Third Quarter Return on Equity of 12.1% and
Core Return on Equity of 13.5%
- Third quarter net income of $827 million and core income of
$798 million.
- Consolidated combined ratio improved 6.6 points to a strong
94.9%; underlying combined ratio improved 2.6 points to a strong
91.5%.
- Net favorable prior year reserve development included the
previously announced $403 million pre-tax of PG&E subrogation
recoveries.
- Catastrophe losses of $397 million pre-tax compared to $241
million pre-tax in the prior year quarter.
- Net written premiums of $7.771 billion, up 3% compared to the
prior year quarter.
- Strong renewal rate change in all three segments, including
record renewal rate change in Business Insurance and Bond &
Specialty Insurance.
- Capital returned to shareholders of $218 million; no share
repurchases in the current quarter. Year-to-date capital returned
to shareholders of $1.117 billion, including $471 million of share
repurchases.
- Book value per share of $109.94, up 8% from year-end 2019;
adjusted book value per share of $94.89, up 2% from year-end
2019.
- Board of Directors declares regular quarterly cash dividend of
$0.85 per share.
The Travelers Companies, Inc. today reported net income of $827
million, or $3.23 per diluted share, for the quarter ended
September 30, 2020, compared to $396 million, or $1.50 per diluted
share, in the prior year quarter. Core income in the current
quarter was $798 million, or $3.12 per diluted share, compared to
$378 million, or $1.43 per diluted share, in the prior year
quarter. Core income increased primarily due to net favorable prior
year reserve development compared to net unfavorable prior year
reserve development in the prior year quarter, a higher underlying
underwriting gain (i.e., excluding net prior year reserve
development and catastrophe losses) and higher net investment
income, partially offset by higher catastrophe losses. Net realized
investment gains in the current quarter were $37 million pre-tax
($29 million after-tax), compared to $23 million pre-tax ($18
million after-tax) in the prior year quarter.
Consolidated Highlights
($ in millions, except for per share
amounts, and after-tax, except for premiums and revenues)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
Change
2020
2019
Change
Net written premiums
$
7,771
$
7,569
3
%
$
22,463
$
22,076
2
%
Total revenues
$
8,275
$
8,013
3
$
23,584
$
23,518
—
Net income
$
827
$
396
109
$
1,387
$
1,749
(21
)
per diluted share
$
3.23
$
1.50
115
$
5.41
$
6.59
(18
)
Core income
$
798
$
378
111
$
1,424
$
1,670
(15
)
per diluted share
$
3.12
$
1.43
118
$
5.56
$
6.29
(12
)
Diluted weighted average shares
outstanding
254.3
261.8
(3
)
254.5
263.4
(3
)
Combined ratio
94.9
%
101.5
%
(6.6
)
pts
97.9
%
97.9
%
—
pts
Underlying combined ratio
91.5
%
94.1
%
(2.6
)
pts
91.4
%
93.5
%
(2.1
)
pts
Return on equity
12.1
%
6.2
%
5.9
pts
7.0
%
9.5
%
(2.5
)
pts
Core return on equity
13.5
%
6.5
%
7.0
pts
8.1
%
9.6
%
(1.5
)
pts
As of
Change From
September 30, 2020
December 31, 2019
September 30, 2019
December 31, 2019
September 30, 2019
Book value per share
$
109.94
$
101.55
$
99.21
8
%
11
%
Adjusted book value per share
94.89
92.76
90.09
2
%
5
%
See Glossary of Financial Measures for definitions and the
statistical supplement for additional financial data.
“We are pleased to report third quarter core income of $798
million and core return on equity of 13.5%, despite catastrophe
losses that were well above the 10-year average for the third
quarter,” said Alan Schnitzer, Chairman and Chief Executive
Officer. “Our earnings this quarter reflect strong underlying
underwriting income, resulting from record quarterly net earned
premiums and an underlying combined ratio which improved 2.6 points
to 91.5%. The underlying loss ratio benefited from disciplined
underwriting and earned rate in excess of loss trend. The
underlying expense ratio continues to benefit from our strategic
focus on productivity and efficiency. Core income in the quarter
also included favorable prior year reserve development, driven by
our previously-announced PG&E subrogation recoveries. Our
high-quality investment portfolio performed well, generating net
investment income of $566 million after-tax.
“We are also very pleased with the strength of our top line,
particularly in light of the ongoing challenges in the economic
environment. Net written premiums in the quarter were up nearly 3%,
driven by retentions that remain consistently high across all of
our businesses, strong renewal rate change in all three segments
and a resilient portfolio of quality accounts. In Business
Insurance, we achieved record renewal rate change of 8.2%, 4 points
higher than the prior year quarter, while retention remained
strong. In Bond & Specialty Insurance, net written premiums
increased by 4%, as renewal premium change in our domestic
management liability business rose to 8.1%, including record
renewal rate change, while retention remained at an historical
high. In Personal Insurance, net written premiums increased by 8%,
driven by strong retention and new business in both Agency Auto and
Agency Homeowners. In our Agency Homeowners business, we achieved
renewal premium change of 8.2%, its highest level since 2014.
“From a position of strength, we continue to actively pursue our
innovation agenda and invest in our strategic priorities to extend
our lead in risk expertise, provide best-in-class experiences to
our customers and distribution partners, and improve productivity
and efficiency. With our significant competitive advantages,
including our highly engaged and talented workforce, we are well
positioned to capitalize on opportunities and successfully grow our
business as the economy continues to reopen.”
Consolidated Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2020
2019
Change
2020
2019
Change
Underwriting gain (loss):
$
339
$
(149
)
$
488
$
347
$
320
$
27
Underwriting gain
(loss) includes:
Net favorable (unfavorable) prior year
reserve development
142
(294
)
436
171
(120
)
291
Catastrophes, net of reinsurance
(397
)
(241
)
(156
)
(1,584
)
(801
)
(783
)
Net investment income
671
622
49
1,550
1,852
(302
)
Other income (expense), including
interest expense
(61
)
(64
)
3
(228
)
(209
)
(19
)
Core income before income taxes
949
409
540
1,669
1,963
(294
)
Income tax expense
151
31
120
245
293
(48
)
Core income
798
378
420
1,424
1,670
(246
)
Net realized investment gains (losses)
after income taxes
29
18
11
(37
)
79
(116
)
Net income
$
827
$
396
$
431
$
1,387
$
1,749
$
(362
)
Combined ratio
94.9
%
101.5
%
(6.6
)
pts
97.9
%
97.9
%
—
pts
Impact on combined
ratio
Net (favorable) unfavorable prior year
reserve development
(1.9
)
pts
4.1
pts
(6.0
)
pts
(0.8
)
pts
0.6
pts
(1.4
)
pts
Catastrophes, net of reinsurance
5.3
pts
3.3
pts
2.0
pts
7.3
pts
3.8
pts
3.5
pts
Underlying combined ratio
91.5
%
94.1
%
(2.6
)
pts
91.4
%
93.5
%
(2.1
)
pts
Net written premiums
Business Insurance
$
3,833
$
3,889
(1
)
%
$
11,800
$
11,926
(1
)
%
Bond & Specialty Insurance
754
728
4
2,151
2,025
6
Personal Insurance
3,184
2,952
8
8,512
8,125
5
Total
$
7,771
$
7,569
3
%
$
22,463
$
22,076
2
%
Third Quarter 2020 Results
(All comparisons vs. third quarter 2019, unless noted
otherwise)
Net income of $827 million increased $431 million due to higher
core income and higher net realized investment gains. Core income
of $798 million increased $420 million, primarily due to net
favorable prior year reserve development in the current quarter
compared to net unfavorable prior year reserve development in the
prior year quarter, a higher underlying underwriting gain and
higher net investment income, partially offset by higher
catastrophe losses. The underlying underwriting gain benefited from
higher business volumes and a lower underlying combined ratio.
Catastrophe and non-catastrophe weather-related losses, including
losses from wildfires, in the third quarter of 2020 were reduced by
the full $280 million of recoveries available under the Company’s
Underlying Property Aggregate Catastrophe Excess-of-Loss
Reinsurance Treaty. Net realized investment gains were $37 million
pre-tax ($29 million after-tax), compared to $23 million pre-tax
($18 million after-tax) in the prior year quarter.
Combined ratio:
- The combined ratio of 94.9% improved 6.6 points due to net
favorable prior year reserve development in the current quarter
compared to net unfavorable prior year reserve development in the
prior year quarter (6.0 points) and a lower underlying combined
ratio (2.6 points), partially offset by higher catastrophe losses
(2.0 points).
- The underlying combined ratio of 91.5% improved 2.6 points. See
below for further details by segment.
- Net favorable prior year reserve development included a $403
million subrogation benefit from Pacific Gas and Electric Company
(PG&E) related to the 2017 and 2018 California wildfires. Net
prior year reserve development also included a $295 million
increase to asbestos reserves, compared with a $220 million
increase in the prior year quarter.
- Catastrophe losses primarily resulted from the derecho
windstorm in the midwestern region of the United States, the Glass
wildfire in California, Tropical Storm Isaias, Hurricane Laura and
additional wildfires in the western United States.
Net investment income of $671 million pre-tax ($566 million
after-tax) increased 8%. Income from the fixed income investment
portfolio decreased from the prior year quarter, primarily due to
lower interest rates, partially offset by a higher average level of
fixed maturity investments. Income from the non-fixed income
investment portfolio increased over the prior year quarter,
primarily due to higher private equity partnership returns.
Non-fixed income returns are generally reported on a one quarter
lagged basis and directionally follow the broader equity
markets.
Net written premiums of $7.771 billion increased 3%. See below
for further details by segment.
Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
Net income of $1.387 billion decreased $362 million due to lower
core income and net realized investment losses in the current
period compared to net realized investment gains in the prior year
period. Core income of $1.424 billion decreased by $246 million,
primarily due to higher catastrophe losses and lower net investment
income, partially offset by a higher underlying underwriting gain
and net favorable prior year reserve development in the current
period compared to net unfavorable prior year reserve development
in the prior year period. The underlying underwriting gain
benefited from higher business volumes and a lower underlying
combined ratio. Net realized investment losses were $48 million
pre-tax ($37 million after-tax), compared to net realized
investment gains of $101 million pre-tax ($79 million after-tax) in
the prior year period. Net realized investment losses in the
current period included the mark-to-market impact on the Company’s
equity investments related to the volatility in global financial
markets in the first quarter of 2020 associated with COVID-19.
Combined ratio:
- The combined ratio of 97.9% was level with the prior year
period, as a lower underlying combined ratio (2.1 points) and net
favorable prior year reserve development in the current period
compared to net unfavorable prior year reserve development in the
prior year period (1.4 points) were offset by higher catastrophe
losses (3.5 points).
- The underlying combined ratio of 91.4% improved 2.1 points. See
below for further details by segment.
- Net favorable prior year reserve development in Personal
Insurance was partially offset by net unfavorable prior year
reserve development in Business Insurance and Bond & Specialty
Insurance.
- Catastrophe losses included the third quarter events described
above, as well as tornado activity in Tennessee and other wind
storms and winter storms in several regions of the United States in
the first quarter of 2020, and severe storms in several regions of
the United States and civil unrest in the second quarter of
2020.
Net investment income of $1.550 billion pre-tax ($1.336 billion
after-tax) decreased 16%. Income from the fixed income investment
portfolio decreased from the prior year period, primarily due to
lower interest rates, partially offset by a higher average level of
fixed maturity investments. Income from the non-fixed income
investment portfolio decreased from the prior year period,
primarily due to lower private equity partnership returns which
reflected the impact of the disruption in global financial markets
in the first quarter of 2020 associated with COVID-19.
Net written premiums of $22.463 billion increased 2%. See below
for further details by segment.
Shareholders’ Equity
Shareholders’ equity of $27.849 billion increased 7% over
year-end 2019, primarily due to higher net unrealized investment
gains resulting from lower interest rates. Net unrealized
investment gains included in shareholders’ equity were $4.844
billion pre-tax ($3.812 billion after-tax), compared to net
unrealized investment gains of $2.853 billion pre-tax ($2.246
billion after-tax) at year-end 2019. Book value per share of
$109.94 increased 8% from year-end 2019, also primarily due to the
impact of lower interest rates on net unrealized investment gains.
Adjusted book value per share of $94.89, which excludes net
unrealized investment gains, increased 2% from year-end 2019.
The Company did not repurchase any shares during the third
quarter under its share repurchase authorization. Capacity
remaining under the existing share repurchase authorization was
$1.361 billion at the end of the quarter. Also at the end of the
quarter, statutory capital and surplus was $21.230 billion, and the
ratio of debt-to-capital was 20.2%. The ratio of debt-to-capital
excluding after-tax net unrealized investment gains included in
shareholders’ equity was 22.7%, within the Company’s target range
of 15% to 25%.
The Board of Directors declared a regular quarterly dividend of
$0.85 per share. The dividend is payable on December 31, 2020, to
shareholders of record at the close of business on December 10,
2020.
Business
Insurance Segment Financial Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2020
2019
Change
2020
2019
Change
Underwriting gain (loss):
$
(100
)
$
(284
)
$
184
$
(472
)
$
(282
)
$
(190
)
Underwriting gain
(loss) includes:
Net unfavorable prior year reserve
development
(220
)
(316
)
96
(215
)
(266
)
51
Catastrophes, net of reinsurance
(97
)
(116
)
19
(669
)
(422
)
(247
)
Net investment income
498
457
41
1,131
1,365
(234
)
Other income (expense)
6
—
6
(16
)
(6
)
(10
)
Segment income before income
taxes
404
173
231
643
1,077
(434
)
Income tax expense (benefit)
39
(6
)
45
47
133
(86
)
Segment income
$
365
$
179
$
186
$
596
$
944
$
(348
)
Combined ratio
102.3
%
107.0
%
(4.7
)
pts
103.8
%
102.1
%
1.7
pts
Impact on combined
ratio
Net unfavorable prior year reserve
development
5.8
pts
8.1
pts
(2.3
)
pts
1.9
pts
2.3
pts
(0.4
)
pts
Catastrophes, net of reinsurance
2.5
pts
3.0
pts
(0.5
)
pts
5.8
pts
3.7
pts
2.1
pts
Underlying combined ratio
94.0
%
95.9
%
(1.9
)
pts
96.1
%
96.1
%
—
pts
Net written premiums by market
Domestic
Select Accounts
$
658
$
695
(5
)
%
$
2,191
$
2,236
(2
)
%
Middle Market
2,131
2,150
(1
)
6,499
6,569
(1
)
National Accounts
239
273
(12
)
755
800
(6
)
National Property and Other
602
553
9
1,615
1,528
6
Total Domestic
3,630
3,671
(1
)
11,060
11,133
(1
)
International
203
218
(7
)
740
793
(7
)
Total
$
3,833
$
3,889
(1
)
%
$
11,800
$
11,926
(1
)
%
Third Quarter 2020 Results
(All comparisons vs. third quarter 2019, unless noted
otherwise)
Segment income for Business Insurance was $365 million
after-tax, an increase of $186 million. Segment income increased
primarily due to lower net unfavorable prior year reserve
development, a higher underlying underwriting gain, higher net
investment income and lower catastrophe losses (net of recoveries
under the property aggregate catastrophe reinsurance treaty
discussed above).
Combined ratio:
- The combined ratio of 102.3% improved 4.7 points due to lower
net unfavorable prior year reserve development (2.3 points), a
lower underlying combined ratio (1.9 points) and lower catastrophe
losses (0.5 points).
- The underlying combined ratio of 94.0% improved by 1.9 points,
primarily reflecting earned pricing that exceeded loss cost trends
and a modest net favorable impact from COVID-19 and related
economic conditions.
- Net unfavorable prior year reserve development was primarily
driven by an increase to asbestos reserves of $295 million and an
increase to the reserves in our run-off book related to a single
insured arising out of policies issued more than 20 years ago, both
primarily in the segment’s domestic general liability product line.
These reserve increases were partially offset by $81 million of
recoveries from the PG&E subrogation described above and better
than expected loss experience in workers’ compensation for multiple
accident years.
Net written premiums of $3.833 billion decreased 1%. The
benefits of continued strong retention and higher renewal rate
changes were more than offset by a modest reduction in exposures
and a decrease in new business volume, both impacted by COVID-19
and related economic conditions.
Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
Segment income for Business Insurance was $596 million
after-tax, a decrease of $348 million. Segment income decreased
primarily due to higher catastrophe losses and lower net investment
income, partially offset by lower net unfavorable prior year
reserve development.
Combined ratio:
- The combined ratio of 103.8% increased 1.7 points due to higher
catastrophe losses (2.1 points), partially offset by lower net
unfavorable prior year reserve development (0.4 points).
- The underlying combined ratio of 96.1% was level with the prior
year period. COVID-19 and related economic conditions had a modest
net unfavorable impact on the underlying combined ratio.
- Net unfavorable prior year reserve development was primarily
driven by the following:
Asbestos reserves - an increase of $295
million;
General liability (excluding asbestos and
environmental) - higher than expected loss experience in the
segment’s domestic operations for primary and excess coverages for
recent accident years;
Commercial automobile - higher than expected
loss experience in the segment’s domestic operations for recent
accident years; and
Commercial multi-peril (excluding PG&E
subrogation recoveries and asbestos and environmental) - higher
than expected loss experience in the segment’s domestic operations
for recent accident years.
Partially offset by:
Workers’ compensation - better than expected
loss experience in the segment’s domestic operations for multiple
accident years;
Commercial property (excluding PG&E
subrogation recoveries) - better than expected loss experience in
the segment’s domestic operations for multiple accident years;
and
PG&E subrogation recoveries - $81 million
of recoveries as described above.
Net written premiums of $11.800 billion decreased 1%, driven by
the same factors described above for the third quarter of 2020.
Bond
& Specialty Insurance Segment Financial Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2020
2019
Change
2020
2019
Change
Underwriting gain:
$
76
$
104
$
(28
)
$
208
$
373
$
(165
)
Underwriting gain
includes:
Net favorable (unfavorable) prior year
reserve development
—
3
(3
)
(33
)
45
(78
)
Catastrophes, net of reinsurance
(2
)
(1
)
(1
)
(10
)
(4
)
(6
)
Net investment income
58
59
(1
)
155
173
(18
)
Other income
5
6
(1
)
13
16
(3
)
Segment income before income
taxes
139
169
(30
)
376
562
(186
)
Income tax expense
24
30
(6
)
67
111
(44
)
Segment income
$
115
$
139
$
(24
)
$
309
$
451
$
(142
)
Combined ratio
89.3
%
83.3
%
6.0
pts
89.7
%
79.8
%
9.9
pts
Impact on combined
ratio
Net (favorable) unfavorable prior year
reserve development
—
pts
(0.5
)
pts
0.5
pts
1.5
pts
(2.3
)
pts
3.8
pts
Catastrophes, net of reinsurance
0.3
pts
0.2
pts
0.1
pts
0.5
pts
0.2
pts
0.3
pts
Underlying combined ratio
89.0
%
83.6
%
5.4
pts
87.7
%
81.9
%
5.8
pts
Net written premiums
Domestic
Management Liability
$
467
$
424
10
%
$
1,306
$
1,194
9
%
Surety
208
232
(10
)
643
660
(3
)
Total Domestic
675
656
3
1,949
1,854
5
International
79
72
10
202
171
18
Total
$
754
$
728
4
%
$
2,151
$
2,025
6
%
Third Quarter 2020 Results
(All comparisons vs. third quarter 2019, unless noted
otherwise)
Segment income for Bond & Specialty Insurance was $115
million after-tax, a decrease of $24 million. Segment income
decreased primarily due to a lower underlying underwriting gain.
The underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 89.3% increased 6.0 points due to a
higher underlying combined ratio (5.4 points), lower net favorable
prior year reserve development (0.5 points) and higher catastrophe
losses (0.1 points).
- The underlying combined ratio of 89.0% increased 5.4 points,
primarily driven by the impacts of higher loss estimates for
management liability coverages, primarily due to the impact of
COVID-19 and related economic conditions.
- There was no net prior year reserve development in the current
quarter.
Net written premiums of $754 million increased 4%, reflecting
continued strong retention and increased levels of renewal premium
change in management liability.
Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $309
million after-tax, a decrease of $142 million. Segment income
decreased primarily due to a lower underlying underwriting gain and
net unfavorable prior year reserve development compared to net
favorable prior year reserve development in the prior year period.
The underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 89.7% increased 9.9 points due to a
higher underlying combined ratio (5.8 points), net unfavorable
prior year reserve development compared to net favorable prior year
reserve development in the prior year period (3.8 points) and
higher catastrophe losses (0.3 points).
- The underlying combined ratio of 87.7% increased 5.8 points,
primarily driven by the impacts of higher loss estimates for
management liability coverages, including the impact of COVID-19
and related economic conditions.
- Net unfavorable prior year reserve development was driven by
higher than expected loss experience in the domestic general
liability product line for management liability coverages for
recent accident years.
Net written premiums of $2.151 billion increased 6%, driven by
the same factors described above for the third quarter of 2020.
Personal
Insurance Segment Financial Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2020
2019
Change
2020
2019
Change
Underwriting gain:
$
363
$
31
$
332
$
611
$
229
$
382
Underwriting gain
includes:
Net favorable prior year reserve
development
362
19
343
419
101
318
Catastrophes, net of reinsurance
(298
)
(124
)
(174
)
(905
)
(375
)
(530
)
Net investment income
115
106
9
264
314
(50
)
Other income
21
22
(1
)
53
65
(12
)
Segment income before income
taxes
499
159
340
928
608
320
Income tax expense
107
28
79
190
111
79
Segment income
$
392
$
131
$
261
$
738
$
497
$
241
Combined ratio
86.4
%
98.0
%
(11.6
)
pts
91.7
%
96.2
%
(4.5
)
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(12.8
)
pts
(0.7
)
pts
(12.1
)
pts
(5.2
)
pts
(1.3
)
pts
(3.9
)
pts
Catastrophes, net of reinsurance
10.5
pts
4.7
pts
5.8
pts
11.3
pts
4.9
pts
6.4
pts
Underlying combined ratio
88.7
%
94.0
%
(5.3
)
pts
85.6
%
92.6
%
(7.0
)
pts
Net written premiums
Domestic
Agency (1)
Automobile
$
1,402
$
1,347
4
%
$
3,803
$
3,871
(2
)
%
Homeowners and Other
1,482
1,300
14
3,891
3,395
15
Total Agency
2,884
2,647
9
7,694
7,266
6
Direct-to-Consumer
124
115
8
326
313
4
Total Domestic
3,008
2,762
9
8,020
7,579
6
International
176
190
(7
)
492
546
(10
)
Total
$
3,184
$
2,952
8
%
$
8,512
$
8,125
5
%
(1) Represents business sold through
agents, brokers and other intermediaries and excludes direct to
consumer and international.
Third Quarter 2020 Results
(All comparisons vs. third quarter 2019, unless noted
otherwise)
Segment income for Personal Insurance was $392 million
after-tax, an increase of $261 million. Segment income increased
primarily due to higher net favorable prior year reserve
development and a higher underlying underwriting gain, partially
offset by higher catastrophe losses (net of recoveries under the
property aggregate catastrophe reinsurance treaty discussed above).
The underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 86.4% improved 11.6 points due to higher
net favorable prior year reserve development (12.1 points) and a
lower underlying combined ratio (5.3 points), partially offset by
higher catastrophe losses (5.8 points).
- The underlying combined ratio of 88.7% improved 5.3 points,
primarily driven by lower losses in the automobile product line due
to a decrease in miles driven attributable to COVID-19 and related
economic conditions, partially offset by higher non-catastrophe
weather-related losses, including losses from wildfires, in the
homeowners and other product line.
- Net favorable prior year reserve development was driven by $322
million of PG&E subrogation recoveries described above and
better than expected loss experience in the segment’s domestic
operations in the automobile product line for recent accident
years.
Net written premiums of $3.184 billion increased 8%. Agency
Automobile net written premiums increased 4%, driven by strong
retention and higher levels of new business. Agency Homeowners and
Other net written premiums increased 14%, driven by strong
retention, renewal premium change of 8% and higher levels of new
business.
Year-to-Date 2020 Results
(All comparisons vs. year-to-date 2019, unless noted otherwise)
Segment income for Personal Insurance was $738 million
after-tax, an increase of $241 million. Segment income increased
primarily due to a higher underlying underwriting gain and higher
net favorable prior year reserve development, partially offset by
higher catastrophe losses and lower net investment income. The
underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 91.7% improved 4.5 points due to a lower
underlying combined ratio (7.0 points) and higher net favorable
prior year reserve development (3.9 points), partially offset by
higher catastrophe losses (6.4 points).
- The underlying combined ratio of 85.6% improved 7.0 points,
primarily driven by lower losses in the automobile product line due
to a decrease in miles driven attributable to COVID-19 and related
economic conditions (net of premium refunds) and lower
non-catastrophe weather-related losses in the homeowners and other
product line.
- Net favorable prior year reserve development was driven by the
same factors described above for the third quarter of 2020.
Net written premiums of $8.512 billion increased 5%. Excluding
premium refunds provided to personal automobile customers primarily
in the second quarter of 2020, net written premiums increased 7%.
Agency Automobile net written premiums decreased 2% due to the
premium refunds. Excluding the impact of the premium refunds,
Agency Automobile net written premiums increased 3%, driven by
strong retention and higher levels of new business. Agency
Homeowners and Other net written premiums increased 15%, driven by
strong retention, renewal premium change of 8% and higher levels of
new business.
Financial Supplement and Conference Call
The information in this press release should be read in
conjunction with the financial supplement that is available on our
website at www.travelers.com. Travelers management will discuss the
contents of this release and other relevant topics via webcast at 9
a.m. Eastern (8 a.m. Central) on Tuesday, October 20, 2020.
Investors can access the call via webcast at
http://investor.travelers.com or by dialing 1.844.895.1976 within
the United States and 1.647.689.5389 outside the United States.
Prior to the webcast, a slide presentation pertaining to the
quarterly earnings will be available on the Company’s website.
Following the live event, an audio playback of the webcast and
the slide presentation will be available on the same website.
About Travelers
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider
of property casualty insurance for auto, home and business. A
component of the Dow Jones Industrial Average, Travelers has
approximately 30,000 employees and generated revenues of
approximately $32 billion in 2019. For more information, visit
www.travelers.com.
Travelers may use its website and/or social media outlets, such
as Facebook and Twitter, as distribution channels of material
Company information. Financial and other important information
regarding the Company is routinely accessible through and posted on
our website at http://investor.travelers.com, our Facebook page at
https://www.facebook.com/travelers and our Twitter account
(@Travelers) at https://twitter.com/travelers. In addition, you may
automatically receive email alerts and other information about
Travelers when you enroll your email address by visiting the Email
Notifications section at http://investor.travelers.com.
Travelers is organized into the following reportable business
segments:
Business Insurance - Business Insurance offers a broad
array of property and casualty insurance and insurance-related
services to its customers, primarily in the United States, as well
as in Canada, the United Kingdom, the Republic of Ireland and
throughout other parts of the world as a corporate member of
Lloyd’s.
Bond & Specialty Insurance - Bond & Specialty
Insurance provides surety, fidelity, management liability,
professional liability, and other property and casualty coverages
and related risk management services to its customers in the United
States and certain specialty insurance products in Canada, the
United Kingdom and the Republic of Ireland, as well as Brazil
through a joint venture, utilizing various degrees of
financially-based underwriting approaches.
Personal Insurance - Personal Insurance writes a broad
range of property and casualty insurance covering individuals’
personal risks, primarily in the United States, as well as in
Canada. The primary products of automobile and homeowners insurance
are complemented by a broad suite of related coverages.
* * * * *
Forward-Looking Statements
This press release contains, and management may make, certain
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, may be forward-looking
statements. Words such as “may,” “will,” “should,” “likely,”
“anticipates,” “expects,” “intends,” “plans,” “projects,”
“believes,” “views,” “estimates” and similar expressions are used
to identify these forward-looking statements. These statements
include, among other things, the Company’s statements about:
- the Company’s outlook and its future results of operations and
financial condition (including, among other things, anticipated
premium volume, premium rates, renewal premium changes,
underwriting margins and underlying underwriting margins, net and
core income, investment income and performance, loss costs, return
on equity, core return on equity and expected current returns, and
combined ratios and underlying combined ratios);
- the impact of COVID-19 and related economic conditions,
including the potential impact on the Company’s investments;
- the impact of legislative or regulatory actions or court
decisions taken in response to COVID-19;
- 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, changes in tax law, changes in
commodity prices and fluctuations in foreign currency exchange
rates) and underwriting market conditions;
- strategic and operational initiatives to improve profitability
and competitiveness;
- the Company’s competitive advantages;
- new product offerings;
- the impact of new or potential regulations imposed or to be
imposed by the United States or other nations, including tariffs or
other barriers to international trade; and
- the impact of developments in the tort environment, such as
increased attorney involvement in insurance claims and legislation
allowing victims of sexual abuse to file or proceed with claims
that otherwise would have been time-barred.
The Company cautions investors that such statements are subject
to risks and uncertainties, many of which are difficult to predict
and generally beyond the Company’s control, that could cause actual
results to differ materially from those expressed in, or implied or
projected by, the forward-looking information and statements.
Some of the factors that could cause actual results to differ
include, but are not limited to, the following:
- high levels of catastrophe losses, including as a result of
factors such as increased concentrations of insured exposures in
catastrophe-prone areas, could materially and adversely affect the
Company’s results of operations, its financial position and/or
liquidity, and could adversely impact the Company’s ratings, the
Company’s ability to raise capital and the availability and cost of
reinsurance;
- if actual claims exceed the Company’s claims and claim
adjustment expense reserves, or if changes in the estimated level
of claims and claim adjustment expense reserves are necessary,
including as a result of, among other things, changes in the
legal/tort, regulatory and economic environments in which the
Company operates or the impacts of COVID-19, the Company’s
financial results could be materially and adversely affected;
- the impact of COVID-19 and related risks, including on the
Company’s distribution or other key partners, could materially
affect the Company’s results of operations, financial position
and/or liquidity;
- during or following a period of financial market disruption or
an economic downturn, such as the current environment, the
Company’s business could be materially and adversely affected;
- the Company’s investment portfolio is subject to credit and
interest rate risk, and may suffer reduced or low returns or
material realized or unrealized losses, particularly in the current
environment;
- the intense competition that the Company faces, and the impact
of innovation, technological change and changing customer
preferences on the insurance industry and the markets in which it
operates, could harm its ability to maintain or increase its
business volumes and its profitability;
- the Company’s business could be harmed because of its potential
exposure to asbestos and environmental claims and related
litigation;
- disruptions to the Company’s relationships with its independent
agents and brokers or the Company’s inability to manage effectively
a changing distribution landscape could adversely affect the
Company;
- the Company is exposed to, and may face adverse developments
involving, mass tort claims such as those relating to exposure to
potentially harmful products or substances;
- the effects of emerging claim and coverage issues on the
Company’s business are uncertain, and court decisions or
legislative or regulatory changes that take place after the Company
issues its policies, including those taken in response to COVID-19
(such as effectively expanding workers’ compensation coverage by
instituting presumptions of compensability of claims for certain
types of workers or requiring insurers to cover business
interruption claims irrespective of terms, exclusions or other
conditions included in the policies that would otherwise preclude
coverage), can result in an unexpected increase in the number of
claims and have a material adverse impact on the Company’s results
of operations;
- the Company may not be able to collect all amounts due to it
from reinsurers, reinsurance coverage may not be available to the
Company in the future at commercially reasonable rates or at all
and the Company is exposed to credit risk related to its structured
settlements;
- the Company is exposed to credit risk in certain of its
insurance operations and with respect to certain guarantee or
indemnification arrangements that it has with third parties, which
risk is heightened in the current environment;
- 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 or regulatory actions (including those taken in response
to COVID-19) may reduce the Company’s profitability and limit its
growth;
- a downgrade in the Company’s claims-paying and financial
strength ratings could adversely impact the Company’s business
volumes, adversely impact the Company’s ability to access the
capital markets and increase the Company’s borrowing costs;
- the inability of the Company’s insurance subsidiaries to pay
dividends to the Company’s holding company in sufficient amounts
would harm the Company’s ability to meet its obligations, pay
future shareholder dividends and/or make future share
repurchases;
- the Company’s efforts to develop new products, expand in
targeted markets or improve business processes and workflows may
not be successful and may create enhanced risks;
- the Company may be adversely affected if its pricing and
capital models provide materially different indications than actual
results;
- the Company’s business success and profitability depend, in
part, on effective information technology systems and on continuing
to develop and implement improvements in technology, particularly
as its business processes become more digital;
- if the Company experiences difficulties with technology, data
and network security (including as a result of cyber attacks),
outsourcing relationships or cloud-based technology, the Company’s
ability to conduct its business could be negatively impacted. This
risk is heightened in the current environment where a majority of
the Company’s employees have shifted to a work from home
arrangement;
- the Company is also subject to a number of additional risks
associated with its business outside the United States, such as
foreign currency exchange fluctuations (including with respect to
the valuation of the Company’s foreign investments and interests in
joint ventures) and restrictive regulations as well as the risks
and uncertainties associated with the United Kingdom’s withdrawal
from the European Union;
- regulatory changes outside of the United States, including in
Canada, the United Kingdom, the Republic of Ireland and the
European Union, could adversely impact the Company’s results of
operations and limit its growth;
- loss of or significant restrictions on the use of particular
types of underwriting criteria, such as credit scoring, or other
data or methodologies, in the pricing and underwriting of the
Company’s products could reduce the Company’s future
profitability;
- acquisitions and integration of acquired businesses may result
in operating difficulties and other unintended consequences;
- the Company could be adversely affected if its controls
designed to ensure compliance with guidelines, policies and legal
and regulatory standards are not effective;
- the Company’s businesses may be adversely affected if it is
unable to hire and retain qualified employees;
- intellectual property is important to the Company’s business,
and the Company may be unable to protect and enforce its own
intellectual property or the Company may be subject to claims for
infringing the intellectual property of others;
- changes in federal regulation could impose significant burdens
on the Company, and otherwise adversely impact the Company’s
results;
- changes in U.S. tax laws or in the tax laws of other
jurisdictions where the Company operates could adversely impact the
Company; and
- the Company’s share repurchase plans depend on a variety of
factors, including the Company’s financial position, earnings,
share price, catastrophe losses, maintaining capital levels
commensurate with the Company’s desired ratings from independent
rating agencies, changes in levels of written premiums, funding of
the Company’s qualified pension plan, capital requirements of the
Company’s operating subsidiaries, legal requirements, regulatory
constraints, other investment opportunities (including mergers and
acquisitions and related financings), market conditions and other
factors, including the ongoing level of uncertainty related to
COVID-19.
Our forward-looking statements speak only as of the date of this
press release or as of the date they are made, and we undertake no
obligation to update forward-looking statements. For a more
detailed discussion of these factors, see the information under the
captions “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in the quarterly
report on Form 10-Q filed with the Securities and Exchange
Commission (SEC) on October 20, 2020, and in our most recent annual
report on Form 10-K filed with the SEC on February 13, 2020, in
each case as updated by our periodic filings with the SEC.
*****
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP
MEASURES TO NON-GAAP MEASURES
The following measures are used by the Company’s management to
evaluate financial performance against historical results, to
establish performance targets on a consolidated basis and for other
reasons as discussed below. In some cases, these measures are
considered non-GAAP financial measures under applicable SEC rules
because they are not displayed as separate line items in the
consolidated financial statements or are not required to be
disclosed in the notes to financial statements or, in some cases,
include or exclude certain items not ordinarily included or
excluded in the most comparable GAAP financial measure.
Reconciliations of these measures to the most comparable GAAP
measures also follow.
In the opinion of the Company’s management, a discussion of
these measures provides investors, financial analysts, rating
agencies and other financial statement users with a better
understanding of the significant factors that comprise the
Company’s periodic results of operations and how management
evaluates the Company’s financial performance.
Some of these measures exclude net realized investment gains
(losses), net of tax, and/or net unrealized investment gains
(losses), net of tax, included in shareholders’ equity, which can
be significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by
the Company’s management.
RECONCILIATION OF NET INCOME 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 September
30,
Nine Months Ended September
30,
($ in millions, after-tax)
2020
2019
2020
2019
Net income
$
827
$
396
$
1,387
$
1,749
Less: Net realized investment (gains)
losses
(29
)
(18
)
37
(79
)
Core income
$
798
$
378
$
1,424
$
1,670
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, pre-tax)
2020
2019
2020
2019
Net income
$
986
$
432
$
1,621
$
2,064
Less: Net realized investment (gains)
losses
(37
)
(23
)
48
(101
)
Core income
$
949
$
409
$
1,669
$
1,963
Twelve Months Ended December
31,
($ in millions, after-tax)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Net income
$
2,622
$
2,523
$
2,056
$
3,014
$
3,439
$
3,692
$
3,673
$
2,473
$
1,426
$
3,216
$
3,622
$
2,924
$
4,601
$
4,208
$
1,622
Less: Loss from discontinued
operations
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(439
)
Income from continuing
operations
2,622
2,523
2,056
3,014
3,439
3,692
3,673
2,473
1,426
3,216
3,622
2,924
4,601
4,208
2,061
Adjustments:
Net realized investment (gains) losses
(85
)
(93
)
(142
)
(47
)
(2
)
(51
)
(106
)
(32
)
(36
)
(173
)
(22
)
271
(101
)
(8
)
(35
)
Impact of TCJA at enactment (1)
—
—
129
—
—
—
—
—
—
—
—
—
—
—
—
Core income
2,537
2,430
2,043
2,967
3,437
3,641
3,567
2,441
1,390
3,043
3,600
3,195
4,500
4,200
2,026
Less: Preferred dividends
—
—
—
—
—
—
—
—
1
3
3
4
4
5
6
Core income, less preferred
dividends
$
2,537
$
2,430
$
2,043
$
2,967
$
3,437
$
3,641
$
3,567
$
2,441
$
1,389
$
3,040
$
3,597
$
3,191
$
4,496
$
4,195
$
2,020
(1) Tax Cuts and Jobs Act of 2017
(TCJA)
Reconciliation of Net Income per Share
to Core Income per Share on a Basic and Diluted Basis
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Basic income per
share
Net income
$
3.24
$
1.52
$
5.44
$
6.65
Adjustments:
Net realized investment (gains) losses,
after-tax
(0.11
)
(0.07
)
0.14
(0.30
)
Core income
$
3.13
$
1.45
$
5.58
$
6.35
Diluted income
per share
Net income
$
3.23
$
1.50
$
5.41
$
6.59
Adjustments:
Net realized investment (gains) losses,
after-tax
(0.11
)
(0.07
)
0.15
(0.30
)
Core income
$
3.12
$
1.43
$
5.56
$
6.29
Reconciliation of Segment Income to
Total Core Income
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax)
2020
2019
2020
2019
Business Insurance
$
365
$
179
$
596
$
944
Bond & Specialty Insurance
115
139
309
451
Personal Insurance
392
131
738
497
Total segment income
872
449
1,643
1,892
Interest Expense and Other
(74
)
(71
)
(219
)
(222
)
Total core income
$
798
$
378
$
1,424
$
1,670
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 September 30,
($ in millions)
2020
2019
Shareholders’ equity
$
27,849
$
25,607
Adjustments:
Net unrealized investment gains, net of
tax, included in shareholders’ equity
(3,812
)
(2,354
)
Net realized investment (gains) losses,
net of tax
37
(79
)
Adjusted shareholders’ equity
$
24,074
$
23,174
As of December 31,
($ in millions)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Shareholders’ equity
$
25,943
$
22,894
$
23,731
$
23,221
$
23,598
$
24,836
$
24,796
$
25,405
$
24,477
$
25,475
$
27,415
$
25,319
$
26,616
$
25,135
$
22,303
Adjustments:
Net unrealized investment (gains) losses,
net of tax, included in shareholders’ equity
(2,246
)
113
(1,112
)
(730
)
(1,289
)
(1,966
)
(1,322
)
(3,103
)
(2,871
)
(1,859
)
(1,856
)
146
(620
)
(453
)
(327
)
Net realized investment (gains) losses,
net of tax
(85
)
(93
)
(142
)
(47
)
(2
)
(51
)
(106
)
(32
)
(36
)
(173
)
(22
)
271
(101
)
(8
)
(35
)
Impact of TCJA at enactment
—
—
287
—
—
—
—
—
—
—
—
—
—
—
—
Preferred stock
—
—
—
—
—
—
—
—
—
(68
)
(79
)
(89
)
(112
)
(129
)
(153
)
Loss from discontinued operations
—
—
—
—
—
—
—
—
—
—
—
—
—
—
439
Adjusted shareholders’ equity
$
23,612
$
22,914
$
22,764
$
22,444
$
22,307
$
22,819
$
23,368
$
22,270
$
21,570
$
23,375
$
25,458
$
25,647
$
25,783
$
24,545
$
22,227
Return on equity is the ratio of annualized net income
(loss) less preferred dividends to average shareholders’ equity for
the periods presented. Core return on equity is the ratio of
annualized core income (loss) less preferred dividends to adjusted
average shareholders’ equity for the periods presented. In the
opinion of the Company’s management, these are important indicators
of how well management creates value for its shareholders through
its operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and
end of each of the quarters for the period presented divided by (b)
the number of quarters in the period presented times two.
Adjusted average shareholders’ equity is (a) the sum of
total adjusted shareholders’ equity at the beginning and end of
each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two.
Calculation of Return on Equity and Core Return on
Equity
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax)
2020
2019
2020
2019
Annualized net income
$
3,309
$
1,585
$
1,850
$
2,332
Average shareholders’ equity
27,396
25,464
26,348
24,637
Return on equity
12.1
%
6.2
%
7.0
%
9.5
%
Annualized core income
$
3,193
$
1,512
$
1,899
$
2,226
Adjusted average shareholders’ equity
23,652
23,339
23,534
23,289
Core return on equity
13.5
%
6.5
%
8.1
%
9.6
%
Average annual core return on equity over a period is the
ratio of: (a) the sum of core income less preferred dividends for
the periods presented to (b) the sum of: (1) the sum of the
adjusted average shareholders’ equity for all full years in the
period presented and (2) for partial years in the period presented,
the number of quarters in that partial year divided by four,
multiplied by the adjusted average shareholders’ equity of the
partial year.
Calculation of Average Annual Core Return on Equity from
January 1, 2005 through September 30, 2020
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions)
2020
2019
2020
2019
Core income, less preferred dividends
$
798
$
378
$
1,424
$
1,670
Annualized core income
3,193
1,512
1,899
2,226
Adjusted average shareholders’ equity
23,652
23,339
23,534
23,289
Core return on equity
13.5
%
6.5
%
8.1
%
9.6
%
Average annual core return on equity
for the period January 1, 2005 through September 30, 2020
12.6
%
Twelve Months Ended December
31,
($ in millions)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Core income, less preferred dividends
$
2,537
$
2,430
$
2,043
$
2,967
$
3,437
$
3,641
$
3,567
$
2,441
$
1,389
$
3,040
$
3,597
$
3,191
$
4,496
$
4,195
$
2,020
Adjusted average shareholders’ equity
23,335
22,814
22,743
22,386
22,681
23,447
23,004
22,158
22,806
24,285
25,777
25,668
25,350
23,381
21,118
Core return on equity
10.9
%
10.7
%
9.0
%
13.3
%
15.2
%
15.5
%
15.5
%
11.0
%
6.1
%
12.5
%
14.0
%
12.4
%
17.7
%
17.9
%
9.6
%
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN
ITEMS TO NET INCOME
Underwriting gain (loss) is net earned premiums and fee
income less claims and claim adjustment expenses and
insurance-related expenses. In the opinion of the Company’s
management, it is important to measure the profitability of each
segment excluding the results of investing activities, which are
managed separately from the insurance business. This measure is
used to assess each segment’s business performance and as a tool in
making business decisions. Pre-tax underwriting gain,
excluding the impact of catastrophes and net favorable
(unfavorable) prior year loss reserve development, is the
underwriting gain adjusted to exclude claims and claim adjustment
expenses, reinstatement premiums and assessments related to
catastrophes and loss reserve development related to time periods
prior to the current year. In the opinion of the Company’s
management, this measure is meaningful to users of the financial
statements to understand the Company’s periodic earnings and the
variability of earnings caused by the unpredictable nature (i.e.,
the timing and amount) of catastrophes and loss reserve
development. This measure is also referred to as underlying
underwriting margin or underlying underwriting gain.
A catastrophe is a severe loss designated a catastrophe
by internationally recognized organizations that track and report
on insured losses resulting from catastrophic events, such as
Property Claim Services (PCS) for events in the United States and
Canada. Catastrophes can be caused by various natural events,
including, among others, hurricanes, tornadoes and other
windstorms, earthquakes, hail, wildfires, severe winter weather,
floods, tsunamis, volcanic eruptions and other naturally-occurring
events, such as solar flares. Catastrophes can also be man-made,
such as terrorist attacks and other intentionally destructive acts
including those involving nuclear, biological, chemical and
radiological events, cyber events, explosions and destruction of
infrastructure. Each catastrophe has unique characteristics and
catastrophes are not predictable as to timing or amount. Their
effects are included in net and core 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 2020 ranges from
approximately $20 million to $30 million of losses before
reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Components of Net Income
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax except as
noted)
2020
2019
2020
2019
Pre-tax underwriting gain excluding the
impact of catastrophes and net prior year loss reserve
development
$
594
$
386
$
1,760
$
1,241
Pre-tax impact of catastrophes
(397
)
(241
)
(1,584
)
(801
)
Pre-tax impact of net favorable
(unfavorable) prior year loss reserve development
142
(294
)
171
(120
)
Pre-tax underwriting gain (loss)
339
(149
)
347
320
Income tax expense (benefit) on
underwriting results
58
(48
)
78
62
Underwriting gain (loss)
281
(101
)
269
258
Net investment income
566
528
1,336
1,572
Other income (expense), including interest
expense
(49
)
(49
)
(181
)
(160
)
Core income
798
378
1,424
1,670
Net realized investment gains (losses)
29
18
(37
)
79
Net income
$
827
$
396
$
1,387
$
1,749
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 and other, 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 September
30,
Nine Months Ended September
30,
($ in millions, pre-tax)
2020
2019
2020
2019
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses
$
4,886
$
5,230
$
14,782
$
14,493
Less:
Policyholder dividends
11
15
31
37
Allocated fee income
35
47
120
132
Loss ratio numerator
$
4,840
$
5,168
$
14,631
$
14,324
Underwriting
expense ratio
Amortization of deferred acquisition
costs
$
1,207
$
1,169
$
3,558
$
3,420
General and administrative expenses
(G&A)
1,109
1,098
3,367
3,280
Less:
Non-insurance G&A
60
48
167
145
Allocated fee income
66
74
203
214
Billing and policy fees and other
24
28
69
81
Expense ratio numerator
$
2,166
$
2,117
$
6,486
$
6,260
Earned premium
$
7,380
$
7,179
$
21,564
$
21,022
Combined ratio (1)
Loss and loss adjustment expense ratio
65.6
%
72.0
%
67.8
%
68.1
%
Underwriting expense ratio
29.3
%
29.5
%
30.1
%
29.8
%
Combined ratio
94.9
%
101.5
%
97.9
%
97.9
%
(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. In addition, G&A
include non-insurance expenses that 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, Net of Tax
As of
($ in millions, except per share
amounts)
September 30,
2020
December 31,
2019
Shareholders’ equity
$
27,849
$
25,943
Less: Net unrealized investment gains, net
of tax, included in shareholders’ equity
3,812
2,246
Shareholders’ equity, excluding net
unrealized investment gains, net of tax, included in shareholders’
equity
24,037
23,697
Less:
Goodwill
3,945
3,961
Other intangible assets
318
330
Impact of deferred tax on other intangible
assets
(55
)
(51
)
Tangible shareholders’ equity
$
19,829
$
19,457
Common shares outstanding
253.3
255.5
Book value per share
$
109.94
$
101.55
Adjusted book value per share
94.89
92.76
Tangible book value per share
78.28
76.17
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, 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
($ in millions)
September 30, 2020
December 31, 2019
Debt
$
7,050
$
6,558
Shareholders’ equity
27,849
25,943
Total capitalization
34,899
32,501
Less: Net unrealized investment gains, net
of tax, included in shareholders’ equity
3,812
2,246
Total capitalization excluding net
unrealized gain on investments, net of tax, included in
shareholders’ equity
$
31,087
$
30,255
Debt-to-capital ratio
20.2
%
20.2
%
Debt-to-capital ratio excluding net
unrealized investment gains, net of tax, included in shareholders’
equity
22.7
%
21.7
%
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. For Bond &
Specialty Insurance, retention, renewal premium change and new
business exclude surety and other products that are generally sold
on a non-recurring, project specific basis.
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 13, 2020, and subsequent
periodic filings with the SEC.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201020005633/en/
Media: Patrick Linehan 917.778.6267
Institutional Investors: Abbe
Goldstein 917.778.6825
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