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Section 1: 10-Q (10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
FORM 10-Q
_________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
___________________________________________________________________
 
Commission file number: 001-10898
___________________________________________________________________
The Travelers Companies, Inc.
(Exact name of registrant as specified in its charter)
 ____________________________________________________________________
Minnesota
 
41-0518860
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
485 Lexington Avenue
New York, NY 10017
(Address of principal executive offices) (Zip Code)
 (917) 778-6000
(Registrant’s telephone number, including area code)
_________________________________________________________

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes ý    No o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).         
Yes ý    No o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
 
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes    No ý 
The number of shares of the Registrant’s Common Stock, without par value, outstanding at April 17, 2020 was 252,835,833.




The Travelers Companies, Inc.
 
Quarterly Report on Form 10-Q
 
For Quarterly Period Ended March 31, 2020
_________________________________________________________
 
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Statement of Income (Unaudited) — Three Months Ended March 31, 2020 and 2019
 
 
 
 
Consolidated Statement of Comprehensive Income (Loss) (Unaudited) — Three Months Ended March 31, 2020 and 2019
 
 
 
 
Consolidated Balance Sheet — March 31, 2020 (Unaudited) and December 31, 2019
 
 
 
 
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Three Months Ended March 31, 2020 and 2019
 
 
 
 
Consolidated Statement of Cash Flows (Unaudited) — Three Months Ended March 31, 2020 and 2019
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 


2



PART 1 — FINANCIAL INFORMATION
 
Item 1.  FINANCIAL STATEMENTS
 
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share amounts)
 
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
 
 
 
 
 
Revenues
 
 
 
 
Premiums
 
$
7,229

 
$
6,855

Net investment income
 
611

 
582

Fee income
 
108

 
109

Net realized investment gains (losses)
 
(98
)
 
53

Other revenues
 
58

 
72

 
 
 
 
 
Total revenues
 
7,908

 
7,671

 
 
 
 
 
Claims and expenses
 
 
 
 
Claims and claim adjustment expenses
 
4,789

 
4,442

Amortization of deferred acquisition costs
 
1,178

 
1,117

General and administrative expenses
 
1,137

 
1,057

Interest expense
 
84

 
88

Total claims and expenses
 
7,188

 
6,704

 
 
 
 
 
Income before income taxes
 
720

 
967

Income tax expense
 
120

 
171

Net income
 
$
600

 
$
796

 
 
 
 
 
Net income per share
 
 
 
 
Basic
 
$
2.34

 
$
3.01

Diluted
 
$
2.33

 
$
2.99

 
 
 
 
 
Weighted average number of common shares outstanding
 
 
 
 
Basic
 
254.4

 
262.9

Diluted
 
255.9

 
264.8

 
 
 
 
 
Cash dividends declared per common share
 
$
0.82

 
$
0.77



 









The accompanying notes are an integral part of the consolidated financial statements.

3



THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
 
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
 
 
 
 
 
Net income
 
$
600

 
$
796

 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
Changes in net unrealized gains on investment securities:
 
 
 
 
Having no credit losses recognized in the consolidated statement of income
 
(575
)
 
1,416

Having credit losses recognized in the consolidated statement of income
 
(6
)
 
5

Net changes in benefit plan assets and obligations
 
23

 
12

Net changes in unrealized foreign currency translation
 
(268
)
 
50

Other comprehensive income (loss) before income taxes
 
(826
)
 
1,483

Income tax expense (benefit)
 
(137
)
 
306

Other comprehensive income (loss), net of taxes
 
(689
)
 
1,177

Comprehensive income (loss)
 
$
(89
)
 
$
1,973

 






























The accompanying notes are an integral part of the consolidated financial statements.


4



THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
 
 
 
March 31,
2020
 
December 31,
2019
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Fixed maturities, available for sale, at fair value (amortized cost $65,630 and $65,281; allowance for expected credit losses of $4 at March 31, 2020)
 
$
67,897

 
$
68,134

Equity securities, at fair value  (cost $372 and $376)
 
342

 
425

Real estate investments
 
966

 
963

Short-term securities
 
4,033

 
4,943

Other investments
 
3,412

 
3,419

Total investments
 
76,650

 
77,884

Cash
 
544

 
494

Investment income accrued
 
567

 
618

Premiums receivable (net of allowance for expected credit losses of $78 at March 31, 2020)
 
8,202

 
7,909

Reinsurance recoverables (net of allowance for estimated uncollectible reinsurance of $149 at March 31, 2020)
 
8,152

 
8,235

Ceded unearned premiums
 
1,030

 
689

Deferred acquisition costs
 
2,298

 
2,273

Deferred taxes
 
9

 

Contractholder receivables (net of allowance for expected credit losses of $20 at March 31, 2020)
 
4,634

 
4,599

Goodwill
 
3,915

 
3,961

Other intangible assets
 
322

 
330

Other assets
 
3,113

 
3,130

Total assets
 
$
109,436

 
$
110,122

 
 
 
 
 
Liabilities
 
 

 
 

Claims and claim adjustment expense reserves
 
$
51,957

 
$
51,849

Unearned premium reserves
 
14,941

 
14,604

Contractholder payables
 
4,654

 
4,619

Payables for reinsurance premiums
 
634

 
363

Deferred taxes
 

 
137

Debt
 
6,559

 
6,558

Other liabilities
 
5,487

 
6,049

Total liabilities
 
84,232

 
84,179

 
 
 
 
 
Shareholders’ equity
 
 

 
 

Common stock (1,750.0 shares authorized; 252.9 and 255.5 shares issued, 252.8 and 255.5 shares outstanding)
 
23,542

 
23,469

Retained earnings
 
37,325

 
36,977

Accumulated other comprehensive income (loss)
 
(49
)
 
640

Treasury stock, at cost (525.9 and 522.1 shares)
 
(35,614
)
 
(35,143
)
Total shareholders’ equity
 
25,204

 
25,943

Total liabilities and shareholders’ equity
 
$
109,436

 
$
110,122


The accompanying notes are an integral part of the consolidated financial statements.


5



THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in millions)
 
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
 
 
 
 
 
Common stock
 
 

 
 

Balance, beginning of period
 
$
23,469

 
$
23,144

Employee share-based compensation
 
27

 
54

Compensation amortization under share-based plans and other changes
 
46

 
45

Balance, end of period
 
23,542

 
23,243

 
 
 
 
 
Retained earnings
 
 

 
 

Balance, beginning of period
 
36,977

 
35,204

Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020
 
(43
)
 

Net income
 
600

 
796

Dividends
 
(210
)
 
(204
)
Other
 
1

 
(1
)
Balance, end of period
 
37,325

 
35,795

 
 
 
 
 
Accumulated other comprehensive income (loss), net of tax
 
 

 
 

Balance, beginning of period
 
640

 
(1,859
)
Other comprehensive income (loss)
 
(689
)
 
1,177

Balance, end of period
 
(49
)
 
(682
)
 
 
 
 
 
Treasury stock, at cost
 
 

 
 

Balance, beginning of period
 
(35,143
)
 
(33,595
)
Treasury stock acquired — share repurchase authorization
 
(425
)
 
(375
)
Net shares acquired related to employee share-based compensation plans
 
(46
)
 
(46
)
Balance, end of period
 
(35,614
)
 
(34,016
)
 
 
 
 
 
Total shareholders’ equity
 
$
25,204

 
$
24,340

 
 
 
 
 
Common shares outstanding
 
 

 
 

Balance, beginning of period
 
255.5

 
263.6

Treasury stock acquired — share repurchase authorization
 
(3.5
)
 
(2.9
)
Net shares issued under employee share-based compensation plans
 
0.8

 
1.2

Balance, end of period
 
252.8

 
261.9

 
The accompanying notes are an integral part of the consolidated financial statements.

6



THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Cash flows from operating activities
 
 

 
 

Net income
 
$
600

 
$
796

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

 
 

Net realized investment (gains) losses
 
98

 
(53
)
Depreciation and amortization
 
203

 
211

Deferred federal income tax expense
 
6

 
32

Amortization of deferred acquisition costs
 
1,178

 
1,117

Equity in income from other investments
 
(67
)
 
(34
)
Premiums receivable
 
(326
)
 
(434
)
Reinsurance recoverables
 
(15
)
 
98

Deferred acquisition costs
 
(1,215
)
 
(1,185
)
Claims and claim adjustment expense reserves
 
388

 
(2
)
Unearned premium reserves
 
414

 
551

Other
 
(636
)
 
(458
)
Net cash provided by operating activities
 
628

 
639

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Proceeds from maturities of fixed maturities
 
1,461

 
1,556

Proceeds from sales of investments:
 
 

 
 

Fixed maturities
 
388

 
769

Equity securities
 
33

 
39

Other investments
 
64

 
105

Purchases of investments:
 
 

 
 

Fixed maturities
 
(2,630
)
 
(2,914
)
Equity securities
 
(35
)
 
(22
)
Real estate investments
 
(16
)
 
(77
)
Other investments
 
(103
)
 
(146
)
Net sales (purchases) of short-term securities
 
906

 
(109
)
Securities transactions in course of settlement
 
85

 
295

Other
 
(69
)
 
(82
)
Net cash provided by (used in) investing activities
 
84

 
(586
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Treasury stock acquired — share repurchase authorization
 
(425
)
 
(375
)
Treasury stock acquired — net employee share-based compensation
 
(46
)
 
(46
)
Dividends paid to shareholders
 
(210
)
 
(205
)
Issuance of debt
 

 
492

Issuance of common stock — employee share options
 
31

 
63

Net cash used in financing activities
 
(650
)
 
(71
)
Effect of exchange rate changes on cash
 
(12
)
 
2

Net increase (decrease) in cash
 
50

 
(16
)
Cash at beginning of year
 
494

 
373

Cash at end of period
 
$
544

 
$
357

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Income taxes paid
 
$
15

 
$
5

Interest paid
 
$
60

 
$
50

The accompanying notes are an integral part of the consolidated financial statements.

7



THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
1.     BASIS OF PRESENTATION AND ACCOUNTING POLICIES
 
Basis of Presentation
 
The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited.  In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  All material intercompany transactions and balances have been eliminated.  The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the Company’s 2019 Annual Report).
 
The preparation of the interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements and the reported amounts of revenues and claims and expenses during the reporting period.  Actual results could differ from those estimates. Certain reclassifications have been made to the 2019 financial statements to conform to the 2020 presentation.

 Adoption of Accounting Standards

Registered Debt Offerings that Include Credit Enhancements from an Affiliate

In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements related to certain debt securities, including registered debt securities issued by a wholly-owned, operating subsidiary that are fully and unconditionally guaranteed by the parent company. Prior to the amendments, a parent guarantor was required to provide condensed consolidating financial information for so long as the guaranteed securities were outstanding, regardless of whether the subsidiary issuer could have suspended its public reporting obligations under the applicable SEC requirements with respect to the securities. In accordance with the amended requirements, a parent guarantor may cease providing the condensed consolidating financial information if the corresponding subsidiary issuer’s public reporting obligation is suspended. The amendments to the financial disclosure requirements are effective on January 4, 2021; however, the SEC permits voluntary compliance in advance of the effective date.  The Company elected to apply the amended requirements for the quarter ended March 31, 2020, and is no longer providing condensed consolidating financial information that resulted from the registered debt obligations of its subsidiaries, Travelers Property Casualty Corp. and Travelers Insurance Group Holdings Inc., that were disclosed in note 8 of the financial statements in the Company’s 2019 Annual Report.

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments

In June 2016, the Financial Accounting Standards Board issued updated guidance for the accounting for credit losses for financial instruments. The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (including reinsurance recoverables and structured settlements that are recorded as part of reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

The updated guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

The Company adopted the updated guidance for the quarter ending March 31, 2020. For available-for-sale debt securities, the updated guidance was applied prospectively. For financial instruments measured at amortized cost, the updated guidance was

8


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

applied by a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2020, the beginning of the period of adoption. The adoption of this guidance resulted in the recognition of an after-tax cumulative effect adjustment of $43 million to reflect the impact of recognizing expected credit losses, as compared to incurred credit losses recognized under the previous guidance. This adjustment is primarily associated with structured settlements that are recorded as part of reinsurance recoverables. The cumulative effect adjustment decreased retained earnings as of January 1, 2020 and increased the allowance for estimated uncollectible reinsurance.

For additional information regarding accounting standards that the Company adopted during the periods presented, see note 1 of notes to the consolidated financial statements in the Company’s 2019 Annual Report.

Accounting Standards Not Yet Adopted
 
For information regarding accounting standards that the Company has not yet adopted, see the “Other Accounting Standards Not Yet Adopted” section of note 1 of notes to the consolidated financial statements in the Company’s 2019 Annual Report.

Accounting Policies

The following accounting policies have been updated to reflect the Company's adoption of Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as described above.

Investment Impairments

The Company conducts a periodic review to identify and evaluate invested assets that may have credit impairments.

Credit Impairments of Fixed Maturities

Some of the factors considered in assessing impairment of fixed maturities due to credit-related factors include: (1) the extent to which the fair value has been less than amortized cost; (2) the financial condition, near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices; (3) the likelihood of the recoverability of principal and interest; and (4) whether it is more likely than not that the Company will be required to sell the investment prior to an anticipated recovery in value.

Beginning on January 1, 2020, credit losses are recognized through an allowance account. See note 1 - Adoption of Accounting Standards - Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments for additional information.

For fixed maturity investments that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before an anticipated recovery in value, the Company separates the credit loss component of the impairment from the amount related to all other factors and reports the credit loss component in net realized investment gains (losses).  The impairment related to all other factors (non-credit factors) is reported in other comprehensive income. The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the cost basis is not adjusted.

For fixed maturities where the Company records a credit loss, a determination is made as to the cause of the impairment and whether the Company expects a recovery in the value.  For fixed maturities where the Company expects a recovery in value, the constant effective yield method is utilized, and the investment is amortized to par.

For fixed maturity investments the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery in value, the full amount of the impairment is included in net realized investment gains (losses). The new cost basis of the investment is the previous amortized cost basis less the impairment recognized in net realized investment gains (losses).  The new cost basis is not adjusted for any subsequent recoveries in fair value.

The Company reports investment income accrued separately from fixed maturities, available for sale, and has elected not to measure an allowance for credit losses for investment income accrued. Investment income accrued is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payments.


9


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

Uncollectible available-for-sale debt securities are written-off when the Company determines that no additional payments of principle or interest will be received.

Reinsurance Recoverables

Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. Included in reinsurance recoverables are amounts related to certain structured settlements. The Company reports its reinsurance recoverables net of an allowance for estimated uncollectible reinsurance. The allowance is based upon the Company’s ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, disputes, applicable coverage defenses and other relevant factors.  For structured settlements, the allowance is also based upon the Company’s ongoing review of life insurers’ creditworthiness and estimated amounts of coverage that would be available from state guaranty funds if a life insurer defaults. A probability-of-default methodology which reflects current and forecasted economic conditions is used to estimate the amount of uncollectible reinsurance due to credit-related factors and the estimate is reported in an allowance for estimated uncollectible reinsurance. The allowance also includes estimated uncollectible amounts related to dispute risk with reinsurers.  Amounts deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written off against the allowance. Changes in the allowance, as well as any subsequent collections of amounts previously written off, are reported as part of claims and claim adjustment expenses.  The Company evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure to significant losses from reinsurer insolvencies.

Contractholder Receivables and Payables

Under certain workers’ compensation insurance contracts with deductible features, the Company is obligated to pay the claimant for the full amount of the claim. The Company is subsequently reimbursed by the policyholder for the deductible amount. These amounts are included on a gross basis in the consolidated balance sheet in both contractholder payables and contractholder receivables. Contractholder receivables are reported net of an allowance for expected credit losses. The allowance is based upon the Company’s ongoing review of amounts outstanding, changes in policyholder credit standing, and other relevant factors.  A probability-of-default methodology which reflects current and forecasted economic conditions is used to estimate the allowance for expected credit losses.

Premiums and Unearned Premium Reserves

Premiums are recognized as revenues pro rata over the policy period. Unearned premium reserves represent the unexpired portion of policy premiums. Accrued retrospective premiums are included in premium balances receivable. Premium balances receivable are reported net of an allowance for expected credit losses. The allowance is based upon the Company’s ongoing review of amounts outstanding, historical loss data, including delinquencies and write-offs, current and forecasted economic conditions and other relevant factors. Credit risk is partially mitigated by the Company’s ability to cancel the policy if the policyholder does not pay the premium.


10


THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued


2.    SEGMENT INFORMATION
 
Nature of Operations
 
The Company’s results are reported in the following three business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance. These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on the type of customer, how the business is marketed and the manner in which risks are underwritten. For more information regarding the Company’s nature of operations, see the “Nature of Operations section of note 1 of notes to the consolidated financial statements in the Company’s 2019 Annual Report.

The following tables summarize the components of the Company’s revenues, income and total assets by reportable business segments:
(For the three months ended March 31, in millions)
 
Business
Insurance
 
Bond & Specialty
Insurance
 
Personal
Insurance
 
Total
Reportable
Segments
 
 
 
 
 
 
 
 
 
2020
 
 

 
 

 
 

 
 

Premiums
 
$
3,864

 
$
667

 
$
2,698

 
$
7,229

Net investment income
 
453

 
55

 
103

 
611

Fee income
 
102

 

 
6

 
108

Other revenues
 
31

 
5

 
22

 
58

Total segment revenues (1)
 
$
4,450

 
$
727

 
$
2,829

 
$
8,006

Segment income (1)
 
$
289

 
$
122

 
$
336

 
$
747

 
 
 
 
 
 
 
 
 
2019
 
 

 
 

 
 

 
 

Premiums
 
$
3,742

 
$
606

 
$
2,507

 
$
6,855

Net investment income
 
427

 
56

 
99

 
582

Fee income
 
104

 

 
5

 
109

Other revenues
 
43

 
6

 
22

 
71

Total segment revenues (1)
 
$
4,316

 
$
668

 
$
2,633

 
$
7,617

Segment income (1)
 
$
414

 
$
138

 
$
278

 
$
830

_________________________________________________________
(1)
Segment revenues for reportable business segments exclude net realized investment gains (losses). Segment income for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).


11


THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.    SEGMENT INFORMATION, Continued

Business Segment Reconciliations
 
 
Three Months Ended
March 31,
(in millions)
 
2020
 
2019
Revenue reconciliation
 
 

 
 

Earned premiums
 
 

 
 

Business Insurance:
 
 

 
 

Domestic:
 
 

 
 

Workers’ compensation
 
$
899

 
$
972

Commercial automobile
 
684

 
628

Commercial property
 
508

 
460

General liability
 
601

 
567

Commercial multi-peril
 
886

 
840

Other
 
12

 
8

Total Domestic
 
3,590

 
3,475

International
 
274

 
267

Total Business Insurance
 
3,864

 
3,742

Bond & Specialty Insurance:
 
 

 
 

Domestic:
 
 

 
 

Fidelity and surety
 
257

 
246

General liability
 
287

 
257

Other
 
58

 
52

Total Domestic
 
602

 
555

International
 
65

 
51

Total Bond & Specialty Insurance
 
667

 
606

Personal Insurance:
 
 

 
 

Domestic:
 
 

 
 

Automobile
 
1,351

 
1,297

Homeowners and Other
 
1,176

 
1,039

Total Domestic
 
2,527

 
2,336

International
 
171

 
171

Total Personal Insurance
 
2,698

 
2,507

Total earned premiums
 
7,229

 
6,855

Net investment income
 
611

 
582

Fee income
 
108

 
109

Other revenues
 
58

 
71

Total segment revenues
 
8,006

 
7,617

Other revenues
 

 
1

Net realized investment gains (losses)
 
(98
)
 
53

Total revenues
 
$
7,908

 
$
7,671

Income reconciliation, net of tax
 
 

 
 

Total segment income
 
$
747

 
$
830

Interest Expense and Other (1)
 
(71
)
 
(75
)
Core income
 
676

 
755

Net realized investment gains (losses)
 
(76
)
 
41

Net income
 
$
600

 
$
796

_________________________________________________________
(1) The primary component of Interest Expense and Other was after-tax interest expense of $66 million and $70 million for the three months ended March 31, 2020 and 2019, respectively.

12


THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.    SEGMENT INFORMATION, Continued

(in millions)
 
March 31,
2020
 
December 31,
2019
Asset reconciliation
 
 

 
 

Business Insurance
 
$
83,525

 
$
83,896

Bond & Specialty Insurance
 
8,690

 
8,599

Personal Insurance
 
16,666

 
17,015

Total assets by reportable segment
 
108,881

 
109,510

Other assets (1)
 
555

 
612

Total consolidated assets
 
$
109,436

 
$
110,122

 _________________________________________________________
(1)
The primary components of other assets at both March 31, 2020 and December 31, 2019 were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan and other intangible assets.

3.      INVESTMENTS
 
Fixed Maturities
 
The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:
 
 
Amortized Cost
 
Allowance for Expected Credit Losses
 
Gross Unrealized
 
Fair Value
(at March 31, 2020, in millions)
 
 
 
Gains
 
Losses
 
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,003

 
$

 
$
53

 
$
1

 
$
2,055

Obligations of states, municipalities and political subdivisions:
 
 
 
 
 
 
 
 
 
 
Local general obligation
 
15,893

 

 
907

 
9

 
16,791

Revenue
 
10,158

 

 
593

 
3

 
10,748

State general obligation
 
1,149

 

 
65

 

 
1,214

Pre-refunded
 
2,166

 

 
89

 

 
2,255

Total obligations of states, municipalities and political subdivisions
 
29,366

 

 
1,654

 
12

 
31,008

Debt securities issued by foreign governments
 
1,016

 

 
24

 

 
1,040

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
3,165

 

 
147

 
5

 
3,307

All other corporate bonds
 
30,034

 
4

 
816

 
405

 
30,441

Redeemable preferred stock
 
46

 

 

 

 
46

Total
 
$
65,630

 
$
4

 
$
2,694

 
$
423

 
$
67,897


 

13


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

 
 
Amortized
 
Gross Unrealized
 
Fair
(at December 31, 2019, in millions)
 
Cost
 
Gains
 
Losses
 
Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,076

 
$
19

 
$

 
$
2,095

Obligations of states, municipalities and political subdivisions:
 
 

 
 

 
 

 
 

Local general obligation
 
15,490

 
829

 
4

 
16,315

Revenue
 
9,731

 
586

 
2

 
10,315

State general obligation
 
1,167

 
64

 

 
1,231

Pre-refunded
 
1,968

 
88

 

 
2,056

Total obligations of states, municipalities and political subdivisions
 
28,356

 
1,567

 
6

 
29,917

Debt securities issued by foreign governments
 
1,167

 
8

 
2

 
1,173

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
3,192

 
91

 
3

 
3,280

All other corporate bonds
 
30,442

 
1,195

 
18

 
31,619

Redeemable preferred stock
 
48

 
2

 

 
50

Total
 
$
65,281

 
$
2,882

 
$
29

 
$
68,134


 
Pre-refunded bonds of $2.26 billion and $2.06 billion at March 31, 2020 and December 31, 2019, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities.  These trusts were created to fund the payment of principal and interest due under the bonds.
 
Proceeds from sales of fixed maturities classified as available for sale were $388 million and $769 million during the three months ended March 31, 2020 and 2019, respectively. Gross gains of $15 million and $21 million and gross losses of $1 million and $4 million were realized on those sales during the three months ended March 31, 2020 and 2019, respectively.
 
Equity Securities
 
The cost and fair value of investments in equity securities were as follows:
 
 
 
 
 
 
Fair
(at March 31, 2020, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
339

 
$
9

 
$
43

 
$
305

Non-redeemable preferred stock
 
33

 
6

 
2

 
37

Total
 
$
372

 
$
15

 
$
45

 
$
342


 
 
 
 
 
 
 
Fair
(at December 31, 2019, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
341

 
$
45

 
$
3

 
$
383

Non-redeemable preferred stock
 
35

 
7

 

 
42

Total
 
$
376

 
$
52

 
$
3

 
$
425


 
For the three months ended March 31, 2020 and 2019, the Company recognized $(79) million and $39 million of net gains (losses) on equity securities still held as of March 31, 2020 and 2019, respectively. Net realized investment losses on equity securities still held for the first quarter of 2020 were driven by the impact of changes in fair value attributable to the recent disruption in global financial markets associated with the global pandemic beginning in March 2020 related to the novel coronavirus COVID-19.


14


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

Unrealized Investment Losses
 
The following tables summarize, for all investments in an unrealized loss position at March 31, 2020 and December 31, 2019, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position.  The fair value amounts reported in the tables are estimates that are prepared using the process described in note 4 herein and in note 4 of notes to the consolidated financial statements in the Company’s 2019 Annual Report.  The Company also relies upon estimates of several credit and non-credit factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements to determine whether credit impairment exists.
 
 
Less than 12 months
 
12 months or longer
 
Total
(at March 31, 2020, in millions)
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Fixed maturities