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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):  April 18, 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 April 18, 2019, The Travelers Companies, Inc. (the “Company”) issued a press release announcing the results of the Company’s operations for the quarter ended March 31, 2019, and the availability of the Company’s first 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:
April 18, 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


397568580_g34651mo25i001b12.gifExhibit 99.1
The Travelers Companies, Inc.
485 Lexington Avenue
New York, NY 10017-2630
www.travelers.com
NYSE: TRV

Travelers Reports Strong First Quarter 2019 Net Income per Diluted Share of $2.99, up 24%,
and Return on Equity of 13.5%

First Quarter 2019 Core Income per Diluted Share of $2.83, up 15%, and Core Return on Equity of 13.0%

Board of Directors Declares 6.5% Increase in Regular Quarterly Cash Dividend to $0.82 per Share

First quarter net income of $796 million and core income of $755 million, up 19% and 11%, respectively.
Consolidated combined ratio of 93.7%; underlying combined ratio of 91.6%.
Record gross written premiums of $7.839 billion up 6%, with growth in all segments; net written premiums of $7.057 billion up 3%; growth in net written premiums reflects a new catastrophe reinsurance treaty.
Total capital returned to shareholders of $625 million, including $421 million of share repurchases.
Book value per share of $92.94, up 7% from year-end 2018; adjusted book value per share of $89.09, up 2% from year-end 2018.

New York, April 18, 2019 — The Travelers Companies, Inc. today reported net income of $796 million, or $2.99 per diluted share, for the quarter ended March 31, 2019, compared to $669 million, or $2.42 per diluted share, in the prior year quarter. Core income in the current quarter was $755 million, or $2.83 per diluted share, compared to $678 million, or $2.46 per diluted share, in the prior year quarter. Core income increased primarily due to lower catastrophe losses and a higher underlying underwriting gain (i.e., excluding net favorable prior year reserve development and catastrophe losses), partially offset by lower net favorable prior year reserve development. The decrease in net favorable prior year reserve development primarily reflects the recent enactment of legislation by New York State, as discussed below. Net realized investment gains were $53 million pre-tax ($41 million after-tax), compared to net realized investment losses of $11 million pre-tax ($9 million after-tax) in the prior year quarter. 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 March 31,
 
 
2019
 
2018
 
Change
 
Net written premiums
 
$
7,057

 
$
6,824

 
3
 %
 
 
 
 
 
 
 
 
 
Total revenues
 
$
7,671

 
$
7,286

 
5

 
Net income
 
$
796

 
$
669

 
19

 
per diluted share
 
$
2.99

 
$
2.42

 
24

 
Core income
 
$
755

 
$
678

 
11

 
per diluted share
 
$
2.83

 
$
2.46

 
15

 
Diluted weighted average shares outstanding
 
264.8

 
273.9

 
(3
)
 
Combined ratio
 
93.7
%
 
95.5
%
 
(1.8
)
pts
Underlying combined ratio
 
91.6
%
 
92.4
%
 
(0.8
)
pts
Return on equity
 
13.5
%
 
11.5
%
 
2.0

pts
Core return on equity
 
13.0
%
 
11.9
%
 
1.1

pts
 
 
As of
 
 
 
 
March 31,
2019
 
December 31,
2018
 
Change
Book value per share
 
$
92.94

 
$
86.84

 
7
%
Adjusted book value per share
 
89.09

 
87.27

 
2
%
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.

1



“We are very pleased to report first quarter core income of $755 million, up 11% over the prior year quarter, and core return on equity of 13%,” said Alan Schnitzer, Chairman and Chief Executive Officer. “We delivered strong underwriting results as reflected in our combined ratio of 93.7%. We produced a strong underlying underwriting result thanks to continued underwriting excellence and also through top-line growth and thoughtful expense management, both benefiting from the successful execution of our strategic initiatives. Our high-quality investment portfolio performed well, generating net investment income of $496 million after-tax. While slightly below the result in the prior year quarter due to lower private equity returns, net investment income benefited from higher fixed income returns. These results, along with our strong balance sheet, enabled us to return $625 million of excess capital to our shareholders this quarter, including $421 million of share repurchases. In recognition of our strong financial position and confidence in our business, I am pleased to share that our Board of Directors declared a 6.5% increase in our quarterly cash dividend to $0.82 per share, marking 15 consecutive years of dividend increases with a compound annual growth rate of more than 9% over that period.

“We are also pleased with our continued successful marketplace execution. We generated record gross written premiums of $7.8 billion, a 6% increase over the prior year quarter. Net written premiums, which reflect a new catastrophe reinsurance treaty, grew 3%. In Business Insurance, gross written premiums increased by 6% as we achieved renewal premium change of 6%, including renewal rate change of more than 2%, in both cases the highest levels in almost five years. At the same time, we maintained historically high retention and generated a higher level of new business. In Bond & Specialty Insurance, gross written premiums increased by 4%, driven by continued historically high retention and new business in Domestic Management Liability. In Personal Insurance, gross written premiums increased by 6%, reflecting growth in both our Agency Automobile and Agency Homeowners businesses.

“Our strong first quarter performance in terms of both profitability and production is a terrific start to the year, and we continued to make significant progress on our ambitious innovation agenda. As we discussed in our annual letter to shareholders, our formidable competitive advantages remain the foundation of our success, and by innovating and investing for tomorrow, we will be well positioned to continue delivering industry-leading returns over time."

Consolidated Results
 
 
Three Months Ended March 31,
 
($ in millions and pre-tax, unless noted otherwise)
 
2019
 
2018
 
Change
 
Underwriting gain:
 
$
395

 
$
258

 
$
137

 
Underwriting gain includes:
 
 
 
 
 
 
 
Net favorable prior year reserve development
 
51

 
150

 
(99
)
 
Catastrophes, net of reinsurance
 
(193
)
 
(354
)
 
161

 
Net investment income
 
582

 
603

 
(21
)
 
Other income (expense), including interest expense
 
(63
)
 
(72
)
 
9

 
Core income before income taxes
 
914

 
789

 
125

 
Income tax expense
 
159

 
111

 
48

 
Core income
 
755

 
678

 
77

 
Net realized investment gains (losses) after income taxes
 
41

 
(9
)
 
50

 
Net income
 
$
796

 
$
669

 
$
127

 
 
 
 
 
 
 
 
 
Combined ratio
 
93.7
 %
 
95.5
 %
 
(1.8
)
pts
Impact on combined ratio
 
 
 
 
 
 
 
Net favorable prior year reserve development
 
(0.7
)
pts
(2.3
)
pts
1.6

pts
Catastrophes, net of reinsurance
 
2.8

pts
5.4

pts
(2.6
)
pts
Underlying combined ratio
 
91.6
 %
 
92.4
 %
 
(0.8
)
pts
 
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
 
Business Insurance
 
$
4,163

 
$
3,994

 
4
 %
 
Bond & Specialty Insurance
 
587

 
574

 
2

 
Personal Insurance
 
2,307

 
2,256

 
2

 
Total
 
$
7,057

 
$
6,824

 
3
 %
 
 

2



First Quarter 2019 Results
(All comparisons vs. first quarter 2018, unless noted otherwise)
 
Net income of $796 million increased $127 million due to higher core income, as well as net realized investment gains in the current quarter as compared with net realized investment losses in the prior year quarter. Core income of $755 million increased $77 million. Core income increased primarily due to lower catastrophe losses and a higher underlying underwriting gain, partially offset by lower net favorable prior year reserve development.

Underwriting results: 

The combined ratio of 93.7% decreased 1.8 points due to lower catastrophe losses (2.6 points) and a lower underlying combined ratio (0.8 points), partially offset by lower net favorable prior year reserve development (1.6 points).The decrease in net favorable prior year reserve development primarily reflects the recent enactment of legislation by New York State, as discussed below.

The underlying combined ratio of 91.6% decreased 0.8 points, net of a 0.6 point increase related to a new Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty entered into effective January 1, 2019. See below for further details by segment.

Catastrophe losses primarily resulted from winter storms and wind storms in several regions of the U.S.

Net investment income of $582 million pre-tax ($496 million after-tax) decreased 3%. 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 partnership returns were lower than in the prior year quarter.
Record gross written premiums of $7.839 billion grew 6%, reflecting growth in all segments. Retention remained high and new business increased across all segments. Net written premiums of $7.057 billion increased 3%. Growth in net written premiums reflects the new catastrophe reinsurance treaty. The entire cost of this treaty is reflected in net written premiums in the current quarter. Accordingly, the treaty will not impact net written premiums in the remaining quarters of the year.

Shareholders’ Equity
 
Shareholders’ equity of $24.340 billion increased 6% from year-end 2018, primarily due to the impact of lower interest rates on net unrealized investment gains (losses). Net unrealized investment gains included in shareholders’ equity were $1.284 billion pre-tax ($1.007 billion after-tax), compared to net unrealized investment losses of $137 million pre-tax ($113 million after-tax) at year-end 2018. Book value per share of $92.94 increased 7% from year-end 2018, also primarily due to the impact of lower interest rates on net unrealized investment gains (losses). Adjusted book value per share of $89.09 increased 2% from year-end 2018.

The Company repurchased 3.3 million shares during the first quarter at an average price of $129.20 per share for a total cost of $421 million. Capacity remaining under the existing share repurchase authorization was $2.911 billion at the end of the quarter. Also at the end of the quarter, statutory capital and surplus was $21.074 billion, and the ratio of debt-to-capital was 22.5%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains included in shareholders’ equity was 23.2%, within the Company’s target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.82 per share, an increase of 6.5%. The dividend is payable on June 28, 2019, to shareholders of record at the close of business on June 10, 2019.


3



Business Insurance Segment Financial Results
 
 
Three Months Ended March 31,
 
($ in millions and pre-tax, unless noted otherwise)
 
2019
 
2018
 
Change
 
Underwriting gain:
 
$
57

 
$
73

 
$
(16
)
 
Underwriting gain includes:
 
 
 
 
 
 
 
Net favorable (unfavorable) prior year reserve development
 
(21
)
 
66

 
(87
)
 
Catastrophes, net of reinsurance
 
(95
)
 
(138
)
 
43

 
Net investment income
 
427

 
446

 
(19
)
 
Other income
 
5

 
3

 
2

 
Segment income before income taxes
 
489

 
522

 
(33
)
 
Income tax expense
 
75

 
70

 
5

 
Segment income
 
$
414

 
$
452

 
$
(38
)
 
 
 
 
 
 
 
 
 
Combined ratio
 
98.1
%
 
97.5
 %
 
0.6

pts
Impact on combined ratio
 
 
 
 
 
 
 
Net unfavorable (favorable) prior year reserve development
 
0.6

pts
(1.9
)
pts
2.5

pts
Catastrophes, net of reinsurance
 
2.5

pts
3.9

pts
(1.4
)
pts
Underlying combined ratio
 
95.0
%
 
95.5
 %
 
(0.5
)
pts
 
 
 
 
 
 
 
 
Net written premiums by market
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
Select Accounts
 
$
785

 
$
773

 
2
 %
 
Middle Market
 
2,410

 
2,262

 
7

 
National Accounts
 
304

 
309

 
(2
)
 
National Property and Other
 
387

 
380

 
2

 
Total Domestic
 
3,886

 
3,724

 
4

 
International
 
277

 
270

 
3

 
Total
 
$
4,163

 
$
3,994

 
4
 %
 
 
First Quarter 2019 Results
(All comparisons vs. first quarter 2018, unless noted otherwise)
 
Segment income for Business Insurance was $414 million after-tax, a decrease of $38 million. Segment income decreased primarily due to net unfavorable prior year reserve development in the current quarter as compared to net favorable prior year reserve development in the prior year quarter and lower net investment income, partially offset by lower catastrophe losses and a higher underlying underwriting gain. The higher underlying underwriting gain primarily resulted from the impacts of higher business volumes and a lower underlying combined ratio.

Underwriting results:

The combined ratio of 98.1% increased 0.6 points due to net unfavorable prior year reserve development in the current quarter as compared to net favorable prior year reserve development in the prior year quarter (2.5 points), partially offset by lower catastrophe losses (1.4 points) and a lower underlying combined ratio (0.5 points).

The underlying combined ratio of 95.0% decreased 0.5 points driven by a lower expense ratio, partially offset by a higher underlying loss ratio. The decrease in the expense ratio was primarily due to a higher level of earned premiums as well as a benefit this quarter related to a state assessment, partially offset by the impact of the new catastrophe reinsurance treaty. The increase in the underlying loss ratio was driven primarily by (1) a small number of large losses in the International business, (2) the impact in the quarter of higher loss estimates in commercial automobile consistent with the re-estimates recorded in the fourth quarter of 2018 and (3) the impact of the new catastrophe reinsurance treaty, partially offset by (4) lower non-catastrophe weather-related losses. The new catastrophe reinsurance treaty resulted in a 0.5 point increase in the underlying combined ratio.

Net unfavorable prior year reserve development resulted from an increase in general liability reserves, for years prior to 2009, due to the enactment by New York State of the Child Victims Act (“CVA”) on February 14,

4



2019. The CVA extends the statute of limitations for claimants asserting childhood sexual molestation. In addition, prior year reserve development benefited from better than expected loss experience in the workers’ compensation product line for multiple accident years, partially offset by modestly higher than expected loss experience in the commercial multi-peril product line for recent accident years.

Gross written premiums of $4.730 billion grew 6%, benefiting from continued strong retention, higher renewal premium change and higher levels of new business. Net written premiums of $4.163 billion increased 4%. Growth in net written premiums reflects the new catastrophe reinsurance treaty.

Bond & Specialty Insurance Segment Financial Results
 
 
Three Months Ended March 31,
 
($ in millions and pre-tax, unless noted otherwise)
2019
 
2018
 
Change
 
Underwriting gain:
$
112

 
$
144

 
$
(32
)
 
Underwriting gain includes:
 
 
 
 
 
 
Net favorable prior year reserve development
3

 
35

 
(32
)
 
Catastrophes, net of reinsurance
(3
)
 

 
(3
)
 
Net investment income
56

 
58

 
(2
)
 
Other income
5

 
6

 
(1
)
 
Segment income before income taxes
173

 
208

 
(35
)
 
Income tax expense
35

 
35

 

 
Segment income
$
138

 
$
173

 
$
(35
)
 
 
 
 
 
 
 
 
Combined ratio
81.1
 %
 
74.7
 %
 
6.4

pts
Impact on combined ratio
 
 
 
 
 
 
Net favorable prior year reserve development
(0.5
)
pts
(6.0
)
pts
5.5

pts
Catastrophes, net of reinsurance
0.5

pts

pts
0.5

pts
Underlying combined ratio
81.1
 %
 
80.7
 %
 
0.4

pts
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
Management Liability
$
367

 
$
348

 
5
 %
 
Surety
184

 
185

 
(1
)
 
Total Domestic
551

 
533

 
3

 
International
36

 
41

 
(12
)
 
Total
$
587

 
$
574

 
2
 %
 

First Quarter 2019 Results
(All comparisons vs. first quarter 2018, unless noted otherwise)
 
Segment income for Bond & Specialty Insurance was $138 million after-tax, a decrease of $35 million. Segment income decreased primarily due to lower net favorable prior year reserve development.
 
Underwriting results:

The combined ratio of 81.1% increased 6.4 points due to lower net favorable prior year reserve development (5.5 points), higher catastrophe losses (0.5 points) and a higher underlying combined ratio (0.4 points).

The underlying combined ratio remained very strong at 81.1%.

Net favorable prior year reserve development was not significant in the quarter.

Net written premiums of $587 million increased 2%, primarily reflecting continued strong retention and new business in management liability.


5



Personal Insurance Segment Financial Results

 
Three Months Ended March 31,
 
($ in millions and pre-tax, unless noted otherwise)
2019
 
2018
 
Change
 
Underwriting gain:
$
226

 
$
41

 
$
185

 
Underwriting gain includes:
 
 
 
 
 
 
Net favorable prior year reserve development
69

 
49

 
20

 
Catastrophes, net of reinsurance
(95
)
 
(216
)
 
121

 
Net investment income
99

 
99

 

 
Other income
22

 
17

 
5

 
Segment income before income taxes
347

 
157

 
190

 
Income tax expense
69

 
28

 
41

 
Segment income
$
278

 
$
129

 
$
149

 
 
 
 
 
 
 
 
Combined ratio
90.1
 %
 
97.5
 %
 
(7.4
)
pts
Impact on combined ratio
 
 
 
 
 
 
Net favorable prior year reserve development
(2.8
)
pts
(2.0
)
pts
(0.8
)
pts
Catastrophes, net of reinsurance
3.8

pts
9.0

pts
(5.2
)
pts
Underlying combined ratio
89.1
 %
 
90.5
 %
 
(1.4
)
pts
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
Agency (1)
 
 
 
 
 
 
Automobile
$
1,224

 
$
1,183

 
3
 %
 
Homeowners & Other
837

 
832

 
1

 
Total Agency
2,061

 
2,015

 
2

 
Direct to Consumer
95

 
92

 
3

 
Total Domestic
2,156

 
2,107

 
2

 
International
151

 
149

 
1

 
Total
$
2,307

 
$
2,256

 
2
 %
 
 
(1) Represents business sold through agents, brokers and other intermediaries, and excludes direct to consumer.

First Quarter 2019 Results
(All comparisons vs. first quarter 2018, unless noted otherwise)
 
Segment income for Personal Insurance was $278 million after-tax, an increase of $149 million. Segment income benefited from lower catastrophe losses, a higher underlying underwriting gain and higher net favorable prior year reserve development. The higher underlying underwriting gain primarily resulted from the impacts of higher business volumes and a lower underlying combined ratio.

Underwriting results:

The combined ratio of 90.1% improved 7.4 points due to lower catastrophe losses (5.2 points), a lower underlying combined ratio (1.4 points) and higher net favorable prior year reserve development (0.8 points).

The underlying combined ratio of 89.1% improved 1.4 points, primarily driven by earned pricing that exceeded loss cost trends in Agency Automobile, partially offset by a 0.8 point increase related to the new catastrophe reinsurance treaty, mostly impacting Agency Homeowners & Other.

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

Gross written premiums of $2.447 billion grew 6%. Net written premiums of $2.307 billion increased 2%. Growth in net written premiums reflects the new catastrophe reinsurance treaty.


6



Agency Automobile gross written premiums of $1.240 billion grew 4%, driven by renewal premium change of 5%. Net written premiums increased 3%. Growth in net written premiums reflects the new catastrophe reinsurance treaty. 

Agency Homeowners & Other gross written premiums of $954 million grew 9% driven by renewal premium change of 5% and higher levels of new business. Net written premiums increased 1%. Growth in net written premiums reflects the new catastrophe reinsurance treaty.
 
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 Thursday, April 18, 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, underwriting margins and underlying underwriting margins, net and core income, investment income and performance, loss costs, return

7



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;
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 legislation enacted or to be enacted by states allowing victims of sexual abuse to file or proceed with claims that otherwise would have been time-barred.     

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 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;

8



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;
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, changes in levels of written premiums, 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 14, 2019, 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.

9




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.

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 March 31,
($ in millions, after-tax)
 
2019
 
2018
Net income
 
$
796

 
$
669

Less: Net realized investment (gains) losses
 
(41
)
 
9

Core income
 
$
755

 
$
678

 
 
 
Three Months Ended March 31,
($ in millions, pre-tax)
 
2019
 
2018
Net income
 
$
967

 
$
778

Less: Net realized investment (gains) losses
 
(53
)
 
11

Core income
 
$
914

 
$
789

 
 
 
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 (1)
 
 
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
 (1) Tax Cuts and Jobs Act of 2017 (TCJA)


10



Reconciliation of Net Income per Share to Core Income per Share on a Basic and Diluted Basis
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Basic income per share
 
 

 
 

Net income
 
$
3.01

 
$
2.45

Adjustments:
 
 

 
 

Net realized investment (gains) losses, after-tax
 
(0.16
)
 
0.03

Core income
 
$
2.85

 
$
2.48

Diluted income per share
 
 

 
 

Net income
 
$
2.99

 
$
2.42

Adjustments:
 
 

 
 

Net realized investment (gains) losses, after-tax
 
(0.16
)
 
0.04

Core income
 
$
2.83

 
$
2.46


Reconciliation of Segment Income to Total Core Income
 
 
Three Months Ended March 31,
($ in millions, after-tax)
 
2019
 
2018
Business Insurance
 
$
414

 
$
452

Bond & Specialty Insurance
 
138

 
173

Personal Insurance
 
278

 
129

Total segment income
 
830

 
754

Interest Expense and Other
 
(75
)
 
(76
)
Total core income
 
$
755

 
$
678

 
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.
 

11



Reconciliation of Shareholders’ Equity to Adjusted Shareholders’ Equity
 
 
As of March 31,
($ in millions)
 
2019
 
2018
Shareholders’ equity
 
$
24,340

 
$
22,979

Adjustments:
 
 
 
 
Net unrealized investment gains, net of tax, included in shareholders’ equity
 
(1,007
)
 
(133
)
Net realized investment (gains) losses, net of tax
 
(41
)
 
9

Adjusted shareholders’ equity
 
$
23,292

 
$
22,855


 
 
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 (loss) less preferred dividends to average shareholders’ equity for the periods presented. Core return on equity is the ratio of annualized core income (loss) 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.

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 total 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 March 31,
($ in millions, after-tax)
 
2019
 
2018
Annualized net income
 
$
3,186

 
$
2,676

Average shareholders’ equity
 
23,617

 
23,355

Return on equity
 
13.5
%
 
11.5
%
Annualized core income
 
$
3,020

 
$
2,711

Adjusted average shareholders’ equity
 
23,150

 
22,737

Core return on equity
 
13.0
%
 
11.9
%
 
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.
 

12



Calculation of Average Annual Core Return on Equity from January 1, 2005 through March 31, 2019
 
 
Three Months Ended March 31,
 
Twelve Months Ended December 31,
($ in millions)
 
2019
 
2018
 
2018
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
Core income, less preferred dividends
 
$755
 
$678
 
$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
Annualized core income
 
3,020
 
2,711
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted average shareholders’ equity
 
23,150
 
22,737
 
22,814
 
22,743
 
22,386
 
22,681
 
23,447
 
23,004
 
22,158
 
22,806
 
24,285
 
25,777
 
25,668
 
25,350
 
23,381
 
21,118
Core return on equity
 
13.0%
 
11.9%
 
10.7%
 
9.0%
 
13.3%
 
15.2%
 
15.5%
 
15.5%
 
11.0%
 
6.1%
 
12.5%
 
14.0%
 
12.4%
 
17.7%
 
17.9%
 
9.6%
Average annual core return on equity for the period Jan. 1, 2005 through Mar. 31, 2019
 
13.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN ITEMS TO NET INCOME

Underwriting gain (loss) is net earned premiums and fee income less claims and claim adjustment expenses and insurance-related expenses. In the opinion of the Company’s management, it is important to measure the profitability of each segment excluding the results of investing activities, which are managed separately from the insurance business. This measure is used to assess each segment’s business performance and as a tool in making business decisions. Pre-tax underwriting gain, excluding the impact of catastrophes and net favorable (unfavorable) prior year loss reserve development, is the underwriting gain adjusted to exclude claims and claim adjustment expenses, reinstatement premiums and assessments related to catastrophes and loss reserve development related to time periods prior to the current year. In the opinion of the Company’s management, this measure is meaningful to users of the financial statements to understand the Company’s periodic earnings and the variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophes and loss reserve development. This measure is also referred to as underlying underwriting margin or underlying underwriting gain.

A catastrophe is a severe loss designated a catastrophe by internationally recognized organizations that track and report on insured losses resulting from catastrophic events, such as Property Claim Services (PCS) for events in the United States and Canada. Catastrophes can be caused by various natural events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions and other naturally occurring events, such as solar flares. Catastrophes can also be man-made, such as terrorist attacks and other intentionally destructive acts including those involving nuclear, biological, chemical and radiological events, cyber events, explosions and destruction of infrastructure. Each catastrophe has unique characteristics and catastrophes are not predictable as to timing or amount. Their effects are included in net and core income and claims and claim adjustment expense reserves upon occurrence. A catastrophe may result in the payment of reinsurance reinstatement premiums and assessments from various pools.

The Company’s threshold for disclosing catastrophes is primarily determined at the reportable segment level. If a threshold for one segment or a combination thereof is exceeded and the other segments have losses from the same event, losses from the event are identified as catastrophe losses in the segment results and for the consolidated results of the Company. Additionally, an aggregate threshold is applied for international business across all reportable segments. The threshold for 2019 ranges from approximately $19 million to $30 million of losses before reinsurance and taxes.

Net favorable (unfavorable) prior year loss reserve development is the increase or decrease in incurred claims and claim adjustment expenses as a result of the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given group of claims, which may be related to one or more prior years. In the opinion of the Company’s management, a discussion of loss reserve development is meaningful to users of the financial statements as it allows them to assess the impact between prior and current year development on incurred claims and claim adjustment expenses, net and core income (loss), and changes in claims and claim adjustment expense reserve levels from period to period.


13



Components of Net Income
 
 
Three Months Ended March 31,
($ in millions, after-tax except as noted)
 
2019
 
2018
Pre-tax underwriting gain excluding the impact of catastrophes and net favorable prior year loss reserve development
 
$
537

 
$
462

Pre-tax impact of catastrophes
 
(193
)
 
(354
)
Pre-tax impact of net favorable prior year loss reserve development
 
51

 
150

Pre-tax underwriting gain
 
395

 
258

Income tax expense on underwriting results
 
88

 
36

Underwriting gain
 
307

 
222

Net investment income
 
496

 
513

Other income (expense), including interest expense
 
(48
)
 
(57
)
Core income
 
755

 
678

Net realized investment gains (losses)
 
41

 
(9
)
Net income
 
$
796

 
$
669

 
COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED RATIO
 
Combined ratio: For Statutory Accounting Practices (SAP), the combined ratio is the sum of the SAP loss and LAE ratio and the SAP underwriting expense ratio as defined in the statutory financial statements required by insurance regulators. The combined ratio, as used in this earnings release, is the equivalent of, and is calculated in the same manner as, the SAP combined ratio except that the SAP underwriting expense ratio is based on net written premiums and the underwriting expense ratio as used in this earnings release is based on net earned premiums.

For SAP, the loss and LAE ratio is the ratio of incurred losses and loss adjustment expenses less certain administrative services fee income to net earned premiums as defined in the statutory financial statements required by insurance regulators. The loss and LAE ratio as used in this earnings release is calculated in the same manner as the SAP ratio.

For SAP, the underwriting expense ratio is the ratio of underwriting expenses incurred (including commissions paid), less certain administrative services fee income and billing and policy fees and other, to net written premiums as defined in the statutory financial statements required by insurance regulators. The underwriting expense ratio as used in this earnings release, is the ratio of underwriting expenses (including the amortization of deferred acquisition costs), less certain administrative services fee income, billing and policy fees and other, to net earned premiums.

The combined ratio, loss and LAE ratio, and underwriting expense ratio are used as indicators of the Company’s underwriting discipline, efficiency in acquiring and servicing its business and overall underwriting profitability. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.

Underlying combined ratio represents the combined ratio excluding the impact of net prior year reserve development and catastrophes. The underlying combined ratio is an indicator of the Company’s underwriting discipline and underwriting profitability for the current accident year.

Other companies’ method of computing similarly titled measures may not be comparable to the Company’s method of computing these ratios.


14



Calculation of the Combined Ratio
 
 
Three Months Ended March 31,
($ in millions, pre-tax)
 
2019
 
2018
Loss and loss adjustment expense ratio
 
 
 
 
Claims and claim adjustment expenses
 
$
4,442

 
$
4,296

Less:
 
 
 
 
Policyholder dividends
 
13

 
13

Allocated fee income
 
40

 
37

Loss ratio numerator
 
$
4,389

 
$
4,246

Underwriting expense ratio
 
 
 
 
Amortization of deferred acquisition costs
 
$
1,117

 
$
1,061

General and administrative expenses (G&A)
 
1,057

 
1,062

Less:
 
 
 
 
Non-insurance G&A
 
47

 
37

Allocated fee income
 
69

 
66

Billing and policy fees and other
 
27

 
23

Expense ratio numerator
 
$
2,031

 
$
1,997

Earned premium
 
$
6,855

 
$
6,537

Combined ratio (1)
 
 
 
 
Loss and loss adjustment expense ratio
 
64.0
%
 
64.9
%
Underwriting expense ratio
 
29.7
%
 
30.6
%
Combined ratio
 
93.7
%
 
95.5
%
 
(1)  For purposes of computing ratios, billing and policy fees and other (which are a component of other revenues) are allocated as a reduction of underwriting expenses.  In addition, fee income is allocated as a reduction of losses and loss adjustment expenses and underwriting expenses. In addition, G&A include non-insurance expenses that are excluded from underwriting expenses, and accordingly are excluded in calculating the combined ratio.
 
RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS’ EQUITY TO CERTAIN NON-GAAP MEASURES
 
Book value per share is total common shareholders’ equity divided by the number of common shares outstanding. Adjusted book value per share is total common shareholders’ equity excluding net unrealized investment gains and losses, net of tax, included in shareholders’ equity, divided by the number of common shares outstanding. In the opinion of the Company’s management, adjusted book value per share is useful in an analysis of a property casualty company’s book value per share as it removes the effect of changing prices on invested assets (i.e., net unrealized investment gains (losses), net of tax), which do not have an equivalent impact on unpaid claims and claim adjustment expense reserves. Tangible book value per share is adjusted book value per share excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding. In the opinion of the Company’s management, tangible book value per share is useful in an analysis of a property casualty company’s book value on a nominal basis as it removes certain effects of purchase accounting (i.e., goodwill and other intangible assets), in addition to the effect of changing prices on invested assets.


15



Reconciliation of Shareholders’ Equity to Tangible Shareholders’ Equity, Excluding Net Unrealized Investment Gains (Losses), Net of Tax 
 
 
As of
($ in millions, except per share amounts)
 
March 31,
2019
 
December 31,
2018
Shareholders’ equity
 
$
24,340

 
$
22,894

Less: Net unrealized investment gains (losses), net of tax, included in shareholders’ equity
 
1,007

 
(113
)
Shareholders’ equity, excluding net unrealized investment gains (losses), net of tax, included in shareholders’ equity
 
23,333

 
23,007

Less:
 
 
 
 
Goodwill
 
3,949

 
3,937

Other intangible assets
 
341

 
345

Impact of deferred tax on other intangible assets
 
(47
)
 
(44
)
Tangible shareholders’ equity
 
$
19,090

 
$
18,769

Common shares outstanding
 
261.9

 
263.6

Book value per share
 
$
92.94

 
$
86.84

Adjusted book value per share
 
89.09

 
87.27

Tangible book value per share
 
72.89

 
71.20


RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL CAPITALIZATION EXCLUDING NET UNREALIZED INVESTMENT GAINS (LOSSES), NET OF TAX
 
Total capitalization is the sum of total shareholders’ equity and debt. Debt-to-capital ratio excluding net unrealized gain (loss) on investments, net of tax, included in shareholders’ equity, is the ratio of debt to total capitalization excluding the after-tax impact of net unrealized investment gains and losses included in shareholders’ equity. In the opinion of the Company’s management, the debt-to-capital ratio is useful in an analysis of the Company’s financial leverage.
 
 
As of
($ in millions)
 
March 31,
2019
 
December 31,
2018
Debt    
 
$
7,057

 
$
6,564

Shareholders’ equity  
 
24,340

 
22,894

Total capitalization  
 
31,397

 
29,458

Less: Net unrealized investment gains (losses), net of tax, included in shareholders’ equity
 
1,007

 
(113
)
Total capitalization excluding net unrealized gain (loss) on investments, net of tax, included in shareholders’ equity
 
$
30,390

 
$
29,571

Debt-to-capital ratio  
 
22.5
%
 
22.3
%
Debt-to-capital ratio excluding net unrealized investment gains (losses), net of tax, included in shareholders’ equity
 
23.2
%
 
22.2
%
 
OTHER DEFINITIONS
 
Gross written premiums reflect the direct and assumed contractually determined amounts charged to policyholders for the effective period of the contract based on the terms and conditions of the insurance contract. Net written premiums reflect gross written premiums less premiums ceded to reinsurers.

For Business Insurance and Bond & Specialty Insurance, retention is the amount of premium available for renewal that was retained, excluding rate and exposure changes. For Personal Insurance, retention is the ratio of the expected number of renewal policies that will be retained throughout the annual policy period to the number of available renewal base policies. For all of the segments, renewal rate change represents the estimated change in average premium on policies that renew, excluding exposure changes. Exposure is the measure of risk used in the pricing of an insurance product. The change in exposure is the amount of change in premium on policies that renew attributable to the change in portfolio risk. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. New business is the amount of written premium related to new policyholders and additional products sold to existing policyholders. These are operating statistics, which are in part dependent on the use of estimates and are therefore subject to change. For Business Insurance, retention, renewal

16



premium change and new business exclude National Accounts. For Bond & Specialty Insurance, retention, renewal premium change and new business exclude surety.

Statutory capital and surplus represents the excess of an insurance company’s admitted assets over its liabilities, including loss reserves, as determined in accordance with statutory accounting practices.

Holding company liquidity is the total funds available at the holding company level to fund general corporate purposes, primarily the payment of shareholder dividends and debt service. These funds consist of total cash, short-term invested assets and other readily marketable securities held by the holding company.

For a glossary of other financial terms used in this press release, we refer you to the Company’s most recent annual report on Form 10-K filed with the SEC on February 14, 2019, and subsequent periodic filings with the SEC.
 
###
 
Contacts
Media:
Institutional Investors:
Patrick Linehan
Abbe Goldstein
917.778.6267
917.778.6825
 
 
 
 



17
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit
The Travelers Companies, Inc.                                                397568580_g34651mo25i001b12.gif
Financial Supplement - First Quarter 2019                                                


 
Page Number
Consolidated Results
 
Financial Highlights
1
Reconciliation to Net Income and Earnings Per Share
2
Statement of Income
3
Net Income by Major Component and Combined Ratio
4
Core Income
5
Selected Statistics - Property and Casualty Operations
6
Written and Earned Premiums - Property and Casualty Operations
7
 
 
Business Insurance
 
Segment Income
8
Segment Income by Major Component and Combined Ratio
9
Selected Statistics
10
Net Written Premiums
11
 
 
Bond & Specialty Insurance
 
Segment Income
12
Segment Income by Major Component and Combined Ratio
13
Selected Statistics
14
Net Written Premiums
15
 
 
Personal Insurance
 
Segment Income (Loss)
16
Segment Income (Loss) by Major Component and Combined Ratio
17
Selected Statistics
18
Net Written Premiums
19
Selected Statistics - Domestic Agency Automobile
20
Selected Statistics - Domestic Agency Homeowners and Other
21
 
 
Supplemental Detail
 
Interest Expense and Other
22
Consolidated Balance Sheet
23
Investment Portfolio
24
Investment Portfolio - Fixed Maturities Data
25
Investment Income
26
Net Realized and Unrealized Investment Gains (Losses) included in Shareholders’ Equity
27
Reinsurance Recoverables
28
Net Reserves for Losses and Loss Adjustment Expense
29
Asbestos and Environmental Reserves
30
Capitalization
31
Statutory Capital and Surplus to GAAP Shareholders’ Equity Reconciliation
32
Statement of Cash Flows
33
Statement of Cash Flows (continued)
34
Glossary of Financial Measures and Description of Reportable Business Segments
35-36
 

The information included in the Financial Supplement is unaudited.  This document should be read in conjunction with the Company’s Form 10-Q which will be filed with the Securities and Exchange Commission.

Index

The Travelers Companies, Inc.                                                 397568580_g34651mo25i001b12.gif
Financial Highlights

($ and shares in millions, except for per share data)
 
1Q2018
 
2Q2018
 
3Q2018
 
4Q2018
 
1Q2019
Net income
 
$
669

 
$
524

 
$
709

 
$
621

 
$
796

Net income per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.45

 
$
1.93

 
$
2.65

 
$
2.33

 
$
3.01

Diluted
 
$
2.42

 
$
1.92

 
$
2.62

 
$
2.32

 
$
2.99

Core income
 
$
678

 
$
494

 
$
687

 
$
571

 
$
755

Core income per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.48

 
$
1.83

 
$
2.56

 
$
2.15

 
$
2.85

Diluted
 
$
2.46

 
$
1.81

 
$
2.54

 
$
2.13

 
$
2.83

Return on equity
 
11.5
%
 
9.2
%
 
12.6
%
 
10.9
%
 
13.5
%
Core return on equity
 
11.9
%
 
8.7
%
 
12.0
%
 
10.0
%
 
13.0
%
Total assets, at period end
 
$
103,676

 
$
103,523

 
$
104,390

 
$
104,233

 
$
107,246

Total equity, at period end
 
$
22,979

 
$
22,623

 
$
22,460

 
$
22,894

 
$
24,340

Book value per share, at period end
 
$
85.03

 
$
84.51

 
$
84.82

 
$
86.84

 
$
92.94

Less: Net unrealized investment gains (losses), net of tax
 
0.49

 
(0.42
)
 
(1.69
)
 
(0.43
)
 
3.85

Adjusted book value per share, at period end
 
$
84.54

 
$
84.93

 
$
86.51

 
$
87.27

 
$
89.09

 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding (basic)
 
271.0

 
268.7

 
266.1

 
263.9

 
262.9

Weighted average number of common shares outstanding and common stock equivalents (diluted)
 
273.9

 
271.1

 
268.4

 
266.0

 
264.8

Common shares outstanding at period end
 
270.2

 
267.7

 
264.8

 
263.6

 
261.9

Common stock dividends declared
 
$
197

 
$
209

 
$
207

 
$
205

 
$
204

Common stock repurchased:
 
 
 
 
 
 
 
 
 
 
Under Board of Directors authorization
 
 
 
 
 
 
 
 
 
 
Shares
 
2.5

 
2.7

 
3.0

 
1.4

 
2.9

Cost
 
$
350

 
$
350

 
$
400

 
$
170

 
$
375

Other
 
 
 
 
 
 
 
 
 
 
Shares
 
0.3

 

 
0.1

 

 
0.4

Cost
 
$
51

 
$

 
$

 
$

 
$
46

 
 
 
 
 
 
 
 
 
 
 





See Glossary of Financial Measures and Description of Reportable Business Segments on pages 35 and 36.

1

The Travelers Companies, Inc.                                                 397568580_g34651mo25i001b12.gif
Reconciliation to Net Income and Earnings per Share


($ and shares in millions, except earnings per share)
 
1Q2018
 
2Q2018
 
3Q2018
 
4Q2018
 
1Q2019
Net income
 
 
 
 
 
 
 
 
 
 
Net income
 
$
669

 
$
524

 
$
709

 
$
621

 
$
796

Adjustments:
 
 
 
 
 
 
 
 
 
 
Net realized investment (gains) losses, after-tax
 
9

 
(30
)
 
(22
)
 
(50
)
 
(41
)
Core income
 
$
678

 
$
494

 
$
687

 
$
571

 
$
755

Basic earnings per share
 
 
 
 
 
 
 
 
 
 
Net income
 
$
2.45

 
$
1.93

 
$
2.65

 
$
2.33

 
$
3.01

Adjustments:
 
 
 
 
 
 
 
 
 
 
Net realized investment (gains) losses, after-tax
 
0.03

 
(0.10
)
 
(0.09
)
 
(0.18
)
 
(0.16
)
Core income
 
$
2.48

 
$
1.83

 
$
2.56

 
$
2.15

 
$
2.85

Diluted earnings per share
 
 
 
 
 
 
 
 
 
 
Net income
 
$
2.42

 
$
1.92

 
$
2.62

 
$
2.32

 
$
2.99

Adjustments:
 
 
 
 
 
 
 
 
 
 
Net realized investment (gains) losses, after-tax
 
0.04

 
(0.11
)
 
(0.08
)
 
(0.19
)
 
(0.16
)
Core income
 
$
2.46

 
$
1.81

 
$
2.54

 
$
2.13

 
$
2.83

 
 
 
 
 
 
 
 
 
 
 
Adjustments to net income and weighted average shares for net income EPS calculations: (1)
Basic and Diluted
 
1Q2018
 
2Q2018
 
3Q2018
 
4Q2018
 
1Q2019
Net income, as reported
 
$
669

 
$
524

 
$
709

 
$
621

 
$
796

Participating share-based awards - allocated income
 
(5
)
 
(4
)
 
(5
)
 
(5
)
 
(5
)
Net income available to common shareholders - basic and diluted
 
$
664

 
$
520

 
$
704