First Quarter Return on Equity and Core
Return on Equity of 10.5% and 10.8%, Respectively
Board of Directors Declares 7.5% Increase in
the Company’s Regular Quarterly Cash Dividend to $0.72 per Share
and Authorizes an Additional $5.0 Billion of Share
Repurchases
- Net income of $617 million and core
income (formerly referred to as operating income) of $614 million,
included significant catastrophe losses of $226 million after-tax
($347 million pre-tax).
- Quarter benefited from strong
underlying underwriting results and net investment income that
increased 9% after-tax over the prior year quarter as a result of
higher private equity returns.
- The combined ratio, which includes
catastrophe losses, was 96.0%; the underlying combined ratio
remained strong at 91.7%.
- Record net written premiums of $6.495
billion up 5% from the prior year quarter, reflecting growth in all
segments.
- Total capital returned to shareholders
of $476 million in the quarter, including $286 million of share
repurchases. Reduced share repurchases from recent quarters to
provide financing flexibility for pending acquisition of Simply
Business.
- Book value per share of $84.51 and
adjusted book value per share of $81.56 increased 2% and 1%,
respectively, from year-end 2016.
1 As a result of recent SEC insurance industry guidance
concerning terminology, what we previously referred to as
“operating income (loss)” in our public disclosures we now refer to
as “core income (loss).” Additionally, the related financial
measures of “operating income (loss) per share” and “operating
return on equity” were changed accordingly. There were no changes
in the calculation of these amounts.
The Travelers Companies, Inc. today reported net income of $617
million, or $2.17 per diluted share, for the quarter ended March
31, 2017, compared to $691 million, or $2.30 per diluted share, in
the prior year quarter. Core income in the current quarter was $614
million, or $2.16 per diluted share, compared to $698 million, or
$2.33 per diluted share, in the prior year quarter. Net and core
income in both the current and prior year quarters were impacted by
significant catastrophe losses of $226 million after-tax ($347
million pre-tax) and $207 million after-tax ($318 million pre-tax),
respectively. The decreases from the prior year quarter were
primarily driven by lower net favorable prior year reserve
development that included a $51 million after-tax ($62 million
pre-tax) impact from the UK Ministry of Justice’s recent “Ogden”
discount rate adjustment, a lower underlying underwriting gain
(i.e., excluding net favorable prior year reserve development and
catastrophe losses) and higher catastrophe losses, partially offset
by higher net investment income. The current quarter benefited from
a $39 million resolution of prior year income tax matters, while
the prior year quarter benefited modestly from the favorable
settlement of a claims-related legal matter. Per diluted share
amounts benefited from the impact of share repurchases.
Consolidated Highlights
($ in millions, except for per share amounts, and after-tax,
Three Months Ended March 31, except for premiums &
revenues)
2017 2016 Change Net written
premiums $ 6,495
$ 6,166
5 % Total revenues
$ 6,942 $ 6,686 4 Net
income $ 617 $ 691 (11
) per diluted share $ 2.17 $ 2.30 (6 )
Core income
$ 614 $ 698 (12 ) per
diluted share $ 2.16 $ 2.33 (7 )
Diluted weighted
average 282.4 297.9 (5 ) shares
outstanding Combined ratio 96.0 %
92.3 % 3.7 pts Underlying combined
ratio 91.7 % 90.0 % 1.7
pts Return on equity 10.5 %
11.6 % (1.1 ) pts Core return
on equity 10.8 %
12.5 %
(1.7 ) pts
Change from March
31, December 31, March 31, December 31,
March 31, 2017 2016
2016 2016 2016 Book value per share
$ 84.51 $ 83.05 $ 82.65
2 % 2 % Adjusted book value per
share 81.56 80.44 76.63 1 6
See Glossary of Financial Measures for definitions and the
statistical supplement for additional financial data.
“Core income of $614 million and core return on equity of 10.8%
reflected unusually high first quarter catastrophe losses that
arose from a record number of tornado and hail events,” commented
Alan Schnitzer, Chief Executive Officer. “We were pleased with our
underlying underwriting results and that loss trends were stable
and consistent with our expectations for all of our businesses,
including personal auto. We were also pleased with our investment
results this quarter. Net investment income, which benefited from
strong private equity returns, increased 9% on an after-tax basis
over the prior year quarter. Our results enabled us to return $476
million to shareholders, including $286 million in share
repurchases, while adding additional holding company liquidity to
build flexibility for the funding of the Simply Business
acquisition. In recognition of our strong financial position, the
Board of Directors declared a 7.5% increase in our quarterly cash
dividend to $0.72 per share and authorized an additional $5.0
billion of share repurchases.
“Net written premiums grew 5% to a record level this quarter,
with each business segment contributing to the growth. In our
commercial businesses, the markets in which we operate remained
stable. We continued to achieve historically high levels of
retention, and renewal rate change remained positive and improved
modestly from recent quarters. The improvement in renewal rate
change reflects our focused efforts to seek rate selectively and
thoughtfully on an account-by-account or class-by-class basis.
While we always actively seek new business opportunities, new
business was down modestly from the prior year quarter as we
continued to maintain our disciplined approach to underwriting. In
Personal Insurance, net written premiums increased by 12%,
including the impact of auto rate increases that were consistent
with our plans to improve profitability. We were also pleased that
we were able to continue the momentum in growing our very
profitable homeowners business.
“With technology and innovation driving customer preferences and
expectations, advancing our digital agenda to best serve customers
and our distribution partners, now and in the future, is a key
strategic priority. To that end, during the quarter we announced an
agreement to purchase Simply Business, a leading digital provider
of insurance to small businesses in the United Kingdom. Our
investment in Simply Business will accelerate our digital agenda,
building on the competitive advantages that have enabled us to
deliver industry-leading returns.”
Consolidated
Results
($ in millions and
pre-tax, unless noted otherwise)
Three Months Ended March 31,
2017 2016 Change Underwriting
gain: $ 211 $ 428 $
(217 )
Underwriting gain
includes:
Net favorable prior year reserve development 81 180 (99 )
Catastrophes, net of reinsurance (347 ) (318 ) (29 )
Net
investment income 610 544 66
Other income/(expense), including interest expense
(66 ) (46 ) (20
) Core income before income taxes 755
926 (171 ) Income tax expense
141 228 (87
) Core income 614 698 (84
) Net realized investment gains/(losses) after income
taxes 3 (7 )
10 Net income $ 617
$ 691 $ (74 )
Combined ratio
96.0 % 92.3 % 3.7 pts
Impact on combined
ratio
Net favorable prior year reserve development (1.3 ) pts (3.0 ) pts
1.7 pts Catastrophes, net of reinsurance 5.6 pts 5.3 pts 0.3 pts
Underlying combined ratio 91.7 %
90.0 % 1.7 pts
Net written premiums Business
and International Insurance $ 4,027 $ 3,914 3 % Bond &
Specialty Insurance 504 492 2 Personal Insurance 1,964
1,760 12
Total $ 6,495
$ 6,166 5 %
First Quarter 2017
Results(All comparisons vs. first quarter 2016, unless
noted otherwise)
Net income of $617 million after-tax decreased $74 million due
to lower core income, slightly offset by net realized investment
gains in the current quarter as compared to net realized investment
losses in the prior year quarter. Core income of $614 million
after-tax decreased $84 million, primarily driven by lower net
favorable prior year reserve development that included a $51
million after-tax ($62 million pre-tax) impact from the recent
Ogden discount rate adjustment, a lower underlying underwriting
gain as explained below and higher catastrophe losses, partially
offset by higher net investment income. The current quarter
benefited from a $39 million resolution of prior year income tax
matters, while the prior year quarter benefited modestly from the
favorable settlement of a claims-related legal matter.
Underwriting results
- The combined ratio of 96.0%, which was
impacted by significant catastrophe losses as was the prior year
quarter, increased 3.7 points due to lower net favorable prior year
reserve development (1.7 points), a higher underlying combined
ratio (1.7 points) and higher catastrophe losses (0.3 points).
- The underlying combined ratio of 91.7%
increased 1.7 points, primarily driven by normal quarterly
variability in non-catastrophe weather-related losses and other
loss activity and the timing impact of higher loss estimates in
personal automobile bodily injury liability coverages that were
consistent with the higher loss trends we recognized in the last
half of 2016.
- Net favorable prior year reserve
development occurred in Business and International Insurance and
Bond & Specialty Insurance and included the recent Ogden
discount rate adjustment. Catastrophe losses in the first quarter
of 2017 primarily resulted from wind and hail storms in several
regions of the United States, as well as a winter storm in the
eastern United States.
Net investment income of $610 million pre-tax ($480 million
after-tax) increased 9% after-tax driven by higher private equity
returns, partially offset by fixed income returns that declined in
line with our expectations due to lower reinvestment rates
available in the market.
Other income/(expense) in the prior year quarter included
proceeds from the favorable settlement of a claims-related legal
matter.
Net written premiums of $6.495 billion, a record level,
increased 5%, reflecting growth in all segments.
Shareholders’ Equity
Shareholders’ equity of $23.612 billion increased 2% from
year-end 2016. After-tax net unrealized investment gains were $823
million ($1.255 billion pre-tax) compared to $730 million after-tax
($1.112 billion pre-tax) at year-end 2016. Book value per share of
$84.51 and adjusted book value per share of $81.56 increased 2% and
1%, respectively, from year-end 2016.
The Company repurchased 2.4 million shares during the first
quarter at an average price of $120.68 per share for a total cost
of $286 million, which was reduced from recent quarters to provide
financing flexibility for the pending acquisition of Simply
Business. At the end of first quarter 2017, statutory capital and
surplus was $20.617 billion and the ratio of debt-to-capital was
21.4%. The ratio of debt-to-capital excluding after-tax net
unrealized investment gains was 22.0%, well within the Company’s
target range of 15% to 25%.
The Board of Directors today declared a quarterly dividend of
$0.72 per share, an increase of 7.5%. This dividend is payable on
June 30, 2017, to shareholders of record as of the close of
business on June 9, 2017. The Board of Directors also authorized an
additional $5.0 billion of share repurchases. This amount is in
addition to the $709 million that remained from previous
authorizations as of March 31, 2017. This authorization does not
have a stated expiration date. The timing and actual number of
shares to be repurchased will depend on a variety of factors,
including the factors described below in the Forward-Looking
Statement section.
Business and
International Insurance Segment Financial Results
($ in millions and
pre-tax, unless noted otherwise)
Three Months Ended March 31,
2017 2016 Change Underwriting gain:
$ 121 $ 172 $ (51
)
Underwriting gain
includes:
Net favorable prior year reserve development 71 93 (22 )
Catastrophes, net of reinsurance (134 ) (148 ) 14
Net
investment income 470 415 55
Other income 10 33
(23 ) Segment income2 before
income taxes 601 620 (19 )
Income tax expense 133
144 (11 ) Segment income
$ 468 $ 476 $
(8 )
Combined ratio 96.3 % 94.8 %
1.5 pts
Impact on combined
ratio
Net favorable prior year reserve development (1.9 ) pts (2.6 ) pts
0.7 pts Catastrophes, net of reinsurance 3.7 pts 4.1 pts (0.4 ) pts
Underlying combined ratio 94.5 %
93.3 % 1.2 pts
Net written premiums by market
Domestic Select Accounts $ 755 $ 724 4 % Middle Market 1,956 1,830
7 National Accounts 288 320 (10 ) First Party 352 358 (2 )
Specialized Distribution 255 285 (11 )
Total Domestic 3,606 3,517 3 International 421
397 6
Total $ 4,027 $
3,914 3 %
2 As a result of recent SEC insurance industry guidance
concerning terminology, what we previously referred to as
“operating income (loss)” in our public disclosures when referring
to business segment results is now labeled “segment income (loss).”
There were no changes in the calculation of these amounts.
First Quarter 2017
Results(All comparisons vs. first quarter 2016, unless
noted otherwise)
Segment income for Business and International Insurance was $468
million after-tax, a decrease of $8 million, primarily driven by a
decrease in net favorable prior year reserve development due to a
$51 million after-tax ($62 million pre-tax) increase in reserves
related to the recent Ogden discount rate adjustment, a lower
underlying underwriting gain as explained below, partially offset
by higher net investment income and modestly lower catastrophe
losses as compared to a particularly high level of catastrophe
losses in the prior year quarter. The current quarter benefited
from a $15 million resolution of prior year income tax matters,
while the prior year quarter benefited modestly from the favorable
settlement of a claims-related legal matter.
Underwriting results
- The combined ratio of 96.3% increased
1.5 points due to a higher underlying combined ratio (1.2 points)
and lower net favorable prior year reserve development (0.7
points), partially offset by lower catastrophe losses (0.4
points).
- The underlying combined ratio of 94.5%
increased 1.2 points, primarily driven by normal quarterly
variability in non-catastrophe weather-related losses and other
loss activity and loss cost trends that modestly exceeded earned
pricing.
- Net favorable prior year reserve
development primarily resulted from better-than-expected loss
experience in the Company’s domestic operations in (i) the workers’
compensation product line for multiple accident years and (ii) the
general liability product line for both primary and excess
coverages for accident years 2009 and prior as well as accident
year 2014, partially offset by (iii) net unfavorable prior year
reserve development in the Company’s international operations in
Europe due to the recent Ogden discount rate adjustment applied to
lump sum bodily injury payouts.
Other income in the prior year quarter included proceeds from
the favorable settlement of a claims-related legal matter.
Net written premiums of $4.027 billion, a record level,
increased 3%, benefiting from continued strong retention and
improved renewal premium changes.
Bond &
Specialty Insurance Segment Financial Results
($ in millions and
pre-tax, unless noted otherwise)
Three Months Ended March
31, 2017 2016 Change Underwriting
gain: $ 104 $ 154 $
(50 )
Underwriting gain
includes:
Net favorable prior year reserve development 10 60 (50 )
Catastrophes, net of reinsurance (1 ) (1 ) -
Net
investment income 52 52
-
Other income 5 3
2 Segment income before income
taxes 161 209 (48 ) Income tax
expense 32 65
(33 ) Segment income $ 129
$ 144 $ (15 )
Combined
ratio 79.3 % 69.3 % 10.0
pts
Impact on combined
ratio
Net favorable prior year reserve development (1.9 ) pts (11.9 ) pts
10.0 pts Catastrophes, net of reinsurance 0.1 pts 0.1 pts
-
pts
Underlying combined ratio 81.1 %
81.1 %
-
pts
Net written premiums Management Liability $ 330 $ 325 2 %
Surety 174 167 4
Total $
504 $ 492 2 %
First Quarter 2017
Results(All comparisons vs. first quarter 2016, unless
noted otherwise)
Segment income for Bond & Specialty Insurance was $129
million after-tax, a decrease of $15 million, due to lower net
favorable prior year reserve development, partially offset by the
current quarter benefit from a $17 million resolution of prior year
income tax matters.
Underwriting results
- The combined ratio of 79.3% increased
10.0 points due to lower net favorable prior year reserve
development.
- The underlying combined ratio remained
very strong at 81.1%.
- Net favorable prior year reserve
development resulted from better-than-expected loss experience in
the fidelity and surety product line for accident year 2014.
Net written premiums of $504 million grew 2% from the prior year
quarter.
Personal
Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise)
Three
Months Ended March 31, 2017 2016 Change
Underwriting gain/(loss): $ (14 )
$ 102 $ (116 )
Underwriting gain
includes:
Net favorable prior year reserve development - 27 (27 )
Catastrophes, net of reinsurance (212 ) (169 ) (43 )
Net
investment income 88 77 11 Other
income 15 14
1 Segment income before income taxes
89 193 (104 ) Income tax expense
10 54 (44
) Segment income $ 79 $
139 $ (60 )
Combined ratio
99.9 % 93.7 % 6.2 pts
Impact on combined
ratio
Net favorable prior year reserve development - pts (1.4 ) pts 1.4
pts Catastrophes, net of reinsurance 10.4 pts 9.0 pts 1.4 pts
Underlying combined ratio 89.5 %
86.1 % 3.4 pts
Net written premiums
Agency Automobile1 $ 1,087 $ 932 17 % Agency Homeowners &
Other1 794 760 4 Direct to Consumer 83 68
22
Total $ 1,964 $
1,760 12 % 1 Represents business sold
through agents, brokers and other intermediaries, and excludes
direct to consumer.
First Quarter 2017
Results(All comparisons vs. first quarter 2016, unless
noted otherwise)
Segment income for Personal Insurance was $79 million after-tax,
a decrease of $60 million, primarily driven by a lower underlying
underwriting gain as explained below, higher catastrophe losses and
no net prior year reserve development compared to net favorable
prior year reserve development in the prior year quarter, partially
offset by higher net investment income. The current quarter
benefited from a $7 million resolution of prior year income tax
matters.
Underwriting results
- The combined ratio of 99.9% increased
6.2 points due to a higher underlying combined ratio (3.4 points),
no net prior year reserve development compared to net favorable
prior year reserve development in the prior year quarter (1.4
points) and higher catastrophe losses (1.4 points).
- The underlying combined ratio of 89.5%
increased 3.4 points, primarily driven by the timing impact of
higher loss estimates in personal automobile bodily injury
liability coverages that were consistent with the higher loss
trends we recognized in the last half of 2016, the tenure impact of
higher levels of new business in auto and normal quarterly
variability in non-catastrophe weather-related losses and other
loss activity, partially offset by a lower expense ratio.
Net written premiums of $1.964 billion increased 12%. Agency
Automobile net written premiums growth of 17% benefited from the
impact of auto rate increases that were consistent with our plans
to improve profitability and an increase in policies in force of
12% from the prior year quarter. Agency Homeowners & Other net
written premiums grew 4%, with an increase in policies in force of
4% from the prior year quarter.
Financial Supplement and Conference Call
The information in this press release should be read in
conjunction with a financial supplement that is available on our
website at www.travelers.com. Travelers management will discuss the
contents of this release and other relevant topics via webcast at 9
a.m. Eastern (8 a.m. Central) on Thursday, April 20, 2017.
Investors can access the call via webcast at
http://investor.travelers.com or by dialing 1-888-227-8942 within
the U.S. and 1-303-223-4384 outside the U.S. (use passcode 14788
for both the U.S. and international calls). 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. An
audio playback can also be accessed by phone at 1-800-633-8284
within the U.S. and 1-402-977-9140 outside the U.S. (use
reservation 21847521 for both the U.S. and international
calls).
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 $28 billion in 2016. 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.
For the periods presented in this earnings release, Travelers
was organized into the following reportable business
segments:
Business and International Insurance – Business and
International Insurance offers a broad array of property and
casualty insurance and insurance related services to its clients,
primarily in the United States and in Canada, as well as in the
United Kingdom, the Republic of Ireland, Brazil, Colombia and
throughout other parts of the world as a corporate member of
Lloyd’s of London.
Bond & Specialty Insurance – Bond & Specialty
Insurance provides surety, fidelity, crime, management and
professional liability, and cyber risk coverages and related risk
management services to a wide range of primarily domestic
customers, 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. The primary products of automobile and homeowners
insurance are complemented by a broad suite of related
coverages.
Effective April 1, 2017, the Company’s results will be reported
in the following three business segments – Business Insurance, Bond
& Specialty Insurance and Personal Insurance, reflecting a
change in the manner in which the Company’s businesses will be
managed. While the segmentation of the Company’s domestic
businesses will be unchanged, the Company’s international
businesses, which were previously reported in total within the
Business and International Insurance segment, will now be
disaggregated among these three newly aligned business segments.
The newly aligned segments will be presented in the Company’s
financial statements beginning with the period ending June 30, 2017
and prior periods presented therein will be reclassified to conform
to the new presentation.
* * * * *
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, 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);
- share repurchase plans;
- future pension plan contributions;
- the sufficiency of the Company’s
asbestos and other reserves;
- the impact of emerging claims issues as
well as other insurance and non-insurance litigation;
- the cost and availability of
reinsurance coverage;
- catastrophe losses;
- the impact of investment, economic
(including inflation, potential changes in tax law and rapid
changes in commodity prices, such as a significant decline in oil
and gas prices, as well as fluctuations in foreign currency
exchange rates) and underwriting market conditions;
- strategic initiatives to improve
profitability and competitiveness; and
- the potential closing date and impact
of the Company’s acquisition of Simply Business.
The Company cautions investors that such statements are subject
to risks and uncertainties, many of which are difficult to predict
and generally beyond the Company’s control, that could cause actual
results to differ materially from those expressed in, or implied or
projected by, the forward-looking information and statements.
Some of the factors that could cause actual results to differ
include, but are not limited to, the following:
- catastrophe losses could materially and
adversely affect the Company’s results of operations, its financial
position and/or liquidity, and could adversely impact the Company’s
ratings, the Company’s ability to raise capital and the
availability and cost of reinsurance;
- if actual claims exceed the Company’s
claims and claim adjustment expense reserves, or if changes in the
estimated level of claims and claim adjustment expense reserves are
necessary, including as a result of, among other things, changes in
the legal, regulatory and economic environments in which the
Company operates, the Company’s financial results could be
materially and adversely affected;
- during or following a period of
financial market disruption or an economic downturn, the Company’s
business could be materially and adversely affected;
- the Company’s investment portfolio is
subject to credit risk, and may suffer material realized or
unrealized losses. The Company’s investment portfolio may also
suffer reduced or low returns, particularly if interest rates
remain at historically low levels for a prolonged period of time or
decline further as a result of actions taken by central banks (a
risk which potentially could be increased by, among other things,
the United Kingdom’s withdrawal from the European Union);
- the Company’s business could be harmed
because of its potential exposure to asbestos and environmental
claims and related litigation;
- the intense competition that the
Company faces, and the impact of innovation, technological change
and changing customer preferences on the insurance industry and the
markets in which it operates, could harm its ability to maintain or
increase its business volumes and its profitability;
- disruptions to the Company’s
relationships with its independent agents and brokers or the
Company’s inability to manage effectively a changing distribution
landscape could adversely affect the Company;
- the Company is exposed to, and may face
adverse developments involving, mass tort claims such as those
relating to exposure to potentially harmful products or
substances;
- the effects of emerging claim and
coverage issues on the Company’s business are uncertain;
- the Company may not be able to collect
all amounts due to it from reinsurers, reinsurance coverage may not
be available to the Company in the future at commercially
reasonable rates or at all and we are exposed to credit risk
related to our structured settlements;
- the Company is also exposed to credit
risk in certain of its insurance operations and with respect to
certain guarantee or indemnification arrangements that we have with
third parties;
- within the United States, the Company’s
businesses are heavily regulated by the states in which it conducts
business, including licensing and 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 or make
future share repurchases;
- the Company’s efforts to develop new
products or expand in targeted markets 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;
- 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;
- changes in U.S. tax laws or in the tax
laws of other jurisdictions in which the Company operates could
adversely impact the Company;
- the Company is also subject to a number
of additional risks associated with its business outside the United
States, including foreign currency exchange fluctuations 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 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 to existing U.S. accounting
standards may adversely impact the Company’s reported results;
and
- the Company’s share repurchase plans
depend on a variety of factors, including the Company’s financial
position, earnings, share price, catastrophe losses, maintaining
capital levels commensurate with the Company’s desired ratings from
independent rating agencies, funding of the Company’s qualified
pension plan, capital requirements of the Company’s operating
subsidiaries, legal requirements, regulatory constraints, other
investment opportunities (including mergers and acquisitions and
related financings), market conditions and other factors.
Our forward-looking statements speak only as of the date of this
press release or as of the date they are made, and we undertake no
obligation to update forward-looking statements. For a more
detailed discussion of these factors, see the information under the
captions “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in our most
recent annual report on Form 10-K filed with the Securities and
Exchange Commission (SEC) on February 16, 2017, as updated by our
periodic filings with the SEC.
*****
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP
MEASURES TO NON-GAAP MEASURES
The following measures are used by the Company’s management to
evaluate financial performance against historical results and
establish targets on a consolidated basis. 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 non-GAAP measures to their most directly
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. Internally, the
Company’s management uses these measures to evaluate performance
against historical results, to establish financial targets on a
consolidated basis and for other reasons, which are discussed
below.
Some of these measures exclude net realized investment gains
(losses), net of tax, and/or net unrealized investment gains
(losses), net of tax, which can be significantly impacted by both
discretionary and other economic factors and are not necessarily
indicative of operating trends.
Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by
the Company’s management.
RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER
NON-GAAP MEASURES
Core income (loss) is net income (loss) excluding the
after-tax impact of net realized investment gains (losses),
discontinued operations and cumulative effect of changes in
accounting principles when applicable. Segment income (loss)
is comparable to 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 when analyzing the results and
trends of insurance companies. Core income (loss) per share is core
income (loss) on a per common share basis.
Reconciliation of
Net Income to Core Income less Preferred Dividends
Three Months Ended
March 31, ($ in millions, after-tax)
2017 2016
Net income $ 617 $ 691 Less: Net
realized investment gains/(losses)
3 (7 )
Core income
$ 614
$ 698
Three
Months Ended March 31, ($ in millions, pre-tax)
2017 2016
Net income $ 760 $ 917
Less: Net realized investment gains/(losses)
5 (9 )
Core
income $ 755
$ 926
Twelve Months Ended December 31, ($ in
millions, after-tax)
2016
2015 2014 2013
2012 2011
2010 2009 2008
2007 2006
2005
Net income $
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 3,014 3,439
3,692 3,673 2,473 1,426 3,216
3,622 2,924 4,601 4,208 2,061
Less: Net realized investment gains/(losses)
47 2 51
106 32 36
173 22
(271 ) 101 8
35
Core income 2,967
3,437 3,641 3,567 2,441 1,390
3,043 3,600 3,195 4,500 4,200
2,026 Less: Preferred dividends
- - -
- - 1
3 3 4
4 5
6
Core income, less preferred dividends
$ 2,967 $ 3,437
$ 3,641 $
3,567 $ 2,441
$ 1,389 $ 3,040
$ 3,597 $ 3,191
$ 4,496 $
4,195 $ 2,020
Reconciliation of
Net Income per Share to Core Income per Share on a Basic and
Diluted Basis
Three Months Ended March 31,
2017
2016
Basic income per
share
Net income $ 2.19 $ 2.33 Less:
Net realized investment gains/(losses)
0.01 (0.02 )
Core income
$ 2.18 $ 2.35
Diluted income
per share
Net income $ 2.17 $ 2.30 Less:
Net realized investment gains/(losses)
0.01 (0.03 )
Core income
$ 2.16 $ 2.33
Reconciliation of
Segment Income to Total Core Income
Three Months Ended March 31, ($ in millions,
after-tax)
2017
2016 Business and
International Insurance $ 468 $ 476 Bond & Specialty Insurance
129 144 Personal Insurance
79 139
Total segment income 676 759 Interest Expense and Other
(62 )
(61 )
Total core income
$ 614
$ 698
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, net
realized investment gains (losses), net of tax, for the period
presented, preferred stock and discontinued operations.
Reconciliation of Shareholders’ Equity
to Adjusted Shareholders’ Equity
As of March 31,
($ in
millions)
2017
2016
Shareholders’ equity
$ 23,612 $ 24,166 Less: Net unrealized
investment gains, net of tax 823 1,759 Net realized
investment gains (losses), net of tax
3 (7 )
Adjusted shareholders’ equity
$ 22,786 $ 22,414
As of December 31, ($ in millions)
2016 2015 2014
2013 2012
2011 2010
2009 2008
2007 2006 2005
Shareholders’ equity
$ 23,221 $ 23,598 $
24,836 $ 24,796 $ 25,405
$ 24,477 $ 25,475 $
27,415 $ 25,319 $ 26,616
$ 25,135 $ 22,303 Less: Net unrealized
investment gains (losses), net of tax 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 47 2 51 106 32 36 173 22 (271 ) 101 8 35
Preferred stock - - - - - - 68 79 89 112 129 153 Loss
from discontinued operations -
- - -
- -
- - -
- - (439 )
Adjusted shareholders’ equity
$ 22,444 $
22,307 $ 22,819
$ 23,368 $ 22,270
$ 21,570 $
23,375 $ 25,458
$ 25,647 $ 25,783
$ 24,545 $
22,227
Return on equity is the ratio of annualized net income
less preferred dividends to average shareholders’ equity for the
periods presented. Core return on equity is the ratio of
annualized core income less preferred dividends to adjusted average
shareholders’ equity for the periods presented. In the opinion of
the Company’s management, these are important indicators of how
well management creates value for its shareholders through its
operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and
end of each of the quarters for the period presented divided by (b)
the number of quarters in the period presented times two.
Adjusted average shareholders’ equity is (a) the sum of
adjusted shareholders’ equity at the beginning and end of each of
the quarters for the period presented divided by (b) the number of
quarters in the period presented times two.
Calculation of
Return on Equity and Core Return on Equity
Three
Months Ended March 31, ($ in millions, after-tax)
2017
2016 Annualized net income $ 2,470 $ 2,766
Average shareholders’ equity
23,416
23,882
Return on equity
10.5 %
11.6 % Annualized core
income $ 2,455 $ 2,791
Adjusted average shareholders’ equity
22,638
22,361
Core return on equity
10.8 %
12.5 %
Average annual core return on equity over a period is the
ratio of:a) the sum of core income less preferred dividends for the
periods presented tob) the sum of: 1) the sum of the adjusted
average shareholders’ equity for all full years in the period
presented, and 2) for partial years in the period presented, the
number of quarters in that partial year divided by four, multiplied
by the adjusted average shareholders’ equity of the partial
year.
Calculation of Average Annual Core
Return on Equity from January 1, 2005 through March 31,
2017
Three Months Ended March
31, Twelve Months Ended December 31, ($ in millions)
2017 2016
2016 2015
2014 2013
2012 2011
2010 2009
2008 2007
2006 2005
Core income, less preferred dividends $ 614 $ 698 $ 2,967 $ 3,437 $
3,641 $ 3,567 $ 2,441 $ 1,389 $ 3,040 $ 3,597 $ 3,191 $ 4,496 $
4,195 $ 2,020 Annualized core income 2,455 2,791
Adjusted average shareholders’ equity
22,638 22,361 22,386 22,681 23,447 23,004 22,158 22,806 24,285
25,777 25,668 25,350 23,381 21,118 Core return on equity
10.8 % 12.5 % 13.3 %
15.2 % 15.5 %
15.5 % 11.0 %
6.1 % 12.5 % 14.0
% 12.4 % 17.7 %
17.9 % 9.6 %
Average
annual core return on equity 13.4 % for the
period Jan. 1, 2005 through Mar. 31, 2017
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN
ITEMS TO NET INCOME
Underwriting gain is net earned premiums and fee income
less claims and claim adjustment expenses and insurance-related
expenses. In the opinion of the Company’s management, it is
important to measure the profitability of each segment excluding
the results of investing activities, which are managed separately
from the insurance business. This measure is used to assess each
segment’s business performance and as a tool in making business
decisions. Pre-tax underwriting gain, excluding the
impact of catastrophes and net favorable prior year loss reserve
development, is the underwriting gain adjusted to exclude
claims and claim adjustment expenses, reinstatement premiums and
assessments related to catastrophes and loss reserve development
related to time periods prior to the current year. In the opinion
of the Company’s management, this measure is meaningful to users of
the financial statements to understand the Company’s periodic
earnings and the variability of earnings caused by the
unpredictable nature (i.e., the timing and amount) of catastrophes
and loss reserve development. This measure is also referred to as
underlying underwriting margin or underlying underwriting
gain.
A catastrophe is a severe loss caused by various natural
events, including, among others, hurricanes, tornadoes and other
windstorms, earthquakes, hail, wildfires, severe winter weather,
floods, tsunamis, volcanic eruptions and other naturally-occurring
events, such as solar flares. Catastrophes can also be man-made,
such as terrorist attacks and other intentionally destructive acts
including those involving nuclear, biological, chemical,
radiological, cyber-attacks, explosions and infrastructure
failures. Each catastrophe has unique characteristics and
catastrophes are not predictable as to timing or amount. Their
effects are included in net and core income and claims and claim
adjustment expense reserves upon occurrence. A catastrophe may
result in the payment of reinsurance reinstatement premiums and
assessments from various pools.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Components of Net Income
Three Months
Ended March 31, ($ in millions, after-tax except as
noted)
2017
2016 Pre-tax underwriting gain excluding the impact
of catastrophes and net favorable prior year loss reserve
development $ 477 $ 566 Pre-tax impact of catastrophes (347 ) (318
) Pre-tax impact of net favorable prior year loss reserve
development 81
180 Pre-tax underwriting gain 211 428
Income tax expense on underwriting results
36 139
Underwriting gain 175 289 Net investment income 480 439 Other
income/(expense), including interest expense
(41 ) (30 )
Core
income 614 698 Net realized investment gains /
(losses) 3
(7 )
Net income
$ 617 $ 691
COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED
RATIO
Combined ratio: For Statutory Accounting Practices (SAP),
the combined ratio is the sum of the SAP loss and LAE ratio and the
SAP underwriting expense ratio as defined in the statutory
financial statements required by insurance regulators. The combined
ratio as used in this earnings release is the equivalent of, and is
calculated in the same manner as, the SAP combined ratio except
that the SAP underwriting expense ratio is based on net written
premiums and the underwriting expense ratio as used in this
earnings release is based on net earned premiums.
For SAP, the loss and LAE ratio is the ratio of incurred losses
and loss adjustment expenses less certain administrative services
fee income to net earned premiums as defined in the statutory
financial statements required by insurance regulators. The loss and
LAE ratio as used in this earnings release is calculated in the
same manner as the SAP ratio.
For SAP, the underwriting expense ratio is the ratio of
underwriting expenses incurred (including commissions paid), less
certain administrative services fee income and billing and policy
fees, to net written premiums as defined in the statutory financial
statements required by insurance regulators. The underwriting
expense ratio as used in this earnings release, is the ratio of
underwriting expenses (including the amortization of deferred
acquisition costs), less certain administrative services fee
income, billing and policy fees and other, to net earned
premiums.
The combined ratio, loss and LAE ratio, and underwriting expense
ratio are used as indicators of the Company’s underwriting
discipline, efficiency in acquiring and servicing its business and
overall underwriting profitability. A combined ratio under 100%
generally indicates an underwriting profit. A combined ratio over
100% generally indicates an underwriting loss.
Underlying combined ratio represents the combined ratio
excluding the impact of net prior year reserve development and
catastrophes. The underlying combined ratio is an indicator of
the Company’s underwriting discipline and underwriting
profitability for the current accident year.
Other companies’ method of computing similarly titled measures
may not be comparable to the Company’s method of computing these
ratios.
Calculation of the Combined
Ratio
Three Months Ended March 31, ($ in
millions, pre-tax)
2017
2016
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses $ 4,094 $ 3,712 Less:
Policyholder dividends 11 10 Allocated fee income
42
44
Loss ratio numerator
$ 4,041 $
3,658
Underwriting
expense ratio
Amortization of deferred acquisition costs $ 1,003 $ 971 General
and administrative expenses (G&A) 996 995 Less: G&A
included in Interest Expense and Other 8 8 Allocated fee income 71
73 Billing and policy fees and other
23 22
Expense ratio numerator $
1,897 $
1,863
Earned premium
$ 6,183
$ 5,981 Combined
ratio 1 Loss and loss adjustment expense ratio 65.3 %
61.1 % Underwriting expense ratio
30.7 % 31.2 %
Combined
ratio 96.0 %
92.3 % 1 For
purposes of computing ratios, billing and policy fees and other
(which are a component of other revenues) are allocated as a
reduction of underwriting expenses. In addition, fee income is
allocated as a reduction of losses and loss adjustment expenses and
underwriting expenses.
RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS’
EQUITY TO CERTAIN NON-GAAP MEASURES
Book value per share is total common shareholders’ equity
divided by the number of common shares outstanding. Adjusted
book value per share is total common shareholders’ equity
excluding the after-tax impact of net unrealized investment gains
and losses, divided by the number of common shares outstanding. In
the opinion of the Company’s management, adjusted book value per
share is useful in an analysis of a property casualty company’s
book value per share as it removes the effect of changing prices on
invested assets (i.e., net unrealized investment gains (losses),
net of tax), which do not have an equivalent impact on unpaid
claims and claim adjustment expense reserves. Tangible book
value per share is adjusted book value per share excluding the
after-tax value of goodwill and other intangible assets divided by
the number of common shares outstanding. In the opinion of the
Company’s management, tangible book value per share is useful in an
analysis of a property casualty company’s book value on a nominal
basis as it removes certain effects of purchase accounting (i.e.,
goodwill and other intangible assets), in addition to the effect of
changing prices on invested assets.
Reconciliation of Shareholders’ Equity to Tangible
Shareholders’ Equity, excluding Net Unrealized Investment Gains,
Net of Tax
As of March 31,
December 31, March 31, ($ in millions,
except per share amounts)
2017
2016 2016
Shareholders’ equity
$ 23,612 $ 23,221 $
24,166 Less: Net unrealized investment gains, net of tax
823
730 1,759
Shareholders’ equity, excluding net
unrealized investment gains, net of tax
22,789 22,491 22,407 Less: Goodwill 3,584
3,580 3,588 Other intangible assets 266 268 275
Impact of deferred tax on other intangible assets
(66 ) (64 )
(60 )
Tangible shareholders’ equity
$ 19,005
$ 18,707
$ 18,604 Common shares outstanding
279.4
279.6 292.4
Book value per share $ 84.51 $ 83.05 $ 82.65 Adjusted book
value per share 81.56 80.44 76.63 Tangible book value per share
68.02
66.91 63.63
`
RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL
CAPITALIZATION EXCLUDING NET UNREALIZED INVESTMENT GAINS, NET OF
TAX
Total capitalization is the sum of total shareholders’
equity and debt. Debt-to-capital ratio excluding net unrealized
gain on investments is the ratio of
debt to total capitalization excluding the after-tax
impact of net unrealized investment gains and losses. In the
opinion of the Company’s management, the debt to capital ratio is
useful in an analysis of the Company’s financial leverage.
As of
March 31, December 31,
March 31, ($ in millions)
2017
2016 2016 Debt $
6,438 $ 6,437 $ 6,344
Shareholders’ equity
23,612 23,221
24,166
Total
capitalization 30,050
29,658
30,510 Less: Net unrealized investment gains,
net of tax 823 730
1,759
Total
capitalization excluding net unrealized gain $
29,227 $ 28,928 $ 28,751 on
investments, net of tax
Debt-to-capital ratio
21.4 % 21.7 % 20.8 % Debt-to-capital ratio excluding net unrealized
investment gains, net of tax 22.0 %
22.3 % 22.1 %
OTHER DEFINITIONS
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to policyholders for the
effective period of the contract based on the terms and conditions
of the insurance contract. Net written premiums reflect
gross written premiums less premiums ceded to reinsurers.
For Business and International Insurance and Bond &
Specialty Insurance, retention is the amount of premium
available for renewal that was retained, excluding rate and
exposure changes. For Personal Insurance, retention is the
ratio of the expected number of renewal policies that will be
retained throughout the annual policy period to the number of
available renewal base policies. For all of the segments,
renewal rate change represents the estimated change in
average premium on policies that renew, excluding exposure changes.
Exposure is the measure of risk used in the pricing of an
insurance product. The change in exposure is the amount of change
in premium on policies that renew attributable to the change in
portfolio risk. Renewal premium change represents the
estimated change in average premium on policies that renew,
including rate and exposure changes. New business is the
amount of written premium related to new policyholders and
additional products sold to existing policyholders. These are
operating statistics, which are in part dependent on the use of
estimates and are therefore subject to change. For Business
and International Insurance, retention, renewal premium change and
new business exclude National Accounts and surety. For Bond &
Specialty Insurance, retention, renewal premium change and new
business exclude surety.
Statutory capital and surplus represents the excess of an
insurance company’s admitted assets over its liabilities, including
loss reserves, as determined in accordance with statutory
accounting practices.
Holding company liquidity is the total funds available at
the holding company level to fund general corporate purposes,
primarily the payment of shareholder dividends and debt service.
These funds consist of total cash, short-term invested assets and
other readily marketable securities held by the holding
company.
For a glossary of other financial terms used in this press
release, we refer you to the Company’s most recent annual report on
Form 10-K filed with the SEC on February 16, 2017, as updated by
our Form 10-Q filed on April 20, 2017, and subsequent periodic
filings with the SEC.
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The Travelers Companies, Inc.Media:Patrick Linehan, 917.778.6267orInstitutional Investors:Gabriella Nawi,
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