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Section 1: 8-K (8-K)

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false0000086312 0000086312 2020-01-23 2020-01-23


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 23, 2020
 _______________________________________________
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):
 
            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, without par value
 
TRV
 
New York Stock Exchange

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  
 
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 23, 2020, The Travelers Companies, Inc. (the “Company”) issued a press release announcing the results of the Company’s operations for the quarter ended December 31, 2019, 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
 
 
 
 
101.1
 
Pursuant to Rule 406 of Regulation S-T, the cover page to this Current Report on Form 8-K is formatted in Inline XBRL.
 
 
 
104.1
 
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101.1.)






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 23, 2020
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


402401920_g34651mo25i001b12.gifExhibit 99.1
The Travelers Companies, Inc.
485 Lexington Avenue
New York, NY 10017-2630
www.travelers.com
NYSE: TRV

Travelers Reports Record Net and Core Income per Diluted Share in Fourth Quarter 2019

Fourth Quarter Net Income per Diluted Share of $3.35, up 44%, and Return on Equity of 13.5%

Fourth Quarter Core Income per Diluted Share of $3.32, up 56%, and Core Return on Equity of 14.8%

Full Year Net Income of $2.622 billion, up 4%, and Return on Equity of 10.5%

Full Year Core Income of $2.537 billion, up 4%, and Core Return on Equity of 10.9%

Fourth quarter net income of $873 million and core income of $867 million.
Catastrophe losses of $85 million pre-tax decreased from $610 million pre-tax in the prior year quarter.
Fourth quarter consolidated combined ratio of 92.4% improved by 5.1 points; underlying combined ratio of 92.1%.
Fourth quarter net written premiums of $7.075 billion, up 6%; record full year net written premiums of $29.151 billion, up 5%; both periods reflect growth in all segments.
Fourth quarter renewal premium change in domestic Business Insurance of 7.8%, highest level since 2013.
Total capital returned to shareholders of $588 million, including $376 million of share repurchases. Full year total capital returned to shareholders of $2.396 billion, including $1.548 billion of share repurchases.
Book value per share of $101.55, up 17% from year-end 2018. Adjusted book value per share of $92.76, up 6% from year-end 2018.
Board of Directors declared quarterly dividend per share of $0.82.

New York, January 23, 2020 — The Travelers Companies, Inc. today reported net income of $873 million, or $3.35 per diluted share, for the quarter ended December 31, 2019, compared to $621 million, or $2.32 per diluted share, in the prior year quarter. Core income in the current quarter was $867 million, or $3.32 per diluted share, compared to $571 million, or $2.13 per diluted share, in the prior year quarter. Core income increased primarily due to significantly lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a lower underlying underwriting gain (i.e., excluding net favorable prior year reserve development and catastrophe losses), in each case primarily due to the impact of an increasingly challenging tort environment. Net realized investment gains were $12 million pre-tax ($6 million after-tax), compared to $60 million pre-tax ($50 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 December 31,
 
Twelve Months Ended December 31,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
Net written premiums
 
$
7,075

 
$
6,691

 
6
 %
 
$
29,151

 
$
27,708

 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
8,063

 
$
7,796

 
3

 
$
31,581

 
$
30,282

 
4

 
Net income
 
$
873

 
$
621

 
41

 
$
2,622

 
$
2,523

 
4

 
per diluted share
 
$
3.35

 
$
2.32

 
44

 
$
9.92

 
$
9.28

 
7

 
Core income
 
$
867

 
$
571

 
52

 
$
2,537

 
$
2,430

 
4

 
per diluted share
 
$
3.32

 
$
2.13

 
56

 
$
9.60

 
$
8.94

 
7

 
Diluted weighted average shares outstanding
 
259.0

 
266.0

 
(3
)
 
262.3

 
269.8

 
(3
)
 
Combined ratio
 
92.4
%
 
97.5
%
 
(5.1
)
pts
96.5
%
 
96.9
%
 
(0.4
)
pts
Underlying combined ratio
 
92.1
%
 
91.1
%
 
1.0

pts
93.2
%
 
92.5
%
 
0.7

pts
Return on equity
 
13.5
%
 
10.9
%
 
2.6

pts
10.5
%
 
11.0
%
 
(0.5
)
pts
Core return on equity
 
14.8
%
 
10.0
%
 
4.8

pts
10.9
%
 
10.7
%
 
0.2

pts
 
 
As of December 31,
 
 
 
 
2019
 
2018
 
Change
Book value per share
 
$
101.55

 
$
86.84

 
17
%
Adjusted book value per share
 
92.76

 
87.27

 
6
%

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

1





“We are pleased to report fourth quarter core income of $867 million and core return on equity of 14.8%,” said Alan Schnitzer, Chairman and Chief Executive Officer. “Our strong earnings and improved combined ratio of 92.4% benefited from lower catastrophe losses and the continued successful execution of our strategy to grow the top line at attractive returns while improving operating leverage. Earned premiums increased by 4% over the prior year quarter to a record $7.3 billion. Our expense ratio improved to 29.1%, lowering our full year expense ratio to 29.6%, a significant improvement from recent years. These improvements were partially offset by the impacts of ongoing challenges in the tort environment. Our high-quality investment portfolio continued to perform well, generating net investment income of $525 million after-tax. Our results, together with our strong balance sheet, enabled us to return $588 million of excess capital to shareholders this quarter, including $376 million of share repurchases. For the full year, we returned $2.4 billion of excess capital to shareholders, including more than $1.5 billion in share repurchases.

“Turning to the top line, we continue to be pleased with our marketplace execution. Net written premiums increased by 6% to a fourth quarter record of $7.1 billion, marking the twelfth consecutive quarter in which we generated premium growth in all three business segments. In an environment of elevated loss activity and persistently low interest rates, we were once again successful in achieving meaningful improvement in renewal premium change while maintaining high levels of retention. In domestic Business Insurance, renewal premium change was 7.8%, including renewal rate change of 5.1%, in both cases the highest levels since 2013, while retention remained very strong at 84%. In our domestic management liability business in Bond & Specialty Insurance, renewal premium change was 6.6%, the highest level since 2014, while retention remained historically high at 89%. In Personal Insurance, retention and new business remained strong in both Agency Auto and Agency Homeowners. In our Agency Homeowners business, renewal premium change increased to 7.4%, its highest level since 2014.

“In this more challenging tort and low interest rate environment, we generated full year core income in excess of $2.5 billion and core return on equity of 10.9%, demonstrating the strength and resilience of our franchise. We grew full year net written premiums by 5% to a record $29.2 billion and generated cash flow from operations of $5.2 billion, its highest level in more than a decade. Our performance enabled us to continue to make significant investments in support of our ambitious innovation agenda, while growing our investment portfolio and returning a substantial amount of capital to our shareholders. With our significant competitive advantages, including the best talent in the industry and deep experience in successfully managing our diversified business through a variety of market conditions, we remain well positioned to continue to deliver superior returns over time.”


2



Consolidated Results
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
Underwriting gain:
 
$
513

 
$
135

 
$
378

 
$
833

 
$
681

 
$
152

 
Underwriting gain includes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable (unfavorable) prior year reserve development
 
60

 
167

 
(107
)
 
(60
)
 
517

 
(577
)
 
Catastrophes, net of reinsurance
 
(85
)
 
(610
)
 
525

 
(886
)
 
(1,716
)
 
830

 
Net investment income
 
616

 
630

 
(14
)
 
2,468

 
2,474

 
(6
)
 
Other income (expense), including interest expense
 
(67
)
 
(79
)
 
12

 
(276
)
 
(308
)
 
32

 
Core income before income taxes
 
1,062

 
686

 
376

 
3,025

 
2,847

 
178

 
Income tax expense
 
195

 
115

 
80

 
488

 
417

 
71

 
Core income
 
867

 
571

 
296

 
2,537

 
2,430

 
107

 
Net realized investment gains after income taxes
 
6

 
50

 
(44
)
 
85

 
93

 
(8
)
 
Net income
 
$
873

 
$
621

 
$
252

 
$
2,622

 
$
2,523

 
$
99

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
 
92.4
 %
 
97.5
 %
 
(5.1
)
pts
96.5
%
 
96.9
 %
 
(0.4
)
pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (favorable) unfavorable prior year reserve development
 
(0.8
)
pts
(2.4
)
pts
1.6

pts
0.2

pts
(1.9
)
pts
2.1

pts
Catastrophes, net of reinsurance
 
1.1

pts
8.8

pts
(7.7
)
pts
3.1

pts
6.3

pts
(3.2
)
pts
Underlying combined ratio
 
92.1
 %
 
91.1
 %
 
1.0

pts
93.2
%
 
92.5
 %
 
0.7

pts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Insurance
 
$
3,703

 
$
3,533

 
5
 %
 
$
15,629

 
$
14,956

 
4
 %
 
Bond & Specialty Insurance
 
714

 
657

 
9

 
2,739

 
2,528

 
8

 
Personal Insurance
 
2,658

 
2,501

 
6

 
10,783

 
10,224

 
5

 
Total
 
$
7,075

 
$
6,691

 
6
 %
 
$
29,151

 
$
27,708

 
5
 %
 
 
Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)

Net income of $873 million increased $252 million due to higher core income, partially offset by lower net realized investment gains. Core income of $867 million increased $296 million, primarily due to significantly lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.

Combined ratio: 

The combined ratio of 92.4% decreased 5.1 points due to significantly lower catastrophe losses (7.7 points), partially offset by lower net favorable prior year reserve development (1.6 points) and a higher underlying combined ratio (1.0 points).

The underlying combined ratio of 92.1% increased 1.0 points. See below for further details by segment.

Net favorable prior year reserve development occurred in all segments. See below for further details by segment. Catastrophe losses primarily resulted from wind and hail storms in several regions of the United States and a wildfire in California.

Net investment income of $616 million pre-tax ($525 million after-tax) decreased 2%. Income from the fixed income investment portfolio increased due to a higher average level of fixed maturity investments, partially offset by slightly lower interest rates. Private equity partnership returns were lower than in the prior year quarter.

Net written premiums of $7.075 billion increased 6%. See below for further details by segment.

3



Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)
 
Net income of $2.622 billion increased $99 million due to higher core income. Core income of $2.537 billion increased by $107 million, primarily due to significantly lower catastrophe losses, partially offset by net unfavorable prior year reserve development in the current year compared to net favorable prior year reserve development in the prior year and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes. Net realized investment gains of $113 million pre-tax were comparable with the prior year.

Combined ratio:
 
The combined ratio of 96.5% decreased 0.4 points due to significantly lower catastrophe losses (3.2 points), partially offset by net unfavorable prior year reserve development in the current year compared to net favorable prior year reserve development in the prior year (2.1 points) and a higher underlying combined ratio (0.7 points).

The underlying combined ratio of 93.2% increased 0.7 points. See below for further details by segment.

Net unfavorable prior year reserve development occurred in Business Insurance. Net favorable prior year reserve development occurred in Personal Insurance and Bond & Specialty Insurance. See below for further details by segment. Catastrophe losses included the fourth quarter events described above, as well as winter storms and wind storms in several regions of the United States and Hurricane Dorian in the first nine months of 2019.
 
Net investment income of $2.468 billion pre-tax ($2.097 billion after-tax) was comparable to the prior year. Income from the fixed income investment portfolio increased due to the impacts of a higher average level of fixed maturity investments and higher long-term and short-term interest rates. Private equity partnership and real estate partnership returns were strong but lower than in the prior year.

Record gross written premiums of $31.063 billion grew 6%. Record net written premiums of $29.151 billion increased 5%, reflecting growth in all segments. Growth in net written premiums was impacted by the Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty entered into effective January 1, 2019 (“the new catastrophe reinsurance treaty”), the entire cost of which impacted net written premiums in the first quarter. Accordingly, the treaty did not impact net written premiums in the final three quarters of the year. See below for further details by segment.

Shareholders’ Equity
 
Shareholders’ equity of $25.943 billion increased 13% 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 $2.853 billion pre-tax ($2.246 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 $101.55 increased 17% 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 $92.76, which excludes net unrealized investment gains (losses), increased 6% from year-end 2018.

The Company repurchased 2.9 million shares during the fourth quarter at an average price of $134.34 per share for a total cost of $376 million. Capacity remaining under the existing share repurchase authorization was $1.786 billion at the end of the quarter. Also at the end of the quarter, statutory capital and surplus was $21.330 billion, and the ratio of debt-to-capital was 20.2%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains included in shareholders’ equity was 21.7%, within the Company’s target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.82 per share. The dividend is payable on March 31, 2020, to shareholders of record at the close of business on March 10, 2020.

4




Business Insurance Segment Financial Results
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
Underwriting gain (loss):
 
$
87

 
$
7

 
$
80

 
$
(195
)
 
$
76

 
$
(271
)
 
Underwriting gain (loss) includes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable (unfavorable) prior year reserve development
 
8

 
48

 
(40
)
 
(258
)
 
142

 
(400
)
 
Catastrophes, net of reinsurance
 
(48
)
 
(197
)
 
149

 
(470
)
 
(639
)
 
169

 
Net investment income
 
451

 
465

 
(14
)
 
1,816

 
1,833

 
(17
)
 
Other income (expense)
 

 
(9
)
 
9

 
(6
)
 
(12
)
 
6

 
Segment income before income taxes
 
538

 
463

 
75

 
1,615

 
1,897

 
(282
)
 
Income tax expense
 
90

 
72

 
18

 
223

 
259

 
(36
)
 
Segment income
 
$
448

 
$
391

 
$
57

 
$
1,392

 
$
1,638

 
$
(246
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
 
97.5
 %
 
99.4
 %
 
(1.9
)
pts
100.9
%
 
99.1
 %
 
1.8

pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (favorable) unfavorable prior year reserve development
 
(0.2
)
pts
(1.2
)
pts
1.0

pts
1.7

pts
(1.0
)
pts
2.7

pts
Catastrophes, net of reinsurance
 
1.3

pts
5.2

pts
(3.9
)
pts
3.0

pts
4.4

pts
(1.4
)
pts
Underlying combined ratio
 
96.4
 %
 
95.4
 %
 
1.0

pts
96.2
%
 
95.7
 %
 
0.5

pts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums by market
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
 
 
 
 
 
 
Select Accounts
 
$
675

 
$
660

 
2
 %
 
$
2,911

 
$
2,828

 
3
 %
 
Middle Market
 
2,061

 
1,935

 
7

 
8,630

 
8,214

 
5

 
National Accounts
 
251

 
247

 
2

 
1,051

 
1,025

 
3

 
National Property and Other
 
437

 
422

 
4

 
1,965

 
1,805

 
9

 
Total Domestic
 
3,424

 
3,264

 
5

 
14,557

 
13,872

 
5

 
International
 
279

 
269

 
4

 
1,072

 
1,084

 
(1
)
 
Total
 
$
3,703

 
$
3,533

 
5
 %
 
$
15,629

 
$
14,956

 
4
 %
 
 
Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)
 
Segment income for Business Insurance was $448 million after-tax, an increase of $57 million. Segment income increased primarily due to significantly lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

The combined ratio of 97.5% decreased 1.9 points due to significantly lower catastrophe losses (3.9 points), partially offset by lower net favorable prior year reserve development (1.0 points) and a higher underlying combined ratio (1.0 points).

The underlying combined ratio of 96.4% increased 1.0 points, primarily driven by the impacts of (1) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line, including the current quarter impacts of higher loss estimates initially reflected in the first nine months of the year, and (2) a higher level of international loss activity, partially offset by (3) lower loss estimates in the workers' compensation product line due to the current quarter impacts of lower loss estimates initially reflected in the first nine months of the year and (4) a lower underwriting expense ratio. The underlying combined ratios in both the current and prior year quarters are elevated due to comparable impacts from the re-estimation of losses incurred in the first nine months of each year.

Net favorable prior year reserve development was primarily driven by the following:


5



Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple accident years.

Largely offset by:

General liability - higher than expected loss experience in the segment's domestic operations for primary and excess coverages primarily for recent accident years; and

Commercial multi-peril - higher than expected loss experience in the segment's domestic operations primarily for recent accident years.

Net written premiums of $3.703 billion increased 5%, benefiting from continued strong retention and new business, as well as higher renewal premium change.

Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)
 
Segment income for Business Insurance was $1.392 billion after-tax, a decrease of $246 million. Segment income decreased primarily due to net unfavorable prior year reserve development in the current year compared to net favorable prior year reserve development in the prior year and a lower underlying underwriting gain, partially offset by lower catastrophe losses. The underlying underwriting gain benefited from higher business volumes.
 
Combined ratio:

The combined ratio of 100.9% increased 1.8 points due to net unfavorable prior year reserve development in the current year compared to net favorable prior year reserve development in the prior year (2.7 points) and a higher underlying combined ratio (0.5 points), partially offset by lower catastrophe losses (1.4 points).

The underlying combined ratio of 96.2% increased 0.5 points, primarily driven by the impacts of higher loss estimates in the general liability product line for primary and excess coverages and the commercial automobile product line, partially offset by a lower underwriting expense ratio.

Net unfavorable prior year reserve development was primarily driven by the following:

General liability (excluding asbestos and environmental) - higher than expected loss experience in the segment’s domestic operations for primary and excess coverages for multiple accident years, including the impact for accident years 2009 and prior related to the enactment of legislation by a number of states that extended the statute of limitations for childhood sexual molestation claims;

Commercial automobile - higher than expected loss experience in the segment's domestic operations for recent accident years;

Asbestos reserves - an increase of $220 million, primarily in the segment's domestic general liability product line;

Commercial multi-peril - higher than expected loss experience in the segment's domestic operations for recent accident years; and

Environmental reserves - an increase of $76 million, primarily in the segment's domestic general liability product line.

Partially offset by:

Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple accident years; and

Commercial property - better than expected loss experience in the segment's domestic operations for recent accident years.


6



Gross written premiums of $17.151 billion grew 6%, benefiting from continued strong retention, higher renewal premium change and higher levels of new business. Net written premiums of $15.629 billion increased 4%. Growth in net written premiums was impacted by the new catastrophe reinsurance treaty.

Bond & Specialty Insurance Segment Financial Results
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
Underwriting gain:
$
142

 
$
214

 
$
(72
)
 
$
515

 
$
740

 
$
(225
)
 
Underwriting gain includes:
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
20

 
89

 
(69
)
 
65

 
266

 
(201
)
 
Catastrophes, net of reinsurance
(1
)
 
(7
)
 
6

 
(5
)
 
(16
)
 
11

 
Net investment income
60

 
61

 
(1
)
 
233

 
233

 

 
Other income
5

 
5

 

 
21

 
18

 
3

 
Segment income before income taxes
207

 
280

 
(73
)
 
769

 
991

 
(222
)
 
Income tax expense
40

 
60

 
(20
)
 
151

 
198

 
(47
)
 
Segment income
$
167

 
$
220

 
$
(53
)
 
$
618

 
$
793

 
$
(175
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
78.6
 %
 
64.8
 %
 
13.8

pts
79.5
 %
 
69.0
 %
 
10.5

pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
(2.9
)
pts
(14.4
)
pts
11.5

pts
(2.5
)
pts
(11.0
)
pts
8.5

pts
Catastrophes, net of reinsurance
0.2

pts
1.1

pts
(0.9
)
pts
0.2

pts
0.6

pts
(0.4
)
pts
Underlying combined ratio
81.3
 %
 
78.1
 %
 
3.2

pts
81.8
 %
 
79.4
 %
 
2.4

pts
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
 
 
 
 
 
Management Liability
$
411

 
$
366

 
12
 %
 
$
1,605

 
$
1,455

 
10
 %
 
Surety
206

 
198

 
4

 
866

 
835

 
4

 
Total Domestic
617

 
564

 
9

 
2,471

 
2,290

 
8

 
International
97

 
93

 
4

 
268

 
238

 
13

 
Total
$
714

 
$
657

 
9
 %
 
$
2,739

 
$
2,528

 
8
 %
 

Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)
 
Segment income for Bond & Specialty Insurance was $167 million after-tax, a decrease of $53 million. Segment income decreased primarily due to lower net favorable prior year reserve development. The underlying underwriting gain benefited from higher business volumes.
 
Combined ratio:

The combined ratio of 78.6% increased 13.8 points due to lower net favorable prior year reserve development (11.5 points) and a higher underlying combined ratio (3.2 points), partially offset by lower catastrophe losses (0.9 points).

The underlying combined ratio of 81.3% remained very strong. The increase of 3.2 points from the prior year quarter reflected higher loss estimates related to management liability coverages due to the current quarter impacts of higher loss estimates initially reflected in the first nine months of the year and a particular loss reflected in the current quarter, partially offset by lower surety loss estimates and a lower underwriting expense ratio.

Net favorable prior year reserve development was driven by better than expected loss experience in the domestic fidelity and surety product line for multiple accident years.


7



Net written premiums of $714 million increased 9%, reflecting continued strong retention, increased levels of renewal premium change and strong new business in management liability and continued strong surety production.

Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)
 
Segment income for Bond & Specialty Insurance was $618 million after-tax, a decrease of $175 million. Segment income decreased primarily due to lower net favorable prior year reserve development and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

The combined ratio of 79.5% increased 10.5 points due to lower net favorable prior year reserve development (8.5 points) and a higher underlying combined ratio (2.4 points), partially offset by lower catastrophe losses (0.4 points).

The underlying combined ratio of 81.8% remained very strong.

Net favorable prior year reserve development was driven by better than expected loss experience in the domestic general liability product line for management liability coverages and in the fidelity and surety product line for multiple accident years.

Net written premiums of $2.739 billion increased 8% and benefited from the same factors as discussed above for the fourth quarter 2019.

Personal Insurance Segment Financial Results
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
($ in millions and pre-tax, unless noted otherwise)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
Underwriting gain (loss):
$
284

 
$
(86
)
 
$
370

 
$
513

 
$
(135
)
 
$
648

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

 
30

 
2

 
133

 
109

 
24

 
Catastrophes, net of reinsurance
(36
)
 
(406
)
 
370

 
(411
)
 
(1,061
)
 
650

 
Net investment income
105

 
104

 
1

 
419

 
408

 
11

 
Other income
22

 
18

 
4

 
87

 
66

 
21

 
Segment income before income taxes
411

 
36

 
375

 
1,019

 
339

 
680

 
Income tax expense
84

 
4

 
80

 
195

 
42

 
153

 
Segment income
$
327

 
$
32

 
$
295

 
$
824

 
$
297

 
$
527

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined ratio
88.5
 %
 
102.6
 %
 
(14.1
)
pts
94.2
 %
 
100.6
 %
 
(6.4
)
pts
Impact on combined ratio
 
 
 
 
 
 
 
 
 
 
 
 
Net favorable prior year reserve development
(1.2
)
pts
(1.1
)
pts
(0.1
)
pts
(1.3
)
pts
(1.1
)
pts
(0.2
)
pts
Catastrophes, net of reinsurance
1.3

pts
15.9

pts
(14.6
)
pts
4.0

pts
10.7

pts
(6.7
)
pts
Underlying combined ratio
88.4
 %
 
87.8
 %
 
0.6

pts
91.5
 %
 
91.0
 %
 
0.5

pts
 
 
 
 
 
 
 
 
 
 
 
 
 
Net written premiums
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
 
 
 
 
 
Agency (1)
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
$
1,253

 
$
1,226

 
2
 %
 
$
5,124

 
$
4,972

 
3
 %
 
Homeowners and Other
1,145

 
1,011

 
13

 
4,540

 
4,148

 
9

 
Total Agency
2,398

 
2,237

 
7

 
9,664

 
9,120

 
6

 
Direct to Consumer
99

 
97

 
2

 
412

 
396

 
4

 
Total Domestic
2,497

 
2,334

 
7

 
10,076

 
9,516

 
6

 
International
161

 
167

 
(4
)
 
707

 
708

 

 
Total
$
2,658

 
$
2,501

 
6
 %
 
$
10,783

 
$
10,224

 
5
 %
 
 (1) Represents business sold through agents, brokers and other intermediaries, and excludes direct to consumer and international.

8



Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)
 
Segment income for Personal Insurance was $327 million after-tax, an increase of $295 million. Segment income increased primarily due to significantly lower catastrophe losses. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

The combined ratio of 88.5% decreased 14.1 points due to significantly lower catastrophe losses (14.6 points) and higher net favorable prior year reserve development (0.1 points), partially offset by a higher underlying combined ratio (0.6 points).

The underlying combined ratio of 88.4% increased 0.6 points, primarily reflecting a comparison to a low level of loss activity in the prior year quarter for Agency Automobile.

Net favorable prior year reserve development was driven by better than expected loss experience in the automobile product line and homeowners and other product line for multiple accident years.

Net written premiums of $2.658 billion increased 6%. Agency Automobile net written premiums increased 2%, driven by strong retention, renewal premium change of 3% and higher levels of new business. Agency Homeowners and Other net written premiums increased 13%, driven by strong retention, renewal premium change of 7% and higher levels of new business.
 
Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)
 
Segment income for Personal Insurance was $824 million after-tax, an increase of $527 million. Segment income increased primarily due to significantly lower catastrophe losses and higher net favorable prior year reserve development, partially offset by a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.
 
Combined ratio:

The combined ratio of 94.2% improved 6.4 points due to significantly lower catastrophe losses (6.7 points) and higher net favorable prior year reserve development (0.2 points), partially offset by a higher underlying combined ratio (0.5 points).

The underlying combined ratio of 91.5% increased 0.5 points, primarily driven by the impacts of (1) higher non-catastrophe weather-related losses in Agency Homeowners and Other and (2) the new catastrophe reinsurance treaty, mostly impacting Agency Homeowners and Other, partially offset by (3) earned pricing that exceeded loss cost trends in Agency Automobile and (4) a lower underwriting expense ratio.

Net favorable prior year reserve development was driven by better than expected loss experience in the domestic automobile and homeowners and other product lines for recent accident years.

Gross written premiums of $10.981 billion grew 6%. Net written premiums of $10.783 billion increased 5%.

Agency Automobile gross written premiums of $5.154 billion grew 3%, driven by strong retention, renewal premium change of 4% and higher levels of new business. Net written premiums increased 3%.

Agency Homeowners and Other gross written premiums of $4.685 billion grew 11% driven by strong retention, renewal premium change of 7% and higher levels of new business. Net written premiums increased 9%.

Growth in net written premiums was impacted by the new catastrophe reinsurance treaty.


9



Financial Supplement and Conference Call
 
The information in this press release should be read in conjunction with the 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, January 23, 2020. 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 31,000 employees and generated revenues of approximately $32 billion in 2019. 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 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 and the Republic of Ireland, as well as Brazil through a joint venture, 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 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 potential benefit associated with the Company's ability to recover on its subrogation claims;

10



the cost and availability of reinsurance coverage;
catastrophe losses;
the impact of investment (including changes in interest rates), economic (including inflation, changes in tax law, 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 developments in the tort environment, such as increased attorney involvement in insurance claims and legislation 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:

high levels of catastrophe losses, including as a result of factors such as changing climate conditions and increased concentrations of insured properties in catastrophe-prone areas, 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/tort, 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 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;
the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
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, and court decisions or legislative changes that take place after the Company issues its policies can result in an unexpected increase in the number of claims and have a material adverse impact on the Company's results of operations;
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 exposed to credit risk in certain of its insurance operations and with respect to certain guarantee or indemnification arrangements that it has 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;

11



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 where 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.


12



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 December 31,
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2019
 
2018
 
2019
 
2018
Net income
 
$
873

 
$
621

 
$
2,622

 
$
2,523

Less: Net realized investment gains
 
(6
)
 
(50
)
 
(85
)
 
(93
)
Core income
 
$
867

 
$
571

 
$
2,537

 
$
2,430

 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions, pre-tax)
 
2019
 
2018
 
2019
 
2018
Net income
 
$
1,074

 
$
746

 
$
3,138

 
$
2,961

Less: Net realized investment gains
 
(12
)
 
(60
)
 
(113
)
 
(114
)
Core income
 
$
1,062

 
$
686

 
$
3,025

 
$
2,847

 
 
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2019
 
2018
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
Net income
 
$2,622
 
$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
 
2,622
 
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
 
(85)
 
(93)
 
(142)
 
(47)
 
(2)
 
(51)
 
(106)
 
(32)
 
(36)
 
(173)
 
(22)
 
271
 
(101)
 
(8)
 
(35)
Impact of TCJA at enactment (1)
 
 
 
129
 
 
 
 
 
 
 
 
 
 
 
 
Core income
 
2,537
 
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
 
$2,537
 
$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)


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,
 
 
2019
 
2018
 
2019
 
2018
Basic income per share
 
 

 
 

 
 

 
 

Net income
 
$
3.37

 
$
2.33

 
$
10.01

 
$
9.37

Adjustments:
 
 

 
 

 
 

 
 

Net realized investment gains, after-tax
 
(0.02
)
 
(0.18
)
 
(0.32
)
 
(0.35
)
Core income
 
$
3.35

 
$
2.15

 
$
9.69

 
$
9.02

Diluted income per share
 
 

 
 

 
 

 
 

Net income
 
$
3.35

 
$
2.32

 
$
9.92

 
$
9.28

Adjustments:
 
 

 
 

 
 

 
 

Net realized investment gains, after-tax
 
(0.03
)
 
(0.19
)
 
(0.32
)
 
(0.34
)
Core income
 
$
3.32

 
$
2.13

 
$
9.60

 
$
8.94


Reconciliation of Segment Income to Total Core Income
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2019
 
2018
 
2019
 
2018
Business Insurance
 
$
448

 
$
391

 
$
1,392

 
$
1,638

Bond & Specialty Insurance
 
167

 
220

 
618

 
793

Personal Insurance
 
327

 
32

 
824

 
297

Total segment income
 
942

 
643

 
2,834

 
2,728

Interest Expense and Other
 
(75
)
 
(72
)
 
(297
)
 
(298
)
Total core income
 
$
867

 
$
571

 
$
2,537

 
$
2,430

 
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)
 
2019
 
2018
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
Shareholders’ equity
 
$25,943
 
$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
 
(2,246)
 
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
 
(85)
 
(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
 
$23,612
 
$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.

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 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 December 31,
 
Twelve Months Ended December 31,
($ in millions, after-tax)
 
2019
 
2018
 
2019
 
2018
Annualized net income
 
$
3,490

 
$
2,483

 
$
2,622

 
$
2,523

Average shareholders’ equity
 
25,775

 
22,677

 
24,922

 
22,843

Return on equity
 
13.5
%
 
10.9
%
 
10.5
%
 
11.0
%
Annualized core income
 
$
3,468

 
$
2,286

 
$
2,537

 
$
2,430

Adjusted average shareholders’ equity
 
23,472

 
22,932

 
23,335

 
22,814

Core return on equity
 
14.8
%
 
10.0
%
 
10.9
%
 
10.7
%
 
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, 2019
 
 
Twelve Months Ended December 31,
($ in millions)
 
2019
 
2018
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
Core income, less preferred dividends
 
$2,537
 
$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
 
23,335
 
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
 
10.9%
 
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 December 31, 2019
 
12.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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

15



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.

Components of Net Income
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
($ in millions, after-tax except as noted)