Second Quarter 2021 Net Income per Diluted
Share of $3.66 and Return on Equity of 13.0%
Second Quarter 2021 Core Income per Diluted
Share of $3.45 and Core Return on Equity of 13.7%
- Strong second quarter net income of $934 million and core
income of $879 million.
- Consolidated combined ratio of 95.3% and underlying combined
ratio of 91.4%.
- Net investment income of $818 million pre-tax compared to $268
million pre-tax in the prior year quarter.
- Net written premiums of $8.135 billion, up 11% compared to the
prior year quarter (8% adjusting for the personal automobile
premium refunds in the prior year quarter); growth in all three
segments.
- Total capital returned to shareholders of $625 million,
including $401 million of share repurchases.
- Book value per share of $116.86, up 10% from June 30, 2020;
adjusted book value per share of $103.88, up 13% from June 30,
2020.
- Board of Directors declares regular quarterly cash dividend of
$0.88 per share.
The Travelers Companies, Inc. today reported net income of $934
million, or $3.66 per diluted share, for the quarter ended June 30,
2021, compared to a net loss of $40 million, or $0.16 per diluted
share, in the prior year quarter. Core income in the current
quarter was $879 million, or $3.45 per diluted share, compared to a
core loss of $50 million, or $0.20 per diluted share, in the prior
year quarter. The improvement was due to higher net investment
income, lower catastrophe losses, higher net favorable prior year
reserve development and a higher underlying underwriting gain
(i.e., excluding net prior year reserve development and catastrophe
losses). Net realized investment gains in the current quarter were
$61 million pre-tax ($47 million after-tax), compared to $13
million pre-tax ($10 million after-tax) in the prior year quarter.
Per diluted share amounts benefited from the impact of share
repurchases.
Consolidated Highlights
($ in millions, except for per share
amounts, and after-tax, except for premiums and revenues)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
Change
2021
2020
Change
Net written premiums
$
8,135
$
7,346
11
%
$
15,640
$
14,692
6
%
Total revenues
$
8,687
$
7,401
17
$
17,000
$
15,309
11
Net income (loss)
$
934
$
(40
)
NM
$
1,667
$
560
198
per diluted share
$
3.66
$
(0.16
)
NM
$
6.53
$
2.19
198
Core income (loss)
$
879
$
(50
)
NM
$
1,578
$
626
152
per diluted share
$
3.45
$
(0.20
)
NM
$
6.18
$
2.44
153
Diluted weighted average shares
outstanding
253.1
251.6
1
253.6
254.7
—
Combined ratio
95.3
%
103.7
%
(8.4
)
pts
95.9
%
99.5
%
(3.6
)
pts
Underlying combined ratio
91.4
%
91.4
%
—
pts
90.5
%
91.3
%
(0.8
)
pts
Return on equity
13.0
%
(0.6
)
%
13.6
pts
11.6
%
4.3
%
7.3
pts
Core return on equity
13.7
%
(0.8
)
%
14.5
pts
12.4
%
5.3
%
7.1
pts
As of
Change From
June 30, 2021
December 31, 2020
June 30, 2020
December 31, 2020
June 30, 2020
Book value per share
$
116.86
$
115.68
$
106.42
1
%
10
%
Adjusted book value per share
103.88
99.54
92.01
4
%
13
%
See Glossary of Financial Measures for
definitions and the statistical supplement for additional financial
data. NM = Not meaningful.
“We are very pleased to report excellent underwriting and
investment results, generating second quarter core income of $879
million, or $3.45 per diluted share, and core return on equity of
13.7%,” said Alan Schnitzer, Chairman and Chief Executive Officer.
“Higher underlying underwriting income and net favorable prior year
reserve development, as well as a lower level of catastrophe
losses, all contributed to higher core income compared to the prior
year quarter. Underlying underwriting income benefited from record
net earned premiums and a strong underlying combined ratio of
91.4%. Our high-quality investment portfolio generated net
investment income of $682 million after-tax, reflecting very strong
returns in our non-fixed income portfolio. These results, together
with our strong balance sheet, enabled us to return $625 million of
excess capital to shareholders this quarter, including $401 million
of share repurchases.
“For the quarter, net written premiums grew 11%, or 8% adjusting
for the auto premium refunds in the prior year quarter, with each
of our three segments contributing. In Business Insurance, net
written premiums grew by 5%, with renewal premium change of 9.5%
near an all-time high, driven by continued strong renewal rate
change and higher insured exposures reflecting higher levels of
U.S. economic activity. At the same time, retention was higher
reflecting stability in the pricing environment and we grew new
business by 9%. In Bond & Specialty Insurance, net written
premiums increased by 16%, driven by record renewal premium change
of 12.7% in our management liability business, while retention
remained strong. In Personal Insurance, net written premiums
increased by 16%, or 8% adjusting for the auto premium refunds in
the prior year quarter. Policies in force in both Auto and
Homeowners are at record levels driven by continued strong
retention and growth in new business.
“Our excellent top and bottom line results this quarter and for
the first half of the year demonstrate the continued successful
execution of our strategy to grow the top line at attractive
returns, as well as the effectiveness of our well-defined and
consistent investment philosophy. Our focused innovation agenda has
been an important contributor to the growth and profitability we
have achieved, and we will continue to relentlessly pursue our
priorities of extending our lead in risk expertise, providing great
experiences to our customers, distribution partners and employees,
and improving productivity and efficiency. With the momentum we
have and the best talent in the industry, we are well positioned to
continue to create meaningful shareholder value over time.”
Consolidated Results
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions and pre-tax, unless
noted otherwise)
2021
2020
Change
2021
2020
Change
Underwriting gain (loss):
$
324
$
(280
)
$
604
$
541
$
8
$
533
Underwriting gain
(loss) includes:
Net favorable prior year reserve
development
182
2
180
499
29
470
Catastrophes, net of reinsurance
(475
)
(854
)
379
(1,310
)
(1,187
)
(123
)
Net investment income
818
268
550
1,519
879
640
Other income (expense), including
interest expense
(72
)
(86
)
14
(143
)
(167
)
24
Core income (loss) before income
taxes
1,070
(98
)
1,168
1,917
720
1,197
Income tax expense (benefit)
191
(48
)
239
339
94
245
Core income (loss)
879
(50
)
929
1,578
626
952
Net realized investment gains (losses)
after income taxes
47
10
37
81
(66
)
147
Impact of changes in tax laws and/or
tax rates (1)
8
—
8
8
—
8
Net income (loss)
$
934
$
(40
)
$
974
$
1,667
$
560
$
1,107
Combined ratio
95.3
%
103.7
%
(8.4
)
pts
95.9
%
99.5
%
(3.6
)
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(2.4
)
pts
—
pts
(2.4
)
pts
(3.3
)
pts
(0.2
)
pts
(3.1
)
pts
Catastrophes, net of reinsurance
6.3
pts
12.3
pts
(6.0
)
pts
8.7
pts
8.4
pts
0.3
pts
Underlying combined ratio
91.4
%
91.4
%
—
pts
90.5
%
91.3
%
(0.8
)
pts
Net written premiums
Business Insurance
$
3,980
$
3,777
5
%
$
8,105
$
7,967
2
%
Bond & Specialty Insurance
854
734
16
1,577
1,397
13
Personal Insurance
3,301
2,835
16
5,958
5,328
12
Total
$
8,135
$
7,346
11
%
$
15,640
$
14,692
6
%
(1) Impact is recognized in the accounting
period in which the change is enacted
Second Quarter 2021 Results
(All comparisons vs. second quarter 2020, unless noted
otherwise)
The Company reported net income of $934 million, compared to a
net loss of $40 million in the prior year quarter. Core income of
$879 million improved from a core loss of $50 million in the prior
year quarter due to higher net investment income, lower catastrophe
losses, higher net favorable prior year reserve development and a
higher underlying underwriting gain. The underlying underwriting
gain benefited from higher business volumes. Net realized
investment gains were $61 million pre-tax ($47 million after-tax)
compared to $13 million pre-tax ($10 million after-tax) in the
prior year quarter.
Combined ratio:
- The combined ratio of 95.3% improved 8.4 points due to lower
catastrophe losses (6.0 points) and higher net favorable prior year
reserve development (2.4 points).
- The underlying combined ratio of 91.4% was comparable to the
prior year quarter. See below for further details by segment.
- Net favorable prior year reserve development occurred in all
segments. See below for further details by segment. Catastrophe
losses primarily resulted from severe wind and hail storms in
several regions of the United States.
Net investment income of $818 million pre-tax ($682 million
after-tax) increased from $268 million pre-tax ($251 million
after-tax) in the prior year quarter. Income from the non-fixed
income investment portfolio was $335 million pre-tax ($265 million
after-tax) compared to a loss of $234 million pre-tax ($180 million
after-tax) in the prior year quarter. The improvement in income
from the non-fixed income investment portfolio was primarily due to
positive private equity partnership returns in the current quarter
compared to negative private equity partnership returns in the
prior year quarter. The loss in the non-fixed income investment
portfolio in the prior year quarter was related to the disruption
in global financial markets during the first quarter of 2020
associated with COVID-19. Non-fixed income returns are generally
reported on a one-quarter lagged basis and directionally follow the
broader equity markets. 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.
Net written premiums of $8.135 billion increased 11%. Adjusting
for the premium refunds provided to personal automobile customers
in response to COVID-19 and related economic conditions in the
prior year quarter, net written premiums increased 8%. See below
for further details by segment.
Year-to-Date 2021 Results
(All comparisons vs. year-to-date 2020, unless noted otherwise)
Net income of $1.667 billion increased $1.107 billion due to
higher core income and net realized investment gains in the current
period compared to net realized investment losses in the prior year
period. Core income of $1.578 billion increased by $952 million due
to higher net investment income, higher net favorable prior year
reserve development and a higher underlying underwriting gain,
partially offset by higher catastrophe losses. The underlying
underwriting gain benefited from higher business volumes. Net
realized investment gains were $105 million pre-tax ($81 million
after-tax) compared to net realized investment losses of $85
million pre-tax ($66 million after-tax) in the prior year
period.
Combined ratio:
- The combined ratio of 95.9% improved 3.6 points due to higher
net favorable prior year reserve development (3.1 points) and a
lower underlying combined ratio (0.8 points), partially offset by
higher catastrophe losses (0.3 points).
- The underlying combined ratio of 90.5% improved 0.8 points. See
below for further details by segment.
- Net favorable prior year reserve development occurred in all
segments. See below for further details by segment. Catastrophe
losses included the second quarter events described above, as well
as winter storms and wind storms in several regions of the United
States in the first quarter of 2021.
Net investment income of $1.519 billion pre-tax ($1.272 billion
after-tax) increased from $879 million pre-tax ($770 million
after-tax) in the prior year period. Income from the non-fixed
income investment portfolio was $553 million pre-tax ($439 million
after-tax) compared to a loss of $146 million pre-tax ($109 million
after-tax) in the prior year period. The improvement in income from
the non-fixed income investment portfolio was primarily due to
positive private equity partnership returns in the current period
compared to negative private equity partnership returns in the
prior year period. The loss in the non-fixed income investment
portfolio in the prior year period was related to the disruption in
global financial markets during the first quarter of 2020
associated with COVID-19. 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.
Net written premiums of $15.640 billion increased 6%. Adjusting
for the premium refunds provided to personal automobile customers
in response to COVID-19 and related economic conditions primarily
in the second quarter of 2020, net written premiums increased 5%.
See below for further details by segment.
Shareholders’ Equity
Shareholders’ equity of $29.156 billion was comparable to
year-end 2020, as lower net unrealized investment gains resulting
from higher interest rates, common share repurchases and dividends
to shareholders were largely offset by net income of $934 million.
Net unrealized investment gains included in shareholders’ equity
were $4.112 billion pre-tax ($3.239 billion after-tax) compared to
$5.175 billion pre-tax ($4.074 billion after-tax) at year-end 2020.
Book value per share of $116.86 increased 10% from June 30, 2020
and increased 1% from year-end 2020. Adjusted book value per share
of $103.88, which excludes net unrealized investment gains,
increased 13% from June 30, 2020 and increased 4% from year-end
2020.
The Company repurchased 2.6 million shares during the second
quarter at an average price of $157.18 per share for a total of
$401 million. At the end of the quarter, statutory capital and
surplus was $22.797 billion, and the ratio of debt-to-capital was
20.0%. The ratio of debt-to-capital excluding after-tax net
unrealized investment gains included in shareholders’ equity was
22.0%, within the Company’s target range of 15% to 25%.
The Board of Directors declared a regular quarterly dividend of
$0.88 per share. The dividend is payable on September 30, 2021, to
shareholders of record at the close of business on September 10,
2021.
Business
Insurance Segment Financial Results
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions and pre-tax, unless
noted otherwise)
2021
2020
Change
2021
2020
Change
Underwriting income (loss):
$
173
$
(273
)
$
446
$
29
$
(372
)
$
401
Underwriting income
(loss) includes:
Net favorable prior year reserve
development
73
—
73
207
5
202
Catastrophes, net of reinsurance
(149
)
(377
)
228
(655
)
(572
)
(83
)
Net investment income
615
180
435
1,138
633
505
Other income (expense)
(8
)
(6
)
(2
)
(15
)
(22
)
7
Segment income (loss) before income
taxes
780
(99
)
879
1,152
239
913
Income tax expense (benefit)
137
(41
)
178
192
8
184
Segment income (loss)
$
643
$
(58
)
$
701
$
960
$
231
$
729
Combined ratio
95.3
%
107.1
%
(11.8
)
pts
99.3
%
104.6
%
(5.3
)
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(1.9
)
pts
—
pts
(1.9
)
pts
(2.7
)
pts
—
pts
(2.7
)
pts
Catastrophes, net of reinsurance
3.9
pts
10.1
pts
(6.2
)
pts
8.5
pts
7.5
pts
1.0
pts
Underlying combined ratio
93.3
%
97.0
%
(3.7
)
pts
93.5
%
97.1
%
(3.6
)
pts
Net written premiums by market
Domestic
Select Accounts
$
726
$
734
(1
)
%
$
1,455
$
1,533
(5
)
%
Middle Market
2,087
1,960
6
4,471
4,368
2
National Accounts
213
215
(1
)
503
516
(3
)
National Property and Other
647
585
11
1,092
1,013
8
Total Domestic
3,673
3,494
5
7,521
7,430
1
International
307
283
8
584
537
9
Total
$
3,980
$
3,777
5
%
$
8,105
$
7,967
2
%
Second Quarter 2021 Results
(All comparisons vs. second quarter 2020, unless noted
otherwise)
Segment income for Business Insurance was $643 million
after-tax, compared with a segment loss of $58 million after-tax in
the prior year quarter. The improvement was due to higher net
investment income, lower catastrophe losses, a higher underlying
underwriting gain and net favorable prior year reserve development
compared with no net prior year reserve development in the prior
year quarter. The underlying underwriting gain benefited from
higher business volumes.
Combined ratio:
- The combined ratio of 95.3% improved 11.8 points due to lower
catastrophe losses (6.2 points), a lower underlying combined ratio
(3.7 points) and net favorable prior year reserve development
compared with no net prior year reserve development in the prior
year quarter (1.9 points).
- The underlying combined ratio of 93.3% improved by 3.7 points,
primarily reflecting earned pricing that exceeded loss cost trends,
as well as lower non-catastrophe weather-related losses and a
favorable comparison to a modest net charge related to COVID-19 and
related economic conditions in the prior year quarter.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in domestic
operations in the workers’ compensation product line for multiple
accident years, partially offset by an increase in reserves related
to run-off operations.
Net written premiums of $3.980 billion increased 5%, reflecting
strong renewal premium change and retention, as well as higher new
business levels.
Year-to-Date 2021 Results
(All comparisons vs. year-to-date 2020, unless noted otherwise)
Segment income for Business Insurance was $960 million
after-tax, an increase of $729 million. Segment income increased
due to higher net investment income, a higher underlying
underwriting gain and higher net favorable prior year reserve
development, partially offset by higher catastrophe losses.
Combined ratio:
- The combined ratio of 99.3% improved 5.3 points due to a lower
underlying combined ratio (3.6 points) and higher net favorable
prior year reserve development (2.7 points), partially offset by
higher catastrophe losses (1.0 points).
- The underlying combined ratio of 93.5% improved 3.6 points,
primarily reflecting earned pricing that exceeded loss cost trends,
as well as a favorable comparison to a net charge related to
COVID-19 and related economic conditions in the prior year
period.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in domestic
operations in the workers’ compensation product line for multiple
accident years and in the commercial property and commercial
automobile product lines for recent accident years, partially
offset by an increase in claims handling expense reserves related
to run-off operations and an increase to environmental
reserves.
Net written premiums of $8.105 billion increased 2%. The
benefits of continued strong retention and higher renewal rate
change were partially offset by lower net written premiums in the
workers’ compensation product line due to the impact of COVID-19
and related economic conditions on payrolls.
Bond
& Specialty Insurance Segment Financial Results
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions and pre-tax, unless
noted otherwise)
2021
2020
Change
2021
2020
Change
Underwriting gain:
$
165
$
40
$
125
$
272
$
132
$
140
Underwriting gain
includes:
Net favorable (unfavorable) prior year
reserve development
44
(33
)
77
59
(33
)
92
Catastrophes, net of reinsurance
(3
)
(7
)
4
(27
)
(8
)
(19
)
Net investment income
64
42
22
123
97
26
Other income
6
4
2
9
8
1
Segment income before income
taxes
235
86
149
404
237
167
Income tax expense
48
14
34
80
43
37
Segment income
$
187
$
72
$
115
$
324
$
194
$
130
Combined ratio
78.1
%
93.8
%
(15.7
)
pts
81.6
%
89.9
%
(8.3
)
pts
Impact on combined
ratio
Net favorable (unfavorable) prior year
reserve development
(5.7
)
pts
4.7
pts
(10.4
)
pts
(3.9
)
pts
2.4
pts
(6.3
)
pts
Catastrophes, net of reinsurance
0.4
pts
1.0
pts
(0.6
)
pts
1.7
pts
0.6
pts
1.1
pts
Underlying combined ratio
83.4
%
88.1
%
(4.7
)
pts
83.8
%
86.9
%
(3.1
)
pts
Net written premiums
Domestic
Management Liability
$
497
$
438
13
%
$
941
$
839
12
%
Surety
232
220
5
432
435
(1
)
Total Domestic
729
658
11
1,373
1,274
8
International
125
76
64
204
123
66
Total
$
854
$
734
16
%
$
1,577
$
1,397
13
%
Second Quarter 2021 Results
(All comparisons vs. second quarter 2020, unless noted
otherwise)
Segment income for Bond & Specialty Insurance was $187
million after-tax, an increase of $115 million. Segment income
increased 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. The underlying
underwriting gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 78.1% improved 15.7 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 (10.4 points), a lower underlying combined ratio
(4.7 points) and lower catastrophe losses (0.6 points).
- The underlying combined ratio of 83.4% improved 4.7 points,
primarily reflecting earned pricing that exceeded loss cost trends
and a lower expense ratio primarily resulting from higher premium
volumes.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in the segment’ s
domestic operations in the fidelity and surety product lines for
recent accident years.
Net written premiums of $854 million increased 16%, reflecting
strong retention and renewal premium change in management
liability.
Year-to-Date 2021 Results
(All comparisons vs. year-to-date 2020, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $324
million after-tax, an increase of $130 million. Segment income
increased due to net favorable prior year reserve development in
the current year compared to net unfavorable prior year reserve
development in the prior year period, 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.
Combined ratio:
- The combined ratio of 81.6% improved 8.3 points due to net
favorable prior year reserve development in the current year
compared to net unfavorable prior year reserve development in the
prior year period (6.3 points) and a lower underlying combined
ratio (3.1 points), partially offset by higher catastrophe losses
(1.1 points).
- The underlying combined ratio of 83.8% improved 3.1 points,
primarily reflecting earned pricing that exceeded loss cost trends
and a lower expense ratio primarily resulting from higher premium
volumes.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in the segment’ s
domestic operations in the fidelity and surety product lines for
recent accident years.
Net written premiums of $1.577 billion increased 13%, driven by
the same factors described above for the second quarter of
2021.
Personal
Insurance Segment Financial Results
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions and pre-tax, unless
noted otherwise)
2021
2020
Change
2021
2020
Change
Underwriting gain (loss):
$
(14
)
$
(47
)
$
33
$
240
$
248
$
(8
)
Underwriting gain
(loss) includes:
Net favorable prior year reserve
development
65
35
30
233
57
176
Catastrophes, net of reinsurance
(323
)
(470
)
147
(628
)
(607
)
(21
)
Net investment income
139
46
93
258
149
109
Other income
21
10
11
42
32
10
Segment income before income
taxes
146
9
137
540
429
111
Income tax expense (benefit)
25
(1
)
26
105
83
22
Segment income
$
121
$
10
$
111
$
435
$
346
$
89
Combined ratio
99.7
%
101.3
%
(1.6
)
pts
95.1
%
94.5
%
0.6
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(2.2
)
pts
(1.3
)
pts
(0.9
)
pts
(4.0
)
pts
(1.1
)
pts
(2.9
)
pts
Catastrophes, net of reinsurance
10.9
pts
18.6
pts
(7.7
)
pts
10.8
pts
11.6
pts
(0.8
)
pts
Underlying combined ratio
91.0
%
84.0
%
7.0
pts
88.3
%
84.0
%
4.3
pts
Net written premiums
Domestic
Automobile
$
1,467
$
1,204
22
%
$
2,842
$
2,537
12
%
Homeowners and Other
1,634
1,458
12
2,778
2,475
12
Total Domestic
3,101
2,662
16
5,620
5,012
12
International
200
173
16
338
316
7
Total
$
3,301
$
2,835
16
%
$
5,958
$
5,328
12
%
Second Quarter 2021 Results
(All comparisons vs. second quarter 2020, unless noted
otherwise)
Segment income for Personal Insurance was $121 million
after-tax, an increase of $111 million. Segment income increased
due to lower catastrophe losses, higher net investment income and
higher net favorable prior year reserve development, partially
offset by a lower underlying underwriting gain. The underlying
underwriting gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 99.7% improved 1.6 points due to lower
catastrophe losses (7.7 points) and higher net favorable prior year
reserve development (0.9 points), partially offset by a higher
underlying combined ratio (7.0 points).
- The underlying combined ratio of 91.0% increased 7.0 points,
primarily driven by higher losses in the homeowners and other
product line as well as higher losses in the automobile product
line due to a comparison to a low level of loss activity (net of
premium refunds) in the prior year quarter as a result of the
pandemic.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in the segment’ s
domestic operations in both the automobile and homeowners and other
product lines for recent accident years.
Net written premiums of $3.301 billion increased 16%. Adjusting
for the premium refunds provided to personal automobile customers
in the prior year quarter, net written premiums increased 8%.
Domestic Automobile net written premiums increased 22%. Adjusting
for the premium refunds, Domestic Automobile net written premiums
increased 4%, driven by strong retention and higher levels of new
business. Domestic Homeowners and Other net written premiums
increased 12%, driven by strong retention, renewal premium change
of 8.2% and higher levels of new business.
Year-to-Date 2021 Results
(All comparisons vs. year-to-date 2020, unless noted otherwise)
Segment income for Personal Insurance was $435 million
after-tax, an increase of $89 million. Segment income increased due
to higher net favorable prior year reserve development and higher
net investment income, partially offset by a lower underlying
underwriting gain. The underlying underwriting gain benefited from
higher business volumes.
Combined ratio:
- The combined ratio of 95.1% increased 0.6 points due to a
higher underlying combined ratio (4.3 points), partially offset by
higher net favorable prior year reserve development (2.9 points)
and a smaller impact from catastrophe losses (0.8 points).
- The underlying combined ratio of 88.3% increased 4.3 points,
primarily driven by higher losses in the homeowners and other
product line.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in the segment’ s
domestic operations in both the automobile and homeowners and other
product lines for recent accident years.
Net written premiums of $5.958 billion increased 12%. Adjusting
for the premium refunds provided to personal automobile customers
primarily in the second quarter of 2020, net written premiums
increased 8%. Domestic Automobile net written premiums increased
12%. Adjusting for the premium refunds, Domestic Automobile net
written premiums increased 4% driven by strong retention and higher
levels of new business. Domestic Homeowners and Other net written
premiums increased 12%, driven by strong retention, renewal premium
change of 7.9% 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, July 20, 2021. 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, replays will be available via webcast
for one year at http://investor.travelers.com and by telephone for
30 days by dialing 1.800.585.8367 within the United States or
1.416.621.4642 outside the United States. All callers should use
conference ID 5555606.
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 2020. 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, the impact of trends on its business and
its future results of operations and financial condition;
- the impact of COVID-19 and related economic conditions;
- the impact of legislative or regulatory actions or court
decisions taken in response to COVID-19 or otherwise;
- share repurchase plans;
- future pension plan contributions;
- the sufficiency of the Company’s asbestos and other
reserves;
- the impact of emerging claims issues as well as other insurance
and non-insurance litigation;
- the cost and availability of reinsurance coverage;
- catastrophe losses;
- the impact of investment, economic and underwriting market
conditions, including inflation;
- strategic and operational initiatives to improve profitability
and competitiveness;
- the Company’s competitive advantages;
- new product offerings;
- the impact of new or potential trade regulations imposed by the
United States or other nations; and
- the impact of developments in the tort environment.
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:
Insurance-Related Risks
- high levels of catastrophe losses;
- actual claims may exceed the Company’s claims and claim
adjustment expense reserves, or the estimated level of claims and
claim adjustment expense reserves may increase, including as a
result of, among other things, changes in the legal/tort,
regulatory and economic environments;
- the Company’s potential exposure to asbestos and environmental
claims and related litigation;
- the Company is exposed to, and may face adverse developments
involving, mass tort claims; and
- the effects of emerging claim and coverage issues on the
Company’s business are uncertain, and court decisions or
legislative changes that take place after the Company issues its
policies can result in an unexpected increase in the number of
claims.
Financial, Economic and Credit
Risks
- a period of financial market disruption or an economic
downturn;
- 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;
- the Company is exposed to credit risk related to reinsurance
and structured settlements, and reinsurance coverage may not be
available to the Company;
- 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;
- a downgrade in the Company’s claims-paying and financial
strength ratings; and
- the Company’s insurance subsidiaries may be unable to pay
dividends to the Company’s holding company in sufficient
amounts.
Business and Operational
Risks
- the impact of COVID-19 and related risks, including with
respect to revenues, claims and claim adjustment expenses, general
and administrative expenses, investments, inflation, adverse
legislative and/or regulatory action, operational disruptions and
heightened cyber security risks and foreign currency exchange rate
changes;
- 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;
- disruptions to the Company’s relationships with its independent
agents and brokers or the Company’s inability to manage effectively
a changing distribution landscape;
- the Company’s efforts to develop new products, expand in
targeted markets, improve business processes and workflows or make
acquisitions may not be successful and may create enhanced
risks;
- the Company’ s pricing and capital models may provide
materially different indications than actual results;
- 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; and
- the Company is subject to additional risks associated with its
business outside the United States.
Technology and Intellectual Property
Risks
- as a result of cyber attacks or otherwise, the Company may
experience difficulties with technology, data and network security
or outsourcing relationships;
- the Company’s dependence on effective information technology
systems and on continuing to develop and implement improvements in
technology; and
- the Company may be unable to protect and enforce its own
intellectual property or may be subject to claims for infringing
the intellectual property of others.
Regulatory and Compliance
Risks
- changes in regulation, including higher tax rates; and
- the Company’ s compliance controls may not be effective.
In addition, 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,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Forward Looking
Statements” in the quarterly report on Form 10-Q filed with the
Securities and Exchange Commission (SEC) on July 20, 2021, and in
our most recent annual report on Form 10-K filed with the SEC on
February 11, 2021, 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 (Loss) to Core Income (Loss)
less Preferred Dividends
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, after-tax)
2021
2020
2021
2020
Net income (loss)
$
934
$
(40
)
$
1,667
$
560
Less: Net realized investment (gains)
losses
(47
)
(10
)
(81
)
66
Impact of changes in tax laws and/or tax
rates (1)
(8
)
—
(8
)
—
Core income (loss)
$
879
$
(50
)
$
1,578
$
626
(1) Impact is recognized in the accounting
period in which the change is enacted
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, pre-tax)
2021
2020
2021
2020
Net income (loss)
$
1,131
$
(85
)
$
2,022
$
635
Less: Net realized investment (gains)
losses
(61
)
(13
)
(105
)
85
Core income (loss)
$
1,070
$
(98
)
$
1,917
$
720
Twelve Months Ended December
31,
($ in millions, after-tax)
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Net income
$
2,697
$
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
2,697
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
(11
)
(85
)
(93
)
(142
)
(47
)
(2
)
(51
)
(106
)
(32
)
(36
)
(173
)
(22
)
271
(101
)
(8
)
(35
)
Impact of changes in tax laws and/or tax
rates (1) (2)
—
—
—
129
—
—
—
—
—
—
—
—
—
—
—
—
Core income
2,686
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
$
2,686
$
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) Impact is recognized in the accounting
period in which the change is enacted
(2) Tax Cuts and Jobs Act of 2017
(TCJA)
Reconciliation of Net Income (Loss) per
Share to Core Income (Loss) per Share on a Basic and Diluted
Basis
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Basic income
(loss) per share
Net income (loss)
$
3.70
$
(0.16
)
$
6.58
$
2.19
Adjustments:
Net realized investment (gains) losses,
after-tax
(0.19
)
(0.04
)
(0.32
)
0.26
Impact of changes in tax laws and/or tax
rates (1)
(0.03
)
—
(0.03
)
—
Core income (loss)
$
3.48
$
(0.20
)
$
6.23
$
2.45
Diluted income
(loss) per share
Net income (loss)
$
3.66
$
(0.16
)
$
6.53
$
2.19
Adjustments:
Net realized investment (gains) losses,
after-tax
(0.18
)
(0.04
)
(0.32
)
0.25
Impact of changes in tax laws and/or tax
rates (1)
(0.03
)
—
(0.03
)
—
Core income (loss)
$
3.45
$
(0.20
)
$
6.18
$
2.44
(1) Impact is recognized in the accounting period in which the
change is enacted
Reconciliation of Segment Income
(Loss) to Total Core Income (Loss)
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, after-tax)
2021
2020
2021
2020
Business Insurance
$
643
$
(58
)
$
960
$
231
Bond & Specialty Insurance
187
72
324
194
Personal Insurance
121
10
435
346
Total segment income
951
24
1,719
771
Interest Expense and Other
(72
)
(74
)
(141
)
(145
)
Total core income (loss)
$
879
$
(50
)
$
1,578
$
626
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)
2021
2020
Shareholders’ equity
$
29,156
$
26,943
Adjustments:
Net unrealized investment gains, net of
tax, included in shareholders’ equity
(3,239
)
(3,646
)
Net realized investment (gains) losses,
net of tax
(81
)
66
Impact of changes in tax laws and/or tax
rates (1)
(8
)
—
Adjusted shareholders’ equity
$
25,828
$
23,363
(1) Impact is recognized in the accounting
period in which the change is enacted
As of December 31,
($ in millions)
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Shareholders’ equity
$
29,201
$
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
(4,074
)
(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
(11
)
(85
)
(93
)
(142
)
(47
)
(2
)
(51
)
(106
)
(32
)
(36
)
(173
)
(22
)
271
(101
)
(8
)
(35
)
Impact of changes in tax laws and/or tax
rates (1) (2)
—
—
—
287
—
—
—
—
—
—
—
—
—
—
—
—
Preferred stock
—
—
—
—
—
—
—
—
—
—
(68
)
(79
)
(89
)
(112
)
(129
)
(153
)
Loss from discontinued operations
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
439
Adjusted shareholders’ equity
$
25,116
$
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
(1) Impact is recognized in the accounting
period in which the change is enacted
(2) Tax Cuts and Jobs Act of 2017 (TCJA)
Return on equity is the ratio of annualized net income
(loss) less preferred dividends to average shareholders’ equity for
the periods presented. Core return on equity is the ratio of
annualized core income (loss) less preferred dividends to adjusted
average shareholders’ equity for the periods presented. In the
opinion of the Company’s management, these are important indicators
of how well management creates value for its shareholders through
its operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and
end of each of the quarters for the period presented divided by (b)
the number of quarters in the period presented times two.
Adjusted average shareholders’ equity is (a) the sum of
total adjusted shareholders’ equity at the beginning and end of
each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two.
Calculation of Return on Equity and
Core Return on Equity
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, after-tax)
2021
2020
2021
2020
Annualized net income (loss)
$
3,736
$
(157
)
$
3,335
$
1,120
Average shareholders’ equity
28,712
26,074
28,723
25,824
Return on equity
13.0
%
(0.6
)
%
11.6
%
4.3
%
Annualized core income (loss)
$
3,514
$
(197
)
$
3,155
$
1,253
Adjusted average shareholders’ equity
25,656
23,353
25,464
23,474
Core return on equity
13.7
%
(0.8
)
%
12.4
%
5.3
%
Average annual core return on equity over a period is the
ratio of: (a) the sum of core income (loss) less preferred
dividends for the periods presented to (b) the sum of: (1) the sum
of the adjusted average shareholders’ equity for all full years in
the period presented and (2) for partial years in the period
presented, the number of quarters in that partial year divided by
four, multiplied by the adjusted average shareholders’ equity of
the partial year.
Twelve Months Ended December
31,
($ in millions)
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Core income, less preferred dividends
$
2,686
$
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
23,790
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
11.3
%
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 2021 ranges from $20 million
to $30 million of losses before reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Components of Net Income (Loss)
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, after-tax except as
noted)
2021
2020
2021
2020
Pre-tax underwriting gain excluding the
impact of catastrophes and net prior year loss reserve
development
$
617
$
572
$
1,352
$
1,166
Pre-tax impact of catastrophes
(475
)
(854
)
(1,310
)
(1,187
)
Pre-tax impact of net favorable prior year
loss reserve development
182
2
499
29
Pre-tax underwriting gain (loss)
324
(280
)
541
8
Income tax expense (benefit) on
underwriting results
71
(48
)
122
20
Underwriting gain (loss)
253
(232
)
419
(12
)
Net investment income
682
251
1,272
770
Other income (expense), including interest
expense
(56
)
(69
)
(113
)
(132
)
Core income (loss)
879
(50
)
1,578
626
Net realized investment gains (losses)
47
10
81
(66
)
Impact of changes in tax laws and/or tax
rates (1)
8
—
8
—
Net income (loss)
$
934
$
(40
)
$
1,667
$
560
(1) Impact is recognized in the accounting period in which the
change is enacted
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 June
30,
Six Months Ended June
30,
($ in millions, pre-tax)
2021
2020
2021
2020
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses
$
5,045
$
5,107
$
10,015
$
9,896
Less:
Policyholder dividends
10
8
21
20
Allocated fee income
39
44
77
85
Loss ratio numerator
$
4,996
$
5,055
$
9,917
$
9,791
Underwriting
expense ratio
Amortization of deferred acquisition
costs
$
1,254
$
1,173
$
2,461
$
2,351
General and administrative expenses
(G&A)
1,174
1,121
2,337
2,258
Less:
Non-insurance G&A
77
52
147
107
Allocated fee income
65
70
128
137
Billing and policy fees and other
27
17
54
45
Expense ratio numerator
$
2,259
$
2,155
$
4,469
$
4,320
Earned premium
$
7,616
$
6,955
$
15,002
$
14,184
Combined ratio (1)
Loss and loss adjustment expense ratio
65.6
%
72.7
%
66.1
%
69.0
%
Underwriting expense ratio
29.7
%
31.0
%
29.8
%
30.5
%
Combined ratio
95.3
%
103.7
%
95.9
%
99.5
%
(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. These allocations are to conform the
calculation of the combined ratio with statutory accounting.
Additionally, general and administrative expenses 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)
June 30, 2021
December 31,
2020
June 30, 2020
Shareholders’ equity
$
29,156
$
29,201
$
26,943
Less: Net unrealized investment gains, net
of tax, included in shareholders’ equity
3,239
4,074
3,646
Shareholders’ equity, excluding net
unrealized investment gains, net of tax, included in shareholders’
equity
25,917
25,127
23,297
Less:
Goodwill
4,020
3,976
3,925
Other intangible assets
314
317
319
Impact of deferred tax on other intangible
assets
(63
)
(59
)
(49
)
Tangible shareholders’ equity
$
21,646
$
20,893
$
19,102
Common shares outstanding
249.5
252.4
253.2
Book value per share
$
116.86
$
115.68
$
106.42
Adjusted book value per share
103.88
99.54
92.01
Tangible book value per share
86.76
82.77
75.45
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)
June 30, 2021
December 31,
2020
Debt
$
7,290
$
6,550
Shareholders’ equity
29,156
29,201
Total capitalization
36,446
35,751
Less: Net unrealized investment gains, net
of tax, included in shareholders’ equity
3,239
4,074
Total capitalization excluding net
unrealized gain on investments, net of tax, included in
shareholders’ equity
$
33,207
$
31,677
Debt-to-capital ratio
20.0
%
18.3
%
Debt-to-capital ratio excluding net
unrealized investment gains, net of tax, included in shareholders’
equity
22.0
%
20.7
%
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. For each of the
segments, production statistics referred to herein are domestic
only unless otherwise indicated.
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 11, 2021, and subsequent
periodic filings with the SEC.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210720005645/en/
Media: Patrick Linehan 917.778.6267
Institutional Investors: Abbe
Goldstein 917.778.6825
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