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Section 1: 8-K (8-K)

trv-20200723
0000086312false00000863122020-07-232020-07-23

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): July 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 July 23, 2020, The Travelers Companies, Inc. (the “Company”) issued a press release announcing the results of the Company’s operations for the quarter ended June 30, 2020, and the availability of the Company’s second 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 
101.1Pursuant to Rule 406 of Regulation S-T, the cover page to this Current Report on Form 8-K is formatted in Inline XBRL.
104.1Cover 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: July 23, 2020By:/s/   CHRISTINE K. KALLA
  Name: Christine K. Kalla
  Executive Vice President and General Counsel


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Section 2: EX-99.1 (EX-99.1)

Document

404711885_g34651mo25i001b121.gif           Exhibit 99.1
                  The Travelers Companies, Inc.
              485 Lexington Avenue
                  New York, NY 10017-2630
                  www.travelers.com
NYSE: TRV

Travelers Reports Second Quarter 2020
Net and Core Loss per Diluted Share of $0.16 and $0.20, Respectively

Provides Estimate of PG&E Subrogation Recoveries
of Approximately $400 Million Pre-Tax to be Recognized in Third Quarter of 2020

Second quarter net loss of $40 million and core loss of $50 million.
Catastrophe losses of $854 million pre-tax, compared to $367 million pre-tax in the prior year quarter.
Net investment income of $268 million pre-tax, compared to $648 million pre-tax in the prior year quarter.
Consolidated combined ratio of 103.7%; underlying combined ratio improved 3.5 points to a strong 91.4%.
Net impact of COVID-19 and related economic conditions on underwriting results in the quarter was modest.
Net written premiums of $7.346 billion, down 1% compared to the prior year quarter; excluding personal automobile premium refunds, net written premiums increased 2%.
Strong renewal rate change in all three segments, including 7.4% in Business Insurance and a record level in Bond & Specialty Insurance.
Total capital returned to shareholders of $218 million; no share repurchases in the current quarter. Year-to-date total capital returned to shareholders of $899 million, including $471 million of share repurchases.
Book value per share of $106.42; adjusted book value per share of $92.01.
Board of Directors declares regular quarterly cash dividend of $0.85 per share.

New York, July 23, 2020 — The Travelers Companies, Inc. today reported a net loss of $40 million, or $0.16 per diluted share, for the quarter ended June 30, 2020, compared to net income of $557 million, or $2.10 per diluted share, in the prior year quarter. The core loss in the current quarter was $50 million, or $0.20 per diluted share, compared to core income of $537 million, or $2.02 per diluted share, in the prior year quarter. The difference was primarily due to higher catastrophe losses, lower net investment income and lower net favorable prior year reserve development, partially offset by a higher underlying underwriting gain (i.e., excluding net prior year reserve development and catastrophe losses). COVID-19 and related economic conditions had a modest net impact on the underwriting result in the quarter. Net realized investment gains in the current quarter were $13 million pre-tax ($10 million after-tax), compared to net realized investment gains of $25 million pre-tax ($20 million after-tax) in the prior year quarter.
Consolidated Highlights
($ in millions, except for per share amounts, and after-tax, except for premiums and revenues)Three Months Ended June 30,Six Months Ended June 30,
20202019Change20202019Change
Net written premiums$7,346  $7,450  (1)%$14,692  $14,507  %
Total revenues$7,401  $7,834  (6) $15,309  $15,505  (1) 
Net income (loss)$(40) $557  NM$560  $1,353  (59) 
per diluted share$(0.16) $2.10  NM$2.19  $5.08  (57) 
Core income (loss)$(50) $537  NM$626  $1,292  (52) 
per diluted share$(0.20) $2.02  NM$2.44  $4.85  (50) 
Diluted weighted average shares outstanding251.6  263.7  (5) 254.7  264.2  (4) 
Combined ratio103.7 %98.4 %5.3  pts99.5 %96.1 %3.4  pts
Underlying combined ratio91.4 %94.9 %(3.5) pts91.3 %93.3 %(2.0) pts
Return on equity(0.6)%9.0 %(9.6) pts4.3 %11.2 %(6.9) pts
Core return on equity(0.8)%9.2 %(10.0) pts5.3 %11.1 %(5.8) pts

As ofChange From
June 30,
2020
December 31,
2019
June 30,
2019
December 31, 2019June 30,
2019
Book value per share$106.42  $101.55  $97.26  %%
Adjusted book value per share92.01  92.76  90.05  (1)%%
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data. NM = Not meaningful.
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“Our second quarter results reflect an improved underlying underwriting gain that was more than offset by a high level of catastrophe losses and, as expected, losses in our non-fixed income investment portfolio,” said Alan Schnitzer, Chairman and Chief Executive Officer. “Our underlying combined ratio improved by 3.5 points to a very strong 91.4%, with favorable contributions from both Business Insurance and Personal Insurance. The net impact of COVID-19 and related economic conditions on our underlying results was modest, reflecting a culture of disciplined underwriting and management of terms and conditions. Catastrophe losses this quarter were impacted by a relatively high frequency of PCS-designated catastrophe events. Results in our non-fixed income investment portfolio are reported on a lagged basis, and the losses we reported this quarter arose out of the disruption in global financial markets that took place in the first quarter.

“We were very pleased with our marketplace execution in the quarter, particularly in light of the challenging economic environment. Net written premiums declined just slightly, as the impact of the pandemic on insured exposures in our commercial businesses and our auto refund program in Personal Insurance were largely offset by strong renewal rate change in all three segments. Excluding the auto premium refunds, we grew net written premiums by 2%. In Business Insurance, we achieved renewal rate change of 7.4%, nearly 4 points higher than the prior year quarter and its highest level since 2013, while retention remained strong. In Bond & Specialty Insurance, net written premiums increased by 3% as our domestic management liability business achieved renewal premium change of 7.8%, including record renewal rate change, while retention remained strong. In Personal Insurance, net written premiums decreased by 1%. Excluding the auto premium refunds, net written premiums increased by 6%, driven by strong retention and new business in both Agency Auto and Agency Homeowners. In our Agency Homeowners business, renewal premium change remained very strong at 7.7%.

“Investments we have made over recent years as part of our innovation agenda to put digital tools in the hands of our colleagues, customers and distribution partners have proven particularly valuable as we effectively manage our business through the pandemic. We will continue to invest to advance our innovation priorities and ensure that those capabilities and our other competitive advantages remain relevant and differentiating.

“Our steady performance through these difficult times demonstrates the value of underwriting excellence and the strength and resilience of our franchise. With a strong balance sheet, our proven ability to execute on our marketplace strategies and the best talent in the industry, we remain well positioned to continue to deliver meaningful shareholder value over time.”

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Consolidated Results
Three Months Ended June 30,Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)20202019Change20202019Change
Underwriting gain (loss):$(280) $74  $(354) $ $469  $(461) 
Underwriting gain (loss) includes:
Net favorable prior year reserve development
 123  (121) 29  174  (145) 
Catastrophes, net of reinsurance(854) (367) (487) (1,187) (560) (627) 
Net investment income268  648  (380) 879  1,230  (351) 
Other income (expense), including interest expense
(86) (82) (4) (167) (145) (22) 
Core income (loss) before income taxes(98) 640  (738) 720  1,554  (834) 
Income tax expense (benefit)(48) 103  (151) 94  262  (168) 
Core income (loss)(50) 537  (587) 626  1,292  (666) 
Net realized investment gains (losses) after income taxes
10  20  (10) (66) 61  (127) 
Net income (loss)$(40) $557  $(597) $560  $1,353  $(793) 
Combined ratio103.7 %98.4 %5.3  pts99.5 %96.1 %3.4  pts
Impact on combined ratio
Net favorable prior year reserve development
—  pts(1.8) pts1.8  pts(0.2) pts(1.3) pts1.1  pts
Catastrophes, net of reinsurance12.3  pts5.3  pts7.0  pts8.4  pts4.1  pts4.3  pts
Underlying combined ratio91.4 %94.9 %(3.5) pts91.3 %93.3 %(2.0) pts
Net written premiums
Business Insurance$3,777  $3,874  (3)%$7,967  $8,037  (1)%
Bond & Specialty Insurance734  710   1,397  1,297   
Personal Insurance2,835  2,866  (1) 5,328  5,173   
Total$7,346  $7,450  (1)%$14,692  $14,507  %
 
Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted otherwise)

The Company reported a net loss of $40 million compared to net income of $557 million in the prior year quarter. The net loss was due to a core loss, partially offset by net realized investment gains. The core loss of $50 million decreased from core income of $537 million in the prior year quarter, primarily due to higher catastrophe losses, lower net investment income and lower net favorable prior year reserve development, partially offset by a higher underlying underwriting gain. The net impact of COVID-19 and related economic conditions on the underlying underwriting gain in the quarter was modest. Net realized investment gains were $13 million pre-tax ($10 million after-tax) compared to $25 million pre-tax ($20 million after-tax) in the prior year quarter.

Combined ratio: 

The combined ratio of 103.7% increased 5.3 points due to higher catastrophe losses (7.0 points) and lower net favorable prior year reserve development (1.8 points), partially offset by a lower underlying combined ratio (3.5 points).

The underlying combined ratio of 91.4% decreased 3.5 points. See below for further details by segment.

Net favorable prior year reserve development in Personal Insurance was largely offset by net unfavorable prior year reserve development in Bond & Specialty Insurance. There was no net prior year reserve development in Business Insurance. Catastrophe losses primarily resulted from severe storms in several regions of the United States and civil unrest.

Net investment income of $268 million pre-tax ($251 million after-tax) decreased 59%. Income from the fixed income investment portfolio decreased from the prior year quarter, primarily due to lower long-term interest rates,
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partially offset by a higher average level of fixed maturity investments. The non-fixed income investment portfolio had a loss of $234 million pre-tax ($180 million after-tax), compared to income of $118 million pre-tax ($95 million after-tax) in the prior year quarter. Non-fixed income returns are generally reported on a one-quarter lagged basis and directionally follow the broader equity markets. Accordingly, the loss in the non-fixed income investment portfolio is related to the disruption in global financial markets during the first quarter of 2020 associated with COVID-19. Based on its composition, the Company's non-fixed income investment portfolio declined less than the broader equity markets in the first quarter of 2020.

Net written premiums of $7.346 billion decreased 1%. Excluding premium refunds provided to personal automobile customers in response to COVID-19 and related economic conditions, net written premiums increased 2%. See below for further details by segment.

Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
 
Net income of $560 million decreased $793 million due to lower core income and net realized investment losses in the current period compared to net realized investment gains in the prior year period. Core income of $626 million decreased by $666 million, primarily due to higher catastrophe losses, lower net investment income and lower net favorable prior year reserve development, partially offset by a higher underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes and a lower underlying combined ratio. Net realized investment losses were $85 million pre-tax ($66 million after-tax), compared to net realized investment gains of $78 million pre-tax ($61 million after-tax) in the prior year period. Net realized investment losses in the current period included the mark-to-market impact on the Company's equity investments related to the volatility in global financial markets in the first six months of 2020.

Combined ratio:
 
The combined ratio of 99.5% increased 3.4 points due to higher catastrophe losses (4.3 points) and lower net favorable prior year reserve development (1.1 points), partially offset by a lower underlying combined ratio (2.0 points).

The underlying combined ratio of 91.3% decreased 2.0 points. See below for further details by segment.

Net favorable prior year reserve development in Personal Insurance and Business Insurance was partially offset by net unfavorable prior year reserve development in Bond & Specialty Insurance. Catastrophe losses included the second quarter events described above, as well as tornado activity in Tennessee and other wind storms and winter storms in several regions of the United States in the first quarter of 2020.
Net investment income of $879 million pre-tax ($770 million after-tax) decreased 29%. Income from the fixed income investment portfolio decreased from the prior year period, primarily due to lower long-term interest rates, partially offset by a higher average level of fixed maturity investments. The non-fixed income investment portfolio had a loss of $146 million pre-tax ($109 million after-tax), compared to income of $171 million pre-tax ($138 million after-tax) in the prior year period. The loss from these investments reflected the impact of the disruption in global financial markets in the first quarter of 2020 associated with COVID-19.

Net written premiums of $14.692 billion increased 1%. Excluding premium refunds provided to personal automobile customers in response to COVID-19 and related economic conditions, net written premiums increased 3%. See below for further details by segment.

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Shareholders’ Equity

Shareholders’ equity of $26.943 billion increased 4% over year-end 2019, primarily due to higher net unrealized investment gains resulting from lower interest rates, partially offset by the impact of changes in foreign currency exchange rates. Net unrealized investment gains included in shareholders’ equity were $4.634 billion pre-tax ($3.646 billion after-tax), compared to net unrealized investment gains of $2.853 billion pre-tax ($2.246 billion after-tax) at year-end 2019. Book value per share of $106.42 increased 5% over year-end 2019, also primarily due to the impact of lower interest rates on net unrealized investment gains, partially offset by changes in foreign currency exchange rates. Adjusted book value per share of $92.01, which excludes net unrealized investment gains, was 1% lower than year-end 2019. Book value per share and adjusted book value per share both included an adverse impact of $0.76 per share due to net unrealized losses resulting from foreign currency translation.

The Company did not repurchase any shares during the second quarter under its share repurchase authorization. Capacity remaining under the existing share repurchase authorization was $1.361 billion at the end of the quarter. Also at the end of the quarter, statutory capital and surplus was $20.607 billion, and the ratio of debt-to-capital was 20.7%. 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 regular quarterly dividend of $0.85 per share. The dividend is payable on September 30, 2020, to shareholders of record at the close of business on September 10, 2020.

PG&E Subrogation Recoveries

In connection with the emergence of PG&E Corporation and Pacific Gas and Electric Company (together “PG&E”) from bankruptcy on July 1, 2020, the Company expects to recognize in the third quarter of 2020 favorable prior year reserve development of approximately $400 million, pre-tax and net of expenses and reinsurance, related to the 2017 and 2018 wildfires in California.

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Business Insurance Segment Financial Results
 Three Months Ended June 30,Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)20202019Change20202019Change
Underwriting gain (loss):$(273) $(55) $(218) $(372) $ $(374) 
Underwriting gain (loss) includes:
Net favorable prior year reserve development
—  71  (71)  50  (45) 
Catastrophes, net of reinsurance
(377) (211) (166) (572) (306) (266) 
Net investment income180  481  (301) 633  908  (275) 
Other income (expense) (6) (11)  (22) (6) (16) 
Segment income (loss) before income taxes
(99) 415  (514) 239  904  (665) 
Income tax expense (benefit)(41) 64  (105)  139  (131) 
Segment income (loss)$(58) $351  $(409) $231  $765  $(534) 
Combined ratio107.1 %101.1 %6.0  pts104.6 %99.6 %5.0  pts
Impact on combined ratio
Net favorable prior year reserve development
—  pts(1.9) pts1.9  pts—  pts(0.7) pts0.7  pts
Catastrophes, net of reinsurance
10.1  pts5.6  pts4.5  pts7.5  pts4.1  pts3.4  pts
Underlying combined ratio97.0 %97.4 %(0.4) pts97.1 %96.2 %0.9  pts
Net written premiums by market
Domestic
Select Accounts$734  $756  (3)%$1,533  $1,541  (1)%
Middle Market1,960  2,009  (2) 4,368  4,419  (1) 
National Accounts215  223  (4) 516  527  (2) 
National Property and Other585  588  (1) 1,013  975   
Total Domestic3,494  3,576  (2) 7,430  7,462  —  
International283  298  (5) 537  575  (7) 
Total$3,777  $3,874  (3)%$7,967  $8,037  (1)%
 
Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted otherwise)
 
The segment loss for Business Insurance was $58 million after-tax, compared with segment income of $351 million after-tax in the prior year quarter. The difference was primarily due to lower net investment income, higher catastrophe losses and no net prior year reserve development compared with net favorable prior year reserve development in the prior year quarter, partially offset by a higher underlying underwriting gain.

Combined ratio:

The combined ratio of 107.1% increased 6.0 points due to higher catastrophe losses (4.5 points) and no net prior year reserve development compared with net favorable prior year reserve development in the prior year quarter (1.9 points), partially offset by a lower underlying combined ratio (0.4 points).

The underlying combined ratio of 97.0% improved by 0.4 points, reflecting a 0.2 point improvement in each of the underlying loss ratio and expense ratio. The net impact of COVID-19 and related economic conditions was modest.

There was no net prior year reserve development in the current quarter, which reflected the following:

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

Offset by:

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

Net written premiums of $3.777 billion decreased 3%. The benefits of continued strong retention and higher renewal rate changes were more than offset by reduced exposures and a decrease in new business volume, both impacted by COVID-19 and related economic conditions.

Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
 
Segment income for Business Insurance was $231 million after-tax, a decrease of $534 million. Segment income decreased primarily due to lower net investment income, higher catastrophe losses, a lower underlying underwriting gain and lower net favorable prior year reserve development.
 
Combined ratio:

The combined ratio of 104.6% increased 5.0 points due to higher catastrophe losses (3.4 points), a higher underlying combined ratio (0.9 points) and lower net favorable prior year reserve development (0.7 points).

The underlying combined ratio of 97.1% increased 0.9 points, primarily due to net charges associated with COVID-19 and related economic conditions.

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

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 multiple accident years.
Largely offset by:

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

Net written premiums of $7.967 billion decreased 1%, driven by the same factors described above for the second quarter of 2020.

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Bond & Specialty Insurance Segment Financial Results
 
Three Months Ended June 30,Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)20202019Change20202019 Change
Underwriting gain:$40  $157  $(117) $132  $269  $(137) 
Underwriting gain includes:
Net favorable (unfavorable) prior year reserve development
(33) 39  (72) (33) 42  (75) 
Catastrophes, net of reinsurance(7) —  (7) (8) (3) (5) 
Net investment income42  58  (16) 97  114  (17) 
Other income  (1)  10  (2) 
Segment income before income taxes86  220  (134) 237  393  (156) 
Income tax expense14  46  (32) 43  81  (38) 
Segment income$72  $174  $(102) $194  $312  $(118) 
Combined ratio93.8 %74.9 %18.9  pts89.9 %77.9 %12.0  pts
Impact on combined ratio
Net (favorable) unfavorable prior year reserve development
4.7  pts(6.2) pts10.9  pts2.4  pts(3.4) pts5.8  pts
Catastrophes, net of reinsurance1.0  pts0.1  pts0.9  pts0.6  pts0.2  pts0.4  pts
Underlying combined ratio88.1 %81.0 %7.1  pts86.9 %81.1 %5.8  pts
Net written premiums
Domestic
Management Liability$438  $403  %$839  $770  %
Surety220  244  (10) 435  428   
Total Domestic658  647   1,274  1,198   
International76  63  21  123  99  24  
Total$734  $710  %$1,397  $1,297  %

Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted otherwise)
 
Segment income for Bond & Specialty Insurance was $72 million after-tax, a decrease of $102 million. Segment income decreased primarily due to net unfavorable prior year reserve development compared to net favorable prior year reserve development in the prior year quarter, a lower underlying underwriting gain and lower net investment income. The underlying underwriting gain benefited from higher business volumes.
Combined ratio:

The combined ratio of 93.8% increased 18.9 points due to net unfavorable prior year reserve development compared to net favorable prior year reserve development in the prior year quarter (10.9 points), a higher underlying combined ratio (7.1 points) and higher catastrophe losses (0.9 points).

The underlying combined ratio of 88.1% increased 7.1 points, primarily driven by the impacts of higher loss estimates for management liability coverages, including the impact of COVID-19 and related economic conditions.

Net unfavorable prior year reserve development was driven by higher than expected loss experience in the domestic general liability product line for management liability coverages for recent accident years.

Net written premiums of $734 million increased 3%, reflecting continued strong retention and increased levels of renewal premium change in management liability.

8


Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
 
Segment income for Bond & Specialty Insurance was $194 million after-tax, a decrease of $118 million. Segment income decreased primarily due to net unfavorable prior year reserve development compared to net favorable prior year reserve development in the prior year period, a lower underlying underwriting gain and lower net investment income. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

The combined ratio of 89.9% increased 12.0 points due to net unfavorable prior year reserve development compared to net favorable prior year reserve development in the prior year period (5.8 points), a higher underlying combined ratio (5.8 points) and higher catastrophe losses (0.4 points).

The underlying combined ratio of 86.9% increased 5.8 points, primarily driven by the impacts of higher loss estimates for management liability coverages, including the impact of COVID-19 and related economic conditions.

Net unfavorable prior year reserve development was driven by higher than expected loss experience in the domestic general liability product line for management liability coverages for recent accident years.

Net written premiums of $1.397 billion increased 8%, reflecting continued strong retention, increased levels of renewal premium change and strong new business in management liability.

Personal Insurance Segment Financial Results
Three Months Ended June 30,Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)20202019Change20202019Change
Underwriting gain (loss):$(47) $(28) $(19) $248  $198  $50  
Underwriting gain (loss) includes:
Net favorable prior year reserve development
35  13  22  57  82  (25) 
Catastrophes, net of reinsurance(470) (156) (314) (607) (251) (356) 
Net investment income46  109  (63) 149  208  (59) 
Other income10  21  (11) 32  43  (11) 
Segment income before income taxes
 102  (93) 429  449  (20) 
Income tax expense (benefit)(1) 14  (15) 83  83  —  
Segment income$10  $88  $(78) $346  $366  $(20) 
Combined ratio101.3 %100.2 %1.1  pts94.5 %95.2 %(0.7) pts
Impact on combined ratio
Net favorable prior year reserve development
(1.3) pts(0.5) pts(0.8) pts(1.1) pts(1.6) pts0.5  pts
Catastrophes, net of reinsurance18.6  pts6.1  pts12.5  pts11.6  pts4.9  pts6.7  pts
Underlying combined ratio84.0 %94.6 %(10.6) pts84.0 %91.9 %(7.9) pts
Net written premiums
Domestic
Agency (1)
Automobile$1,141  $1,300  (12)%$2,401  $2,524  (5)%
Homeowners and Other1,419  1,258  13  2,409  2,095  15  
Total Agency2,560  2,558  —  4,810  4,619   
Direct-to-Consumer102  103  (1) 202  198   
Total Domestic2,662  2,661  —  5,012  4,817   
International173  205  (16) 316  356  (11) 
Total$2,835  $2,866  (1)%$5,328  $5,173  %
 (1) Represents business sold through agents, brokers and other intermediaries and excludes direct to consumer and international.
9


Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted otherwise)
 
Segment income for Personal Insurance was $10 million after-tax, a decrease of $78 million. Segment income decreased primarily due to higher catastrophe losses and lower net investment income, partially offset by a higher underlying underwriting gain and higher net favorable prior year reserve development.

Combined ratio:

The combined ratio of 101.3% increased 1.1 points due to higher catastrophe losses (12.5 points), largely offset by a lower underlying combined ratio (10.6 points) and higher net favorable prior year reserve development (0.8 points).

The underlying combined ratio of 84.0% decreased 10.6 points, primarily driven by lower non-catastrophe weather-related losses in the homeowners and other product line and lower losses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions (net of premium refunds).

Net favorable prior year reserve development was driven by better than expected loss experience in the segment's domestic operations in both the automobile and homeowners and other product lines for multiple accident years.

Net written premiums of $2.835 billion decreased 1%. Excluding premium refunds provided to personal automobile customers, net written premiums increased 6%. Agency Automobile net written premiums decreased 12% due to the premium refunds. Excluding the impact of the premium refunds, Agency Automobile net written premiums increased 3%, driven by strong retention, renewal premium change of 2% and higher levels of new business. Agency Homeowners and Other net written premiums increased 13%, driven by strong retention, renewal premium change of 8% and higher levels of new business.

Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
 
Segment income for Personal Insurance was $346 million after-tax, a decrease of $20 million. Segment income decreased primarily due to higher catastrophe losses, lower net investment income and lower net favorable prior year reserve development, largely offset by a higher underlying underwriting gain.
Combined ratio:

The combined ratio of 94.5% decreased 0.7 points due to a lower underlying combined ratio (7.9 points), partially offset by higher catastrophe losses (6.7 points) and lower net favorable prior year reserve development (0.5 points).

The underlying combined ratio of 84.0% decreased 7.9 points, primarily driven by lower non-catastrophe weather-related losses in the homeowners and other product line and lower losses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions (net of premium refunds).

Net favorable prior year reserve development was driven by better than expected loss experience in the segment's domestic operations in both the automobile and homeowners and other product lines for multiple accident years.

Net written premiums of $5.328 billion increased 3%. Excluding premium refunds provided to personal automobile customers, net written premiums increased 7%. Agency Automobile net written premiums decreased 5% due to the premium refunds. Excluding the impact of the premium refunds, Agency Automobile net written premiums increased 3%, driven by strong retention, renewal premium change of 2% and higher levels of new business. Agency Homeowners and Other net written premiums increased 15%, driven by strong retention, renewal premium change of 8% and higher levels of new business.
 
10


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, July 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 30,000 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);
the impact of COVID-19 and related economic conditions, including the potential impact on the Company's investments;
the impact of legislative or regulatory actions taken in response to COVID-19;
share repurchase plans;
future pension plan contributions;
11


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;
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 increased concentrations of insured exposures 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 or the impacts of COVID-19, the Company’s financial results could be materially and adversely affected;
the impact of COVID-19 and related risks, including on the Company's distribution or other key partners, could materially affect the Company's results of operations, financial position and/or liquidity;
during or following a period of financial market disruption or an economic downturn, such as the current environment, 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, particularly in the current environment;
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 or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as effectively expanding workers' compensation coverage by instituting presumptions of compensability of claims for certain types of workers or requiring insurers to cover business interruption claims irrespective of terms, exclusions or other conditions included in the policies that would otherwise preclude coverage), 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 the Company is exposed to credit risk related to its 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, which risk is heightened in the current environment;
12


within the United States, the Company’s businesses are heavily regulated by the states in which it conducts business, including licensing, market conduct and financial supervision, and changes in regulation may reduce the Company’s profitability and limit its growth;
a downgrade in the Company’s claims-paying and financial strength ratings could adversely impact the Company’s business volumes, adversely impact the Company’s ability to access the capital markets and increase the Company’s borrowing costs;
the inability of the Company’s insurance subsidiaries to pay dividends to the Company’s holding company in sufficient amounts would harm the Company’s ability to meet its obligations, pay future shareholder dividends and/or make future share repurchases;
the Company’s efforts to develop new products, expand in targeted markets or improve business processes and workflows may not be successful and may create enhanced risks;
the Company may be adversely affected if its pricing and capital models provide materially different indications than actual results;
the Company’s business success and profitability depend, in part, on effective information technology systems and on continuing to develop and implement improvements in technology, particularly as its business processes become more digital;
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. This risk is heightened in the current environment where a majority of the Company's employees have shifted to a work from home arrangement;
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, including the ongoing level of uncertainty related to COVID-19.

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 the quarterly report on Form 10-Q filed with the Securities and Exchange Commission (SEC) on July 23, 2020, and in our most recent annual report on Form 10-K filed with the SEC on February 13, 2020, in each case as updated by our periodic filings with the SEC.

 *****
13


GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
 
The following measures are used by the Company’s management to evaluate financial performance against historical results, to establish performance targets on a consolidated basis and for other reasons as discussed below. In some cases, these measures are considered non-GAAP financial measures under applicable SEC rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. Reconciliations of these measures to the most comparable GAAP measures also follow.

In the opinion of the Company’s management, a discussion of these measures provides investors, financial analysts, rating agencies and other financial statement users with a better understanding of the significant factors that comprise the Company’s periodic results of operations and how management evaluates the Company’s financial performance.

Some of these measures exclude net realized investment gains (losses), net of tax, and/or net unrealized investment gains (losses), net of tax, included in shareholders’ equity, which can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends.

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 (LOSS) TO CORE INCOME (LOSS) 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 (Loss) to Core Income (Loss) less Preferred Dividends
Three Months Ended June 30,Six Months Ended June 30,
($ in millions, after-tax)2020201920202019
Net income (loss)$(40) $557  $560  $1,353  
Less: Net realized investment (gains) losses(10) (20) 66  (61) 
Core income (loss)$(50) $537  $626  $1,292  
 
Three Months Ended June 30,Six Months Ended June 30,
($ in millions, pre-tax)2020201920202019
Net income (loss)$(85) $665  $635  $1,632  
Less: Net realized investment (gains) losses(13) (25) 85  (78) 
Core income (loss)$(98) $640  $720  $1,554  
 
14


 Twelve Months Ended December 31,
($ in millions, after-tax)201920182017201620152014201320122011201020092008200720062005
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
2,6222,5232,0563,0143,4393,6923,6732,4731,4263,2163,6222,9244,6014,2082,061
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 income2,5372,4302,0432,9673,4373,6413,5672,4411,3903,0433,6003,1954,5004,2002,026
Less: Preferred dividends1334456
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)

Reconciliation of Net Income (Loss) per Share to Core Income (Loss) per Share on a Basic and Diluted Basis
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Basic income (loss) per share    
Net income (loss)$(0.16) $2.11  $2.19  $5.12  
Adjustments:    
Net realized investment (gains) losses, after-tax(0.04) (0.07) 0.26  (0.23) 
Core income (loss)$(0.20) $2.04  $2.45  $4.89  
Diluted income (loss) per share    
Net income (loss)$(0.16) $2.10  $2.19  $5.08  
Adjustments:    
Net realized investment (gains) losses, after-tax(0.04) (0.08) 0.25  (0.23) 
Core income (loss)$(0.20) $2.02  $2.44  $4.85  

Reconciliation of Segment Income (Loss) to Total Core Income (Loss)
Three Months Ended June 30,Six Months Ended June 30,
($ in millions, after-tax)2020201920202019
Business Insurance$(58) $351  $231  $765  
Bond & Specialty Insurance72  174  194  312  
Personal Insurance10  88  346  366  
Total segment income24  613  771  1,443  
Interest Expense and Other(74) (76) (145) (151) 
Total core income (loss)$(50) $537  $626  $1,292  
 
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.
 
15


Reconciliation of Shareholders’ Equity to Adjusted Shareholders’ Equity
As of June 30,
($ in millions)20202019
Shareholders’ equity$26,943  $25,321  
Adjustments:
Net unrealized investment gains, net of tax, included in shareholders’ equity(3,646) (1,878) 
Net realized investment (gains) losses, net of tax66  (61) 
Adjusted shareholders’ equity$23,363  $23,382  

As of December 31,
($ in millions)201920182017201620152014201320122011201020092008200720062005
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.

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 June 30,Six Months Ended June 30,
($ in millions, after-tax)2020201920202019
Annualized net income (loss)$(157) $2,226  $1,120  $2,706  
Average shareholders’ equity26,074  24,831  25,824  24,224  
Return on equity(0.6)%9.0 %4.3 %11.2 %
Annualized core income (loss)$(197) $2,147  $1,253  $2,583  
Adjusted average shareholders’ equity23,353  23,378  23,474  23,264  
Core return on equity(0.8)%9.2 %5.3 %11.1 %
 
Average annual core return on equity over a period is the ratio of: (a) the sum of core income (loss) 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.
 
16


Calculation of Average Annual Core Return on Equity from January 1, 2005 through June 30, 2020

 Three Months Ended June 30,Six Months Ended June 30,
($ in millions)2020201920202019
Core income (loss), less preferred dividends
$(50) $537  $626  $1,292  
Annualized core income (loss)(197) 2,147  1,253  2,583  
Adjusted average shareholders’ equity
23,353  23,378  23,474  23,264  
Core return on equity(0.8)%9.2 %5.3 %11.1 %
Average annual core return on equity for the period January 1, 2005 through June 30, 202012.6 %

 Twelve Months Ended December 31,
($ in millions)201920182017201620152014201320122011201020092008200720062005
Core income, less preferred dividends
$2,537