Second Quarter Return on Equity of 9.2% and
Core Return on Equity of 8.7%
- Second quarter net income of $524
million and core income of $494 million.
- Catastrophe losses of $488 million
pre-tax increased by $85 million pre-tax from the prior year
quarter. Quarter-over-quarter results also impacted by an
incremental charge of $45 million pre-tax associated with a few
large commercial losses, primarily fire related.
- Consolidated combined ratio of 98.1%;
underlying combined ratio of 93.6%.
- Record net written premiums of $7.131
billion, up 7% from the prior year quarter, reflecting growth in
all segments.
- Renewal premium change in Business
Insurance at highest level since 2014.
- Total capital returned to shareholders
of $559 million in the quarter, including $350 million of share
repurchases. Year-to-date total capital returned to shareholders of
$1.157 billion, including $751 million of share repurchases.
- Book value per share of $84.51, down 3%
from year-end 2017, due to the impact of higher interest rates on
net unrealized investment gains/(losses). Adjusted book value per
share of $84.93, up 2% from year-end 2017.
- Board of Directors declared quarterly
dividend per share of $0.77.
The Travelers Companies, Inc. today reported net income of $524
million, or $1.92 per diluted share, for the quarter ended June 30,
2018, compared to $595 million, or $2.11 per diluted share, in the
prior year quarter. Core income in the current quarter was $494
million, or $1.81 per diluted share, compared to $543 million, or
$1.92 per diluted share, in the prior year quarter. Core income
before income taxes decreased primarily due to an increase in
catastrophe losses of $85 million, an incremental charge of $45
million associated with a few large commercial losses, primarily
fire related, and an $18 million assessment from the Texas
Windstorm Insurance Association (TWIA) related to Hurricane Harvey.
Core income benefited by $54 million from a lower U.S. corporate
income tax rate. Net realized investment gains of $36 million
pre-tax ($30 million after-tax) decreased due to lower gains on
equity securities. Per diluted share amounts benefited from the
impact of share repurchases.
Consolidated
Highlights
($ in millions, except for per share amounts, and after-tax,
Three Months Ended June 30, Six Months Ended June 30,
except for premiums & revenues)
2018
2017 Change 2018 2017
Change Net written premiums
$ 7,131 $ 6,640
7 %
$ 13,955
$ 13,135 6
% Total revenues $ 7,477 $
7,184 4 $ 14,763 $ 14,126
5 Net income $ 524 $
595 (12 ) $ 1,193 $
1,212 (2 ) per diluted share $ 1.92 $ 2.11 (9
) $ 4.35 $ 4.28 2
Core income $ 494 $
543 (9 ) $ 1,172 $
1,157 1 per diluted share $ 1.81 $ 1.92 (6 ) $ 4.27 $
4.08 5
Diluted weighted average 271.1
280.0 (3 ) 272.5 281.2 (3
) shares outstanding Combined ratio
98.1 % 96.7 % 1.4 pts
96.8 % 96.4 % 0.4 pts
Underlying combined ratio 93.6 % 93.5
% 0.1 pts 93.0 % 92.7
% 0.3 pts Return on equity
9.2 % 10.0 % (0.8 )
pts 10.3 % 10.3 % -
pts Core return on equity 8.7 %
9.5 % (0.8 ) pts 10.3
% 10.2 % 0.1 pts
Change from
June 30, December 31, June 30, December
31, June 30, 2018 2017 2017
2017 2017 Book value per share $
84.51 $ 87.46 $ 86.46 (3
) % (2 ) % Adjusted book
value per share 84.93 83.36 82.71 2
3
See Glossary of Financial Measures for
definitions and the statistical supplement for additional financial
data.
“Second quarter core income was $494 million, down from $543
million in the prior year quarter, due to a $122 million after-tax
increase in catastrophe losses resulting from an active tornado and
hail season,” said Alan Schnitzer, Chairman and Chief Executive
Officer. “Results excluding catastrophe losses were strong,
reflecting record net earned premiums and a consolidated underlying
combined ratio of 93.6%, with each of our business segments
contributing. The underlying combined ratio in Business Insurance
was a solid 96.5%. The underlying combined ratio in our Bond &
Specialty Insurance business was strong at 80.5%. The underlying
combined ratio in Personal Insurance improved to 92.6%, reflecting
a 6.9 point improvement in Agency Auto as a result of our actions
in recent quarters to increase profitability. The consolidated
expense ratio improved by 0.4 points from disciplined top line
growth and expense management, along with the successful execution
of our productivity initiatives. Our investment portfolio continued
to perform well, with income from our fixed income portfolio
continuing to increase. Our capital management strategy remains
unchanged, and we returned approximately $560 million of excess
capital to our shareholders this quarter, including $350 million of
share repurchases, bringing the year-to-date total to over $1.15
billion.
“We are pleased with the execution of our marketplace
strategies. Net written premiums increased by 7% to a record $7.1
billion. Net written premiums in Business Insurance increased by
7%. This was driven by very strong execution by our domestic field
organization, which resulted in renewal premium change that reached
5.3%, its highest level since 2014, while still achieving retention
of 85%, consistent with historical highs. The recent establishment
of business centers in our Commercial Accounts business contributed
to an 8% increase in domestic new business in Business Insurance.
In Bond & Specialty Insurance, net written premiums increased
by 9%, with strong production across our Management Liability and
Surety businesses. In Personal Insurance, net written premiums
increased by 8%, benefiting from renewal premium change of 9% in
Agency Auto and continued growth in Agency Homeowners.
“Turning to weather more broadly, absent a severe hurricane
season, we expect catastrophe losses to be highest in the second
quarter. Catastrophe losses were $488 million this quarter,
approximately $50 million more than we would have expected, but
within the range of normal variability. This follows several recent
quarters in which catastrophe losses exceeded our historical
experience and expectations. Weather is inherently unpredictable,
and accordingly, we take a balanced approach to developing
conclusions from what happens in a relatively short period of time.
As always, the impact of weather on our business has our full
attention, and we will continue to use our leading actuarial
expertise and the latest in weather modeling to inform our
underwriting and pricing decisions.
“With a strong foundation, an active innovation agenda, superior
talent and a track record of successfully managing our businesses
for the long term, we remain well positioned to continue to deliver
leading returns over time.”
Consolidated
Results
($ in millions and pre-tax, unless noted otherwise)
Three
Months Ended June 30, Six Months Ended June 30,
2018 2017 Change 2018 2017
Change Underwriting gain: $ 90
$ 173 $ (83 ) $
348 $ 384 $ (36 )
Underwriting gain
includes:
Net favorable prior year reserve development 186 203 (17 ) 336 284
52 Catastrophes, net of reinsurance (488 ) (403 ) (85 ) (842 ) (750
) (92 )
Net investment income 595 598
(3 ) 1,198 1,208 (10 )
Other income/(expense), including interest expense
(90 ) (61 )
(29 ) (162 ) (127
) (35 ) Core income before income
taxes 595 710 (115 ) 1,384
1,465 (81 ) Income tax expense
101 167 (66
) 212 308
(96 ) Core income 494 543
(49 ) 1,172 1,157 15 Net
realized investment gains after income taxes 30
52 (22 )
21 55 (34 )
Net income $ 524 $ 595
$ (71 ) $ 1,193
$ 1,212 $ (19 )
Combined
ratio 98.1 % 96.7 % 1.4
pts 96.8 % 96.4 % 0.4
pts
Impact on combined
ratio
Net favorable prior year reserve development (2.8 ) pts (3.2 ) pts
0.4 pts (2.5 ) pts (2.3 ) pts (0.2 ) pts Catastrophes, net of
reinsurance 7.3 pts 6.4 pts 0.9 pts 6.3 pts 6.0 pts 0.3 pts
Underlying combined ratio 93.6 % 93.5
% 0.1 pts 93.0 % 92.7
% 0.3 pts
Net written premiums Business Insurance
$ 3,781 $ 3,544 7 % $ 7,775 $ 7,399 5 % Bond & Specialty
Insurance 653 598 9 1,227 1,142 7 Personal Insurance 2,697
2,498 8 4,953 4,594
8
Total $ 7,131 $
6,640 7 % $ 13,955
$ 13,135 6 %
Second Quarter 2018
Results(All comparisons vs. second quarter 2017, unless
noted otherwise)
Net income of $524 million decreased $71 million due to lower
core income and lower net realized investment gains. Core income of
$494 million decreased $49 million. Core income before income taxes
decreased primarily due to an increase in catastrophe losses of $85
million, an incremental charge of $45 million associated with a few
large commercial losses, primarily fire related, and the $18
million assessment from TWIA. Core income benefited by $54 million
from a lower U.S. corporate income tax rate. Net realized
investment gains of $36 million pre-tax ($30 million after-tax)
decreased due to lower gains on equity securities.
Underwriting results:
- The combined ratio of 98.1% increased
1.4 points due to higher catastrophe losses (0.9 points), lower net
favorable prior year reserve development (0.4 points) and a higher
underlying combined ratio (0.1 points).
- The underlying combined ratio of 93.6%
increased 0.1 points. See below for details by segment.
- Net favorable prior year reserve
development occurred in all segments. Catastrophe losses in the
second quarter of 2018 primarily resulted from nine wind and hail
storms in several regions of the United States.
Net investment income of $595 million pre-tax was comparable to
the prior year quarter. Private equity returns, although strong,
were lower than the prior year quarter, while income from our fixed
income investment portfolio increased due to a higher average level
of fixed maturity investments and higher short-term interest
rates.
Record net written premiums of $7.131 billion increased 7%,
reflecting growth in all segments.
Year-to-Date 2018
Results(All comparisons vs. year-to-date 2017, unless
noted otherwise)
Net income of $1.193 billion decreased $19 million due to lower
net realized investment gains, partially offset by higher core
income. Core income of $1.172 million increased $15 million. Core
income before income taxes decreased due to higher catastrophe
losses, partially offset by higher net favorable prior year reserve
development. Core income benefited by $127 million from a lower
U.S. corporate income tax rate. Net realized investment gains of
$25 million pre-tax ($21 million after-tax) were lower, primarily
driven by gains on the sale of equity securities in the prior year
period.
Underwriting results:
- The combined ratio of 96.8% increased
0.4 points due to a higher underlying combined ratio (0.3 points)
and higher catastrophe losses (0.3 points), partially offset by
higher net favorable prior year reserve development (0.2
points).
- The underlying combined ratio of 93.0%
increased 0.3 points.
- Net favorable prior year reserve
development occurred in all segments. Catastrophe losses included
the second quarter events described above, as well as winter storms
in the eastern United States, a wind and hail storm in the southern
United States and mudslides in California in the first quarter of
2018.
Net investment income of $1.198 billion pre-tax ($1.020 billion
after-tax) was comparable to the prior year period and benefited
from the same factors as discussed above for the second quarter
2018.
Record net written premiums of $13.955 billion increased 6%,
reflecting growth in all segments.
Shareholders’ Equity
Shareholders’ equity of $22.623 billion decreased 5% from
year-end 2017 due to the impact of higher interest rates on net
unrealized investment gains/(losses). Net unrealized investment
losses included in shareholders’ equity were $(135) million pre-tax
($(112) million after-tax), compared to net unrealized investment
gains of $1.414 billion pre-tax ($1.112 billion after-tax) at
year-end 2017. Book value per share of $84.51 decreased 3% from
year-end 2017, also due to the impact of higher interest rates on
net unrealized investment gains/(losses), and adjusted book value
per share of $84.93 increased 2% from year-end 2017.
The Company repurchased 2.7 million shares during the second
quarter at an average price of $129.66 per share for a total cost
of $350 million. Capacity remaining under the existing share
repurchase authorization was $3.856 billion at the end of the
quarter. At the end of second quarter 2018, statutory capital and
surplus was $20.371 billion and the ratio of debt-to-capital was
22.2%. The ratio of debt-to-capital excluding after-tax net
unrealized investment gains/(losses) included in shareholders’
equity was 22.1%, within the Company’s target range of 15% to
25%.
The Board of Directors declared a quarterly dividend of $0.77
per share. This dividend is payable on September 28, 2018, to
shareholders of record as of the close of business on September 10,
2018.
Business
Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise)
Three Months Ended June 30, Six Months Ended June
30, 2018 2017 Change 2018
2017 Change Underwriting gain: $
32 $ 107 $ (75 ) $
105 $ 216 $ (111 )
Underwriting gain
includes:
Net favorable prior year reserve development 84 125 (41 ) 150 186
(36 ) Catastrophes, net of reinsurance (168 ) (184 ) 16 (306 ) (316
) 10
Net investment income 440 447
(7 ) 886 900 (14 )
Other income/(expense) (10 )
15 (25 ) (7
) 24 (31 )
Segment income before income taxes 462 569
(107 ) 984 1,140 (156 )
Income tax expense 77 140
(63 ) 147
269 (122 ) Segment income
$ 385 $ 429 $
(44 ) $ 837 $ 871
$ (34 )
Combined ratio 98.8 % 96.5 %
2.3 pts 98.2 % 96.5 %
1.7 pts
Impact on combined
ratio
Net favorable prior year reserve development (2.3 ) pts (3.6 ) pts
1.3 pts (2.1 ) pts (2.7 ) pts 0.6 pts Catastrophes, net of
reinsurance 4.6 pts 5.3 pts (0.7 ) pts 4.3 pts 4.6 pts (0.3 ) pts
Underlying combined ratio 96.5 %
94.8 % 1.7 pts 96.0 %
94.6 % 1.4 pts
Net written premiums by market Domestic Select
Accounts $ 729 $ 720 1 % $ 1,502 $ 1,475 2 % Middle Market 1,985
1,820 9 4,247 3,997 6 National Accounts 231 219 5 540 507 7
National Property and Other 518 496 4
898 882 2 Total Domestic 3,463 3,255 6
7,187 6,861 5 International 318 289 10
588 538 9
Total $
3,781 $ 3,544 7 %
$ 7,775 $ 7,399 5
%
Second Quarter 2018
Results(All comparisons vs. second quarter 2017, unless
noted otherwise)
Segment income for Business Insurance was $385 million
after-tax, a decrease of $44 million. Segment income before income
taxes was impacted by a lower underlying underwriting gain and
lower net favorable prior year reserve development. The lower
underlying underwriting gain was driven by normal quarterly
variability in both loss and expense activity, including an
incremental charge of $45 million associated with a few large
commercial losses, primarily fire related, and $9 million from the
TWIA assessment. Segment income in the current quarter benefited
from a lower U.S. corporate income tax rate.
Underwriting results:
- The combined ratio of 98.8% increased
2.3 points due to a higher underlying combined ratio (1.7 points)
and lower net favorable prior year reserve development (1.3
points), partially offset by lower catastrophe losses (0.7
points).
- The underlying combined ratio of 96.5%
increased 1.7 points driven by normal quarterly variability in both
loss and expense activity, including a few large commercial losses,
primarily fire related, and the TWIA assessment.
- Net favorable prior year reserve
development was primarily driven by better than expected loss
experience in the segment’s domestic operations in the workers’
compensation product line for multiple accident years, partially
offset by higher than expected loss experience in the general
liability product line for accident years 2008 and prior, including
a $55 million increase to environmental reserves.
Net written premiums of $3.781 billion increased 7%, benefiting
from continued strong retention, higher renewal premium change and
higher levels of new business.
Year-to-Date 2018
Results(All comparisons vs. year-to-date 2017, unless
noted otherwise)
Segment income for Business Insurance was $837 million
after-tax, a decrease of $34 million. Segment income before income
taxes was impacted by a lower underlying underwriting gain,
primarily driven by normal variability in loss activity, including
a charge of $45 million associated with a few large commercial
losses, primarily fire related, and lower net favorable prior year
reserve development. Segment income in the current quarter
benefited from a lower U.S. corporate income tax rate. Segment
income in the prior year period included a $15 million benefit from
the resolution of prior year tax matters.
Underwriting results:
- The combined ratio of 98.2% increased
1.7 points due to a higher underlying combined ratio (1.4 points)
and lower net favorable prior year reserve development (0.6
points), partially offset by lower catastrophe losses (0.3
points).
- The underlying combined ratio of 96.0%
increased 1.4 points, primarily driven by normal variability in
loss activity, including a few large commercial losses, primarily
fire related.
- Net favorable prior year reserve
development was primarily driven by better than expected loss
experience in the segment’s domestic operations in the workers’
compensation product line for multiple accident years and the
commercial property product line for recent accident years,
partially offset by higher than expected loss experience in the
general liability product line for accident years 2008 and prior
(including a $55 million increase to environmental reserves) and
higher than expected loss experience in the commercial automobile
product line for recent accident years.
Net written premiums of $7.775 billion increased 5% and
benefited from the same factors discussed above for the second
quarter 2018.
Bond &
Specialty Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise)
Three Months Ended June 30, Six Months Ended June
30, 2018 2017 Change 2018
2017 Change Underwriting gain: $
199 $ 177 $ 22 $
343 $ 289 $ 54
Underwriting gain
includes:
Net favorable prior year reserve development 89 78 11 124 92 32
Catastrophes, net of reinsurance (5 ) (1 ) (4 ) (5 ) (2 ) (3 )
Net investment income 57 56 1
115 117 (2 ) Other income
3 6 (3
) 9 11
(2 ) Segment income before income taxes
259 239 20 467 417 50
Income tax expense 55 76
(21 ) 90
109 (19 ) Segment income
$ 204 $ 163 $
41 $ 377 $ 308
$ 69
Combined
ratio 66.5 % 68.7 % (2.2
) pts 70.5 % 74.0 %
(3.5 ) pts
Impact on combined
ratio
Net favorable prior year reserve development (14.8 ) pts (13.5 )
pts (1.3 ) pts (10.5 ) pts (8.2 ) pts (2.3 ) pts Catastrophes, net
of reinsurance 0.8 pts 0.2 pts 0.6 pts 0.4 pts 0.2 pts 0.2 pts
Underlying combined ratio 80.5 %
82.0 % (1.5 ) pts 80.6
% 82.0 % (1.4 ) pts
Net written premiums Domestic
Management Liability $ 362 $ 341 6 % $ 710 $ 671 6 % Surety
235 211 11 420 385
9 Total Domestic 597 552 8 1,130 1,056 7 International 56
46 22 97 86 13
Total $ 653 $ 598
9 % $ 1,227 $
1,142 7 %
Second Quarter 2018
Results(All comparisons vs. second quarter 2017, unless
noted otherwise)
Segment income for Bond & Specialty Insurance was $204
million, an increase of $41 million. Segment income before income
taxes benefited from a higher underlying underwriting gain and
higher net favorable prior year reserve development. Segment income
in the current quarter benefited from a lower U.S. corporate income
tax rate.
Underwriting results:
- The combined ratio of 66.5% improved
2.2 points due to a lower underlying combined ratio (1.5 points)
and higher net favorable prior year reserve development (1.3
points), partially offset by higher catastrophe losses (0.6
points).
- The underlying combined ratio remained
very strong at 80.5% and improved 1.5 points, primarily driven by
improvement in the expense ratio from the impact of higher levels
of earned premiums.
- Net favorable prior year reserve
development resulted from better than expected loss experience in
the segment’s domestic operations in the general liability product
line for multiple accident years.
Net written premiums of $653 million increased 9%, reflecting an
increase in surety premiums, as well as continued strong retention
and an increase in new business in management liability.
Year-to-Date 2018
Results(All comparisons vs. year-to-date 2017, unless
noted otherwise)
Segment income for Bond & Specialty Insurance was $377
million, an increase of $69 million. Segment income before income
taxes benefited from higher net favorable prior year reserve
development and a higher underlying underwriting gain. Segment
income in the current period benefited from a lower U.S. corporate
income tax rate. Segment income in the prior year period included a
$17 million benefit from the resolution of prior year tax
matters.
Underwriting results:
- The combined ratio of 70.5% improved
3.5 points due to higher net favorable prior year reserve
development (2.3 points) and a lower underlying combined ratio (1.4
points), partially offset by higher catastrophe losses (0.2
points).
- The underlying combined ratio remained
very strong at 80.6% and improved 1.4 points, primarily driven by
improvement in the expense ratio from the impact of higher levels
of earned premiums.
- Net favorable prior year reserve
development resulted from better than expected loss experience in
the segment’s domestic operations in the general liability product
line for multiple accident years.
Net written premiums of $1.227 billion grew 7% from the prior
year period and benefited from the same factors as discussed above
for second quarter 2018.
Personal
Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 Change 2018 2017
Change Underwriting gain/(loss): $
(141 )
$ (111 ) $ (30 ) $
(100 ) $ (121 ) $
21
Underwriting gain
includes:
Net favorable prior year reserve development 13 - 13 62 6 56
Catastrophes, net of reinsurance (315 ) (218 ) (97 ) (531 ) (432 )
(99 )
Net investment income 98 95
3 197 191 6 Other income
14 15 (1
) 31 31
- Segment income/(loss) before income taxes
(29 ) (1 ) (28 )
128 101 27 Income tax expense/(benefit)
(12 ) (13 )
1 16 -
16 Segment income/(loss) $
(17 ) $ 12 $ (29
) $ 112 $ 101
$ 11
Combined ratio
104.9 % 104.1 % 0.8 pts
101.3 % 101.9 % (0.6 )
pts
Impact on combined
ratio
Net favorable prior year reserve development (0.5 ) pts - pts (0.5
) pts (1.3 ) pts (0.2 ) pts (1.1 ) pts Catastrophes, net of
reinsurance 12.8 pts 9.6 pts 3.2 pts 11.0 pts 9.7 pts 1.3 pts
Underlying combined ratio 92.6 %
94.5 % (1.9 ) pts 91.6
% 92.4 % (0.8 ) pts
Net written premiums Domestic Agency 1
Automobile $ 1,258 $ 1,159 9 % $ 2,441 $ 2,246 9 % Homeowners &
Other 1,137 1,077 6 1,969
1,871 5 Total Agency 2,395 2,236 7 4,410 4,117 7
Direct to Consumer 99 88 13 191
171 12 Total Domestic 2,494 2,324 7 4,601
4,288 7 International 203 174 17
352 306 15
Total $ 2,697
$ 2,498 8 % $
4,953 $ 4,594 8 %
1 Represents business sold through agents, brokers and other
intermediaries, and excludes direct to consumer.
Second Quarter 2018
Results(All comparisons vs. second quarter 2017, unless
noted otherwise)
Segment loss for Personal Insurance was $(17) million, as
compared to segment income of $12 million in the prior year
quarter, due to lower segment income before income taxes. The
segment loss before income taxes resulted from higher catastrophe
losses, partially offset by a higher underlying underwriting gain
and net favorable prior year reserve development, compared to no
net reserve development in the prior year quarter. The higher
underlying underwriting gain resulted from improvement in Agency
Automobile, driven by earned pricing that exceeded loss cost
trends, partially offset by a reduction in Agency Homeowners &
Other due to normal variability in loss activity as well as the
inclusion of $9 million from the TWIA assessment. Segment loss in
the current quarter was impacted by a lower U.S. corporate income
tax rate.
Underwriting results:
- The combined ratio of 104.9% increased
0.8 points due to higher catastrophe losses (3.2 points), partially
offset by a lower underlying combined ratio (1.9 points) and net
favorable prior year reserve development compared to no net reserve
development in the prior year quarter (0.5 points).
- The underlying combined ratio of 92.6%
improved 1.9 points from improvement in Agency Automobile, driven
by earned pricing that exceeded loss cost trends, partially offset
by an increase in Agency Homeowners & Other due to normal
variability in loss activity and the TWIA assessment.
- Net favorable prior year reserve
development resulted from better than expected loss experience in
the domestic Automobile product line for recent accident
years.
Net written premiums of $2.697 billion increased 8%. Agency
Automobile net written premiums grew 9%, driven by renewal premium
change of 9%. Agency Homeowners & Other net written premiums
grew 6%, benefiting from year-over-year policies in force growth of
6% and positive renewal premium change.
Year-to-Date 2018
Results(All comparisons vs. year-to-date 2017, unless
noted otherwise)
Segment income for Personal Insurance was $112 million, an
increase of $11 million. Segment income before income taxes
benefited from a higher underlying underwriting gain and higher net
favorable prior year reserve development, partially offset by
higher catastrophe losses. The higher underlying underwriting gain
was driven by earned pricing that exceeded loss cost trends in the
Agency Automobile product line, partially offset by a reduction in
Agency Homeowners & Other due to normal variability in loss
activity. Segment income in the current period benefited from a
lower U.S. corporate income tax rate. Segment income in the prior
year period included a $7 million benefit from the resolution of
prior year income tax matters.
Underwriting results:
- The combined ratio of 101.3% improved
0.6 points due to higher net favorable prior year reserve
development (1.1 points) and a lower underlying combined ratio (0.8
points), partially offset by higher catastrophe losses (1.3
points).
- The underlying combined ratio of 91.6%
improved 0.8 points, primarily driven by earned pricing that
exceeded loss cost trends in Agency Automobile, partially offset by
an increase in Agency Homeowners & Other due to normal
variability in loss activity.
- Net favorable prior year reserve
development resulted from better than expected loss experience in
the segment’s domestic operations in the Automobile product line
for recent accident years.
Net written premiums of $4.953 billion increased 8%. Agency
Automobile net written premiums grew 9% and Agency Homeowners &
Other net written premiums grew 5%, benefiting from the same
factors as discussed above for second quarter 2018.
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, July 19, 2018. Investors
can access the call via webcast at http://investor.travelers.com or
by dialing 1.866.393.4306 within the United States and
1.734.385.2616 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 $29 billion in 2017. For more information, visit
www.travelers.com.
Travelers may use its website and/or social media outlets, such
as Facebook and Twitter, as distribution channels of material
Company information. Financial and other important information
regarding the Company is routinely accessible through and posted on
our website at http://investor.travelers.com, our Facebook page at
https://www.facebook.com/travelers and our Twitter account
(@Travelers) at https://twitter.com/travelers. In addition, you may
automatically receive email alerts and other information about
Travelers when you enroll your email address by visiting the Email
Notifications section at http://investor.travelers.com.
Travelers is organized into the following reportable business
segments:
Business Insurance – Business Insurance offers a broad
array of property and casualty insurance and insurance related
services to its customers, primarily in the United States, as well
as in Canada, the United Kingdom, the Republic of Ireland, Brazil
and throughout other parts of the world as a corporate member of
Lloyd’s.
Bond & Specialty Insurance – Bond & Specialty
Insurance provides surety, fidelity, management liability,
professional liability, and other property and casualty coverages
and related risk management services to its customers in the United
States and certain specialty insurance products in Canada, the
United Kingdom, the Republic of Ireland and Brazil, utilizing
various degrees of financially-based underwriting approaches.
Personal Insurance – Personal Insurance writes a broad
range of property and casualty insurance covering individuals’
personal risks, primarily in the United States, as well as in
Canada. The primary products of automobile and homeowners insurance
are complemented by a broad suite of related coverages.
* * * * *
Forward-Looking Statements
This press release contains, and management may make, certain
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, may be forward-looking
statements. Words such as “may,” “will,” “should,” “likely,”
“anticipates,” “expects,” “intends,” “plans,” “projects,”
“believes,” “estimates” and similar expressions are used to
identify these forward-looking statements. These statements
include, among other things, the Company’s statements about:
- the Company’s outlook and its future
results of operations and financial condition (including, among
other things, anticipated premium volume, premium rates, 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 (including
changes in interest rates), economic (including inflation, recent
changes in tax law, rapid changes in commodity prices and
fluctuations in foreign currency exchange rates) and underwriting
market conditions;
- strategic and operational initiatives
to improve profitability and competitiveness;
- the Company’s competitive
advantages;
- new product offerings; and
- 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.
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 interest rate risk, and may suffer
reduced or low returns or material realized or unrealized
losses;
- the Company’s business could be harmed
because of its potential exposure to asbestos and environmental
claims and related litigation;
- the intense competition that the
Company faces, and the impact of innovation, technological change
and changing customer preferences on the insurance industry and the
markets in which it operates, could harm its ability to maintain or
increase its business volumes and its profitability;
- disruptions to the Company’s
relationships with its independent agents and brokers or the
Company’s inability to manage effectively a changing distribution
landscape could adversely affect the Company;
- the Company is exposed to, and may face
adverse developments involving, mass tort claims such as those
relating to exposure to potentially harmful products or
substances;
- the effects of emerging claim and
coverage issues on the Company’s business are uncertain;
- the Company may not be able to collect
all amounts due to it from reinsurers, reinsurance coverage may not
be available to the Company in the future at commercially
reasonable rates or at all and we are exposed to credit risk
related to our structured settlements;
- the Company is also exposed to credit
risk in certain of its insurance operations and with respect to
certain guarantee or indemnification arrangements that we have with
third parties;
- within the United States, the Company’s
businesses are heavily regulated by the states in which it conducts
business, including licensing, market conduct and financial
supervision, and changes in regulation may reduce the Company’s
profitability and limit its growth;
- a downgrade in the Company’s
claims-paying and financial strength ratings could adversely impact
the Company’s business volumes, adversely impact the Company’s
ability to access the capital markets and increase the Company’s
borrowing costs;
- 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 our business processes become more
digital;
- if the Company experiences difficulties
with technology, data and network security (including as a result
of cyber attacks), outsourcing relationships, or cloud-based
technology, the Company’s ability to conduct its business could be
negatively impacted;
- the Company is also subject to a number
of additional risks associated with its business outside the United
States, 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, the United Kingdom 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, 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 15, 2018, 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 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. 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, included in shareholders’ equity, which can
be significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by
the Company’s management.
RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER
NON-GAAP MEASURES
Core income (loss) is consolidated net income (loss)
excluding the after-tax impact of net realized investment gains
(losses), discontinued operations, the effect of a change in tax
laws and tax rates at enactment, and cumulative effect of changes
in accounting principles when applicable. Segment income
(loss) is determined in the same manner as core income (loss)
on a segment basis. Management uses segment income (loss) to
analyze each segment’s performance and as a tool in making business
decisions. Financial statement users also consider core
income/(loss) when analyzing the results and trends of insurance
companies. Core income (loss) per share is core income (loss) on a
per common share basis.
Reconciliation of Net Income to Core
Income less Preferred Dividends
Three Months Ended
Six Months Ended June 30, June 30, ($ in
millions, after-tax)
2018
2017 2018
2017 Net income $
524 $ 595 $ 1,193 $
1,212 Less: Net realized investment gains
30 52
21 55
Core income
$ 494 $ 543
$ 1,172 $
1,157
Three Months
Ended Six Months Ended June 30, June 30,
($ in millions, pre-tax)
2018
2017 2018
2017 Net income $ 631 $
790 $ 1,409 $ 1,550 Less: Net
realized investment gains 36
80 25
85
Core income $
595 $ 710
$ 1,384 $ 1,465
Twelve
Months Ended December 31, ($ in millions, after-tax)
2017 2016
2015 2014 2013
2012 2011
2010 2009 2008
2007 2006
2005
Net income $ 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 2,056 3,014 3,439 3,692
3,673 2,473 1,426 3,216 3,622
2,924 4,601 4,208 2,061 Adjustments:
Net realized investment (gains)/losses (142 ) (47 ) (2 ) (51 ) (106
) (32 ) (36 ) (173 ) (22 ) 271 (101 ) (8 ) (35 ) Impact of TCJA at
enactment 1 129
- -
- - -
- -
- -
- -
-
Core income 2,043 2,967 3,437
3,641 3,567 2,441 1,390 3,043
3,600 3,195 4,500 4,200 2,026
Less: Preferred dividends -
- -
- -
- 1
3 3 4
4 5
6
Core income, less preferred
dividends
$ 2,043
$ 2,967 $ 3,437
$ 3,641
$ 3,567 $ 2,441
$ 1,389
$ 3,040 $ 3,597
$ 3,191 $
4,496 $ 4,195
$ 2,020
1Tax Cuts and Jobs Act of 2017 (TCJA)
Reconciliation of Net Income per Share
to Core Income per Share on a Basic and Diluted Basis
Three Months Ended Six Months Ended June
30, June 30, 2018
2017 2018
2017
Basic income per
share
Net income $ 1.93 $ 2.13
$ 4.39 $ 4.32 Adjustments: Net realized
investment gains, after-tax (0.10 )
(0.19 ) (0.08 )
(0.20 )
Core income
$ 1.83 $
1.94 $ 4.31
$ 4.12
Diluted income per
share
Net income $ 1.92 $ 2.11
$ 4.35 $ 4.28 Adjustments: Net realized
investment gains, after-tax (0.11 )
(0.19 ) (0.08 )
(0.20 )
Core income
$ 1.81 $
1.92 $ 4.27
$ 4.08
Reconciliation of Segment Income/(Loss)
to Total Core Income
Three Months Ended Six Months Ended June
30, June 30, ($ in millions, after-tax)
2018 2017
2018 2017 Business
Insurance $ 385 $ 429 $ 837 $ 871 Bond & Specialty Insurance
204 163 377 308 Personal Insurance (17
) 12 112
101 Total segment income 572 604
1,326 1,280 Interest Expense and Other
(78 ) (61 ) (154 )
(123 )
Total core income
$ 494 $ 543
$ 1,172
$ 1,157
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO ADJUSTED
SHAREHOLDERS’ EQUITY AND CALCULATION OF RETURN ON EQUITY AND CORE
RETURN ON EQUITY
Adjusted shareholders’ equity is shareholders’ equity
excluding net unrealized investment gains (losses), net of tax,
included in shareholders’ equity, net realized investment gains
(losses), net of tax, for the period presented, the effect of a
change in tax laws and tax rates at enactment (excluding the
portion related to net unrealized investment gains (losses)),
preferred stock and discontinued operations.
Reconciliation of Shareholders’ Equity
to Adjusted Shareholders’ Equity
As of June 30, ($ in millions)
2018 2017 Shareholders' equity
$ 22,623 $ 23,858 Adjustments: Net
unrealized investment (gains)/losses, net of tax, included in
shareholders' equity 112 (1,035 ) Net realized investment gains,
net of tax (21 )
(55 )
Adjusted shareholders' equity
$ 22,714 $
22,768
As of December 31, ($ in millions)
2017 2016 2015
2014 2013
2012 2011 2010
2009 2008
2007 2006 2005
Shareholders' equity $ 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 (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 (142 ) (47 ) (2 ) (51 ) (106 ) (32 ) (36
) (173 ) (22 ) 271 (101 ) (8 ) (35 ) Impact of TCJA1 at enactment
287 - - - - - - - - - - - - Preferred stock - - - - - - - (68 ) (79
) (89 ) (112 ) (129 ) (153 ) Loss from discontinued operations
- -
- -
- -
- -
- - -
- 439
Adjusted shareholders' equity
$ 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
1 Tax Cuts and Jobs Act of 2017 (TCJA)
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 Six Months Ended June
30, June 30, ($ in millions, after-tax)
2018 2017
2018 2017
Annualized net income $ 2,094 $ 2,379 $ 2,385 $ 2,424 Average
shareholders' equity 22,801
23,735 23,078
23,576
Return on equity
9.2%
10.0% 10.3%
10.3% Annualized core income $ 1,978 $
2,171 $ 2,344 $ 2,313 Adjusted average shareholders' equity
22,776 22,780
22,757
22,709
Core return on equity
8.7% 9.5%
10.3% 10.2%
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 June 30, 2018
Six Months Ended June 30,
Twelve Months Ended December 31, ($ in millions)
2018 2017
2017
2016 2015
2014 2013
2012
2011 2010
2009 2008
2007
2006 2005
Core income, less preferred dividends $ 1,172 $ 1,157 $
2,043 $ 2,967 $ 3,437 $ 3,641 $ 3,567 $ 2,441 $ 1,389 $ 3,040 $
3,597 $ 3,191 $ 4,496 $ 4,195 $ 2,020 Annualized core income 2,344
2,313 Adjusted average shareholders' equity 22,757 22,709 22,743
22,386 22,681 23,447 23,004 22,158 22,806 24,285 25,777 25,668
25,350 23,381 21,118 Core return on equity
10.3 % 10.2 % 9.0 %
13.3 % 15.2 %
15.5 % 15.5 %
11.0 % 6.1 % 12.5
% 14.0 % 12.4 %
17.7 % 17.9 %
9.6 %
Average annual core return on equity
13.0 %
for the period Jan. 1, 2005 through
June 30, 2018
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN
ITEMS TO NET INCOME
Underwriting gain/(loss) is net earned premiums and fee
income less claims and claim adjustment expenses and
insurance-related expenses. In the opinion of the Company’s
management, it is important to measure the profitability of each
segment excluding the results of investing activities, which are
managed separately from the insurance business. This measure is
used to assess each segment’s business performance and as a tool in
making business decisions. Pre-tax underwriting gain,
excluding the impact of catastrophes and net favorable prior year
loss reserve development, is the underwriting gain adjusted to
exclude claims and claim adjustment expenses, reinstatement
premiums and assessments related to catastrophes and loss reserve
development related to time periods prior to the current year. In
the opinion of the Company’s management, this measure is meaningful
to users of the financial statements to understand the Company’s
periodic earnings and the variability of earnings caused by the
unpredictable nature (i.e., the timing and amount) of catastrophes
and loss reserve development. This measure is also referred to as
underlying underwriting margin or underlying underwriting
gain.
A catastrophe is a severe loss designated a catastrophe
by internationally recognized organizations that track and report
on insured losses resulting from catastrophic events, such as
Property Claim Services (PCS) for events in the United States and
Canada. Catastrophes can be caused by various natural events,
including, among others, hurricanes, tornadoes and other
windstorms, earthquakes, hail, wildfires, severe winter weather,
floods, tsunamis, volcanic eruptions and other naturally occurring
events, such as solar flares. Catastrophes can also be man-made,
such as terrorist attacks and other intentionally destructive acts
including those involving nuclear, biological, chemical or
radiological events, 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.
The Company’s threshold for disclosing catastrophes is primarily
determined at the reportable segment level. If a threshold for one
segment or a combination thereof is exceeded and the other segments
have losses from the same event, losses from the event are
identified as catastrophe losses in the segment results and for the
consolidated results of the Company. Additionally, an aggregate
threshold is applied for international business across all
reportable segments. The threshold for 2018 ranges from
approximately $18 million to $30 million of losses before
reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Components of Net Income
Three Months Ended Six Months Ended June
30, June 30, ($ in millions, after-tax except as noted)
2018 2017
2018 2017 Pre-tax
underwriting gain excluding the impact of catastrophes and net
favorable prior year loss reserve development $ 392 $ 373 $ 854 $
850 Pre-tax impact of catastrophes (488 ) (403 ) (842 ) (750 )
Pre-tax impact of net favorable prior year loss reserve development
186
203 336
284 Pre-tax underwriting gain 90 173
348 384 Income tax expense on underwriting results
29 61
65
97 Underwriting gain 61 112 283 287 Net investment
income 507 468 1,020 948 Other income/(expense), including interest
expense (74 )
(37 ) (131 )
(78 )
Core income 494 543
1,172 1,157 Net realized investment gains
30 52
21
55
Net income
$ 524 $ 595
$ 1,193
$ 1,212
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 Six Months Ended June 30, June
30, ($ in millions, pre-tax)
2018
2017 2018
2017
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses $ 4,562 $ 4,225 $ 8,858 $
8,319 Less: Policyholder dividends 12 15 25 26 Allocated fee income
40 42
77
84
Loss ratio numerator $
4,510 $ 4,168
$ 8,756
$ 8,209
Underwriting
expense ratio
Amortization of deferred acquisition costs $ 1,081 $ 1,032 $ 2,142
$ 2,035 General and administrative expenses (G&A) 1,113 1,045
2,175 2,041 Less: Non-insurance G&A 39 8 76 16 Allocated fee
income 72 74 138 145 Billing and policy fees and other
22 22
45 45
Expense ratio numerator $
2,061 $ 1,973
$ 4,058
$ 3,870
Earned premium $
6,695 $ 6,351
$ 13,232
$ 12,534 Combined ratio 1
Loss and loss adjustment expense ratio 67.4 % 65.6 % 66.2 % 65.5 %
Underwriting expense ratio 30.7 %
31.1 % 30.6 %
30.9 %
Combined ratio
98.1 % 96.7
% 96.8 %
96.4 %
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 oflosses and loss
adjustment expenses and underwriting expenses. In addition, G&A
include non-insurance expensesthat are excluded from underwriting
expenses, and accordingly are excluded in calculating the combined
ratio.
RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS’
EQUITY TO CERTAIN NON-GAAP MEASURES
Book value per share is total common shareholders’ equity
divided by the number of common shares outstanding. Adjusted
book value per share is total common shareholders’ equity
excluding net unrealized investment gains and losses, net of tax,
included in shareholders’ equity, divided by the number of common
shares outstanding. In the opinion of the Company’s management,
adjusted book value per share is useful in an analysis of a
property casualty company’s book value per share as it removes the
effect of changing prices on invested assets (i.e., net unrealized
investment gains (losses), net of tax), which do not have an
equivalent impact on unpaid claims and claim adjustment expense
reserves. Tangible book value per share is adjusted book
value per share excluding the after-tax value of goodwill and other
intangible assets divided by the number of common shares
outstanding. In the opinion of the Company’s management, tangible
book value per share is useful in an analysis of a property
casualty company’s book value on a nominal basis as it removes
certain effects of purchase accounting (i.e., goodwill and other
intangible assets), in addition to the effect of changing prices on
invested assets.
Reconciliation of Shareholders’ Equity
to Tangible Shareholders’ Equity, Excluding Net Unrealized
Investment Gains/(Losses), Net of Tax
As of June 30,
December 31, June 30, ($
in millions, except per share amounts)
2018 2017
2017 Shareholders' equity $
22,623 $ 23,731 $ 23,858 Less:
Net unrealized investment gains/(losses), net of tax, included in
shareholders' equity (112 )
1,112 1,035
Shareholders' equity, excluding net unrealized investment
gains/(losses), net of tax, included in shareholders' equity
22,735 22,619 22,823 Less: Goodwill 3,931
3,951 3,589 Other intangible assets 356 342 264 Impact of deferred
tax on other intangible assets (43 )
(44 ) (66 )
Tangible shareholders' equity $
18,491 $ 18,370
$ 19,036
Common shares outstanding 267.7
271.4
275.9 Book value per share $ 84.51 $ 87.46 $
86.46 Adjusted book value per share 84.93 83.36 82.71 Tangible book
value per share 69.08
67.70 68.99
RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL
CAPITALIZATION EXCLUDING NET UNREALIZED INVESTMENT GAINS/(LOSSES),
NET OF TAX
Total capitalization is the sum of total shareholders’
equity and debt. Debt-to-capital ratio excluding net unrealized
gain/(loss) on investments, net of tax, included in shareholders’
equity, is the ratio of debt to total
capitalization excluding the after-tax impact of net unrealized
investment gains and losses included in shareholders’
equity. In the opinion of the Company’s management, the
debt-to-capital ratio is useful in an analysis of the Company’s
financial leverage.
As of June
30, December 31, June
30, ($ in millions)
2018
2017 2017 Debt $ 6,464 $ 6,571 $
6,920 Shareholders' equity 22,623
23,731 23,858
Total capitalization
29,087 30,302
30,778 Less: Net unrealized
investment gains/(losses), net of tax, included in shareholders'
equity (112 ) 1,112
1,035
Total capitalization
excluding net unrealized gain/(loss) $ 29,199
$ 29,190 $ 29,743 on investments,
net of tax, included in shareholders' equity
Debt-to-capital ratio 22.2 % 21.7 % 22.5 % Debt-to-capital ratio
excluding net unrealized investment gains/(losses), net of tax,
included in shareholders' equity 22.1 %
22.5 % 23.3 %
OTHER DEFINITIONS
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to policyholders for the
effective period of the contract based on the terms and conditions
of the insurance contract. Net written premiums reflect
gross written premiums less premiums ceded to reinsurers.
For Business Insurance and Bond & Specialty Insurance,
retention is the amount of premium available for renewal
that was retained, excluding rate and exposure changes. For
Personal Insurance, retention is the ratio of the expected
number of renewal policies that will be retained throughout the
annual policy period to the number of available renewal base
policies. For all of the segments, renewal rate change
represents the estimated change in average premium on policies that
renew, excluding exposure changes. Exposure is the measure
of risk used in the pricing of an insurance product. The change in
exposure is the amount of change in premium on policies that renew
attributable to the change in portfolio risk. Renewal premium
change represents the estimated change in average premium on
policies that renew, including rate and exposure changes. New
business is the amount of written premium related to new
policyholders and additional products sold to existing
policyholders. These are operating statistics, which are in part
dependent on the use of estimates and are therefore subject to
change. For Business Insurance, retention, renewal 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 15, 2018 and subsequent
periodic filings with the SEC.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180719005363/en/
The Travelers Companies, Inc.Media:Patrick Linehan, 917.778.6267orInstitutional Investors:Abbe Goldstein,
917.778.6825orSeth Rosenberg, 917.778.6877
The Travelers Companies (NYSE:TRV)
Historical Stock Chart
From Mar 2024 to Apr 2024
The Travelers Companies (NYSE:TRV)
Historical Stock Chart
From Apr 2023 to Apr 2024