9
 %
 
97.9
 %
 
(1.0
)
pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
 
(2.4
)
pts
(4.4
)
pts
2.0

pts
(1.9
)
pts
(2.3
)
pts
0.4

pts
Catastrophes, net of reinsurance
 
8.8

pts
7.5

pts
1.3

pts
6.3

pts
7.6

pts
(1.3
)
pts
Underlying combined ratio
 
91.1
 %
 
92.4
 %
 
(1.3
)
pts
92.5
 %
 
92.6
 %
 
(0.1
)
pts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Insurance
 
$
3,533

 
$
3,437

 
3
 %
 
$
14,956

 
$
14,270

 
5
 %
 
Bond & Specialty Insurance
 
657

 
606

 
8

 
2,528

 
2,359

 
7

 
Personal Insurance
 
2,501

 
2,381

 
5

 
10,224

 
9,590

 
7

 
Total
 
$
6,691

 
$
6,424

 
4
 %
 
$
27,708

 
$
26,219

 
6
 %
 
 
Fourth Quarter 2018 Results
(All comparisons vs. fourth quarter 2017, unless noted otherwise)
 
Net income of $621 million increased $70 million due to a $129 million charge in the prior year quarter related to the passage of the TCJA, partially offset by lower core income. Core income of $571 million decreased $62 million. Core income before income taxes decreased primarily due to a decrease in net favorable prior year reserve development of $126 million and an increase in catastrophe losses of $111 million, partially offset by an increase in underlying underwriting gain of $106 million and an increase in net investment income of $29 million. Core income benefited from a lower U.S. corporate income tax rate.

Underwriting results: 

The combined ratio of 97.5% increased 2.0 points due to lower net favorable prior year reserve development (2.0 points) and higher catastrophe losses (1.3 points), partially offset by a lower underlying combined ratio (1.3 points).

The underlying combined ratio of 91.1% decreased 1.3 points. See below for details by segment.

Net favorable prior year reserve development occurred in all segments. Catastrophe losses included $453 million pre-tax ($358 million after-tax) from the wildfires in California and $158 million pre-tax ($125 million after-tax) from Hurricane Michael.

Net investment income of $630 million pre-tax ($535 million after-tax) increased 5%. Income from the fixed income investment portfolio increased due to higher long-term and short-term interest rates as well as a higher average level of fixed maturity investments. Private equity returns were lower than in the prior year quarter.

3



Net written premiums of $6.691 billion increased 4%, reflecting growth in all segments. Retention remained high and new business increased across all segments.

Full Year 2018 Results
(All comparisons vs. full year 2017, unless noted otherwise)
 
Net income of $2.523 billion increased $467 million due to higher core income and the $129 million charge in the prior year related to the passage of the TCJA, partially offset by lower net realized investment gains. Core income of $2.430 billion increased $387 million. Core income before income taxes increased due to a decrease in catastrophe losses of $233 million, an increase in underlying underwriting gain of $119 million and an increase in net investment income of $77 million, partially offset by a decrease in net favorable prior year reserve development of $75 million. Core income benefited from a lower U.S. corporate income tax rate. Net realized investment gains of $114 million pre-tax ($93 million after-tax) were lower by $102 million pre-tax ($49 million after-tax).

Underwriting results:
 
The combined ratio of 96.9% improved 1.0 points due to lower catastrophe losses (1.3 points) and a slightly lower underlying combined ratio (0.1 points), partially offset by lower net favorable prior year reserve development (0.4 points).

The underlying combined ratio of 92.5% decreased 0.1 points. See below for details by segment.

Net favorable prior year reserve development occurred in all segments. Catastrophe losses included the fourth quarter events described above, as well as winter storms in the eastern U.S., Hurricane Florence, wind and hail storms in several regions of the U.S. and mudslides in California in the first three quarters of 2018.
 
Net investment income of $2.474 billion pre-tax ($2.102 billion after-tax) increased 3%. Income from the fixed income investment portfolio increased due to a higher average level of fixed maturity investments and higher long-term and short-term interest rates. Private equity returns were lower than in the prior year.

Record net written premiums of $27.708 billion increased 6%, reflecting growth in all segments. Retention remained high and new business increased across all segments.

Shareholders’ Equity
 
Shareholders’ equity of $22.894 billion decreased 4% from year-end 2017 due to the impact of higher interest rates on net unrealized investment gains (losses). Net unrealized investment losses included in shareholders’ equity were $137 million pre-tax ($113 million after-tax), compared to net unrealized investment gains of $1.414 billion pre-tax ($1.112 billion after-tax) at year-end 2017. Book value per share of $86.84 decreased 1% from year-end 2017, also due to the impact of higher interest rates on net unrealized investment gains (losses). Adjusted book value per share of $87.27 increased 5% from year-end 2017.

The Company repurchased 1.4 million shares during the fourth quarter at an average price of $125.07 per share for a total cost of $170 million. Capacity remaining under the existing share repurchase authorization was $3.286 billion at the end of the quarter. At the end of fourth quarter 2018, statutory capital and surplus was $20.774 billion, and the ratio of debt-to-capital was 22.3%. The ratio of debt-to-capital excluding after-tax net unrealized investment losses included in shareholders’ equity was 22.2%, within the Company’s target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.77 per share. The dividend is payable on March 29, 2019, to shareholders of record at the close of business on March 11, 2019.


4



Business Insurance Segment Financial Results
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
Underwriting gain:
 
$
7

 
$
399

 
$
(392
)
 
$
76

 
$
251

 
$
(175
)
 
Underwriting gain includes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
 
48

 
244

 
(196
)
 
142

 
439

 
(297
)
 
Catastrophes, net of reinsurance
 
(197
)
 
(53
)
 
(144
)
 
(639
)
 
(858
)
 
219

 
Net investment income
 
465

 
449

 
16

 
1,833

 
1,786

 
47

 
Other income (expense)
 
(9
)
 
2

 
(11
)
 
(12
)
 
24

 
(36
)
 
Segment income before income taxes
 
463

 
850

 
(387
)
 
1,897

 
2,061

 
(164
)
 
Income tax expense
 
72

 
213

 
(141
)
 
259

 
448

 
(189
)
 
Segment income
 
$
391

 
$
637

 
$
(246
)
 
$
1,638

 
$
1,613

 
$
25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
 
99.4
 %
 
88.6
 %
 
10.8

pts
99.1
 %
 
97.8
 %
 
1.3

pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
 
(1.2
)
pts
(6.7
)
pts
5.5

pts
(1.0
)
pts
(3.1
)
pts
2.1

pts
Catastrophes, net of reinsurance
 
5.2

pts
1.4

pts
3.8

pts
4.4

pts
6.0

pts
(1.6
)
pts
Underlying combined ratio
 
95.4
 %
 
93.9
 %
 
1.5

pts
95.7
 %
 
94.9
 %
 
0.8

pts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums by market
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
 
 
 
 
 
 
Select Accounts
 
$
660

 
$
661

 
 %
 
$
2,828

 
$
2,800

 
1
 %
 
Middle Market
 
1,935

 
1,863

 
4

 
8,214

 
7,756

 
6

 
National Accounts
 
247

 
259

 
(5
)
 
1,025

 
1,010

 
1

 
National Property and Other
 
422

 
381

 
11

 
1,805

 
1,691

 
7

 
Total Domestic
 
3,264

 
3,164

 
3

 
13,872

 
13,257

 
5

 
International
 
269

 
273

 
(1
)
 
1,084

 
1,013

 
7

 
Total
 
$
3,533

 
$
3,437

 
3
 %
 
$
14,956

 
$
14,270

 
5
 %
 
 
Fourth Quarter 2018 Results
(All comparisons vs. fourth quarter 2017, unless noted otherwise)
 
Segment income for Business Insurance was $391 million after-tax, a decrease of $246 million. Segment income before income taxes decreased due to lower net favorable prior year reserve development, higher catastrophe losses and a lower underlying underwriting gain, partially offset by higher net investment income. The lower underlying underwriting gain was primarily driven by higher loss estimates in the domestic commercial automobile line for bodily injury liability coverages. Segment income in the current quarter benefited from a lower U.S. corporate income tax rate.
 
Underwriting results:

The combined ratio of 99.4% increased 10.8 points due to lower net favorable prior year reserve development (5.5 points), higher catastrophe losses (3.8 points) and a higher underlying combined ratio (1.5 points).

The underlying combined ratio of 95.4% increased 1.5 points, driven by the full year impact of higher loss estimates in the domestic commercial automobile line for bodily injury liability coverages, partially offset by a lower expense ratio.

Net favorable prior year reserve development was primarily driven by better than expected loss experience in domestic workers' compensation for multiple accident years, partially offset by higher than expected loss experience in domestic commercial automobile for recent accident years and domestic general liability for multiple accident years.


5



Net written premiums of $3.533 billion increased 3%, benefiting from continued strong retention, higher renewal premium change and higher levels of new business.

Full Year 2018 Results
(All comparisons vs. full year 2017, unless noted otherwise)
 
Segment income for Business Insurance was $1.638 billion after-tax, an increase of $25 million. Segment income before income taxes decreased due to lower net favorable prior year reserve development and a lower underlying underwriting gain, partially offset by lower catastrophe losses and higher net investment income. The lower underlying underwriting gain was primarily driven by higher loss estimates in the domestic commercial automobile line for bodily injury liability coverages. Segment income in the current year benefited from a lower U.S. corporate income tax rate.
 
Underwriting results:

The combined ratio of 99.1% increased 1.3 points due to lower net favorable prior year reserve development (2.1 points) and a higher underlying combined ratio (0.8 points), partially offset by lower catastrophe losses (1.6 points).

The underlying combined ratio of 95.7% increased 0.8 points, primarily driven by higher loss estimates in the domestic commercial automobile line for bodily injury liability coverages.

Net favorable prior year reserve development was primarily driven by better than expected loss experience in domestic workers’ compensation for multiple accident years and commercial property for recent accident years, partially offset by higher than expected loss experience in domestic general liability for multiple accident years (including a $225 million increase to asbestos reserves and a $55 million increase to environmental reserves) and domestic commercial automobile for recent accident years.

Net written premiums of $14.956 billion increased 5% and benefited from the same factors as discussed above for the fourth quarter of 2018.


6



Bond & Specialty Insurance Segment Financial Results
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
Underwriting gain:
$
214

 
$
94

 
$
120

 
$
740

 
$
512

 
$
228

 
Underwriting gain includes:
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
89

 
42

 
47

 
266

 
140

 
126

 
Catastrophes, net of reinsurance
(7
)
 
2

 
(9
)
 
(16
)
 
(6
)
 
(10
)
 
Net investment income
61

 
54

 
7

 
233

 
228

 
5

 
Other income
5

 
8

 
(3
)
 
18

 
24

 
(6
)
 
Segment income before income taxes
280

 
156

 
124

 
991

 
764

 
227

 
Income tax expense
60

 
44

 
16

 
198

 
208

 
(10
)
 
Segment income
$
220

 
$
112

 
$
108

 
$
793

 
$
556

 
$
237

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
64.8
 %
 
83.7
 %
 
(18.9
)
pts
69.0
 %
 
77.4
 %
 
(8.4
)
pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
(14.4
)
pts
(7.2
)
pts
(7.2
)
pts
(11.0
)
pts
(6.1
)
pts
(4.9
)
pts
Catastrophes, net of reinsurance
1.1

pts
(0.2
)
pts
1.3

pts
0.6

pts
0.3

pts
0.3

pts
Underlying combined ratio
78.1
 %
 
91.1
 %
 
(13.0
)
pts
79.4
 %
 
83.2
 %
 
(3.8
)
pts
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
 
 
 
 
 
Management Liability
$
366

 
$
337

 
9
 %
 
$
1,455

 
$
1,367

 
6
 %
 
Surety
198

 
196

 
1

 
835

 
793

 
5

 
Total Domestic
564

 
533

 
6

 
2,290

 
2,160

 
6

 
International
93

 
73

 
27

 
238

 
199

 
20

 
Total
$
657

 
$
606

 
8
 %
 
$
2,528

 
$
2,359

 
7
 %
 

Fourth Quarter 2018 Results
(All comparisons vs. fourth quarter 2017, unless noted otherwise)
 
Segment income for Bond & Specialty Insurance was $220 million after-tax, an increase of $108 million. Segment income before income taxes benefited from a higher underlying underwriting gain and higher net favorable prior year reserve development. The higher underlying underwriting gain primarily resulted from a charge for a single international surety loss in the fourth quarter of 2017 and higher business volumes. Segment income in the current quarter benefited from a lower U.S. corporate income tax rate.
 
Underwriting results:

The combined ratio of 64.8% improved 18.9 points due to a lower underlying combined ratio (13.0 points) and higher net favorable prior year reserve development (7.2 points), partially offset by higher catastrophe losses (1.3 points).

The underlying combined ratio of 78.1% improved 13.0 points, primarily driven by a charge for a single international surety loss in the fourth quarter of 2017.

Net favorable prior year reserve development resulted from better than expected loss experience in domestic general liability for management liability coverages for multiple accident years.

Net written premiums of $657 million increased 8%, reflecting continued strong retention and higher new business in management liability and an increase in surety premiums.


7



Full Year 2018 Results
(All comparisons vs. full year 2017, unless noted otherwise)
 
Segment income for Bond & Specialty Insurance was $793 million after-tax, an increase of $237 million. Segment income before income taxes benefited from higher net favorable prior year reserve development and a higher underlying underwriting gain. The higher underlying underwriting gain primarily resulted from a charge for a single international surety loss in 2017 and higher business volumes. Segment income in the current year benefited from a lower U.S. corporate income tax rate.

Underwriting results:

The combined ratio of 69.0% improved 8.4 points due to higher net favorable prior year reserve development (4.9 points) and a lower underlying combined ratio (3.8 points), partially offset by higher catastrophe losses (0.3 points).

The underlying combined ratio of 79.4% improved 3.8 points, primarily driven by a charge for a single international surety loss in 2017.

Net favorable prior year reserve development resulted from better than expected loss experience in domestic general liability for management liability coverages for multiple accident years.

Net written premiums of $2.528 billion increased 7% and benefited from the same factors as discussed above for the fourth quarter of 2018.

Personal Insurance Segment Financial Results
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
Underwriting gain (loss):
$
(86
)
 
$
(227
)
 
$
141

 
$
(135
)
 
$
(359
)
 
$
224

 
Underwriting gain (loss) includes:
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
30

 
7

 
23

 
109

 
13

 
96

 
Catastrophes, net of reinsurance
(406
)
 
(448
)
 
42

 
(1,061
)
 
(1,085
)
 
24

 
Net investment income
104

 
98

 
6

 
408

 
383

 
25

 
Other income
18

 
15

 
3

 
66

 
60

 
6

 
Segment income (loss) before income taxes
36

 
(114
)
 
150

 
339

 
84

 
255

 
Income tax expense (benefit)
4

 
(64
)
 
68

 
42

 
(44
)
 
86

 
Segment income (loss)
$
32

 
$
(50
)
 
$
82

 
$
297

 
$
128

 
$
169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
102.6
 %
 
108.7
 %
 
(6.1
)
pts
100.6
 %
 
103.1
 %
 
(2.5
)
pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
(1.1
)
pts
(0.3
)
pts
(0.8
)
pts
(1.1
)
pts
(0.1
)
pts
(1.0
)
pts
Catastrophes, net of reinsurance
15.9

pts
18.6

pts
(2.7
)
pts
10.7

pts
11.7

pts
(1.0
)
pts
Underlying combined ratio
87.8
 %
 
90.4
 %
 
(2.6
)
pts
91.0
 %
 
91.5
 %
 
(0.5
)
pts
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
 
 
 
 
 
Agency (1)
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
$
1,226

 
$
1,172

 
5
 %
 
$
4,972

 
$
4,646

 
7
 %
 
Homeowners & Other
1,011

 
955

 
6

 
4,148

 
3,933

 
5

 
Total Agency
2,237

 
2,127

 
5

 
9,120

 
8,579

 
6

 
Direct to Consumer
97

 
90

 
8

 
396

 
361

 
10

 
Total Domestic
2,334

 
2,217

 
5

 
9,516

 
8,940

 
6

 
International
167

 
164

 
2

 
708

 
650

 
9

 
Total
$
2,501

 
$
2,381

 
5
 %
 
$
10,224

 
$
9,590

 
7
 %
 
(1) Represents business sold through agents, brokers and other intermediaries, and excludes direct to consumer.
 

8



Fourth Quarter 2018 Results
(All comparisons vs. fourth quarter 2017, unless noted otherwise)
 
Segment income for Personal Insurance was $32 million after-tax, compared to a loss of $50 million in the prior year quarter. Segment income before income taxes benefited from a higher underlying underwriting gain, lower catastrophe losses, higher net favorable prior year reserve development and higher net investment income. The higher underlying underwriting gain was primarily driven by earned pricing that exceeded loss cost trends in Agency Automobile, partially offset by higher non-weather related losses in Agency Homeowners & Other.

Underwriting results:

The combined ratio of 102.6% improved 6.1 points due to lower catastrophe losses (2.7 points), a lower underlying combined ratio (2.6 points) and higher net favorable prior year reserve development (0.8 points).

The underlying combined ratio of 87.8% improved 2.6 points, primarily driven by earned pricing that exceeded loss cost trends in Agency Automobile and a lower expense ratio, partially offset by higher non-weather related losses in Agency Homeowners & Other.

Net favorable prior year reserve development primarily resulted from better than expected loss experience in Agency Automobile for recent accident years.

Net written premiums of $2.501 billion increased 5%. Agency Automobile net written premiums increased 5%, driven by renewal premium change of 6%. Agency Homeowners & Other net written premiums increased 6%, benefiting from year-over-year policies in force growth of 6%.

Full Year 2018 Results
(All comparisons vs. full year 2017, unless noted otherwise)
 
Segment income for Personal Insurance was $297 million after-tax, an increase of $169 million. Segment income before income taxes benefited from a higher underlying underwriting gain, higher net favorable prior year reserve development, higher net investment income and lower catastrophe losses. The higher underlying underwriting gain was primarily driven by earned pricing that exceeded loss cost trends in Agency Automobile, partially offset by higher non-catastrophe weather-related losses and non-weather related losses in Agency Homeowners & Other. Segment income in the current year benefited from a lower U.S. corporate income tax rate.
 
Underwriting results:

The combined ratio of 100.6% improved 2.5 points due to higher net favorable prior year reserve development (1.0 points), lower catastrophe losses (1.0 points) and a lower underlying combined ratio (0.5 points).

The underlying combined ratio of 91.0% improved 0.5 points, primarily driven by earned pricing that exceeded loss cost trends in Agency Automobile, partially offset by higher non-catastrophe weather-related losses and non-weather related losses in Agency Homeowners & Other.

Net favorable prior year reserve development resulted from better than expected loss experience in Agency Automobile for recent accident years.

Net written premiums of $10.224 billion increased 7%. Agency Automobile net written premiums increased 7%, and Agency Homeowners & Other net written premiums increased 5%, in each case benefiting from the same factors as discussed above for the fourth quarter of 2018.
 

9



Financial Supplement and Conference Call
 
The information in this press release should be read in conjunction with a financial supplement that is available on our website at www.travelers.com. Travelers management will discuss the contents of this release and other relevant topics via webcast at 9 a.m. Eastern (8 a.m. Central) on Tuesday, January 22, 2019. Investors can access the call via webcast at http://investor.travelers.com or by dialing 1.844.895.1976 within the United States and 1.647.689.5389 outside the United States. Prior to the webcast, a slide presentation pertaining to the quarterly earnings will be available on the Company’s website.

Following the live event, an audio playback of the webcast and the slide presentation will be available on the same website.

About Travelers
 
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of property casualty insurance for auto, home and business. A component of the Dow Jones Industrial Average, Travelers has approximately 30,000 employees and generated revenues of approximately $30 billion in 2018. For more information, visit www.travelers.com.

Travelers may use its website and/or social media outlets, such as Facebook and Twitter, as distribution channels of material Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website at http://investor.travelers.com, our Facebook page at https://www.facebook.com/travelers and our Twitter account (@Travelers) at https://twitter.com/travelers. In addition, you may automatically receive email alerts and other information about Travelers when you enroll your email address by visiting the Email Notifications section at http://investor.travelers.com.

Travelers is organized into the following reportable business segments:
 
Business Insurance - Business Insurance offers a broad array of property and casualty insurance and insurance related services to its customers, primarily in the United States, as well as in Canada, the United Kingdom, the Republic of Ireland, Brazil and throughout other parts of the world as a corporate member of Lloyd’s.

Bond & Specialty Insurance - Bond & Specialty Insurance provides surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services to its customers in the United States and certain specialty insurance products in Canada, the United Kingdom, the Republic of Ireland and Brazil, utilizing various degrees of financially-based underwriting approaches.

Personal Insurance - Personal Insurance writes a broad range of property and casualty insurance covering individuals’ personal risks, primarily in the United States, as well as in Canada. The primary products of automobile and homeowners insurance are complemented by a broad suite of related coverages.
 
* * * * *
Forward-Looking Statements
 
This press release contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates” and similar expressions are used to identify these forward-looking statements. These statements include, among other things, the Company’s statements about:

the Company’s outlook and its future results of operations and financial condition (including, among other things, anticipated premium volume, premium rates, renewal premium changes, margins, net and core income, investment income and performance, loss costs, return on equity, core return on equity and expected current returns and combined ratios and underlying combined ratios);
share repurchase plans;
future pension plan contributions;
the sufficiency of the Company’s asbestos and other reserves;
the impact of emerging claims issues as well as other insurance and non-insurance litigation;
the cost and availability of reinsurance coverage;
catastrophe losses;

10



the impact of investment (including changes in interest rates), economic (including inflation, recent changes in tax law, rapid changes in commodity prices and fluctuations in foreign currency exchange rates) and underwriting market conditions;
strategic and operational initiatives to improve profitability and competitiveness;
the Company’s competitive advantages;
new product offerings;
the impact of new or potential regulations imposed or to be imposed by the United States or other nations, including tariffs or other barriers to international trade; and
the impact of the government shutdown.

The Company cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the Company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Some of the factors that could cause actual results to differ include, but are not limited to, the following:

catastrophe losses could materially and adversely affect the Company’s results of operations, its financial position and/or liquidity, and could adversely impact the Company’s ratings, the Company’s ability to raise capital and the availability and cost of reinsurance;
if actual claims exceed the Company’s claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal, regulatory and economic environments in which the Company operates, the Company’s financial results could be materially and adversely affected;
during or following a period of financial market disruption or an economic downturn, the Company’s business could be materially and adversely affected;
the Company’s investment portfolio is subject to credit risk and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses;
the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
the intense competition that the Company faces, and the impact of innovation, technological change and changing customer preferences on the insurance industry and the markets in which it operates, could harm its ability to maintain or increase its business volumes and its profitability;
disruptions to the Company’s relationships with its independent agents and brokers or the Company's inability to manage effectively a changing distribution landscape could adversely affect the Company;
the Company is exposed to, and may face adverse developments involving, mass tort claims such as those relating to exposure to potentially harmful products or substances;
the effects of emerging claim and coverage issues on the Company’s business are uncertain;
the Company may not be able to collect all amounts due to it from reinsurers, reinsurance coverage may not be available to the Company in the future at commercially reasonable rates or at all and we are exposed to credit risk related to our structured settlements;
the Company is also exposed to credit risk in certain of its insurance operations and with respect to certain guarantee or indemnification arrangements that we have with third parties;
within the United States, the Company’s businesses are heavily regulated by the states in which it conducts business, including licensing, market conduct and financial supervision, and changes in regulation may reduce the Company’s profitability and limit its growth;
a downgrade in the Company’s claims-paying and financial strength ratings could adversely impact the Company’s business volumes, adversely impact the Company’s ability to access the capital markets and increase the Company’s borrowing costs;
the inability of the Company’s insurance subsidiaries to pay dividends to the Company’s holding company in sufficient amounts would harm the Company’s ability to meet its obligations, pay future shareholder dividends and/or make future share repurchases;
the Company’s efforts to develop new products, expand in targeted markets or improve business processes and workflows may not be successful and may create enhanced risks;
the Company may be adversely affected if its pricing and capital models provide materially different indications than actual results;
the Company’s business success and profitability depend, in part, on effective information technology systems and on continuing to develop and implement improvements in technology, particularly as its business processes become more digital;

11



if the Company experiences difficulties with technology, data and network security (including as a result of cyber attacks), outsourcing relationships or cloud-based technology, the Company’s ability to conduct its business could be negatively impacted;
the Company is also subject to a number of additional risks associated with its business outside the United States, such as foreign currency exchange fluctuations (including with respect to the valuation of the Company’s foreign investments and interests in joint ventures) and restrictive regulations as well as the risks and uncertainties associated with the United Kingdom’s withdrawal from the European Union;
regulatory changes outside of the United States, including in Canada, the United Kingdom, the Republic of Ireland and the European Union, could adversely impact the Company’s results of operations and limit its growth;
loss of or significant restrictions on the use of particular types of underwriting criteria, such as credit scoring, or other data or methodologies, in the pricing and underwriting of the Company’s products could reduce the Company’s future profitability;
acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences;
the Company could be adversely affected if its controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective;
the Company’s businesses may be adversely affected if it is unable to hire and retain qualified employees;
intellectual property is important to the Company’s business, and the Company may be unable to protect and enforce its own intellectual property or the Company may be subject to claims for infringing the intellectual property of others;
changes in federal regulation could impose significant burdens on the Company and otherwise adversely impact the Company’s results;
changes in U.S. tax laws or in the tax laws of other jurisdictions in which the Company operates could adversely impact the Company; and
the Company’s share repurchase plans depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.

Our forward-looking statements speak only as of the date of this press release or as of the date they are made, and we undertake no obligation to update forward-looking statements. For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 15, 2018, as updated by our periodic filings with the SEC.

 *****
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
 
The following measures are used by the Company’s management to evaluate financial performance against historical results, to establish performance targets on a consolidated basis, and for other reasons as discussed below. In some cases, these measures are considered non-GAAP financial measures under applicable SEC rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. Reconciliations of these measures to the most comparable GAAP measures also follow.
    
In the opinion of the Company’s management, a discussion of these measures provides investors, financial analysts, rating agencies and other financial statement users with a better understanding of the significant factors that comprise the Company’s periodic results of operations and how management evaluates the Company’s financial performance.
                    
Some of these measures exclude net realized investment gains (losses), net of tax, and/or net unrealized investment gains (losses), net of tax, included in shareholders’ equity, which can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends.


12



Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by the Company’s management.
 
RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER NON-GAAP MEASURES
 
Core income (loss) is consolidated net income (loss) excluding the after-tax impact of net realized investment gains (losses), discontinued operations, the effect of a change in tax laws and tax rates at enactment, and cumulative effect of changes in accounting principles when applicable. Segment income (loss) is determined in the same manner as core income (loss) on a segment basis. Management uses segment income (loss) to analyze each segment’s performance and as a tool in making business decisions. Financial statement users also consider core income (loss) when analyzing the results and trends of insurance companies. Core income (loss) per share is core income (loss) on a per common share basis.

Reconciliation of Net Income to Core Income less Preferred Dividends
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2018
 
2017
 
2018
 
2017
Net income
 
$
621

 
$
551

 
$
2,523

 
$
2,056

Less: Net realized investment gains
 
(50
)
 
(47
)
 
(93
)
 
(142
)
Impact of TCJA at enactment
 

 
129

 

 
129

Core income
 
$
571

 
$
633

 
$
2,430

 
$
2,043

 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions, pre-tax)
 
2018
 
2017
 
2018
 
2017
Net income
 
$
746

 
$
860

 
$
2,961

 
$
2,730

Less: Net realized investment gains
 
(60
)
 
(70
)
 
(114
)
 
(216
)
Core income
 
$
686

 
$
790

 
$
2,847

 
$
2,514

 
 
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2018
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
Net income
 
$
2,523

 
$
2,056

 
$
3,014

 
$
3,439

 
$
3,692

 
$
3,673

 
$
2,473

 
$
1,426

 
$
3,216

 
$
3,622

 
$
2,924

 
$
4,601

 
$
4,208

 
$
1,622

Less: Loss from discontinued operations
 

 

 

 

 

 

 

 

 

 

 

 

 

 
(439
)
Income from continuing operations
 
2,523

 
2,056

 
3,014

 
3,439

 
3,692

 
3,673

 
2,473

 
1,426

 
3,216

 
3,622

 
2,924

 
4,601

 
4,208

 
2,061

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized investment (gains) losses
 
(93
)
 
(142
)
 
(47
)
 
(2
)
 
(51
)
 
(106
)
 
(32
)
 
(36
)
 
(173
)
 
(22
)
 
271

 
(101
)
 
(8
)
 
(35
)
Impact of TCJA at enactment
 

 
129

 

 

 

 

 

 

 

 

 

 

 

 

Core income
 
2,430

 
2,043

 
2,967

 
3,437

 
3,641

 
3,567

 
2,441

 
1,390

 
3,043

 
3,600

 
3,195

 
4,500

 
4,200

 
2,026

Less: Preferred dividends
 

 

 

 

 

 

 

 
1

 
3

 
3

 
4

 
4

 
5

 
6

Core income, less preferred dividends
 
$
2,430

 
$
2,043

 
$
2,967

 
$
3,437

 
$
3,641

 
$
3,567

 
$
2,441

 
$
1,389

 
$
3,040

 
$
3,597

 
$
3,191

 
$
4,496

 
$
4,195

 
$
2,020

 


13



Reconciliation of Net Income per Share to Core Income per Share on a Basic and Diluted Basis
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
Basic income per share
 
 

 
 

 
 

 
 

Net income
 
$
2.33

 
$
2.00

 
$
9.37

 
$
7.39

Adjustments:
 
 

 
 

 
 

 
 

Net realized investment gains, after-tax
 
(0.18
)
 
(0.17
)
 
(0.35
)
 
(0.51
)
Impact of TCJA at enactment
 

 
0.47

 

 
0.47

Core income
 
$
2.15

 
$
2.30

 
$
9.02

 
$
7.35

Diluted income per share
 
 

 
 

 
 

 
 

Net income
 
$
2.32

 
$
1.98

 
$
9.28

 
$
7.33

Adjustments:
 
 

 
 

 
 

 
 

Net realized investment gains, after-tax
 
(0.19
)
 
(0.17
)
 
(0.34
)
 
(0.51
)
Impact of TCJA at enactment
 

 
0.47

 

 
0.46

Core income
 
$
2.13

 
$
2.28

 
$
8.94

 
$
7.28


Reconciliation of Segment Income to Total Core Income
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2018
 
2017
 
2018
 
2017
Business Insurance
 
$
391

 
$
637

 
$
1,638

 
$
1,613

Bond & Specialty Insurance
 
220

 
112

 
793

 
556

Personal Insurance
 
32

 
(50
)
 
297

 
128

Total segment income
 
643

 
699

 
2,728

 
2,297

Interest Expense and Other
 
(72
)
 
(66
)
 
(298
)
 
(254
)
Total core income
 
$
571

 
$
633

 
$
2,430

 
$
2,043

 
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO ADJUSTED SHAREHOLDERS’ EQUITY AND CALCULATION OF RETURN ON EQUITY AND CORE RETURN ON EQUITY
 
Adjusted shareholders’ equity is shareholders’ equity excluding net unrealized investment gains (losses), net of tax, included in shareholders’ equity, net realized investment gains (losses), net of tax, for the period presented, the effect of a change in tax laws and tax rates at enactment (excluding the portion related to net unrealized investment gains (losses)), preferred stock and discontinued operations.
 
Reconciliation of Shareholders’ Equity to Adjusted Shareholders’ Equity
 
 
As of December 31,
($ in millions)
 
2018
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
Shareholders’ equity
 
$
22,894

 
$
23,731

 
$
23,221

 
$
23,598

 
$
24,836

 
$
24,796

 
$
25,405

 
$
24,477

 
$
25,475

 
$
27,415

 
$
25,319

 
$
26,616

 
$
25,135

 
$
22,303

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized investment (gains) losses, net of tax, included in shareholders’ equity
 
113

 
(1,112
)
 
(730
)
 
(1,289
)
 
(1,966
)
 
(1,322
)
 
(3,103
)
 
(2,871
)
 
(1,859
)
 
(1,856
)
 
146

 
(620
)
 
(453
)
 
(327
)
Net realized investment (gains) losses, net of tax
 
(93
)
 
(142
)
 
(47
)
 
(2
)
 
(51
)
 
(106
)
 
(32
)
 
(36
)
 
(173
)
 
(22
)
 
271

 
(101
)
 
(8
)
 
(35
)
Impact of TCJA at enactment
 

 
287

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock
 

 

 

 

 

 

 

 

 
(68
)
 
(79
)
 
(89
)
 
(112
)
 
(129
)
 
(153
)
Loss from discontinued operations
 

 

 

 

 

 

 

 

 

 

 

 

 

 
439

Adjusted shareholders’ equity
 
$
22,914

 
$
22,764

 
$
22,444

 
$
22,307

 
$
22,819

 
$
23,368

 
$
22,270

 
$
21,570

 
$
23,375

 
$
25,458

 
$
25,647

 
$
25,783

 
$
24,545

 
$
22,227

  
Return on equity is the ratio of annualized net income less preferred dividends to average shareholders’ equity for the periods presented. Core return on equity is the ratio of annualized core income less preferred dividends to adjusted average shareholders’ equity for the periods presented. In the opinion of the Company’s management, these are important indicators of how well management creates value for its shareholders through its operating activities and its capital management.

14




Average shareholders’ equity is (a) the sum of total shareholders’ equity excluding preferred stock at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two. Adjusted average shareholders’ equity is (a) the sum of adjusted shareholders’ equity at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two.
 
Calculation of Return on Equity and Core Return on Equity
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2018
 
2017
 
2018
 
2017
Annualized net income
 
$
2,483

 
$
2,202

 
$
2,523

 
$
2,056

Average shareholders’ equity
 
22,677

 
23,735

 
22,843

 
23,671

Return on equity
 
10.9
%
 
9.3
%
 
11.0
%
 
8.7
%
Annualized core income
 
$
2,286

 
$
2,530

 
$
2,430

 
$
2,043

Adjusted average shareholders’ equity
 
22,932

 
22,795

 
22,814

 
22,743

Core return on equity
 
10.0
%
 
11.1
%
 
10.7
%
 
9.0
%
 
Average annual core return on equity over a period is the ratio of:
a) the sum of core income less preferred dividends for the periods presented to b) the sum of: 1) the sum of the adjusted average shareholders’ equity for all full years in the period presented, and 2) for partial years in the period presented, the number of quarters in that partial year divided by four, multiplied by the adjusted average shareholders’ equity of the partial year.
 
Calculation of Average Annual Core Return on Equity from January 1, 2005 through December 31, 2018
 
 
Twelve Months Ended December 31,
($ in millions)
 
2018
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
Core income, less preferred dividends
 
$
2,430

 
$
2,043

 
$
2,967

 
$
3,437

 
$
3,641

 
$
3,567

 
$
2,441

 
$
1,389

 
$
3,040

 
$
3,597

 
$
3,191

 
$
4,496

 
$
4,195

 
$
2,020

Adjusted average shareholders’ equity
 
22,814