Provides Estimate of PG&E Subrogation
Recoveries of Approximately $400 Million Pre-Tax to be Recognized
in Third Quarter of 2020
- Second quarter net loss of $40 million and core loss of $50
million.
- Catastrophe losses of $854 million pre-tax, compared to $367
million pre-tax in the prior year quarter.
- Net investment income of $268 million pre-tax, compared to $648
million pre-tax in the prior year quarter.
- Consolidated combined ratio of 103.7%; underlying combined
ratio improved 3.5 points to a strong 91.4%.
- Net impact of COVID-19 and related economic conditions on
underwriting results in the quarter was modest.
- Net written premiums of $7.346 billion, down 1% compared to the
prior year quarter; excluding personal automobile premium refunds,
net written premiums increased 2%.
- Strong renewal rate change in all three segments, including
7.4% in Business Insurance and a record level in Bond &
Specialty Insurance.
- Total capital returned to shareholders of $218 million; no
share repurchases in the current quarter. Year-to-date total
capital returned to shareholders of $899 million, including $471
million of share repurchases.
- Book value per share of $106.42; adjusted book value per share
of $92.01.
- Board of Directors declares regular quarterly cash dividend of
$0.85 per share.
The Travelers Companies, Inc. today reported a net loss of $40
million, or $0.16 per diluted share, for the quarter ended June 30,
2020, compared to net income of $557 million, or $2.10 per diluted
share, in the prior year quarter. The core loss in the current
quarter was $50 million, or $0.20 per diluted share, compared to
core income of $537 million, or $2.02 per diluted share, in the
prior year quarter. The difference was primarily due to higher
catastrophe losses, lower net investment income and lower net
favorable prior year reserve development, partially offset by a
higher underlying underwriting gain (i.e., excluding net prior year
reserve development and catastrophe losses). COVID-19 and related
economic conditions had a modest net impact on the underwriting
result in the quarter. Net realized investment gains in the current
quarter were $13 million pre-tax ($10 million after-tax), compared
to net realized investment gains of $25 million pre-tax ($20
million after-tax) in the prior year quarter.
Consolidated Highlights
($ in millions, except for per share
amounts, and after-tax, except for premiums and revenues)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
Change
2020
2019
Change
Net written premiums
$
7,346
$
7,450
(1
)%
$
14,692
$
14,507
1
%
Total revenues
$
7,401
$
7,834
(6
)
$
15,309
$
15,505
(1
)
Net income (loss)
$
(40
)
$
557
NM
$
560
$
1,353
(59
)
per diluted share
$
(0.16
)
$
2.10
NM
$
2.19
$
5.08
(57
)
Core income (loss)
$
(50
)
$
537
NM
$
626
$
1,292
(52
)
per diluted share
$
(0.20
)
$
2.02
NM
$
2.44
$
4.85
(50
)
Diluted weighted average shares
outstanding
251.6
263.7
(5
)
254.7
264.2
(4
)
Combined ratio
103.7
%
98.4
%
5.3
pts
99.5
%
96.1
%
3.4
pts
Underlying combined ratio
91.4
%
94.9
%
(3.5
)
pts
91.3
%
93.3
%
(2.0
)
pts
Return on equity
(0.6
)%
9.0
%
(9.6
)
pts
4.3
%
11.2
%
(6.9
)
pts
Core return on equity
(0.8
)%
9.2
%
(10.0
)
pts
5.3
%
11.1
%
(5.8
)
pts
As of
Change From
June 30, 2020
December 31, 2019
June 30, 2019
December 31, 2019
June 30, 2019
Book value per share
$
106.42
$
101.55
$
97.26
5
%
9
%
Adjusted book value per share
92.01
92.76
90.05
(1
)%
2
%
See Glossary of Financial Measures for
definitions and the statistical supplement for additional financial
data. NM = Not meaningful.
“Our second quarter results reflect an improved underlying
underwriting gain that was more than offset by a high level of
catastrophe losses and, as expected, losses in our non-fixed income
investment portfolio,” said Alan Schnitzer, Chairman and Chief
Executive Officer. “Our underlying combined ratio improved by 3.5
points to a very strong 91.4%, with favorable contributions from
both Business Insurance and Personal Insurance. The net impact of
COVID-19 and related economic conditions on our underlying results
was modest, reflecting a culture of disciplined underwriting and
management of terms and conditions. Catastrophe losses this quarter
were impacted by a relatively high frequency of PCS-designated
catastrophe events. Results in our non-fixed income investment
portfolio are reported on a lagged basis, and the losses we
reported this quarter arose out of the disruption in global
financial markets that took place in the first quarter.
“We were very pleased with our marketplace execution in the
quarter, particularly in light of the challenging economic
environment. Net written premiums declined just slightly, as the
impact of the pandemic on insured exposures in our commercial
businesses and our auto refund program in Personal Insurance were
largely offset by strong renewal rate change in all three segments.
Excluding the auto premium refunds, we grew net written premiums by
2%. In Business Insurance, we achieved renewal rate change of 7.4%,
nearly 4 points higher than the prior year quarter and its highest
level since 2013, while retention remained strong. In Bond &
Specialty Insurance, net written premiums increased by 3% as our
domestic management liability business achieved renewal premium
change of 7.8%, including record renewal rate change, while
retention remained strong. In Personal Insurance, net written
premiums decreased by 1%. Excluding the auto premium refunds, net
written premiums increased by 6%, driven by strong retention and
new business in both Agency Auto and Agency Homeowners. In our
Agency Homeowners business, renewal premium change remained very
strong at 7.7%.
“Investments we have made over recent years as part of our
innovation agenda to put digital tools in the hands of our
colleagues, customers and distribution partners have proven
particularly valuable as we effectively manage our business through
the pandemic. We will continue to invest to advance our innovation
priorities and ensure that those capabilities and our other
competitive advantages remain relevant and differentiating.
“Our steady performance through these difficult times
demonstrates the value of underwriting excellence and the strength
and resilience of our franchise. With a strong balance sheet, our
proven ability to execute on our marketplace strategies and the
best talent in the industry, we remain well positioned to continue
to deliver 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)
2020
2019
Change
2020
2019
Change
Underwriting gain (loss):
$
(280
)
$
74
$
(354
)
$
8
$
469
$
(461
)
Underwriting gain
(loss) includes:
Net favorable prior year reserve
development
2
123
(121
)
29
174
(145
)
Catastrophes, net of reinsurance
(854
)
(367
)
(487
)
(1,187
)
(560
)
(627
)
Net investment income
268
648
(380
)
879
1,230
(351
)
Other income (expense), including
interest expense
(86
)
(82
)
(4
)
(167
)
(145
)
(22
)
Core income (loss) before income
taxes
(98
)
640
(738
)
720
1,554
(834
)
Income tax expense (benefit)
(48
)
103
(151
)
94
262
(168
)
Core income (loss)
(50
)
537
(587
)
626
1,292
(666
)
Net realized investment gains (losses)
after income taxes
10
20
(10
)
(66
)
61
(127
)
Net income (loss)
$
(40
)
$
557
$
(597
)
$
560
$
1,353
$
(793
)
Combined ratio
103.7
%
98.4
%
5.3
pts
99.5
%
96.1
%
3.4
pts
Impact on combined
ratio
Net favorable prior year reserve
development
—
pts
(1.8
)
pts
1.8
pts
(0.2
)
pts
(1.3
)
pts
1.1
pts
Catastrophes, net of reinsurance
12.3
pts
5.3
pts
7.0
pts
8.4
pts
4.1
pts
4.3
pts
Underlying combined ratio
91.4
%
94.9
%
(3.5
)
pts
91.3
%
93.3
%
(2.0
)
pts
Net written premiums
Business Insurance
$
3,777
$
3,874
(3
)%
$
7,967
$
8,037
(1
)%
Bond & Specialty Insurance
734
710
3
1,397
1,297
8
Personal Insurance
2,835
2,866
(1
)
5,328
5,173
3
Total
$
7,346
$
7,450
(1
)%
$
14,692
$
14,507
1
%
Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted
otherwise)
The Company reported a net loss of $40 million compared to net
income of $557 million in the prior year quarter. The net loss was
due to a core loss, partially offset by net realized investment
gains. The core loss of $50 million decreased from core income of
$537 million in the prior year quarter, primarily due to higher
catastrophe losses, lower net investment income and lower net
favorable prior year reserve development, partially offset by a
higher underlying underwriting gain. The net impact of COVID-19 and
related economic conditions on the underlying underwriting gain in
the quarter was modest. Net realized investment gains were $13
million pre-tax ($10 million after-tax) compared to $25 million
pre-tax ($20 million after-tax) in the prior year quarter.
Combined ratio:
- The combined ratio of 103.7% increased 5.3 points due to higher
catastrophe losses (7.0 points) and lower net favorable prior year
reserve development (1.8 points), partially offset by a lower
underlying combined ratio (3.5 points).
- The underlying combined ratio of 91.4% decreased 3.5 points.
See below for further details by segment.
- Net favorable prior year reserve development in Personal
Insurance was largely offset by net unfavorable prior year reserve
development in Bond & Specialty Insurance. There was no net
prior year reserve development in Business Insurance. Catastrophe
losses primarily resulted from severe storms in several regions of
the United States and civil unrest.
Net investment income of $268 million pre-tax ($251 million
after-tax) decreased 59%. Income from the fixed income investment
portfolio decreased from the prior year quarter, primarily due to
lower long-term interest rates, partially offset by a higher
average level of fixed maturity investments. The non-fixed income
investment portfolio had a loss of $234 million pre-tax ($180
million after-tax), compared to income of $118 million pre-tax ($95
million after-tax) in the prior year quarter. Non-fixed income
returns are generally reported on a one-quarter lagged basis and
directionally follow the broader equity markets. Accordingly, the
loss in the non-fixed income investment portfolio is related to the
disruption in global financial markets during the first quarter of
2020 associated with COVID-19. Based on its composition, the
Company’s non-fixed income investment portfolio declined less than
the broader equity markets in the first quarter of 2020.
Net written premiums of $7.346 billion decreased 1%. Excluding
premium refunds provided to personal automobile customers in
response to COVID-19 and related economic conditions, net written
premiums increased 2%. 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 $560 million decreased $793 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 $626 million decreased by $666 million,
primarily due to higher catastrophe losses, lower net investment
income and lower net favorable prior year reserve development,
partially offset by a higher underlying underwriting gain. The
underlying underwriting gain benefited from higher business volumes
and a lower underlying combined ratio. Net realized investment
losses were $85 million pre-tax ($66 million after-tax), compared
to net realized investment gains of $78 million pre-tax ($61
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 six months of
2020.
Combined ratio:
- The combined ratio of 99.5% increased 3.4 points due to higher
catastrophe losses (4.3 points) and lower net favorable prior year
reserve development (1.1 points), partially offset by a lower
underlying combined ratio (2.0 points).
- The underlying combined ratio of 91.3% decreased 2.0 points.
See below for further details by segment.
- Net favorable prior year reserve development in Personal
Insurance and Business Insurance was partially offset by net
unfavorable prior year reserve development in Bond & Specialty
Insurance. Catastrophe losses included the second 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.
Net investment income of $879 million pre-tax ($770 million
after-tax) decreased 29%. Income from the fixed income investment
portfolio decreased from the prior year period, primarily due to
lower long-term interest rates, partially offset by a higher
average level of fixed maturity investments. The non-fixed income
investment portfolio had a loss of $146 million pre-tax ($109
million after-tax), compared to income of $171 million pre-tax
($138 million after-tax) in the prior year period. The loss from
these investments reflected the impact of the disruption in global
financial markets in the first quarter of 2020 associated with
COVID-19.
Net written premiums of $14.692 billion increased 1%. Excluding
premium refunds provided to personal automobile customers in
response to COVID-19 and related economic conditions, net written
premiums increased 3%. See below for further details by
segment.
Shareholders’ Equity
Shareholders’ equity of $26.943 billion increased 4% over
year-end 2019, primarily due to higher net unrealized investment
gains resulting from lower interest rates, partially offset by the
impact of changes in foreign currency exchange rates. Net
unrealized investment gains included in shareholders’ equity were
$4.634 billion pre-tax ($3.646 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
$106.42 increased 5% over year-end 2019, also primarily due to the
impact of lower interest rates on net unrealized investment gains,
partially offset by changes in foreign currency exchange rates.
Adjusted book value per share of $92.01, which excludes net
unrealized investment gains, was 1% lower than year-end 2019. Book
value per share and adjusted book value per share both included an
adverse impact of $0.76 per share due to net unrealized losses
resulting from foreign currency translation.
The Company did not repurchase any shares during the second
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 $20.607 billion, and the
ratio of debt-to-capital was 20.7%. The ratio of debt-to-capital
excluding after-tax net unrealized investment gains included in
shareholders’ equity was 23.2%, 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 September 30, 2020, to
shareholders of record at the close of business on September 10,
2020.
PG&E Subrogation
Recoveries
In connection with the emergence of PG&E Corporation and
Pacific Gas and Electric Company (together “PG&E”) from
bankruptcy on July 1, 2020, the Company expects to recognize in the
third quarter of 2020 favorable prior year reserve development of
approximately $400 million, pre-tax and net of expenses and
reinsurance, related to the 2017 and 2018 wildfires in
California.
Business
Insurance Segment Financial Results
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions and pre-tax, unless
noted otherwise)
2020
2019
Change
2020
2019
Change
Underwriting gain (loss):
$
(273
)
$
(55
)
$
(218
)
$
(372
)
$
2
$
(374
)
Underwriting gain
(loss) includes:
Net favorable prior year reserve
development
—
71
(71
)
5
50
(45
)
Catastrophes, net of reinsurance
(377
)
(211
)
(166
)
(572
)
(306
)
(266
)
Net investment income
180
481
(301
)
633
908
(275
)
Other income (expense)
(6
)
(11
)
5
(22
)
(6
)
(16
)
Segment income (loss) before income
taxes
(99
)
415
(514
)
239
904
(665
)
Income tax expense (benefit)
(41
)
64
(105
)
8
139
(131
)
Segment income (loss)
$
(58
)
$
351
$
(409
)
$
231
$
765
$
(534
)
Combined ratio
107.1
%
101.1
%
6.0
pts
104.6
%
99.6
%
5.0
pts
Impact on combined
ratio
Net favorable prior year reserve
development
—
pts
(1.9
)
pts
1.9
pts
—
pts
(0.7
)
pts
0.7
pts
Catastrophes, net of reinsurance
10.1
pts
5.6
pts
4.5
pts
7.5
pts
4.1
pts
3.4
pts
Underlying combined ratio
97.0
%
97.4
%
(0.4
)
pts
97.1
%
96.2
%
0.9
pts
Net written premiums by market
Domestic
Select Accounts
$
734
$
756
(3
)%
$
1,533
$
1,541
(1
)%
Middle Market
1,960
2,009
(2
)
4,368
4,419
(1
)
National Accounts
215
223
(4
)
516
527
(2
)
National Property and Other
585
588
(1
)
1,013
975
4
Total Domestic
3,494
3,576
(2
)
7,430
7,462
—
International
283
298
(5
)
537
575
(7
)
Total
$
3,777
$
3,874
(3
)%
$
7,967
$
8,037
(1
)%
Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted
otherwise)
The segment loss for Business Insurance was $58 million
after-tax, compared with segment income of $351 million after-tax
in the prior year quarter. The difference was primarily due to
lower net investment income, higher catastrophe losses and no net
prior year reserve development compared with net favorable prior
year reserve development in the prior year quarter, partially
offset by a higher underlying underwriting gain.
Combined ratio:
- The combined ratio of 107.1% increased 6.0 points due to higher
catastrophe losses (4.5 points) and no net prior year reserve
development compared with net favorable prior year reserve
development in the prior year quarter (1.9 points), partially
offset by a lower underlying combined ratio (0.4 points).
- The underlying combined ratio of 97.0% improved by 0.4 points,
reflecting a 0.2 point improvement in each of the underlying loss
ratio and expense ratio. The net impact of COVID-19 and related
economic conditions was modest.
- There was no net prior year reserve development in the current
quarter, which reflected the following:
Workers’ compensation - better than expected
loss experience in the segment’s domestic operations for multiple
accident years; and
Commercial property - better than expected
loss experience in the segment’s domestic operations for multiple
accident years.
Offset by:
General liability (excluding asbestos and
environmental) - higher than expected loss experience in the
segment’s domestic operations for primary and excess coverages for
multiple accident years; and
Commercial multi-peril - higher than expected
loss experience in the segment’s domestic operations for recent
accident years.
Net written premiums of $3.777 billion decreased 3%. The
benefits of continued strong retention and higher renewal rate
changes were more than offset by reduced 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 $231 million
after-tax, a decrease of $534 million. Segment income decreased
primarily due to lower net investment income, higher catastrophe
losses, a lower underlying underwriting gain and lower net
favorable prior year reserve development.
Combined ratio:
- The combined ratio of 104.6% increased 5.0 points due to higher
catastrophe losses (3.4 points), a higher underlying combined ratio
(0.9 points) and lower net favorable prior year reserve development
(0.7 points).
- The underlying combined ratio of 97.1% increased 0.9 points,
primarily due to net charges associated with COVID-19 and related
economic conditions.
- Net favorable prior year reserve development was primarily
driven by the following:
Workers’ compensation - better than expected
loss experience in the segment’s domestic operations for multiple
accident years; and
Commercial property - better than expected
loss experience in the segment’s domestic operations for multiple
accident years.
Largely offset by:
Commercial automobile - higher than expected
loss experience in the segment’s domestic operations for recent
accident years;
General liability (excluding asbestos and
environmental) - higher than expected loss experience in the
segment’s domestic operations for primary and excess coverages for
multiple accident years; and
Commercial multi-peril - higher than expected
loss experience in the segment’s domestic operations for recent
accident years.
Net written premiums of $7.967 billion decreased 1%, driven by
the same factors described above for the second quarter of
2020.
Bond
& Specialty Insurance Segment Financial Results
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions and pre-tax, unless
noted otherwise)
2020
2019
Change
2020
2019
Change
Underwriting gain:
$
40
$
157
$
(117
)
$
132
$
269
$
(137
)
Underwriting gain
includes:
Net favorable (unfavorable) prior year
reserve development
(33
)
39
(72
)
(33
)
42
(75
)
Catastrophes, net of reinsurance
(7
)
—
(7
)
(8
)
(3
)
(5
)
Net investment income
42
58
(16
)
97
114
(17
)
Other income
4
5
(1
)
8
10
(2
)
Segment income before income
taxes
86
220
(134
)
237
393
(156
)
Income tax expense
14
46
(32
)
43
81
(38
)
Segment income
$
72
$
174
$
(102
)
$
194
$
312
$
(118
)
Combined ratio
93.8
%
74.9
%
18.9
pts
89.9
%
77.9
%
12.0
pts
Impact on combined
ratio
Net (favorable) unfavorable prior year
reserve development
4.7
pts
(6.2
)
pts
10.9
pts
2.4
pts
(3.4
)
pts
5.8
pts
Catastrophes, net of reinsurance
1.0
pts
0.1
pts
0.9
pts
0.6
pts
0.2
pts
0.4
pts
Underlying combined ratio
88.1
%
81.0
%
7.1
pts
86.9
%
81.1
%
5.8
pts
Net written premiums
Domestic
Management Liability
$
438
$
403
9
%
$
839
$
770
9
%
Surety
220
244
(10
)
435
428
2
Total Domestic
658
647
2
1,274
1,198
6
International
76
63
21
123
99
24
Total
$
734
$
710
3
%
$
1,397
$
1,297
8
%
Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted
otherwise)
Segment income for Bond & Specialty Insurance was $72
million after-tax, a decrease of $102 million. Segment income
decreased primarily due to net unfavorable prior year reserve
development compared to net favorable prior year reserve
development in the prior year quarter, a lower underlying
underwriting gain and lower net investment income. The underlying
underwriting gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 93.8% increased 18.9 points due to net
unfavorable prior year reserve development compared to net
favorable prior year reserve development in the prior year quarter
(10.9 points), a higher underlying combined ratio (7.1 points) and
higher catastrophe losses (0.9 points).
- The underlying combined ratio of 88.1% increased 7.1 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 $734 million increased 3%, 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 $194
million after-tax, a decrease of $118 million. Segment income
decreased primarily due to net unfavorable prior year reserve
development compared to net favorable prior year reserve
development in the prior year period, a lower underlying
underwriting gain and lower net investment income. The underlying
underwriting gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 89.9% increased 12.0 points due to net
unfavorable prior year reserve development compared to net
favorable prior year reserve development in the prior year period
(5.8 points), a higher underlying combined ratio (5.8 points) and
higher catastrophe losses (0.4 points).
- The underlying combined ratio of 86.9% 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 $1.397 billion increased 8%, reflecting
continued strong retention, increased levels of renewal premium
change and strong new business in management liability.
Personal
Insurance Segment Financial Results
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions and pre-tax, unless
noted otherwise)
2020
2019
Change
2020
2019
Change
Underwriting gain (loss):
$
(47
)
$
(28
)
$
(19
)
$
248
$
198
$
50
Underwriting gain
(loss) includes:
Net favorable prior year reserve
development
35
13
22
57
82
(25
)
Catastrophes, net of reinsurance
(470
)
(156
)
(314
)
(607
)
(251
)
(356
)
Net investment income
46
109
(63
)
149
208
(59
)
Other income
10
21
(11
)
32
43
(11
)
Segment income before income
taxes
9
102
(93
)
429
449
(20
)
Income tax expense (benefit)
(1
)
14
(15
)
83
83
—
Segment income
$
10
$
88
$
(78
)
$
346
$
366
$
(20
)
Combined ratio
101.3
%
100.2
%
1.1
pts
94.5
%
95.2
%
(0.7
)
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(1.3
)
pts
(0.5
)
pts
(0.8
)
pts
(1.1
)
pts
(1.6
)
pts
0.5
pts
Catastrophes, net of reinsurance
18.6
pts
6.1
pts
12.5
pts
11.6
pts
4.9
pts
6.7
pts
Underlying combined ratio
84.0
%
94.6
%
(10.6
)
pts
84.0
%
91.9
%
(7.9
)
pts
Net written premiums
Domestic
Agency (1)
Automobile
$
1,141
$
1,300
(12
)%
$
2,401
$
2,524
(5
)%
Homeowners and Other
1,419
1,258
13
2,409
2,095
15
Total Agency
2,560
2,558
—
4,810
4,619
4
Direct-to-Consumer
102
103
(1
)
202
198
2
Total Domestic
2,662
2,661
—
5,012
4,817
4
International
173
205
(16
)
316
356
(11
)
Total
$
2,835
$
2,866
(1
)%
$
5,328
$
5,173
3
%
(1) Represents business sold through agents, brokers and other
intermediaries and excludes direct to consumer and
international.
Second Quarter 2020 Results
(All comparisons vs. second quarter 2019, unless noted
otherwise)
Segment income for Personal Insurance was $10 million after-tax,
a decrease of $78 million. Segment income decreased primarily due
to higher catastrophe losses and lower net investment income,
partially offset by a higher underlying underwriting gain and
higher net favorable prior year reserve development.
Combined ratio:
- The combined ratio of 101.3% increased 1.1 points due to higher
catastrophe losses (12.5 points), largely offset by a lower
underlying combined ratio (10.6 points) and higher net favorable
prior year reserve development (0.8 points).
- The underlying combined ratio of 84.0% decreased 10.6 points,
primarily driven by lower non-catastrophe weather-related losses in
the homeowners and other product line and 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).
- Net favorable prior year reserve development was driven by
better than expected loss experience in the segment’s domestic
operations in both the automobile and homeowners and other product
lines for multiple accident years.
Net written premiums of $2.835 billion decreased 1%. Excluding
premium refunds provided to personal automobile customers, net
written premiums increased 6%. Agency Automobile net written
premiums decreased 12% due to the premium refunds. Excluding the
impact of the premium refunds, Agency Automobile net written
premiums increased 3%, driven by strong retention, renewal premium
change of 2% and higher levels of new business. Agency Homeowners
and Other net written premiums increased 13%, 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 $346 million
after-tax, a decrease of $20 million. Segment income decreased
primarily due to higher catastrophe losses, lower net investment
income and lower net favorable prior year reserve development,
largely offset by a higher underlying underwriting gain.
Combined ratio:
- The combined ratio of 94.5% decreased 0.7 points due to a lower
underlying combined ratio (7.9 points), partially offset by higher
catastrophe losses (6.7 points) and lower net favorable prior year
reserve development (0.5 points).
- The underlying combined ratio of 84.0% decreased 7.9 points,
primarily driven by lower non-catastrophe weather-related losses in
the homeowners and other product line and 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).
- Net favorable prior year reserve development was driven by
better than expected loss experience in the segment’s domestic
operations in both the automobile and homeowners and other product
lines for multiple accident years.
Net written premiums of $5.328 billion increased 3%. Excluding
premium refunds provided to personal automobile customers, net
written premiums increased 7%. Agency Automobile net written
premiums decreased 5% due to the premium refunds. Excluding the
impact of the premium refunds, Agency Automobile net written
premiums increased 3%, driven by strong retention, renewal premium
change of 2% 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 Thursday, July 23, 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,” “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 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 potential benefit associated with the Company’s ability to
recover on its subrogation claims;
- 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 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 July 23, 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 (LOSS) TO CORE INCOME (LOSS) 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)
2020
2019
2020
2019
Net income (loss)
$
(40
)
$
557
$
560
$
1,353
Less: Net realized investment (gains)
losses
(10
)
(20
)
66
(61
)
Core income (loss)
$
(50
)
$
537
$
626
$
1,292
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, pre-tax)
2020
2019
2020
2019
Net income (loss)
$
(85
)
$
665
$
635
$
1,632
Less: Net realized investment (gains)
losses
(13
)
(25
)
85
(78
)
Core income (loss)
$
(98
)
$
640
$
720
$
1,554
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 (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,
2020
2019
2020
2019
Basic income
(loss) per share
Net income (loss)
$
(0.16
)
$
2.11
$
2.19
$
5.12
Adjustments:
Net realized investment (gains) losses,
after-tax
(0.04
)
(0.07
)
0.26
(0.23
)
Core income (loss)
$
(0.20
)
$
2.04
$
2.45
$
4.89
Diluted income
(loss) per share
Net income (loss)
$
(0.16
)
$
2.10
$
2.19
$
5.08
Adjustments:
Net realized investment (gains) losses,
after-tax
(0.04
)
(0.08
)
0.25
(0.23
)
Core income (loss)
$
(0.20
)
$
2.02
$
2.44
$
4.85
Reconciliation of Segment Income (Loss) to Total Core Income
(Loss)
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, after-tax)
2020
2019
2020
2019
Business Insurance
$
(58
)
$
351
$
231
$
765
Bond & Specialty Insurance
72
174
194
312
Personal Insurance
10
88
346
366
Total segment income
24
613
771
1,443
Interest Expense and Other
(74
)
(76
)
(145
)
(151
)
Total core income (loss)
$
(50
)
$
537
$
626
$
1,292
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)
2020
2019
Shareholders’ equity
$
26,943
$
25,321
Adjustments:
Net unrealized investment gains, net of
tax, included in shareholders’ equity
(3,646
)
(1,878
)
Net realized investment (gains) losses,
net of tax
66
(61
)
Adjusted shareholders’ equity
$
23,363
$
23,382
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
$22,227
Return on equity is the ratio of annualized net income
(loss) less preferred dividends to average shareholders’ equity for
the periods presented. Core return on equity is the ratio of
annualized core income (loss) less preferred dividends to adjusted
average shareholders’ equity for the periods presented. In the
opinion of the Company’s management, these are important indicators
of how well management creates value for its shareholders through
its operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and
end of each of the quarters for the period presented divided by (b)
the number of quarters in the period presented times two.
Adjusted average shareholders’ equity is (a) the sum of
total adjusted shareholders’ equity at the beginning and end of
each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two.
Calculation of Return on Equity and Core Return on
Equity
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions, after-tax)
2020
2019
2020
2019
Annualized net income (loss)
$
(157
)
$
2,226
$
1,120
$
2,706
Average shareholders’ equity
26,074
24,831
25,824
24,224
Return on equity
(0.6
)%
9.0
%
4.3
%
11.2
%
Annualized core income (loss)
$
(197
)
$
2,147
$
1,253
$
2,583
Adjusted average shareholders’ equity
23,353
23,378
23,474
23,264
Core return on equity
(0.8
)%
9.2
%
5.3
%
11.1
%
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.
Calculation of Average Annual Core Return on Equity from
January 1, 2005 through June 30, 2020
Three Months Ended June
30,
Six Months Ended June
30,
($ in millions)
2020
2019
2020
2019
Core income (loss), less preferred
dividends
$
(50
)
$
537
$
626
$
1,292
Annualized core income (loss)
(197
)
2,147
1,253
2,583
Adjusted average shareholders’ equity
23,353
23,378
23,474
23,264
Core return on equity
(0.8
)%
9.2
%
5.3
%
11.1
%
Average annual core return on equity
for the period January 1, 2005 through June 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 (LOSS)
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 $30 million of losses before
reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Components of Net Income (Loss)
Three Months Ended June
30,
Six Months Ended June
30,
($ 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
$
572
$
318
$
1,166
$
855
Pre-tax impact of catastrophes
(854
)
(367
)
(1,187
)
(560
)
Pre-tax impact of net favorable prior year
loss reserve development
2
123
29
174
Pre-tax underwriting gain (loss)
(280
)
74
8
469
Income tax expense (benefit) on
underwriting results
(48
)
22
20
110
Underwriting gain (loss)
(232
)
52
(12
)
359
Net investment income
251
548
770
1,044
Other income (expense), including interest
expense
(69
)
(63
)
(132
)
(111
)
Core income (loss)
(50
)
537
626
1,292
Net realized investment gains (losses)
10
20
(66
)
61
Net income (loss)
$
(40
)
$
557
$
560
$
1,353
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)
2020
2019
2020
2019
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses
$
5,107
$
4,821
$
9,896
$
9,263
Less:
Policyholder dividends
8
9
20
22
Allocated fee income
44
45
85
85
Loss ratio numerator
$
5,055
$
4,767
$
9,791
$
9,156
Underwriting
expense ratio
Amortization of deferred acquisition
costs
$
1,173
$
1,134
$
2,351
$
2,251
General and administrative expenses
(G&A)
1,121
1,125
2,258
2,182
Less:
Non-insurance G&A
52
50
107
97
Allocated fee income
70
71
137
140
Billing and policy fees and other
17
26
45
53
Expense ratio numerator
$
2,155
$
2,112
$
4,320
$
4,143
Earned premium
$
6,955
$
6,988
$
14,184
$
13,843
Combined ratio (1)
Loss and loss adjustment expense ratio
72.7
%
68.2
%
69.0
%
66.2
%
Underwriting expense ratio
31.0
%
30.2
%
30.5
%
29.9
%
Combined ratio
103.7
%
98.4
%
99.5
%
96.1
%
(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)
June 30, 2020
December 31, 2019
Shareholders’ equity
$
26,943
$
25,943
Less: Net unrealized investment gains, net
of tax, included in shareholders’ equity
3,646
2,246
Shareholders’ equity, excluding net
unrealized investment gains, net of tax, included in shareholders’
equity
23,297
23,697
Less:
Goodwill
3,925
3,961
Other intangible assets
319
330
Impact of deferred tax on other intangible
assets
(49
)
(51
)
Tangible shareholders’ equity
$
19,102
$
19,457
Common shares outstanding
253.2
255.5
Book value per share
$
106.42
$
101.55
Adjusted book value per share
92.01
92.76
Tangible book value per share
75.45
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)
June 30, 2020
December 31, 2019
Debt
$
7,049
$
6,558
Shareholders’ equity
26,943
25,943
Total capitalization
33,992
32,501
Less: Net unrealized investment gains, net
of tax, included in shareholders’ equity
3,646
2,246
Total capitalization excluding net
unrealized gain on investments, net of tax, included in
shareholders’ equity
$
30,346
$
30,255
Debt-to-capital ratio
20.7
%
20.2
%
Debt-to-capital ratio excluding net
unrealized investment gains, net of tax, included in shareholders’
equity
23.2
%
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/20200723005433/en/
Media: Patrick Linehan
917.778.6267
Institutional Investors: Abbe
Goldstein 917.778.6825
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