Item 1. FINANCIAL STATEMENTS
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
6,695
|
|
|
$
|
6,351
|
|
|
$
|
13,232
|
|
|
$
|
12,534
|
|
Net investment income
|
|
595
|
|
|
598
|
|
|
1,198
|
|
|
1,208
|
|
Fee income
|
|
112
|
|
|
116
|
|
|
215
|
|
|
229
|
|
Net realized investment gains
(1)
|
|
36
|
|
|
80
|
|
|
25
|
|
|
85
|
|
Other revenues
|
|
39
|
|
|
39
|
|
|
93
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
7,477
|
|
|
7,184
|
|
|
14,763
|
|
|
14,126
|
|
|
|
|
|
|
|
|
|
|
Claims and expenses
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
4,562
|
|
|
4,225
|
|
|
8,858
|
|
|
8,319
|
|
Amortization of deferred acquisition costs
|
|
1,081
|
|
|
1,032
|
|
|
2,142
|
|
|
2,035
|
|
General and administrative expenses
|
|
1,113
|
|
|
1,045
|
|
|
2,175
|
|
|
2,041
|
|
Interest expense
|
|
90
|
|
|
92
|
|
|
179
|
|
|
181
|
|
Total claims and expenses
|
|
6,846
|
|
|
6,394
|
|
|
13,354
|
|
|
12,576
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
631
|
|
|
790
|
|
|
1,409
|
|
|
1,550
|
|
Income tax expense
|
|
107
|
|
|
195
|
|
|
216
|
|
|
338
|
|
Net income
|
|
$
|
524
|
|
|
$
|
595
|
|
|
$
|
1,193
|
|
|
$
|
1,212
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.93
|
|
|
$
|
2.13
|
|
|
$
|
4.39
|
|
|
$
|
4.32
|
|
Diluted
|
|
$
|
1.92
|
|
|
$
|
2.11
|
|
|
$
|
4.35
|
|
|
$
|
4.28
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
268.7
|
|
|
277.5
|
|
|
269.8
|
|
|
278.6
|
|
Diluted
|
|
271.1
|
|
|
280.0
|
|
|
272.5
|
|
|
281.2
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.77
|
|
|
$
|
0.72
|
|
|
$
|
1.49
|
|
|
$
|
1.39
|
|
________________________________________________________
|
|
(1)
|
Total other-than-temporary impairment (OTTI) losses were $(1) million and $(5) million for the three months ended
June 30, 2018
and
2017
, respectively, and $(1) million and $(6) million for the six months ended
June 30, 2018
and
2017
, respectively. Of total OTTI, credit losses of $(1) million and $(5) million for the three months ended
June 30, 2018
and
2017
, respectively, and $(1) million and $(7) million for the six months ended
June 30, 2018
and
2017
, respectively, were recognized in net realized investment gains. In addition, unrealized gains (losses) from other changes in total OTTI of $0 million for each of the three months ended
June 30, 2018
and
2017
, respectively, and $0 million and $1 million for the six months ended
June 30, 2018
and
2017
, respectively, were recognized in other comprehensive income (loss) as part of changes in net unrealized gains (losses) on investment securities having credit losses recognized in the consolidated statement of income.
|
The accompanying notes are an integral part of the consolidated financial statements.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
524
|
|
|
$
|
595
|
|
|
$
|
1,193
|
|
|
$
|
1,212
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Changes in net unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
|
|
Having no credit losses recognized in the consolidated statement of income
|
|
(298
|
)
|
|
327
|
|
|
(1,501
|
)
|
|
471
|
|
Having credit losses recognized in the consolidated statement of income
|
|
(12
|
)
|
|
2
|
|
|
(14
|
)
|
|
2
|
|
Net changes in benefit plan assets and obligations
|
|
21
|
|
|
17
|
|
|
43
|
|
|
34
|
|
Net changes in unrealized foreign currency translation
|
|
(158
|
)
|
|
48
|
|
|
(152
|
)
|
|
89
|
|
Other comprehensive income (loss) before income taxes
|
|
(447
|
)
|
|
394
|
|
|
(1,624
|
)
|
|
596
|
|
Income tax expense (benefit)
|
|
(81
|
)
|
|
123
|
|
|
(325
|
)
|
|
185
|
|
Other comprehensive income (loss), net of taxes
|
|
(366
|
)
|
|
271
|
|
|
(1,299
|
)
|
|
411
|
|
Comprehensive income (loss)
|
|
$
|
158
|
|
|
$
|
866
|
|
|
$
|
(106
|
)
|
|
$
|
1,623
|
|
The accompanying notes are an integral part of the consolidated financial statements.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
Fixed maturities, available for sale, at fair value (amortized cost $62,674 and $61,316)
|
|
$
|
62,536
|
|
|
$
|
62,694
|
|
Equity securities, at fair value
(cost $409 and $440)
|
|
424
|
|
|
453
|
|
Real estate investments
|
|
954
|
|
|
932
|
|
Short-term securities
|
|
3,692
|
|
|
4,895
|
|
Other investments
|
|
3,555
|
|
|
3,528
|
|
Total investments
|
|
71,161
|
|
|
72,502
|
|
Cash
|
|
415
|
|
|
344
|
|
Investment income accrued
|
|
610
|
|
|
606
|
|
Premiums receivable
|
|
7,786
|
|
|
7,144
|
|
Reinsurance recoverables
|
|
8,258
|
|
|
8,309
|
|
Ceded unearned premiums
|
|
698
|
|
|
551
|
|
Deferred acquisition costs
|
|
2,161
|
|
|
2,025
|
|
Deferred taxes
|
|
463
|
|
|
70
|
|
Contractholder receivables
|
|
4,830
|
|
|
4,775
|
|
Goodwill
|
|
3,931
|
|
|
3,951
|
|
Other intangible assets
|
|
356
|
|
|
342
|
|
Other assets
|
|
2,854
|
|
|
2,864
|
|
Total assets
|
|
$
|
103,523
|
|
|
$
|
103,483
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Claims and claim adjustment expense reserves
|
|
$
|
49,961
|
|
|
$
|
49,650
|
|
Unearned premium reserves
|
|
13,755
|
|
|
12,915
|
|
Contractholder payables
|
|
4,830
|
|
|
4,775
|
|
Payables for reinsurance premiums
|
|
396
|
|
|
274
|
|
Debt
|
|
6,464
|
|
|
6,571
|
|
Other liabilities
|
|
5,494
|
|
|
5,567
|
|
Total liabilities
|
|
80,900
|
|
|
79,752
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
Common stock (1,750.0 shares authorized; 267.8 and 271.5 shares issued, 267.7 and 271.4 shares outstanding)
|
|
23,040
|
|
|
22,886
|
|
Retained earnings
|
|
34,296
|
|
|
33,462
|
|
Accumulated other comprehensive loss
|
|
(1,688
|
)
|
|
(343
|
)
|
Treasury stock, at cost (506.4 and 500.9 shares)
|
|
(33,025
|
)
|
|
(32,274
|
)
|
Total shareholders’ equity
|
|
22,623
|
|
|
23,731
|
|
Total liabilities and shareholders’ equity
|
|
$
|
103,523
|
|
|
$
|
103,483
|
|
The accompanying notes are an integral part of the consolidated financial statements.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in millions)
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
2018
|
|
2017
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
22,886
|
|
|
$
|
22,614
|
|
Employee share-based compensation
|
|
77
|
|
|
94
|
|
Compensation amortization under share-based plans
|
|
77
|
|
|
73
|
|
Balance, end of period
|
|
23,040
|
|
|
22,781
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
Balance, beginning of year
|
|
33,462
|
|
|
32,196
|
|
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
|
|
22
|
|
|
—
|
|
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
|
|
24
|
|
|
—
|
|
Net income
|
|
1,193
|
|
|
1,212
|
|
Dividends
|
|
(406
|
)
|
|
(391
|
)
|
Other
|
|
1
|
|
|
(1
|
)
|
Balance, end of period
|
|
34,296
|
|
|
33,016
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
|
|
|
|
Balance, beginning of year
|
|
(343
|
)
|
|
(755
|
)
|
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
|
|
(22
|
)
|
|
—
|
|
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
|
|
(24
|
)
|
|
—
|
|
Other comprehensive income (loss)
|
|
(1,299
|
)
|
|
411
|
|
Balance, end of period
|
|
(1,688
|
)
|
|
(344
|
)
|
|
|
|
|
|
Treasury stock, at cost
|
|
|
|
|
|
|
Balance, beginning of year
|
|
(32,274
|
)
|
|
(30,834
|
)
|
Treasury stock acquired — share repurchase authorization
|
|
(700
|
)
|
|
(700
|
)
|
Net shares acquired related to employee share-based compensation plans
|
|
(51
|
)
|
|
(61
|
)
|
Balance, end of period
|
|
(33,025
|
)
|
|
(31,595
|
)
|
|
|
|
|
|
Total shareholders’ equity
|
|
$
|
22,623
|
|
|
$
|
23,858
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
|
|
|
|
Balance, beginning of year
|
|
271.4
|
|
|
279.6
|
|
Treasury stock acquired — share repurchase authorization
|
|
(5.2
|
)
|
|
(5.7
|
)
|
Net shares issued under employee share-based compensation plans
|
|
1.5
|
|
|
2.0
|
|
Balance, end of period
|
|
267.7
|
|
|
275.9
|
|
The accompanying notes are an integral part of the consolidated financial statements.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
2018
|
|
2017
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
1,193
|
|
|
$
|
1,212
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Net realized investment gains
|
|
(25
|
)
|
|
(85
|
)
|
Depreciation and amortization
|
|
411
|
|
|
409
|
|
Deferred federal income tax expense (benefit)
|
|
(70
|
)
|
|
106
|
|
Amortization of deferred acquisition costs
|
|
2,142
|
|
|
2,035
|
|
Equity in income from other investments
|
|
(169
|
)
|
|
(210
|
)
|
Premiums receivable
|
|
(660
|
)
|
|
(609
|
)
|
Reinsurance recoverables
|
|
29
|
|
|
157
|
|
Deferred acquisition costs
|
|
(2,284
|
)
|
|
(2,157
|
)
|
Claims and claim adjustment expense reserves
|
|
435
|
|
|
498
|
|
Unearned premium reserves
|
|
879
|
|
|
689
|
|
Other
|
|
(183
|
)
|
|
(291
|
)
|
Net cash provided by operating activities
|
|
1,698
|
|
|
1,754
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Proceeds from maturities of fixed maturities
|
|
3,657
|
|
|
4,300
|
|
Proceeds from sales of investments:
|
|
|
|
|
|
|
Fixed maturities
|
|
2,607
|
|
|
563
|
|
Equity securities
|
|
92
|
|
|
200
|
|
Real estate investments
|
|
—
|
|
|
20
|
|
Other investments
|
|
189
|
|
|
233
|
|
Purchases of investments:
|
|
|
|
|
|
|
Fixed maturities
|
|
(7,952
|
)
|
|
(5,673
|
)
|
Equity securities
|
|
(60
|
)
|
|
(166
|
)
|
Real estate investments
|
|
(44
|
)
|
|
(26
|
)
|
Other investments
|
|
(275
|
)
|
|
(259
|
)
|
Net (purchases) sales of short-term securities
|
|
1,202
|
|
|
(424
|
)
|
Securities transactions in course of settlement
|
|
279
|
|
|
170
|
|
Other
|
|
(152
|
)
|
|
(128
|
)
|
Net cash used in investing activities
|
|
(457
|
)
|
|
(1,190
|
)
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Treasury stock acquired — share repurchase authorization
|
|
(700
|
)
|
|
(700
|
)
|
Treasury stock acquired — net employee share-based compensation
|
|
(51
|
)
|
|
(61
|
)
|
Dividends paid to shareholders
|
|
(404
|
)
|
|
(389
|
)
|
Payment of debt
|
|
(600
|
)
|
|
(207
|
)
|
Issuance of debt
|
|
491
|
|
|
689
|
|
Issuance of common stock — employee share options
|
|
98
|
|
|
118
|
|
Net cash used in financing activities
|
|
(1,166
|
)
|
|
(550
|
)
|
Effect of exchange rate changes on cash
|
|
(4
|
)
|
|
7
|
|
Net increase in cash
|
|
71
|
|
|
21
|
|
Cash at beginning of year
|
|
344
|
|
|
307
|
|
Cash at end of period
|
|
$
|
415
|
|
|
$
|
328
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
238
|
|
|
$
|
323
|
|
Interest paid
|
|
$
|
175
|
|
|
$
|
178
|
|
The accompanying notes are an integral part of the consolidated financial statements.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of Presentation
The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited. In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. All material intercompany transactions and balances have been eliminated. The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the Company’s 2017 Annual Report).
The preparation of the interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements and the reported amounts of revenues and claims and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to the 2017 financial statements to conform to the 2018 presentation.
Adoption of Accounting Standards
Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the Financial Accounting Standards Board (FASB) issued updated guidance to address the recognition, measurement, presentation and disclosure of certain financial instruments. The updated guidance requires equity investments, except those accounted for under the equity method of accounting, that have readily determinable fair value to be measured at fair value with any changes in fair value recognized in net income. Equity securities that do not have readily determinable fair values may be measured at estimated fair value or cost less impairment, if any, adjusted for subsequent observable price changes, with changes in the carrying value recognized in net income. A qualitative assessment for impairment is required for equity investments without readily determinable fair values. The updated guidance also eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet. The updated guidance was effective for the quarter ended March 31, 2018. The adoption of this guidance resulted in the recognition of
$22 million
of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased accumulated other comprehensive income (AOCI) by the same amount. The Company elected to report changes in the fair value of equity investments in net realized investment gains (losses). At December 31, 2017, equity investments were classified as available-for-sale on the Company's balance sheet. However, upon adoption, the updated guidance eliminated the available-for-sale balance sheet classification for equity investments.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
On February 14, 2018, the FASB issued updated guidance that allows a reclassification from AOCI to retained earnings of the stranded tax effects that occurred due to the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA). The updated guidance is effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which there are items impacted by the TCJA remaining in AOCI or at the beginning of the period of adoption. Early adoption is permitted. The Company adopted the updated guidance effective January 1, 2018 and elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings as of January 1, 2018. This reclassification resulted in an increase in retained earnings of
$24 million
as of January 1, 2018 and a decrease in AOCI by the same amount.
Revenue from Contracts with Customers
In May 2014, the FASB issued updated guidance to clarify the principles for recognizing revenue. The updated guidance was effective for reporting periods beginning after December 15, 2017, and requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. For the six months ended June 30, 2018, approximately
$83 million
,
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued
or less than
1%
of the Company's total revenues, were within the scope of this updated guidance and were generated from the services described below.
While insurance contracts are not within the scope of this updated guidance, the Company’s revenue related to certain services with no underlying insurance risk is subject to the updated guidance. These services include the following: (i) insurance-related services, such as risk management services, claims administration, loss control and risk management information services on behalf of non-insureds; (ii) servicing carrier fees for various residual market pools and associations; and (iii) administrative fees related to servicing third-party insurers’ obligations to participate in the Workers' Compensation Residual Market Plans in certain states. The revenues earned from these service contracts were not impacted by the adoption of the updated guidance. These revenues are earned on a pro rata basis over the contract service period and reported in fee income in the Company’s consolidated statement of income.
Commissions earned from on-line insurance brokerage services are also subject to this updated guidance and were also not impacted by the adoption of the updated guidance. Commissions are earned upon collection of the gross premium in accordance with the contracts and an accrual is made to recognize policy cancellations, either at the policyholder’s direction or for non-payment. Commissions are reported in other revenues in the Company's consolidated statement of income.
The Company does not capitalize the costs to obtain or fulfill the contracts for which revenues are reported in fee income and other income, and has not recognized any impairment losses on the receivables related to these contracts during the six months ended June 30, 2018.
The Company adopted the updated guidance effective January 1, 2018. The adoption did not have an effect on the Company’s results of operations, financial position or liquidity.
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued updated guidance on the classification
of cash flows related to certain activities in the statement of cash flows to reduce diversity in practice. The updated guidance was effective for reporting periods beginning after December 15, 2017 and was applied retrospectively to all periods presented. Under the new guidance, distributions received on equity method investments that are considered to be a return on investment are reported as cash flows from operating activities. These distributions were previously reported as cash flows from investing activities. The adoption of this guidance had no effect on the Company’s results of operations, financial position or liquidity.
For information regarding accounting standards that the Company adopted during the years presented, see the “Adoption of Accounting Standards
”
section of note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.
Accounting Standards Not Yet Adopted
For information regarding accounting standards that the Company has not yet adopted, see the “Other Accounting Standards Not Yet Adopted
”
section of note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.
Nature of Operations
The Company’s results are reported in the following
three
business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance. These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on the type of customer, how the business is marketed and the manner in which risks are underwritten. For more information regarding the Company’s nature of operations, see the “Nature of Operations
”
section of note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.
SEGMENT INFORMATION
The following tables summarize the components of the Company’s revenues, income (loss) and total assets by reportable business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(For the three months ended June 30, in millions)
|
|
Business
Insurance
|
|
Bond & Specialty
Insurance
|
|
Personal
Insurance
|
|
Total
Reportable
Segments
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,641
|
|
|
$
|
601
|
|
|
$
|
2,453
|
|
|
$
|
6,695
|
|
Net investment income
|
|
440
|
|
|
57
|
|
|
98
|
|
|
595
|
|
Fee income
|
|
107
|
|
|
—
|
|
|
5
|
|
|
112
|
|
Other revenues
|
|
20
|
|
|
5
|
|
|
14
|
|
|
39
|
|
Total segment revenues
(1)
|
|
$
|
4,208
|
|
|
$
|
663
|
|
|
$
|
2,570
|
|
|
$
|
7,441
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
(1)
|
|
$
|
385
|
|
|
$
|
204
|
|
|
$
|
(17
|
)
|
|
$
|
572
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,504
|
|
|
$
|
575
|
|
|
$
|
2,272
|
|
|
$
|
6,351
|
|
Net investment income
|
|
447
|
|
|
56
|
|
|
95
|
|
|
598
|
|
Fee income
|
|
112
|
|
|
—
|
|
|
4
|
|
|
116
|
|
Other revenues
|
|
15
|
|
|
6
|
|
|
15
|
|
|
36
|
|
Total segment revenues
(1)
|
|
$
|
4,078
|
|
|
$
|
637
|
|
|
$
|
2,386
|
|
|
$
|
7,101
|
|
|
|
|
|
|
|
|
|
|
Segment income
(1)
|
|
$
|
429
|
|
|
$
|
163
|
|
|
$
|
12
|
|
|
$
|
604
|
|
|
|
(1)
|
Segment revenues for reportable business segments exclude net realized investment gains (losses). Segment income (loss) for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(For the six months ended June 30, in millions)
|
|
Business
Insurance
|
|
Bond & Specialty
Insurance
|
|
Personal
Insurance
|
|
Total
Reportable
Segments
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
7,209
|
|
|
$
|
1,183
|
|
|
$
|
4,840
|
|
|
$
|
13,232
|
|
Net investment income
|
|
886
|
|
|
115
|
|
|
197
|
|
|
1,198
|
|
Fee income
|
|
206
|
|
|
—
|
|
|
9
|
|
|
215
|
|
Other revenues
|
|
51
|
|
|
11
|
|
|
31
|
|
|
93
|
|
Total segment revenues (1)
|
|
$
|
8,352
|
|
|
$
|
1,309
|
|
|
$
|
5,077
|
|
|
$
|
14,738
|
|
|
|
|
|
|
|
|
|
|
Segment income (1)
|
|
$
|
837
|
|
|
$
|
377
|
|
|
$
|
112
|
|
|
$
|
1,326
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
6,933
|
|
|
$
|
1,130
|
|
|
$
|
4,471
|
|
|
$
|
12,534
|
|
Net investment income
|
|
900
|
|
|
117
|
|
|
191
|
|
|
1,208
|
|
Fee income
|
|
221
|
|
|
—
|
|
|
8
|
|
|
229
|
|
Other revenues
|
|
24
|
|
|
11
|
|
|
31
|
|
|
66
|
|
Total segment revenues (1)
|
|
$
|
8,078
|
|
|
$
|
1,258
|
|
|
$
|
4,701
|
|
|
$
|
14,037
|
|
|
|
|
|
|
|
|
|
|
Segment income (1)
|
|
$
|
871
|
|
|
$
|
308
|
|
|
$
|
101
|
|
|
$
|
1,280
|
|
|
|
(1)
|
Segment revenues for reportable business segments exclude net realized investment gains (losses). Segment income for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.
SEGMENT INFORMATION, Continued
Business Segment Reconciliations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers’ compensation
|
|
$
|
973
|
|
|
$
|
999
|
|
|
$
|
1,944
|
|
|
$
|
1,975
|
|
Commercial automobile
|
|
587
|
|
|
521
|
|
|
1,149
|
|
|
1,027
|
|
Commercial property
|
|
453
|
|
|
443
|
|
|
891
|
|
|
878
|
|
General liability
|
|
535
|
|
|
498
|
|
|
1,056
|
|
|
989
|
|
Commercial multi-peril
|
|
822
|
|
|
797
|
|
|
1,627
|
|
|
1,571
|
|
Other
|
|
6
|
|
|
7
|
|
|
13
|
|
|
14
|
|
Total Domestic
|
|
3,376
|
|
|
3,265
|
|
|
6,680
|
|
|
6,454
|
|
International
|
|
265
|
|
|
239
|
|
|
529
|
|
|
479
|
|
Total Business Insurance
|
|
3,641
|
|
|
3,504
|
|
|
7,209
|
|
|
6,933
|
|
Bond & Specialty Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity and surety
|
|
253
|
|
|
245
|
|
|
499
|
|
|
479
|
|
General liability
|
|
248
|
|
|
239
|
|
|
490
|
|
|
474
|
|
Other
|
|
49
|
|
|
46
|
|
|
96
|
|
|
91
|
|
Total Domestic
|
|
550
|
|
|
530
|
|
|
1,085
|
|
|
1,044
|
|
International
|
|
51
|
|
|
45
|
|
|
98
|
|
|
86
|
|
Total Bond & Specialty Insurance
|
|
601
|
|
|
575
|
|
|
1,183
|
|
|
1,130
|
|
Personal Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
1,261
|
|
|
1,145
|
|
|
2,486
|
|
|
2,239
|
|
Homeowners and Other
|
|
1,022
|
|
|
977
|
|
|
2,017
|
|
|
1,932
|
|
Total Domestic
|
|
2,283
|
|
|
2,122
|
|
|
4,503
|
|
|
4,171
|
|
International
|
|
170
|
|
|
150
|
|
|
337
|
|
|
300
|
|
Total Personal Insurance
|
|
2,453
|
|
|
2,272
|
|
|
4,840
|
|
|
4,471
|
|
Total earned premiums
|
|
6,695
|
|
|
6,351
|
|
|
13,232
|
|
|
12,534
|
|
Net investment income
|
|
595
|
|
|
598
|
|
|
1,198
|
|
|
1,208
|
|
Fee income
|
|
112
|
|
|
116
|
|
|
215
|
|
|
229
|
|
Other revenues
|
|
39
|
|
|
36
|
|
|
93
|
|
|
66
|
|
Total segment revenues
|
|
7,441
|
|
|
7,101
|
|
|
14,738
|
|
|
14,037
|
|
Other revenues
|
|
—
|
|
|
3
|
|
|
—
|
|
|
4
|
|
Net realized investment gains
|
|
36
|
|
|
80
|
|
|
25
|
|
|
85
|
|
Total revenues
|
|
$
|
7,477
|
|
|
$
|
7,184
|
|
|
$
|
14,763
|
|
|
$
|
14,126
|
|
Income reconciliation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment income
|
|
$
|
572
|
|
|
$
|
604
|
|
|
$
|
1,326
|
|
|
$
|
1,280
|
|
Interest Expense and Other
(1)
|
|
(78
|
)
|
|
(61
|
)
|
|
(154
|
)
|
|
(123
|
)
|
Core income
|
|
494
|
|
|
543
|
|
|
1,172
|
|
|
1,157
|
|
Net realized investment gains
|
|
30
|
|
|
52
|
|
|
21
|
|
|
55
|
|
Net income
|
|
$
|
524
|
|
|
$
|
595
|
|
|
$
|
1,193
|
|
|
$
|
1,212
|
|
_________________________________________________________
(1) The primary component of Interest Expense and Other was after-tax interest expense of
$71 million
and
$60 million
in the three months ended
June 30, 2018
and
2017
, respectively, and
$141 million
and
$118 million
in the six months ended
June 30, 2018
and
2017
, respectively.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.
SEGMENT INFORMATION, Continued
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2018
|
|
December 31,
2017
|
Asset reconciliation
|
|
|
|
|
|
|
Business Insurance
|
|
$
|
78,500
|
|
|
$
|
78,082
|
|
Bond & Specialty Insurance
|
|
8,757
|
|
|
8,776
|
|
Personal Insurance
|
|
15,697
|
|
|
15,949
|
|
Total segment assets
|
|
102,954
|
|
|
102,807
|
|
Other assets
(1)
|
|
569
|
|
|
676
|
|
Total consolidated assets
|
|
$
|
103,523
|
|
|
$
|
103,483
|
|
_________________________________________________________
|
|
(1)
|
The primary components of other assets at
June 30, 2018
were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan and other intangible assets, and the primary components at
December 31, 2017
were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan, other intangible assets and deferred taxes.
|
3.
INVESTMENTS
Fixed Maturities
The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
(at June 30, 2018, in millions)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
|
|
$
|
2,041
|
|
|
$
|
1
|
|
|
$
|
23
|
|
|
$
|
2,019
|
|
Obligations of states, municipalities and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Local general obligation
|
|
13,992
|
|
|
201
|
|
|
136
|
|
|
14,057
|
|
Revenue
|
|
9,857
|
|
|
171
|
|
|
88
|
|
|
9,940
|
|
State general obligation
|
|
1,384
|
|
|
19
|
|
|
12
|
|
|
1,391
|
|
Pre-refunded
|
|
3,432
|
|
|
111
|
|
|
1
|
|
|
3,542
|
|
Total obligations of states, municipalities and political subdivisions
|
|
28,665
|
|
|
502
|
|
|
237
|
|
|
28,930
|
|
Debt securities issued by foreign governments
|
|
1,281
|
|
|
8
|
|
|
8
|
|
|
1,281
|
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
|
|
2,499
|
|
|
66
|
|
|
49
|
|
|
2,516
|
|
All other corporate bonds
|
|
28,102
|
|
|
161
|
|
|
563
|
|
|
27,700
|
|
Redeemable preferred stock
|
|
86
|
|
|
4
|
|
|
—
|
|
|
90
|
|
Total
|
|
$
|
62,674
|
|
|
$
|
742
|
|
|
$
|
880
|
|
|
$
|
62,536
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3. INVESTMENTS, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
(at December 31, 2017, in millions)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
|
|
$
|
2,080
|
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
2,076
|
|
Obligations of states, municipalities and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Local general obligation
|
|
13,488
|
|
|
444
|
|
|
26
|
|
|
13,906
|
|
Revenue
|
|
11,307
|
|
|
338
|
|
|
19
|
|
|
11,626
|
|
State general obligation
|
|
1,443
|
|
|
44
|
|
|
3
|
|
|
1,484
|
|
Pre-refunded
|
|
3,758
|
|
|
142
|
|
|
1
|
|
|
3,899
|
|
Total obligations of states, municipalities and political subdivisions
|
|
29,996
|
|
|
968
|
|
|
49
|
|
|
30,915
|
|
Debt securities issued by foreign governments
|
|
1,505
|
|
|
14
|
|
|
10
|
|
|
1,509
|
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
|
|
2,334
|
|
|
87
|
|
|
11
|
|
|
2,410
|
|
All other corporate bonds
|
|
25,311
|
|
|
478
|
|
|
100
|
|
|
25,689
|
|
Redeemable preferred stock
|
|
90
|
|
|
5
|
|
|
—
|
|
|
95
|
|
Total
|
|
$
|
61,316
|
|
|
$
|
1,556
|
|
|
$
|
178
|
|
|
$
|
62,694
|
|
Pre-refunded bonds of
$3.54 billion
and
$3.90 billion
at
June 30, 2018
and
December 31, 2017
, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of principal and interest due under the bonds.
Proceeds from sales of fixed maturities classified as available for sale were
$2.61 billion
and
$563 million
during the
six months ended June 30,
2018
and
2017
, respectively. Gross gains of
$24 million
and
$17 million
and gross losses of
$11 million
and
$4 million
were realized on those sales during the
six months ended June 30,
2018
and
2017
, respectively.
Equity Securities
The cost and fair value of investments in equity securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
(at June 30, 2018, in millions)
|
|
Cost
|
|
Gross Gains
|
|
Gross Losses
|
|
Value
|
Public common stock
|
|
$
|
335
|
|
|
$
|
12
|
|
|
$
|
5
|
|
|
$
|
342
|
|
Non-redeemable preferred stock
|
|
74
|
|
|
11
|
|
|
3
|
|
|
82
|
|
Total
|
|
$
|
409
|
|
|
$
|
23
|
|
|
$
|
8
|
|
|
$
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
(at December 31, 2017, in millions)
|
|
Cost
|
|
Gross Gains
|
|
Gross Losses
|
|
Value
|
Public common stock
|
|
$
|
332
|
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
339
|
|
Non-redeemable preferred stock
|
|
108
|
|
|
12
|
|
|
6
|
|
|
114
|
|
Total
|
|
$
|
440
|
|
|
$
|
20
|
|
|
$
|
7
|
|
|
$
|
453
|
|
For the
six months ended June 30,
2018, the Company recognized
$3 million
of net gains on equity securities still held as of
June 30, 2018
.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3. INVESTMENTS, Continued
Proceeds from sales of equity securities previously classified as available for sale were
$200 million
during the
six months ended June 30,
2017
. Gross gains of
$88 million
and gross losses of
$1 million
were realized on those sales during the
six months ended June 30,
2017
.
Unrealized Investment Losses
The following tables summarize, for all investments in an unrealized loss position at
June 30, 2018
and
December 31, 2017
, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in the tables are estimates that are prepared using the process described in note 4 herein and in note 4 of notes to the consolidated financial statements in the Company’s 2017 Annual Report. The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report in determining whether such investments are other-than-temporarily impaired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
(at June 30, 2018, in millions)
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
|
|
$
|
1,410
|
|
|
$
|
20
|
|
|
$
|
458
|
|
|
$
|
3
|
|
|
$
|
1,868
|
|
|
$
|
23
|
|
Obligations of states, municipalities and political subdivisions
|
|
6,321
|
|
|
101
|
|
|
2,856
|
|
|
136
|
|
|
9,177
|
|
|
237
|
|
Debt securities issued by foreign governments
|
|
206
|
|
|
2
|
|
|
241
|
|
|
6
|
|
|
447
|
|
|
8
|
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
|
|
1,557
|
|
|
41
|
|
|
256
|
|
|
8
|
|
|
1,813
|
|
|
49
|
|
All other corporate bonds
|
|
17,584
|
|
|
441
|
|
|
2,313
|
|
|
122
|
|
|
19,897
|
|
|
563
|
|
Total fixed maturities
|
|
$
|
27,078
|
|
|
$
|
605
|
|
|
$
|
6,124
|
|
|
$
|
275
|
|
|
$
|
33,202
|
|
|
$
|
880
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3. INVESTMENTS, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or
longer
|
|
Total
|
(at December 31, 2017, in millions)
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
|
|
$
|
1,150
|
|
|
$
|
5
|
|
|
$
|
470
|
|
|
$
|
3
|
|
|
$
|
1,620
|
|
|
$
|
8
|
|
Obligations of states, municipalities and political subdivisions
|
|
505
|
|
|
2
|
|
|
2,959
|
|
|
47
|
|
|
3,464
|
|
|
49
|
|
Debt securities issued by foreign governments
|
|
394
|
|
|
6
|
|
|
111
|
|
|
4
|
|
|
505
|
|
|
10
|
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
|
|
1,021
|
|
|
7
|
|
|
250
|
|
|
4
|
|
|
1,271
|
|
|
11
|
|
All other corporate bonds
|
|
6,062
|
|
|
48
|
|
|
1,990
|
|
|
52
|
|
|
8,052
|
|
|
100
|
|
Total fixed maturities
|
|
9,132
|
|
|
68
|
|
|
5,780
|
|
|
110
|
|
|
14,912
|
|
|
178
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public common stock
|
|
18
|
|
|
—
|
|
|
34
|
|
|
1
|
|
|
52
|
|
|
1
|
|
Non-redeemable preferred stock
|
|
3
|
|
|
—
|
|
|
56
|
|
|
6
|
|
|
59
|
|
|
6
|
|
Total equity securities
|
|
21
|
|
|
—
|
|
|
90
|
|
|
7
|
|
|
111
|
|
|
7
|
|
Total
|
|
$
|
9,153
|
|
|
$
|
68
|
|
|
$
|
5,870
|
|
|
$
|
117
|
|
|
$
|
15,023
|
|
|
$
|
185
|
|
At
June 30, 2018
, the amount of gross unrealized losses for all fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost was not significant.
Impairment Charges
Impairment charges included in net realized investment gains in the consolidated statement of income were
$1 million
and
$5 million
for the three months ended
June 30, 2018
and
2017
, respectively, and
$1 million
and
$7 million
for the six months ended
June 30, 2018
and
2017
, respectively.
The cumulative amount of credit losses on fixed maturities held at
June 30, 2018
and
2017
that were recognized in the consolidated statement of income from other-than-temporary impairments (OTTI) and for which a portion of the OTTI was recognized in other comprehensive income (loss) in the consolidated balance sheet was
$67 million
and
$83 million
, respectively. These credit losses represent less than
1%
of the fixed maturity portfolio on a pre-tax basis and less than
1%
of shareholders’ equity on an after-tax basis at both dates. There were no significant changes in the credit component of OTTI during the
six months ended June 30,
2018
and
2017
from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.
Derivative Financial Instruments
From time to time, the Company enters into U.S. Treasury note futures contracts to modify the effective duration of specific assets within the investment portfolio. U.S. Treasury futures contracts require a daily mark-to-market and settlement with the broker. At
June 30, 2018
and
December 31, 2017
, the Company had $
100 million
and
$400 million
notional value of open U.S. Treasury futures contracts, respectively. Net realized investment gains and losses related to U.S. Treasury futures contracts for the three months and six months ended
June 30, 2018
and
2017
were not significant.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4. FAIR VALUE MEASUREMENTS
The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety. The three levels of the hierarchy are as follows:
|
|
•
|
Level 1
-
Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
|
|
|
•
|
Level 2
-
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
|
|
|
•
|
Level 3
-
Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.
|
Valuation of Investments Reported at Fair Value in Financial Statements
The Company utilized a pricing service to estimate fair value measurements for approximately
98%
of its fixed maturities at both
June 30, 2018
and
December 31, 2017
.
While the vast majority of the Company’s fixed maturities are included in Level 2, the Company holds a number of municipal bonds and corporate bonds which are not valued by the pricing service and estimates the fair value of these bonds using an internal pricing matrix with some unobservable inputs that are significant to the valuation. Due to the limited amount of observable market information, the Company includes the fair value estimates for these particular bonds in Level 3. The fair value of the fixed maturities for which the Company used an internal pricing matrix was
$62 million
and
$127 million
at
June 30, 2018
and
December 31, 2017
, respectively. Additionally, the Company holds a small amount of other fixed maturity investments that have characteristics that make them unsuitable for matrix pricing. For these fixed maturities, the Company obtains a quote from a broker (primarily the market maker). The fair value of the fixed maturities for which the Company received a broker quote was
$139 million
and
$77 million
at
June 30, 2018
and
December 31, 2017
, respectively. Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.
For more information regarding the valuation of the Company’s fixed maturities, equity securities and other investments, see note 4 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.
Fair Value Hierarchy
The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis. An investment transferred between levels during a period is transferred at its fair value as of the beginning of that period.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4. FAIR VALUE MEASUREMENTS, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(at June 30, 2018, in millions)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
|
|
$
|
2,019
|
|
|
$
|
2,019
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Obligations of states, municipalities and political subdivisions
|
|
28,930
|
|
|
—
|
|
|
28,918
|
|
|
12
|
|
Debt securities issued by foreign governments
|
|
1,281
|
|
|
—
|
|
|
1,281
|
|
|
—
|
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
|
|
2,516
|
|
|
—
|
|
|
2,492
|
|
|
24
|
|
All other corporate bonds
|
|
27,700
|
|
|
—
|
|
|
27,535
|
|
|
165
|
|
Redeemable preferred stock
|
|
90
|
|
|
3
|
|
|
87
|
|
|
—
|
|
Total fixed maturities
|
|
62,536
|
|
|
2,022
|
|
|
60,313
|
|
|
201
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Public common stock
|
|
342
|
|
|
342
|
|
|
—
|
|
|
—
|
|
Non-redeemable preferred stock
|
|
82
|
|
|
35
|
|
|
47
|
|
|
—
|
|
Total equity securities
|
|
424
|
|
|
377
|
|
|
47
|
|
|
—
|
|
Other investments
|
|
61
|
|
|
17
|
|
|
—
|
|
|
44
|
|
Total
|
|
$
|
63,021
|
|
|
$
|
2,416
|
|
|
$
|
60,360
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(at December 31, 2017, in millions)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
|
|
$
|
2,076
|
|
|
$
|
2,076
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Obligations of states, municipalities and political subdivisions
|
|
30,915
|
|
|
—
|
|
|
30,910
|
|
|
5
|
|
Debt securities issued by foreign governments
|
|
1,509
|
|
|
—
|
|
|
1,509
|
|
|
—
|
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
|
|
2,410
|
|
|
—
|
|
|
2,371
|
|
|
39
|
|
All other corporate bonds
|
|
25,689
|
|
|
11
|
|
|
25,518
|
|
|
160
|
|
Redeemable preferred stock
|
|
95
|
|
|
3
|
|
|
92
|
|
|
—
|
|
Total fixed maturities
|
|
62,694
|
|
|
2,090
|
|
|
60,400
|
|
|
204
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Public common stock
|
|
339
|
|
|
339
|
|
|
—
|
|
|
—
|
|
Non-redeemable preferred stock
|
|
114
|
|
|
45
|
|
|
69
|
|
|
—
|
|
Total equity securities
|
|
453
|
|
|
384
|
|
|
69
|
|
|
—
|
|
Other investments
|
|
57
|
|
|
19
|
|
|
—
|
|
|
38
|
|
Total
|
|
$
|
63,204
|
|
|
$
|
2,493
|
|
|
$
|
60,469
|
|
|
$
|
242
|
|
During the
six months ended June 30,
2018
and the year ended
December 31, 2017
, the Company’s transfers between Level 1 and Level 2 were not significant.
There was no significant activity in Level 3 of the hierarchy during the
six months ended June 30,
2018
or the year ended
December 31, 2017
.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4. FAIR VALUE MEASUREMENTS, Continued
Financial Instruments Disclosed, But Not Carried, At Fair Value
The following tables present the carrying value and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such assets and liabilities are categorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(at June 30, 2018, in millions)
|
|
Carrying
Value
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term securities
|
|
$
|
3,692
|
|
|
$
|
3,692
|
|
|
$
|
574
|
|
|
$
|
3,083
|
|
|
$
|
35
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
6,464
|
|
|
$
|
7,130
|
|
|
$
|
—
|
|
|
$
|
7,130
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(at December 31, 2017, in millions)
|
|
Carrying
Value
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term securities
|
|
$
|
4,895
|
|
|
$
|
4,895
|
|
|
$
|
1,238
|
|
|
$
|
3,622
|
|
|
$
|
35
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
6,471
|
|
|
$
|
7,702
|
|
|
$
|
—
|
|
|
$
|
7,702
|
|
|
$
|
—
|
|
Commercial paper
|
|
$
|
100
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
—
|
|
The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the
six
months ended
June 30, 2018
or year ended
December 31, 2017
.
5.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table presents the carrying amount of the Company’s goodwill by segment. Each reportable segment includes goodwill associated with the Company’s international business which is subject to the impact of changes in foreign currency exchange rates.
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2018
|
|
December 31,
2017
|
Business Insurance
|
|
$
|
2,573
|
|
|
$
|
2,585
|
|
Bond & Specialty Insurance
|
|
550
|
|
|
550
|
|
Personal Insurance
|
|
782
|
|
|
790
|
|
Other
|
|
26
|
|
|
26
|
|
Total
|
|
$
|
3,931
|
|
|
$
|
3,951
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
5. GOODWILL AND OTHER INTANGIBLE ASSETS, Continued
Other Intangible Assets
The following tables present a summary of the Company’s other intangible assets by major asset class.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(at June 30, 2018, in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Subject to amortization
|
|
|
|
|
|
|
Customer-related
|
|
$
|
100
|
|
|
$
|
7
|
|
|
$
|
93
|
|
Contract-based
(1)
|
|
208
|
|
|
171
|
|
|
37
|
|
Total subject to amortization
|
|
308
|
|
|
178
|
|
|
130
|
|
Not subject to amortization
|
|
226
|
|
|
—
|
|
|
226
|
|
Total
|
|
$
|
534
|
|
|
$
|
178
|
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(at December 31, 2017, in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Subject to amortization
|
|
|
|
|
|
|
Customer-related
|
|
$
|
77
|
|
|
$
|
4
|
|
|
$
|
73
|
|
Contract-based
(1)
|
|
209
|
|
|
167
|
|
|
42
|
|
Total subject to amortization
|
|
286
|
|
|
171
|
|
|
115
|
|
Not subject to amortization
|
|
227
|
|
|
—
|
|
|
227
|
|
Total
|
|
$
|
513
|
|
|
$
|
171
|
|
|
$
|
342
|
|
_________________________________________________________
|
|
(1)
|
Contract-based intangible assets subject to amortization are comprised of fair value adjustments on claims and claim adjustment expense reserves, reinsurance recoverables and other contract-related intangible assets. Fair value adjustments recorded in connection with insurance acquisitions were based on management’s estimate of nominal claims and claim adjustment expense reserves and reinsurance recoverables. The method used calculated a risk adjustment to a risk-free discounted reserve that would, if reserves ran off as expected, produce results that yielded the assumed cost-of-capital on the capital supporting the loss reserves. The fair value adjustments are reported as other intangible assets on the consolidated balance sheet, and the amounts measured in accordance with the acquirer’s accounting policies for insurance contracts have been reported as part of the claims and claim adjustment expense reserves and reinsurance recoverables. The intangible assets are being recognized into income over the expected payment pattern. Because the time value of money and the risk adjustment (cost of capital) components of the intangible assets run off at different rates, the amount recognized in income may be a net benefit in some periods and a net expense in other periods.
|
Amortization expense of intangible assets was
$4 million
and
$2 million
for the three months ended
June 30, 2018
and
2017
, respectively and
$8 million
and
$5 million
for the six months ended
June 30, 2018
and
2017
, respectively. Intangible asset amortization expense is estimated to be
$8 million
for the remainder of
2018
,
$16 million
in
2019
,
$15 million
in
2020
,
$14 million
in
2021
and
$13 million
in
2022
.
6.
INSURANCE CLAIM RESERVES
Claims and claim adjustment expense reserves were as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2018
|
|
December 31,
2017
|
Property-casualty
|
|
$
|
49,945
|
|
|
$
|
49,633
|
|
Accident and health
|
|
16
|
|
|
17
|
|
Total
|
|
$
|
49,961
|
|
|
$
|
49,650
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
6.
INSURANCE CLAIM RESERVES, Continued
The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim adjustment expenses for the
six months ended June 30,
2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
(for the six months ended June 30, in millions)
|
|
2018
|
|
2017
|
Claims and claim adjustment expense reserves at beginning of year
|
|
$
|
49,633
|
|
|
$
|
47,929
|
|
Less reinsurance recoverables on unpaid losses
|
|
8,123
|
|
|
7,981
|
|
Net reserves at beginning of year
|
|
41,510
|
|
|
39,948
|
|
|
|
|
|
|
Estimated claims and claim adjustment expenses for claims arising in the current year
|
|
9,084
|
|
|
8,493
|
|
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years
|
|
(268
|
)
|
|
(214
|
)
|
Total increases
|
|
8,816
|
|
|
8,279
|
|
|
|
|
|
|
Claims and claim adjustment expense payments for claims arising in:
|
|
|
|
|
|
|
Current year
|
|
2,851
|
|
|
2,699
|
|
Prior years
|
|
5,454
|
|
|
4,966
|
|
Total payments
|
|
8,305
|
|
|
7,665
|
|
Unrealized foreign exchange (gain) loss
|
|
(102
|
)
|
|
117
|
|
Net reserves at end of period
|
|
41,919
|
|
|
40,679
|
|
Plus reinsurance recoverables on unpaid losses
|
|
8,026
|
|
|
7,877
|
|
Claims and claim adjustment expense reserves at end of period
|
|
$
|
49,945
|
|
|
$
|
48,556
|
|
Gross claims and claim adjustment expense reserves at
June 30, 2018
increased by
$312 million
from
December 31, 2017
, primarily reflecting the impacts of (i) higher volumes of insured exposures and loss cost trends for the current accident year and (ii) catastrophe losses in the first
six
months of 2018, partially offset by the impacts of (iii) payments related to catastrophe losses incurred in 2017, (iv) net favorable prior year reserve development and (v) payments related to operations in runoff.
Reinsurance recoverables on unpaid losses at
June 30, 2018
decreased by
$97 million
from
December 31, 2017
, primarily reflecting the impacts of cash collections in the first
six
months of 2018.
Prior Year Reserve Development
The following disclosures regarding reserve development are on a “net of reinsurance” basis.
For the
six months ended June 30,
2018
and
2017
, estimated claims and claim adjustment expenses incurred included
$268 million
and
$214 million
, respectively, of net favorable development for claims arising in prior years, including
$336 million
and
$284 million
, respectively, of net favorable prior year reserve development and
$25 million
of accretion of discount in each period that impacted the Company's results of operations.
Business Insurance.
Net favorable prior year reserve development in the
second
quarter of
2018
totaled
$84 million
, primarily driven by better than expected loss experience in the segment’s domestic operations in (i) the workers’ compensation product line for multiple accident years, partially offset by (ii) higher than expected loss experience in the general liability product line, including a
$55 million
increase to environmental reserves, for accident years 2008 and prior. Net favorable prior year reserve development in the
second
quarter of
2017
totaled
$125 million
, primarily driven by better than expected loss experience in the segment's domestic operations in (i) the workers’ compensation product line for recent accident years, (ii) the commercial multi-peril product line for liability coverages for multiple accident years and (iii) the general liability product line (excluding the increase to environmental reserves) for both primary and excess coverages for multiple accident years, partially offset by (iv) a
$65 million
increase to environmental reserves.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
6.
INSURANCE CLAIM RESERVES, Continued
Net favorable prior year reserve development in the first
six
months of
2018
totaled
$150 million
, primarily driven by better than expected loss experience in the segment’s domestic operations in (i) the workers’ compensation product line for multiple accident years and (ii) the commercial property product line for recent accident years, partially offset by (iii) higher than expected loss experience in the general liability product line, including a
$55 million
increase to environmental reserves, for accident years 2008 and prior and (iv) higher than expected loss experience in the commercial automobile product line for recent accident years. Net favorable prior year reserve development in the first
six
months of
2017
totaled
$186 million
, primarily driven by better than expected loss experience in the segment's domestic operations in (i) the workers' compensation product line for recent accident years, (ii) the general liability product line (excluding the increase to environmental reserves) for both primary and excess coverages for multiple accident years and (iii) the commercial multi-peril product line for liability coverages for multiple accident years, partially offset by (iv) a
$65 million
increase to environmental reserves. The net favorable prior year reserve development in the segment's domestic operations for the first six months of 2017 was partially offset by net unfavorable prior year reserve development in the segment's international operations in Europe due to the U.K. Ministry of Justice’s “Ogden” discount rate adjustment applied to lump sum bodily injury payouts.
Bond & Specialty Insurance.
Net favorable prior year reserve development in the
second
quarter and first
six
months of
2018
totaled
$89 million
and
$124 million
, respectively, and net favorable prior year reserve development in the
second
quarter and first six months of
2017
totaled
$78 million
and
$92 million
, respectively, primarily driven by better than expected loss experience in the segment’s domestic operations in the general liability product line for multiple accident years.
Personal Insurance.
Net favorable prior year reserve development in the
second
quarter and first
six
months of
2018
totaled
$13 million
and
$62 million
, respectively, primarily driven by better than expected loss experience in the segment's domestic operations in the Automobile product line for recent accident years. Net favorable prior year reserve development in the
second
quarter and first
six
months of
2017
totaled
$0
and
$6 million
, respectively.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.
OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the
six months ended June 30,
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Net Unrealized Gains (Losses) on
Investment Securities
|
|
|
|
|
|
|
(in millions)
|
|
Having No Credit
Losses Recognized in
the Consolidated
Statement of Income
|
|
Having Credit
Losses Recognized
in the Consolidated
Statement of
Income
|
|
Net Benefit Plan Assets and
Obligations
Recognized in
Shareholders’
Equity
|
|
Net Unrealized
Foreign Currency
Translation
|
|
Total Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
$
|
747
|
|
|
$
|
207
|
|
|
$
|
(686
|
)
|
|
$
|
(611
|
)
|
|
$
|
(343
|
)
|
Cumulative effect of adoption of updated accounting guidance for equity financial instruments
at January 1, 2018
|
|
(34
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34
|
)
|
Income tax benefit
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
Net of income taxes
|
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
|
|
145
|
|
|
7
|
|
|
(141
|
)
|
|
(35
|
)
|
|
(24
|
)
|
Total effect of adoption of new guidance at January 1, 2018, net of tax
|
|
123
|
|
|
7
|
|
|
(141
|
)
|
|
(35
|
)
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) (OCI) before reclassifications, net of tax
|
|
(1,176
|
)
|
|
(11
|
)
|
|
—
|
|
|
(137
|
)
|
|
(1,324
|
)
|
Amounts reclassified from AOCI, net of tax
|
|
(9
|
)
|
|
—
|
|
|
34
|
|
|
—
|
|
|
25
|
|
Net OCI, current period
|
|
(1,185
|
)
|
|
(11
|
)
|
|
34
|
|
|
(137
|
)
|
|
(1,299
|
)
|
Balance, June 30, 2018
|
|
$
|
(315
|
)
|
|
$
|
203
|
|
|
$
|
(793
|
)
|
|
$
|
(783
|
)
|
|
$
|
(1,688
|
)
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.
OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME, Continued
The following table presents the pre-tax components of the Company’s other comprehensive income (loss) and the related income tax expense (benefit).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Changes in net unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Having no credit losses recognized in the consolidated statement of income
|
|
$
|
(298
|
)
|
|
$
|
327
|
|
|
$
|
(1,501
|
)
|
|
$
|
471
|
|
Income tax expense (benefit)
|
|
(63
|
)
|
|
116
|
|
|
(316
|
)
|
|
167
|
|
Net of taxes
|
|
(235
|
)
|
|
211
|
|
|
(1,185
|
)
|
|
304
|
|
|
|
|
|
|
|
|
|
|
Having credit losses recognized in the consolidated statement of income
|
|
(12
|
)
|
|
2
|
|
|
(14
|
)
|
|
2
|
|
Income tax expense (benefit)
|
|
(2
|
)
|
|
1
|
|
|
(3
|
)
|
|
1
|
|
Net of taxes
|
|
(10
|
)
|
|
1
|
|
|
(11
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net changes in benefit plan assets and obligations
|
|
21
|
|
|
17
|
|
|
43
|
|
|
34
|
|
Income tax expense
|
|
4
|
|
|
6
|
|
|
9
|
|
|
11
|
|
Net of taxes
|
|
17
|
|
|
11
|
|
|
34
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Net changes in unrealized foreign currency translation
|
|
(158
|
)
|
|
48
|
|
|
(152
|
)
|
|
89
|
|
Income tax expense (benefit)
|
|
(20
|
)
|
|
—
|
|
|
(15
|
)
|
|
6
|
|
Net of taxes
|
|
(138
|
)
|
|
48
|
|
|
(137
|
)
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
(447
|
)
|
|
394
|
|
|
(1,624
|
)
|
|
596
|
|
Total income tax expense (benefit)
|
|
(81
|
)
|
|
123
|
|
|
(325
|
)
|
|
185
|
|
Total other comprehensive income (loss), net of taxes
|
|
$
|
(366
|
)
|
|
$
|
271
|
|
|
$
|
(1,299
|
)
|
|
$
|
411
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.
OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME, Continued
The following table presents the pre-tax and related income tax (expense) benefit components of the amounts reclassified from the Company’s AOCI to the Company’s consolidated statement of income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments related to unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
|
|
|
|
Having no credit losses recognized in the consolidated statement of income
(1)
|
|
$
|
(12
|
)
|
|
$
|
(84
|
)
|
|
$
|
(12
|
)
|
|
$
|
(94
|
)
|
Income tax expense
(2)
|
|
(3
|
)
|
|
(30
|
)
|
|
(3
|
)
|
|
(33
|
)
|
Net of taxes
|
|
(9
|
)
|
|
(54
|
)
|
|
(9
|
)
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
Having credit losses recognized in the consolidated statement of income
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income tax benefit
(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net of taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment related to benefit plan assets and obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
(3)
|
|
8
|
|
|
7
|
|
|
17
|
|
|
14
|
|
General and administrative expenses
(3)
|
|
13
|
|
|
11
|
|
|
26
|
|
|
21
|
|
Total
|
|
21
|
|
|
18
|
|
|
43
|
|
|
35
|
|
Income tax benefit
(2)
|
|
4
|
|
|
7
|
|
|
9
|
|
|
12
|
|
Net of taxes
|
|
17
|
|
|
11
|
|
|
34
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment related to foreign currency translation
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income tax benefit
(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net of taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications
|
|
9
|
|
|
(66
|
)
|
|
31
|
|
|
(59
|
)
|
Total income tax (expense) benefit
|
|
1
|
|
|
(23
|
)
|
|
6
|
|
|
(21
|
)
|
Total reclassifications, net of taxes
|
|
$
|
8
|
|
|
$
|
(43
|
)
|
|
$
|
25
|
|
|
$
|
(38
|
)
|
_________________________________________________________
(1) (Increases) decreases net realized investment gains on the consolidated statement of income.
(2) (Increases) decreases income tax expense on the consolidated statement of income.
(3) Increases (decreases) expenses on the consolidated statement of income.
8.
DEBT
Debt Issuance
. On March 7, 2018, the Company issued
$500 million
aggregate principal amount of
4.05%
senior notes that will mature on March 7, 2048. The net proceeds of the issuance, after the deduction of the underwriting discount and expenses payable by the Company, totaled approximately
$491 million
. Interest on the senior notes is payable semi-annually in arrears on March 7 and September 7, commencing on September 7, 2018. Prior to September 7, 2047, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a)
100%
of the principal amount of any senior notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to but excluding September 7, 2047 on any senior notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current Treasury rate (as defined in the senior notes), plus 15 basis points. On or after September 7, 2047, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
8.
DEBT, Continued
redemption price equal to
100%
of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Debt Repayment
. On May 15, 2018, the Company's
$500 million
,
5.80%
senior notes matured and were fully paid.
Credit Agreement
. On June 4, 2018, the Company entered into a
five
-year,
$1.0 billion
revolving credit agreement with a syndicate of financial institutions, replacing its
five
-year
$1.0 billion
credit agreement that was due to expire on June 7, 2018. Pursuant to the credit agreement covenants, the Company must maintain a minimum consolidated net worth, defined as shareholders’ equity determined in accordance with GAAP (excluding accumulated other comprehensive income (loss)) plus (a) trust preferred securities (not to exceed
15%
of total capital) and (b) mandatorily convertible securities (combined with trust preferred securities, not to exceed
25%
of total capital), less goodwill and other intangible assets. That threshold is adjusted downward by an amount equal to
70%
of the aggregate amount of common stock repurchased by the Company after March 31, 2018, up to a maximum deduction of
$1.75 billion
. The threshold was
$13.999 billion
at
June 30, 2018
and could decline to a minimum of
$12.494 billion
during the term of the credit agreement, subject to the Company repurchasing an additional
$2.15 billion
of its common stock. In addition, the credit agreement contains other customary restrictive covenants as well as certain customary events of default, including with respect to a change in control, which would occur upon the acquisition of
35%
or more of the Company’s voting stock or certain changes in the composition of the Company’s board of directors. At
June 30, 2018
, the Company was in compliance with these covenants. Generally, the cost of borrowing under this agreement will range from LIBOR plus 75 basis points to LIBOR plus 137.5 basis points, depending on the Company’s credit ratings. At
June 30, 2018
, that cost would have been LIBOR plus 100 basis points, had there been any amounts outstanding under the credit agreement.
Commercial Paper.
The Company had
$0
and
$100 million
of commercial paper outstanding at
June 30, 2018
and
December 31, 2017
, respectively.
9.
COMMON SHARE REPURCHASES
During the three months and
six
months ended
June 30, 2018
, the Company repurchased
2.7 million
and
5.2 million
shares, respectively, under its share repurchase authorization, for a total cost of
$350 million
and
$700 million
, respectively. The average cost per share repurchased was
$129.66
and
$135.47
, respectively. In addition, the Company acquired
1,374
shares and
0.3 million
shares for a total cost of
$0.2 million
and
$51 million
during the three months and
six
months ended
June 30, 2018
, respectively, that were not part of the publicly announced share repurchase authorization. These shares consisted of shares retained to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the price of certain stock options that were exercised. At
June 30, 2018
, the Company had
$3.86 billion
of capacity remaining under its share repurchase authorization.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
10.
EARNINGS PER SHARE
The following is a reconciliation of the net income and share data used in the basic and diluted earnings per share computations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions, except per share amounts)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
524
|
|
|
$
|
595
|
|
|
$
|
1,193
|
|
|
$
|
1,212
|
|
Participating share-based awards — allocated income
|
|
(4
|
)
|
|
(5
|
)
|
|
(9
|
)
|
|
(9
|
)
|
Net income available to common shareholders — basic and diluted
|
|
$
|
520
|
|
|
$
|
590
|
|
|
$
|
1,184
|
|
|
$
|
1,203
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
268.7
|
|
|
277.5
|
|
|
269.8
|
|
|
278.6
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
268.7
|
|
|
277.5
|
|
|
269.8
|
|
|
278.6
|
|
Weighted average effects of dilutive securities — stock options and performance shares
|
|
2.4
|
|
|
2.5
|
|
|
2.7
|
|
|
2.6
|
|
Total
|
|
271.1
|
|
|
280.0
|
|
|
272.5
|
|
|
281.2
|
|
|
|
|
|
|
|
|
|
|
Net Income per Common Share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.93
|
|
|
$
|
2.13
|
|
|
$
|
4.39
|
|
|
$
|
4.32
|
|
Diluted
|
|
$
|
1.92
|
|
|
$
|
2.11
|
|
|
$
|
4.35
|
|
|
$
|
4.28
|
|
11.
SHARE-BASED INCENTIVE COMPENSATION
The following information relates to fully vested stock option awards at
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contractual
Life
Remaining
|
|
Aggregate
Intrinsic
Value
($ in millions)
|
Vested at end of period
(1)
|
|
6,135,747
|
|
|
$
|
98.60
|
|
|
6.0 years
|
|
$
|
158
|
|
Exercisable at end of period
|
|
3,850,199
|
|
|
$
|
85.96
|
|
|
4.6 years
|
|
$
|
140
|
|
_________________________________________________________
|
|
(1)
|
Represents awards for which the requisite service has been rendered, including those that are retirement eligible.
|
The total compensation cost for all share-based incentive compensation awards recognized in earnings was
$33 million
and
$31 million
for the three months ended
June 30, 2018
and
2017
, respectively, and
$77 million
and
$73 million
for the
six
months ended
June 30, 2018
and
2017
, respectively. The related tax benefits recognized in the consolidated statement of income were
$6 million
and
$10 million
for the three months ended
June 30, 2018
and
2017
, respectively, and
$14 million
and
$24 million
for the
six
months ended
June 30, 2018
and
2017
, respectively.
The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at
June 30, 2018
was
$201 million
, which is expected to be recognized over a weighted-average period of
2.0 years
.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
12.
PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS
The following table summarizes the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans recognized in the consolidated statement of income for the three months ended
June 30, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
(for the three months ended June 30, in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
33
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-service cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on benefit obligation
|
|
32
|
|
|
30
|
|
|
2
|
|
|
1
|
|
Expected return on plan assets
|
|
(66
|
)
|
|
(60
|
)
|
|
—
|
|
|
—
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Net actuarial loss
|
|
23
|
|
|
19
|
|
|
—
|
|
|
—
|
|
Total non-service cost (benefit)
|
|
(12
|
)
|
|
(11
|
)
|
|
1
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
21
|
|
|
$
|
19
|
|
|
$
|
1
|
|
|
$
|
—
|
|
The following table indicates the line items in which the respective service costs and non-service benefit costs are presented in the consolidated statement of income for the three months ended
June 30, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
(for the three months ended June 30, in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
$
|
14
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
General and administrative expenses
|
|
19
|
|
|
18
|
|
|
—
|
|
|
—
|
|
Total service cost
|
|
33
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-Service Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
(5
|
)
|
|
(5
|
)
|
|
1
|
|
|
—
|
|
General and administrative expenses
|
|
(7
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
Total non-service cost (benefit)
|
|
(12
|
)
|
|
(11
|
)
|
|
1
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
21
|
|
|
$
|
19
|
|
|
$
|
1
|
|
|
$
|
—
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
12.
PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued
The following table summarizes the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans recognized in the consolidated statement of income for the
six
months ended
June 30, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
(for the six months ended June 30, in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
66
|
|
|
$
|
60
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-service cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on benefit obligation
|
|
63
|
|
|
61
|
|
|
4
|
|
|
3
|
|
Expected return on plan assets
|
|
(132
|
)
|
|
(120
|
)
|
|
—
|
|
|
—
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
Net actuarial loss
|
|
46
|
|
|
37
|
|
|
—
|
|
|
—
|
|
Total non-service cost (benefit)
|
|
(24
|
)
|
|
(22
|
)
|
|
2
|
|
|
1
|
|
Net periodic benefit cost
|
|
$
|
42
|
|
|
$
|
38
|
|
|
$
|
2
|
|
|
$
|
1
|
|
The following table indicates the line items in which the respective service costs and non-service benefit costs are presented in the consolidated statement of income for the
six
months ended
June 30, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
(for the six months ended June 30, in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
$
|
27
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
—
|
|
General and administrative expenses
|
|
39
|
|
|
36
|
|
|
—
|
|
|
—
|
|
Total service cost
|
|
66
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-Service Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
(10
|
)
|
|
(9
|
)
|
|
1
|
|
|
—
|
|
General and administrative expenses
|
|
(14
|
)
|
|
(13
|
)
|
|
1
|
|
|
1
|
|
Total non-service cost (benefit)
|
|
(24
|
)
|
|
(22
|
)
|
|
2
|
|
|
1
|
|
Net periodic benefit cost
|
|
$
|
42
|
|
|
$
|
38
|
|
|
$
|
2
|
|
|
$
|
1
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
13.
CONTINGENCIES, COMMITMENTS AND GUARANTEES
Contingencies
The major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of the Company’s properties is subject are described below.
Asbestos and Environmental Claims and Litigation
In the ordinary course of its insurance business, the Company has received and continues to receive claims for insurance arising under policies issued by the Company asserting alleged injuries and damages from asbestos- and environmental-related exposures that are the subject of related coverage litigation. The Company is defending asbestos- and environmental-related litigation vigorously and believes that it has meritorious defenses; however, the outcomes of these disputes are uncertain. In this regard, the Company employs dedicated specialists and comprehensive resolution strategies to manage asbestos and environmental loss exposure, including settling litigation under appropriate circumstances. Currently, it is not possible to predict legal outcomes and their impact on the future development of claims and litigation relating to asbestos and environmental claims. Any such development will be affected by future court decisions and interpretations, as well as changes in applicable legislation. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current insurance reserves. In addition, the Company’s estimate of ultimate claims and claim adjustment expenses may change. These additional liabilities or changes in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s results of operations in future periods.
Other Proceedings Not Arising Under Insurance Contracts or Reinsurance Agreements
The Company is involved in other lawsuits, including lawsuits alleging extra-contractual damages relating to insurance contracts or reinsurance agreements, that do not arise under insurance contracts or reinsurance agreements. The legal costs associated with such lawsuits are expensed in the period in which the costs are incurred. Based upon currently available information, the Company does not believe it is reasonably possible that any such lawsuit or related lawsuits would be material to the Company’s results of operations or would have a material adverse effect on the Company’s financial position or liquidity.
Other Commitments and Guarantees
Commitments
Investment Commitments
— The Company has unfunded commitments to private equity limited partnerships and real estate partnerships in which it invests. These commitments totaled
$1.60 billion
and
$1.56 billion
at
June 30, 2018
and
December 31, 2017
, respectively.
Guarantees
The maximum amount of the Company’s contingent obligation for indemnifications related to the sale of businesses that are quantifiable was
$358 million
at
June 30, 2018
, of which
$2 million
was recognized on the balance sheet at that date.
The maximum amount of the Company’s obligation for guarantees of certain investments and third-party loans related to certain investments that are quantifiable was
$45 million
at
June 30, 2018
, approximately
$23 million
of which is indemnified by a third party. The maximum amount of the Company’s obligation related to the guarantee of certain insurance policy obligations of a former insurance subsidiary was
$480 million
at
June 30, 2018
, all of which is indemnified by a third party. For more information regarding Company guarantees, see note 16 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
The following consolidating financial statements of the Company have been prepared pursuant to Rule 3-10 of Regulation S-X. These consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the consolidated financial statements. The Travelers Companies, Inc. (excluding its subsidiaries, TRV) has fully and
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
unconditionally guaranteed certain debt obligations of Travelers Property Casualty Corp. (TPC) and Travelers Insurance Group Holdings, Inc. (TIGHI), which totaled
$700 million
at
June 30, 2018
.
Prior to the merger of TPC and The St. Paul Companies, Inc. in 2004, TPC fully and unconditionally guaranteed the payment of all principal, premiums, if any, and interest on certain debt obligations of its wholly-owned subsidiary, TIGHI. Concurrent with the merger, TRV fully and unconditionally assumed such guarantee obligations of TPC. TPC is deemed to have no assets or operations independent of TIGHI. Consolidating financial information for TIGHI has not been presented herein because such financial information would be substantially the same as the financial information provided for TPC.
CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the three months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,577
|
|
|
$
|
2,118
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,695
|
|
Net investment income
|
|
412
|
|
|
175
|
|
|
8
|
|
|
—
|
|
|
595
|
|
Fee income
|
|
112
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
112
|
|
Net realized investment gains
(1)
|
|
18
|
|
|
16
|
|
|
2
|
|
|
—
|
|
|
36
|
|
Other revenues
|
|
13
|
|
|
27
|
|
|
—
|
|
|
(1
|
)
|
|
39
|
|
Total revenues
|
|
5,132
|
|
|
2,336
|
|
|
10
|
|
|
(1
|
)
|
|
7,477
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
3,064
|
|
|
1,498
|
|
|
—
|
|
|
—
|
|
|
4,562
|
|
Amortization of deferred acquisition costs
|
|
727
|
|
|
354
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
General and administrative expenses
|
|
766
|
|
|
343
|
|
|
5
|
|
|
(1
|
)
|
|
1,113
|
|
Interest expense
|
|
13
|
|
|
—
|
|
|
77
|
|
|
—
|
|
|
90
|
|
Total claims and expenses
|
|
4,570
|
|
|
2,195
|
|
|
82
|
|
|
(1
|
)
|
|
6,846
|
|
Income (loss) before income taxes
|
|
562
|
|
|
141
|
|
|
(72
|
)
|
|
—
|
|
|
631
|
|
Income tax expense (benefit)
|
|
104
|
|
|
21
|
|
|
(18
|
)
|
|
—
|
|
|
107
|
|
Net income of subsidiaries
|
|
—
|
|
|
—
|
|
|
578
|
|
|
(578
|
)
|
|
—
|
|
Net income
|
|
$
|
458
|
|
|
$
|
120
|
|
|
$
|
524
|
|
|
$
|
(578
|
)
|
|
$
|
524
|
|
____________________________________________________
|
|
(1)
|
Total other-than-temporary impairments (OTTI) for the three months ended
June 30, 2018
, and the amounts comprising total OTTI that were recognized in net realized investment gains and in other comprehensive income (loss) (OCI) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Total OTTI losses
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
OTTI losses recognized in net realized investment gains
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
OTTI losses recognized in OCI
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the three months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,345
|
|
|
$
|
2,006
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,351
|
|
Net investment income
|
|
401
|
|
|
191
|
|
|
6
|
|
|
—
|
|
|
598
|
|
Fee income
|
|
116
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
116
|
|
Net realized investment gains (losses)
(1)
|
|
(4
|
)
|
|
25
|
|
|
59
|
|
|
—
|
|
|
80
|
|
Other revenues
|
|
30
|
|
|
12
|
|
|
—
|
|
|
(3
|
)
|
|
39
|
|
Total revenues
|
|
4,888
|
|
|
2,234
|
|
|
65
|
|
|
(3
|
)
|
|
7,184
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
2,851
|
|
|
1,374
|
|
|
—
|
|
|
—
|
|
|
4,225
|
|
Amortization of deferred acquisition costs
|
|
693
|
|
|
339
|
|
|
—
|
|
|
—
|
|
|
1,032
|
|
General and administrative expenses
|
|
737
|
|
|
305
|
|
|
6
|
|
|
(3
|
)
|
|
1,045
|
|
Interest expense
|
|
12
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
92
|
|
Total claims and expenses
|
|
4,293
|
|
|
2,018
|
|
|
86
|
|
|
(3
|
)
|
|
6,394
|
|
Income (loss) before income taxes
|
|
595
|
|
|
216
|
|
|
(21
|
)
|
|
—
|
|
|
790
|
|
Income tax expense (benefit)
|
|
157
|
|
|
54
|
|
|
(16
|
)
|
|
—
|
|
|
195
|
|
Net income of subsidiaries
|
|
—
|
|
|
—
|
|
|
600
|
|
|
(600
|
)
|
|
—
|
|
Net income
|
|
$
|
438
|
|
|
$
|
162
|
|
|
$
|
595
|
|
|
$
|
(600
|
)
|
|
$
|
595
|
|
_________________________________________________________
|
|
(1)
|
Total other-than-temporary impairments (OTTI) for the three months ended
June 30, 2017
, and the amounts comprising total OTTI that were recognized in net realized investment gains (losses) and in other comprehensive income (OCI) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Total OTTI losses
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
OTTI losses recognized in net realized investment gains (losses)
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
OTTI gains recognized in OCI
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the
six
months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
9,045
|
|
|
$
|
4,187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,232
|
|
Net investment income
|
|
824
|
|
|
360
|
|
|
14
|
|
|
—
|
|
|
1,198
|
|
Fee income
|
|
215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
215
|
|
Net realized investment gains
(1)
|
|
20
|
|
|
4
|
|
|
1
|
|
|
—
|
|
|
25
|
|
Other revenues
|
|
40
|
|
|
55
|
|
|
—
|
|
|
(2
|
)
|
|
93
|
|
Total revenues
|
|
10,144
|
|
|
4,606
|
|
|
15
|
|
|
(2
|
)
|
|
14,763
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
5,974
|
|
|
2,884
|
|
|
—
|
|
|
—
|
|
|
8,858
|
|
Amortization of deferred acquisition costs
|
|
1,432
|
|
|
710
|
|
|
—
|
|
|
—
|
|
|
2,142
|
|
General and administrative expenses
|
|
1,495
|
|
|
671
|
|
|
11
|
|
|
(2
|
)
|
|
2,175
|
|
Interest expense
|
|
24
|
|
|
—
|
|
|
155
|
|
|
—
|
|
|
179
|
|
Total claims and expenses
|
|
8,925
|
|
|
4,265
|
|
|
166
|
|
|
(2
|
)
|
|
13,354
|
|
Income (loss) before income taxes
|
|
1,219
|
|
|
341
|
|
|
(151
|
)
|
|
—
|
|
|
1,409
|
|
Income tax expense (benefit)
|
|
210
|
|
|
53
|
|
|
(47
|
)
|
|
—
|
|
|
216
|
|
Net income of subsidiaries
|
|
—
|
|
|
—
|
|
|
1,297
|
|
|
(1,297
|
)
|
|
—
|
|
Net income
|
|
$
|
1,009
|
|
|
$
|
288
|
|
|
$
|
1,193
|
|
|
$
|
(1,297
|
)
|
|
$
|
1,193
|
|
_________________________________________________________
|
|
(1)
|
Total other-than-temporary impairments (OTTI) for the
six
months ended
June 30, 2018
, and the amounts comprising total OTTI that were recognized in net realized investment gains and in other comprehensive income (loss) (OCI) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Total OTTI losses
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
OTTI losses recognized in net realized investment gains
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
OTTI losses recognized in OCI
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the
six
months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
8,573
|
|
|
$
|
3,961
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,534
|
|
Net investment income
|
|
813
|
|
|
385
|
|
|
10
|
|
|
—
|
|
|
1,208
|
|
Fee income
|
|
229
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
229
|
|
Net realized investment gains (losses)
(1)
|
|
(8
|
)
|
|
34
|
|
|
59
|
|
|
—
|
|
|
85
|
|
Other revenues
|
|
54
|
|
|
21
|
|
|
—
|
|
|
(5
|
)
|
|
70
|
|
Total revenues
|
|
9,661
|
|
|
4,401
|
|
|
69
|
|
|
(5
|
)
|
|
14,126
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expenses
|
|
5,603
|
|
|
2,716
|
|
|
—
|
|
|
—
|
|
|
8,319
|
|
Amortization of deferred acquisition costs
|
|
1,361
|
|
|
674
|
|
|
—
|
|
|
—
|
|
|
2,035
|
|
General and administrative expenses
|
|
1,440
|
|
|
597
|
|
|
9
|
|
|
(5
|
)
|
|
2,041
|
|
Interest expense
|
|
24
|
|
|
—
|
|
|
157
|
|
|
—
|
|
|
181
|
|
Total claims and expenses
|
|
8,428
|
|
|
3,987
|
|
|
166
|
|
|
(5
|
)
|
|
12,576
|
|
Income (loss) before income taxes
|
|
1,233
|
|
|
414
|
|
|
(97
|
)
|
|
—
|
|
|
1,550
|
|
Income tax expense (benefit)
|
|
287
|
|
|
108
|
|
|
(57
|
)
|
|
—
|
|
|
338
|
|
Net income of subsidiaries
|
|
—
|
|
|
—
|
|
|
1,252
|
|
|
(1,252
|
)
|
|
—
|
|
Net income
|
|
$
|
946
|
|
|
$
|
306
|
|
|
$
|
1,212
|
|
|
$
|
(1,252
|
)
|
|
$
|
1,212
|
|
_________________________________________________________
|
|
(1)
|
Total other-than-temporary impairments (OTTI) for the
six
months ended
June 30, 2017
, and the amounts comprising total OTTI that were recognized in net realized investment gains (losses) and in other comprehensive income (OCI) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Total OTTI losses
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
OTTI losses recognized in net realized investment gains (losses)
|
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(7
|
)
|
OTTI gains recognized in OCI
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
For the three months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Net income
|
|
$
|
458
|
|
|
$
|
120
|
|
|
$
|
524
|
|
|
$
|
(578
|
)
|
|
$
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Having no credit losses recognized in the consolidated statement of income
|
|
(209
|
)
|
|
(89
|
)
|
|
—
|
|
|
—
|
|
|
(298
|
)
|
Having credit losses recognized in the consolidated statement of income
|
|
(10
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
Net changes in benefit plan assets and obligations
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Net changes in unrealized foreign currency translation
|
|
(77
|
)
|
|
(81
|
)
|
|
—
|
|
|
—
|
|
|
(158
|
)
|
Other comprehensive income (loss) before income taxes and other comprehensive loss of subsidiaries
|
|
(296
|
)
|
|
(172
|
)
|
|
21
|
|
|
—
|
|
|
(447
|
)
|
Income tax benefit
|
|
(58
|
)
|
|
(21
|
)
|
|
(2
|
)
|
|
—
|
|
|
(81
|
)
|
Other comprehensive income (loss), net of taxes, before other comprehensive loss of subsidiaries
|
|
(238
|
)
|
|
(151
|
)
|
|
23
|
|
|
—
|
|
|
(366
|
)
|
Other comprehensive loss of subsidiaries
|
|
—
|
|
|
—
|
|
|
(389
|
)
|
|
389
|
|
|
—
|
|
Other comprehensive loss
|
|
(238
|
)
|
|
(151
|
)
|
|
(366
|
)
|
|
389
|
|
|
(366
|
)
|
Comprehensive income (loss)
|
|
$
|
220
|
|
|
$
|
(31
|
)
|
|
$
|
158
|
|
|
$
|
(189
|
)
|
|
$
|
158
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the three months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Net income
|
|
$
|
438
|
|
|
$
|
162
|
|
|
$
|
595
|
|
|
$
|
(600
|
)
|
|
$
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net unrealized gains on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Having no credit losses recognized in the consolidated statement of income
|
|
296
|
|
|
85
|
|
|
(54
|
)
|
|
—
|
|
|
327
|
|
Having credit losses recognized in the consolidated statement of income
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Net changes in benefit plan assets and obligations
|
|
—
|
|
|
(1
|
)
|
|
18
|
|
|
—
|
|
|
17
|
|
Net changes in unrealized foreign currency translation
|
|
14
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Other comprehensive income (loss) before income taxes and other comprehensive income of subsidiaries
|
|
311
|
|
|
119
|
|
|
(36
|
)
|
|
—
|
|
|
394
|
|
Income tax expense (benefit)
|
|
102
|
|
|
33
|
|
|
(12
|
)
|
|
—
|
|
|
123
|
|
Other comprehensive income (loss), net of taxes, before other comprehensive income of subsidiaries
|
|
209
|
|
|
86
|
|
|
(24
|
)
|
|
—
|
|
|
271
|
|
Other comprehensive income of subsidiaries
|
|
—
|
|
|
—
|
|
|
295
|
|
|
(295
|
)
|
|
—
|
|
Other comprehensive income
|
|
209
|
|
|
86
|
|
|
271
|
|
|
(295
|
)
|
|
271
|
|
Comprehensive income
|
|
$
|
647
|
|
|
$
|
248
|
|
|
$
|
866
|
|
|
$
|
(895
|
)
|
|
$
|
866
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
For the
six
months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Net income
|
|
$
|
1,009
|
|
|
$
|
288
|
|
|
$
|
1,193
|
|
|
$
|
(1,297
|
)
|
|
$
|
1,193
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Having no credit losses recognized in the consolidated statement of income
|
|
(1,047
|
)
|
|
(453
|
)
|
|
(1
|
)
|
|
—
|
|
|
(1,501
|
)
|
Having credit losses recognized in the consolidated statement of income
|
|
(11
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Net changes in benefit plan assets and obligations
|
|
—
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
43
|
|
Net changes in unrealized foreign currency translation
|
|
(102
|
)
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
(152
|
)
|
Other comprehensive income (loss) before income taxes and other comprehensive loss of subsidiaries
|
|
(1,160
|
)
|
|
(506
|
)
|
|
42
|
|
|
—
|
|
|
(1,624
|
)
|
Income tax expense (benefit)
|
|
(233
|
)
|
|
(98
|
)
|
|
6
|
|
|
—
|
|
|
(325
|
)
|
Other comprehensive income (loss), net of taxes, before other comprehensive loss of subsidiaries
|
|
(927
|
)
|
|
(408
|
)
|
|
36
|
|
|
—
|
|
|
(1,299
|
)
|
Other comprehensive loss of subsidiaries
|
|
—
|
|
|
—
|
|
|
(1,335
|
)
|
|
1,335
|
|
|
—
|
|
Other comprehensive loss
|
|
(927
|
)
|
|
(408
|
)
|
|
(1,299
|
)
|
|
1,335
|
|
|
(1,299
|
)
|
Comprehensive income (loss)
|
|
$
|
82
|
|
|
$
|
(120
|
)
|
|
$
|
(106
|
)
|
|
$
|
38
|
|
|
$
|
(106
|
)
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the
six
months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Net income
|
|
$
|
946
|
|
|
$
|
306
|
|
|
$
|
1,212
|
|
|
$
|
(1,252
|
)
|
|
$
|
1,212
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net unrealized gains on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Having no credit losses recognized in the consolidated statement of income
|
|
389
|
|
|
129
|
|
|
(47
|
)
|
|
—
|
|
|
471
|
|
Having credit losses recognized in the consolidated statement of income
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Net changes in benefit plan assets and obligations
|
|
—
|
|
|
(1
|
)
|
|
35
|
|
|
—
|
|
|
34
|
|
Net changes in unrealized foreign currency translation
|
|
39
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
89
|
|
Other comprehensive income (loss) before income taxes and other comprehensive income of subsidiaries
|
|
430
|
|
|
178
|
|
|
(12
|
)
|
|
—
|
|
|
596
|
|
Income tax expense (benefit)
|
|
139
|
|
|
49
|
|
|
(3
|
)
|
|
—
|
|
|
185
|
|
Other comprehensive income (loss), net of taxes, before other comprehensive income of subsidiaries
|
|
291
|
|
|
129
|
|
|
(9
|
)
|
|
—
|
|
|
411
|
|
Other comprehensive income of subsidiaries
|
|
—
|
|
|
—
|
|
|
420
|
|
|
(420
|
)
|
|
—
|
|
Other comprehensive income
|
|
291
|
|
|
129
|
|
|
411
|
|
|
(420
|
)
|
|
411
|
|
Comprehensive income
|
|
$
|
1,237
|
|
|
$
|
435
|
|
|
$
|
1,623
|
|
|
$
|
(1,672
|
)
|
|
$
|
1,623
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING BALANCE SHEET (Unaudited)
At
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, available for sale, at fair value (amortized cost $62,674)
|
|
$
|
43,192
|
|
|
$
|
19,260
|
|
|
$
|
84
|
|
|
$
|
—
|
|
|
$
|
62,536
|
|
Equity securities, at fair value (cost $409)
|
|
131
|
|
|
110
|
|
|
183
|
|
|
—
|
|
|
424
|
|
Real estate investments
|
|
54
|
|
|
900
|
|
|
—
|
|
|
—
|
|
|
954
|
|
Short-term securities
|
|
1,765
|
|
|
530
|
|
|
1,397
|
|
|
—
|
|
|
3,692
|
|
Other investments
|
|
2,730
|
|
|
824
|
|
|
1
|
|
|
—
|
|
|
3,555
|
|
Total investments
|
|
47,872
|
|
|
21,624
|
|
|
1,665
|
|
|
—
|
|
|
71,161
|
|
Cash
|
|
231
|
|
|
184
|
|
|
—
|
|
|
—
|
|
|
415
|
|
Investment income accrued
|
|
424
|
|
|
182
|
|
|
4
|
|
|
—
|
|
|
610
|
|
Premiums receivable
|
|
5,251
|
|
|
2,535
|
|
|
—
|
|
|
—
|
|
|
7,786
|
|
Reinsurance recoverables
|
|
5,797
|
|
|
2,461
|
|
|
—
|
|
|
—
|
|
|
8,258
|
|
Ceded unearned premiums
|
|
610
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
698
|
|
Deferred acquisition costs
|
|
1,955
|
|
|
206
|
|
|
—
|
|
|
—
|
|
|
2,161
|
|
Deferred taxes
|
|
180
|
|
|
295
|
|
|
(12
|
)
|
|
—
|
|
|
463
|
|
Contractholder receivables
|
|
3,909
|
|
|
921
|
|
|
—
|
|
|
—
|
|
|
4,830
|
|
Goodwill
|
|
2,584
|
|
|
1,356
|
|
|
—
|
|
|
(9
|
)
|
|
3,931
|
|
Other intangible assets
|
|
225
|
|
|
131
|
|
|
—
|
|
|
—
|
|
|
356
|
|
Investment in subsidiaries
|
|
—
|
|
|
—
|
|
|
26,630
|
|
|
(26,630
|
)
|
|
—
|
|
Other assets
|
|
2,077
|
|
|
166
|
|
|
632
|
|
|
(21
|
)
|
|
2,854
|
|
Total assets
|
|
$
|
71,115
|
|
|
$
|
30,149
|
|
|
$
|
28,919
|
|
|
$
|
(26,660
|
)
|
|
$
|
103,523
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expense reserves
|
|
$
|
33,579
|
|
|
$
|
16,382
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,961
|
|
Unearned premium reserves
|
|
9,542
|
|
|
4,213
|
|
|
—
|
|
|
—
|
|
|
13,755
|
|
Contractholder payables
|
|
3,909
|
|
|
921
|
|
|
—
|
|
|
—
|
|
|
4,830
|
|
Payables for reinsurance premiums
|
|
230
|
|
|
166
|
|
|
—
|
|
|
—
|
|
|
396
|
|
Debt
|
|
693
|
|
|
21
|
|
|
5,771
|
|
|
(21
|
)
|
|
6,464
|
|
Other liabilities
|
|
4,188
|
|
|
778
|
|
|
528
|
|
|
—
|
|
|
5,494
|
|
Total liabilities
|
|
52,141
|
|
|
22,481
|
|
|
6,299
|
|
|
(21
|
)
|
|
80,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (1,750.0 shares authorized; 267.8 shares issued and 267.7 shares outstanding)
|
|
—
|
|
|
390
|
|
|
23,040
|
|
|
(390
|
)
|
|
23,040
|
|
Additional paid-in capital
|
|
11,634
|
|
|
6,972
|
|
|
—
|
|
|
(18,606
|
)
|
|
—
|
|
Retained earnings
|
|
7,869
|
|
|
685
|
|
|
34,293
|
|
|
(8,551
|
)
|
|
34,296
|
|
Accumulated other comprehensive loss
|
|
(529
|
)
|
|
(379
|
)
|
|
(1,688
|
)
|
|
908
|
|
|
(1,688
|
)
|
Treasury stock, at cost (506.4 shares)
|
|
—
|
|
|
—
|
|
|
(33,025
|
)
|
|
—
|
|
|
(33,025
|
)
|
Total shareholders’ equity
|
|
18,974
|
|
|
7,668
|
|
|
22,620
|
|
|
(26,639
|
)
|
|
22,623
|
|
Total liabilities and shareholders’ equity
|
|
$
|
71,115
|
|
|
$
|
30,149
|
|
|
$
|
28,919
|
|
|
$
|
(26,660
|
)
|
|
$
|
103,523
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING BALANCE SHEET (Unaudited)
At
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, available for sale, at fair value (amortized cost $61,316)
|
|
$
|
43,240
|
|
|
$
|
19,372
|
|
|
$
|
82
|
|
|
$
|
—
|
|
|
$
|
62,694
|
|
Equity securities, available for sale, at fair value (cost $440)
|
|
161
|
|
|
111
|
|
|
181
|
|
|
—
|
|
|
453
|
|
Real estate investments
|
|
54
|
|
|
878
|
|
|
—
|
|
|
—
|
|
|
932
|
|
Short-term securities
|
|
2,751
|
|
|
914
|
|
|
1,230
|
|
|
—
|
|
|
4,895
|
|
Other investments
|
|
2,673
|
|
|
854
|
|
|
1
|
|
|
—
|
|
|
3,528
|
|
Total investments
|
|
48,879
|
|
|
22,129
|
|
|
1,494
|
|
|
—
|
|
|
72,502
|
|
Cash
|
|
157
|
|
|
187
|
|
|
—
|
|
|
—
|
|
|
344
|
|
Investment income accrued
|
|
418
|
|
|
183
|
|
|
5
|
|
|
—
|
|
|
606
|
|
Premiums receivable
|
|
4,852
|
|
|
2,292
|
|
|
—
|
|
|
—
|
|
|
7,144
|
|
Reinsurance recoverables
|
|
5,842
|
|
|
2,467
|
|
|
—
|
|
|
—
|
|
|
8,309
|
|
Ceded unearned premiums
|
|
493
|
|
|
58
|
|
|
—
|
|
|
—
|
|
|
551
|
|
Deferred acquisition costs
|
|
1,835
|
|
|
190
|
|
|
—
|
|
|
—
|
|
|
2,025
|
|
Deferred taxes
|
|
(89
|
)
|
|
173
|
|
|
(14
|
)
|
|
—
|
|
|
70
|
|
Contractholder receivables
|
|
3,854
|
|
|
921
|
|
|
—
|
|
|
—
|
|
|
4,775
|
|
Goodwill
|
|
2,592
|
|
|
1,368
|
|
|
—
|
|
|
(9
|
)
|
|
3,951
|
|
Other intangible assets
|
|
202
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
342
|
|
Investment in subsidiaries
|
|
—
|
|
|
—
|
|
|
27,946
|
|
|
(27,946
|
)
|
|
—
|
|
Other assets
|
|
2,181
|
|
|
(3
|
)
|
|
700
|
|
|
(14
|
)
|
|
2,864
|
|
Total assets
|
|
$
|
71,216
|
|
|
$
|
30,105
|
|
|
$
|
30,131
|
|
|
$
|
(27,969
|
)
|
|
$
|
103,483
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim adjustment expense reserves
|
|
$
|
33,386
|
|
|
$
|
16,264
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,650
|
|
Unearned premium reserves
|
|
8,957
|
|
|
3,958
|
|
|
—
|
|
|
—
|
|
|
12,915
|
|
Contractholder payables
|
|
3,854
|
|
|
921
|
|
|
—
|
|
|
—
|
|
|
4,775
|
|
Payables for reinsurance premiums
|
|
165
|
|
|
109
|
|
|
—
|
|
|
—
|
|
|
274
|
|
Debt
|
|
693
|
|
|
14
|
|
|
5,878
|
|
|
(14
|
)
|
|
6,571
|
|
Other liabilities
|
|
4,161
|
|
|
882
|
|
|
524
|
|
|
—
|
|
|
5,567
|
|
Total liabilities
|
|
51,216
|
|
|
22,148
|
|
|
6,402
|
|
|
(14
|
)
|
|
79,752
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (1,750.0 shares authorized; 271.5 shares issued and 271.4 shares outstanding)
|
|
—
|
|
|
390
|
|
|
22,886
|
|
|
(390
|
)
|
|
22,886
|
|
Additional paid-in capital
|
|
11,634
|
|
|
6,972
|
|
|
—
|
|
|
(18,606
|
)
|
|
—
|
|
Retained earnings
|
|
8,036
|
|
|
594
|
|
|
33,460
|
|
|
(8,628
|
)
|
|
33,462
|
|
Accumulated other comprehensive income (loss)
|
|
330
|
|
|
1
|
|
|
(343
|
)
|
|
(331
|
)
|
|
(343
|
)
|
Treasury stock, at cost (500.9 shares)
|
|
—
|
|
|
—
|
|
|
(32,274
|
)
|
|
—
|
|
|
(32,274
|
)
|
Total shareholders’ equity
|
|
20,000
|
|
|
7,957
|
|
|
23,729
|
|
|
(27,955
|
)
|
|
23,731
|
|
Total liabilities and shareholders’ equity
|
|
$
|
71,216
|
|
|
$
|
30,105
|
|
|
$
|
30,131
|
|
|
$
|
(27,969
|
)
|
|
$
|
103,483
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the
six
months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,009
|
|
|
$
|
288
|
|
|
$
|
1,193
|
|
|
$
|
(1,297
|
)
|
|
$
|
1,193
|
|
Net adjustments to reconcile net income to net cash provided by operating activities
|
|
323
|
|
|
11
|
|
|
146
|
|
|
25
|
|
|
505
|
|
Net cash provided by operating activities
|
|
1,332
|
|
|
299
|
|
|
1,339
|
|
|
(1,272
|
)
|
|
1,698
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of fixed maturities
|
|
2,730
|
|
|
914
|
|
|
13
|
|
|
—
|
|
|
3,657
|
|
Proceeds from sales of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
1,847
|
|
|
759
|
|
|
1
|
|
|
—
|
|
|
2,607
|
|
Equity securities
|
|
33
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
92
|
|
Real estate investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other investments
|
|
133
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
189
|
|
Purchases of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
(5,762
|
)
|
|
(2,173
|
)
|
|
(17
|
)
|
|
—
|
|
|
(7,952
|
)
|
Equity securities
|
|
(2
|
)
|
|
(56
|
)
|
|
(2
|
)
|
|
—
|
|
|
(60
|
)
|
Real estate investments
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
Other investments
|
|
(232
|
)
|
|
(43
|
)
|
|
—
|
|
|
—
|
|
|
(275
|
)
|
Net sales (purchases) of short-term securities
|
|
986
|
|
|
383
|
|
|
(167
|
)
|
|
—
|
|
|
1,202
|
|
Securities transactions in course of settlement
|
|
268
|
|
|
12
|
|
|
(1
|
)
|
|
—
|
|
|
279
|
|
Other
|
|
(148
|
)
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(152
|
)
|
Net cash used in investing activities
|
|
(147
|
)
|
|
(137
|
)
|
|
(173
|
)
|
|
—
|
|
|
(457
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired — share repurchase authorization
|
|
—
|
|
|
—
|
|
|
(700
|
)
|
|
—
|
|
|
(700
|
)
|
Treasury stock acquired — net employee share-based compensation
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
(51
|
)
|
Dividends paid to shareholders
|
|
—
|
|
|
—
|
|
|
(404
|
)
|
|
—
|
|
|
(404
|
)
|
Payment of debt
|
|
—
|
|
|
—
|
|
|
(600
|
)
|
|
—
|
|
|
(600
|
)
|
Issuance of debt
|
|
—
|
|
|
7
|
|
|
491
|
|
|
(7
|
)
|
|
491
|
|
Issuance of common stock — employee share options
|
|
—
|
|
|
—
|
|
|
98
|
|
|
—
|
|
|
98
|
|
Dividends paid to parent company
|
|
(1,109
|
)
|
|
(170
|
)
|
|
—
|
|
|
1,279
|
|
|
—
|
|
Net cash used in financing activities
|
|
(1,109
|
)
|
|
(163
|
)
|
|
(1,166
|
)
|
|
1,272
|
|
|
(1,166
|
)
|
Effect of exchange rate changes on cash
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Net increase (decrease) in cash
|
|
74
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
71
|
|
Cash at beginning of year
|
|
157
|
|
|
187
|
|
|
—
|
|
|
—
|
|
|
344
|
|
Cash at end of period
|
|
$
|
231
|
|
|
$
|
184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
415
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (received)
|
|
$
|
193
|
|
|
$
|
171
|
|
|
$
|
(126
|
)
|
|
$
|
—
|
|
|
$
|
238
|
|
Interest paid
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
151
|
|
|
$
|
—
|
|
|
$
|
175
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.
CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued
CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the
six
months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
TPC
|
|
Other
Subsidiaries
|
|
TRV
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
946
|
|
|
$
|
306
|
|
|
$
|
1,212
|
|
|
$
|
(1,252
|
)
|
|
$
|
1,212
|
|
Net adjustments to reconcile net income to net cash provided by operating activities
|
|
341
|
|
|
83
|
|
|
223
|
|
|
(105
|
)
|
|
542
|
|
Net cash provided by operating activities
|
|
1,287
|
|
|
389
|
|
|
1,435
|
|
|
(1,357
|
)
|
|
1,754
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of fixed maturities
|
|
3,211
|
|
|
1,087
|
|
|
2
|
|
|
—
|
|
|
4,300
|
|
Proceeds from sales of investments:
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
285
|
|
|
278
|
|
|
—
|
|
|
—
|
|
|
563
|
|
Equity securities
|
|
4
|
|
|
75
|
|
|
121
|
|
|
—
|
|
|
200
|
|
Real estate investments
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Other investments
|
|
176
|
|
|
57
|
|
|
—
|
|
|
—
|
|
|
233
|
|
Purchases of investments:
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
(4,160
|
)
|
|
(1,511
|
)
|
|
(2
|
)
|
|
—
|
|
|
(5,673
|
)
|
Equity securities
|
|
(3
|
)
|
|
(41
|
)
|
|
(122
|
)
|
|
—
|
|
|
(166
|
)
|
Real estate investments
|
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
Other investments
|
|
(202
|
)
|
|
(57
|
)
|
|
—
|
|
|
—
|
|
|
(259
|
)
|
Net sales (purchases) of short-term securities
|
|
383
|
|
|
78
|
|
|
(885
|
)
|
|
—
|
|
|
(424
|
)
|
Securities transactions in course of settlement
|
|
105
|
|
|
64
|
|
|
1
|
|
|
—
|
|
|
170
|
|
Other
|
|
(134
|
)
|
|
6
|
|
|
—
|
|
|
—
|
|
|
(128
|
)
|
Net cash provided by (used in) investing activities
|
|
(335
|
)
|
|
30
|
|
|
(885
|
)
|
|
—
|
|
|
(1,190
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired — share repurchase authorization
|
|
—
|
|
|
—
|
|
|
(700
|
)
|
|
—
|
|
|
(700
|
)
|
Treasury stock acquired — net employee share-based compensation
|
|
—
|
|
|
—
|
|
|
(61
|
)
|
|
—
|
|
|
(61
|
)
|
Dividends paid to shareholders
|
|
—
|
|
|
—
|
|
|
(389
|
)
|
|
—
|
|
|
(389
|
)
|
Payment of debt
|
|
—
|
|
|
—
|
|
|
(207
|
)
|
|
—
|
|
|
(207
|
)
|
Issuance of debt
|
|
—
|
|
|
—
|
|
|
689
|
|
|
—
|
|
|
689
|
|
Issuance of common stock — employee share options
|
|
—
|
|
|
—
|
|
|
118
|
|
|
—
|
|
|
118
|
|
Dividends paid to parent company
|
|
(961
|
)
|
|
(396
|
)
|
|
—
|
|
|
1,357
|
|
|
—
|
|
Net cash used in financing activities
|
|
(961
|
)
|
|
(396
|
)
|
|
(550
|
)
|
|
1,357
|
|
|
(550
|
)
|
Effect of exchange rate changes on cash
|
|
2
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
7
|
|
Net increase (decrease) in cash
|
|
(7
|
)
|
|
28
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Cash at beginning of year
|
|
141
|
|
|
164
|
|
|
2
|
|
|
—
|
|
|
307
|
|
Cash at end of period
|
|
$
|
134
|
|
|
$
|
192
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
328
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (received)
|
|
$
|
336
|
|
|
$
|
119
|
|
|
$
|
(132
|
)
|
|
$
|
—
|
|
|
$
|
323
|
|
Interest paid
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
154
|
|
|
$
|
—
|
|
|
$
|
178
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses Incurred/Unfavorable (Favorable)
Prior Year Reserve Development
|
|
|
|
|
|
|
For The Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
Estimated Ultimate Losses
|
(in millions, pre-tax and net of reinsurance)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
June 30, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCS Serial Number:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 — Severe wind and hail storms
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
2
|
|
|
$
|
147
|
|
|
$
|
148
|
|
25 — Severe wind and hail storms
|
|
(4
|
)
|
|
4
|
|
|
(5
|
)
|
|
9
|
|
|
173
|
|
|
178
|
|
|
|
|
|
|
|
'
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCS Serial Number:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 — Severe wind and hail storms
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
115
|
|
|
109
|
|
|
111
|
|
32 — Severe wind and hail storms
|
|
19
|
|
|
198
|
|
|
20
|
|
|
198
|
|
|
230
|
|
|
210
|
|
43 — Hurricane Harvey
|
|
(5
|
)
|
|
n/a
|
|
|
(25
|
)
|
|
n/a
|
|
|
229
|
|
|
254
|
|
44 — Hurricane Irma
|
|
(8
|
)
|
|
n/a
|
|
|
(19
|
)
|
|
n/a
|
|
|
168
|
|
|
187
|
|
48 — California wildfire — Tubbs fire
|
|
—
|
|
|
n/a
|
|
|
4
|
|
|
n/a
|
|
|
511
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCS Serial Number:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 — Winter storm
|
|
3
|
|
|
n/a
|
|
|
138
|
|
|
n/a
|
|
|
138
|
|
|
n/a
|
|
17 — Severe wind and hail storms
|
|
11
|
|
|
n/a
|
|
|
121
|
|
|
n/a
|
|
|
121
|
|
|
n/a
|
|
_________________________________________________________
n/a: not applicable.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the
second
quarter of
2018
was
$1.08 billion
,
$49 million
or
5%
higher than in the same period of
2017
. Amortization of deferred acquisition costs in the first
six
months of
2018
was
$2.14 billion
,
$107 million
or
5%
higher than in the same period of
2017
. Amortization of deferred acquisition costs is discussed in more detail in the segment discussions that follow.
General and Administrative Expenses
General and administrative expenses in the
second
quarter of
2018
were
$1.11 billion
,
$68 million
or
7%
higher than in the same period of
2017
. General and administrative expenses in the first
six
months of
2018
were
$2.18 billion
,
$134 million
or
7%
higher than in the same period of
2017
. The increases in both periods of
2018
primarily reflected the impacts of (i) the acquisition of Simply Business in August 2017, (ii) windpool assessments incurred in 2018 related to Hurricane Harvey and (iii) variable costs
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
associated with higher business volumes. General and administrative expenses are discussed in more detail in the segment discussions that follow.
Interest Expense
Interest expense in the
second
quarter and first
six
months of
2018
was
$90 million
and
$179 million
, respectively, compared with
$92 million
and
$181 million
, respectively, in the same periods of
2017
.
Income Tax Expense
Income tax expense in the
second
quarter of
2018
was
$107 million
,
$88 million
or
45%
lower than in the same period of
2017
, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the
$159 million
decrease in income before income taxes. Income tax expense in the first
six
months of
2018
was
$216 million
,
$122 million
or
36%
lower than in the same period of
2017
, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the
$141 million
decrease in income before income taxes, partially offset by the impact of (iii) the $39 million reduction in income tax expense in the first quarter of
2017
as a result of the resolution of prior year tax matters.
The Company’s effective tax rate was
17%
and
25%
in the
second
quarters of
2018
and
2017
, respectively. The Company's effective tax rate was
15%
and
22%
in the first
six
months of
2018
and
2017
, respectively. The effective tax rates were lower than the statutory rates of 21% in both periods of
2018
and 35% in both periods of
2017
, primarily due to the impact of tax-exempt investment income on the calculation of the Company’s income tax provision. The effective tax rate in the first
six
months of
2017
also included the impact of the reduction in income tax expense resulting from the resolution of prior year tax matters in the first quarter of
2017
.
Combined Ratio
The combined ratio of
98.1%
in the
second
quarter of
2018
was
1.4
points higher than the combined ratio of
96.7%
in the same period of
2017
. The loss and loss adjustment expense ratio of
67.4%
in the
second
quarter of
2018
was
1.8
points higher than the loss and loss adjustment expense ratio of
65.6%
in the same period of
2017
. The underwriting expense ratio of
30.7%
for the
second
quarter of
2018
was
0.4
points lower than the underwriting expense ratio of
31.1%
in the same period of
2017
.
Catastrophe losses in the
second
quarters of
2018
and
2017
accounted for
7.3
points and
6.4
points, respectively, of the combined ratios. Net favorable prior year reserve development in the
second
quarters of
2018
and
2017
provided
2.8
points and
3.2
points of benefit, respectively, to the combined ratio. The combined ratio excluding prior year reserve development and catastrophe losses (“underlying combined ratio”) in the
second
quarter of
2018
was
0.1
points
higher
than the
2017
ratio on the same basis.
The combined ratio of
96.8%
in the first
six
months of
2018
was
0.4
points higher than the combined ratio of
96.4%
in the same period of
2017
. The loss and loss adjustment expense ratio of
66.2%
in the first
six
months of
2018
was
0.7
points higher than the loss and loss adjustment expense ratio of
65.5%
in the same period of
2017
. The underwriting expense ratio of
30.6%
for the first
six
months of
2018
was
0.3
points lower than the underwriting expense ratio of
30.9%
in the same period of
2017
.
Catastrophe losses in the first
six
months of
2018
and
2017
accounted for
6.3
points and
6.0
points, respectively, of the combined ratio. Net favorable prior year reserve development in the first
six
months of
2018
and
2017
provided
2.5
points and
2.3
points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first
six
months of
2018
was
0.3
points higher than the
2017
ratio on the same basis.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Written Premiums
Consolidated gross and net written premiums were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Business Insurance
|
|
$
|
4,038
|
|
|
$
|
3,794
|
|
|
$
|
8,509
|
|
|
$
|
8,065
|
|
Bond & Specialty Insurance
|
|
674
|
|
|
620
|
|
|
1,312
|
|
|
1,221
|
|
Personal Insurance
|
|
2,717
|
|
|
2,513
|
|
|
5,026
|
|
|
4,659
|
|
Total
|
|
$
|
7,429
|
|
|
$
|
6,927
|
|
|
$
|
14,847
|
|
|
$
|
13,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Business Insurance
|
|
$
|
3,781
|
|
|
$
|
3,544
|
|
|
$
|
7,775
|
|
|
$
|
7,399
|
|
Bond & Specialty Insurance
|
|
653
|
|
|
598
|
|
|
1,227
|
|
|
1,142
|
|
Personal Insurance
|
|
2,697
|
|
|
2,498
|
|
|
4,953
|
|
|
4,594
|
|
Total
|
|
$
|
7,131
|
|
|
$
|
6,640
|
|
|
$
|
13,955
|
|
|
$
|
13,135
|
|
Gross and net written premiums in the
second
quarter of
2018
both increased by 7% over the same period of
2017
. Gross and net written premiums in the first
six
months
2018
both increased by 6% over the same period of
2017
. Factors contributing to the changes in gross and net written premiums in each segment are discussed in more detail in the segment discussions that follow.
RESULTS OF OPERATIONS BY SEGMENT
Business Insurance
Results of Business Insurance were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(dollars in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
|
$
|
3,641
|
|
|
$
|
3,504
|
|
|
$
|
7,209
|
|
|
$
|
6,933
|
|
Net investment income
|
|
440
|
|
|
447
|
|
|
886
|
|
|
900
|
|
Fee income
|
|
107
|
|
|
112
|
|
|
206
|
|
|
221
|
|
Other revenues
|
|
20
|
|
|
15
|
|
|
51
|
|
|
24
|
|
Total revenues
|
|
4,208
|
|
|
4,078
|
|
|
8,352
|
|
|
8,078
|
|
|
|
|
|
|
|
|
|
|
Total claims and expenses
|
|
3,746
|
|
|
3,509
|
|
|
7,368
|
|
|
6,938
|
|
|
|
|
|
|
|
|
|
|
Segment income before income taxes
|
|
462
|
|
|
569
|
|
|
984
|
|
|
1,140
|
|
Income tax expense
|
|
77
|
|
|
140
|
|
|
147
|
|
|
269
|
|
Segment income
|
|
$
|
385
|
|
|
$
|
429
|
|
|
$
|
837
|
|
|
$
|
871
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio
|
|
66.9
|
%
|
|
64.3
|
%
|
|
66.3
|
%
|
|
64.4
|
%
|
Underwriting expense ratio
|
|
31.9
|
|
|
32.2
|
|
|
31.9
|
|
|
32.1
|
|
Combined ratio
|
|
98.8
|
%
|
|
96.5
|
%
|
|
98.2
|
%
|
|
96.5
|
%
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Overview
Segment income in the
second
quarter of
2018
was
$385 million
,
$44 million
or
10%
lower than segment income of
$429 million
in the same period of
2017
. The decrease in segment income before income taxes primarily reflected the pre-tax impacts of (i) lower underwriting margins excluding catastrophe losses and prior year reserve development ("underlying underwriting margins") and (ii) lower net favorable prior year reserve development. Catastrophe losses in the
second
quarters of
2018
and
2017
were
$168 million
and
$184 million
, respectively. Net favorable prior year reserve development in the
second
quarters of
2018
and
2017
was
$84 million
and
$125 million
, respectively. The lower underlying underwriting margins primarily resulted from the impact of normal quarterly variability in both loss and expense activity, including a few large losses, primarily fire related, and windpool assessments related to Hurricane Harvey. Income tax expense in the
second
quarter of
2018
was lower than in the same period of
2017
, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the decrease in segment income before income taxes.
Segment income in the first
six
months of
2018
was
$837 million
,
$34 million
or
4%
lower than segment income of
$871 million
in the same period of
2017
. The decrease in segment income before income taxes primarily reflected the pre-tax impacts of (i) lower underlying underwriting margins and (ii) lower net favorable prior year reserve development. Catastrophe losses in the first
six
months of
2018
and
2017
were
$306 million
and
$316 million
, respectively. Net favorable prior year reserve development in the first
six
months of
2018
and
2017
was
$150 million
and
$186 million
, respectively. The lower underlying underwriting margins primarily resulted from the impact of normal variability in loss activity, including a few large losses, primarily fire related. Income tax expense in the first six months of
2018
was lower than in the same period of
2017
, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the decrease in segment income before income taxes, partially offset by the impact of (iii) the $15 million reduction in income taxes as a result of the resolution of prior year tax matters in the first quarter of
2017
.
Revenues
Earned Premiums
Earned premiums in the
second
quarter of
2018
were
$3.64 billion
,
$137 million
or
4%
higher than in the same period of
2017
. Earned premiums in the first
six
months of
2018
were
$7.21 billion
,
$276 million
or
4%
higher than in the same period of
2017
. The increases in both periods of
2018
primarily reflected the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in the
second
quarter of
2018
was
$440 million
,
$7 million
or
2%
lower than in the same period of
2017
. Net investment income in the first
six
months of
2018
was
$886 million
,
$14 million
or
2%
lower than in the same period of
2017
. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the decrease in the Company’s consolidated net investment income in the
second
quarter and first
six
months of
2018
compared with the same periods of
2017
. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 2017 Annual Report for a discussion of the Company’s net investment income allocation methodology.
Fee Income
National Accounts is the primary source of fee income due to its service businesses, which include claim and loss prevention services to large companies that choose to self-insure a portion of their insurance risks, as well as claims and policy management services to workers' compensation residual market pools. Fee income in the
second
quarter of
2018
was
$107 million
,
$5 million
or
4%
lower than in the same period of
2017
. Fee income in the first
six
months of
2018
was
$206 million
,
$15 million
or
7%
lower than in the same period of
2017
. The decreases in both periods of
2018
reflected lower serviced premium in the workers’ compensation residual market pools.
Other Revenues
Other revenues in the
second
quarters and first
six
months of
2018
and
2017
included installment premium charges and other miscellaneous policyholder service charges. Other revenues in the
second
quarter and first
six
months of
2018
also included revenues from Simply Business, which was acquired in August
2017
. Other revenues in the
second
quarter and first six months of 2017 also included a gain related to the settlement of a reinsurance dispute.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the
second
quarter of
2018
were
$2.48 billion
,
$178 million
or
8%
higher than in the same period of
2017
, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, (iii) lower net favorable prior year reserve development and (iv) normal variability in loss activity, partially offset by (v) lower catastrophe losses.
Claims and claim adjustment expenses in the first
six
months of
2018
were
$4.88 billion
,
$305 million
or
7%
higher than in the same period of
2017
, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, (iii) lower net favorable prior year reserve development and (iv) normal variability in loss activity, partially offset by (v) lower catastrophe losses.
Factors contributing to net favorable prior year reserve development during the
second
quarters and first
six
months of
2018
and
2017
are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the
second
quarter of
2018
was
$588 million
,
$21 million
or
4%
higher than in the same period of
2017
. Amortization of deferred acquisition costs in the first
six
months of
2018
was
$1.17 billion
,
$47 million
or
4%
higher than in the same period of
2017
. The increases in both periods of
2018
were generally consistent with the increases in earned premiums.
General and Administrative Expenses
General and administrative expenses in the
second
quarter of
2018
were
$674 million
,
$38 million
or
6%
higher than in the same period of
2017
. General and administrative expenses in the first
six
months of
2018
were
$1.32 billion
,
$78 million
or
6%
higher than in the same period of
2017
. The increases in both periods of
2018
were due to the impacts of (i) the acquisition of Simply Business in August 2017 and (ii) windpool assessments incurred in
2018
related to Hurricane Harvey.
Income Tax Expense
Income tax expense in the
second
quarter of
2018
was
$77 million
,
$63 million
, or
45%
lower than in the same period of
2017
, reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the
$107 million
decrease in segment income before income taxes. Income tax in the first
six
months of
2018
was
$147 million
,
$122 million
or
45%
lower than in the same period of
2017
, reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the
$156 million
decrease in segment income before income taxes, partially offset by the impact of (iii) the $15 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of
2017
.
Combined Ratio
The combined ratio of
98.8%
in the
second
quarter of
2018
was
2.3
points higher than the combined ratio of
96.5%
in the same period of
2017
. The loss and loss adjustment expense ratio of
66.9%
in the
second
quarter of
2018
was
2.6
points higher than the loss and loss adjustment expense ratio of
64.3%
in the same period of
2017
. The underwriting expense ratio of
31.9%
for the
second
quarter of
2018
was
0.3
points lower than the underwriting expense ratio of
32.2%
in the same period of
2017
.
Catastrophe losses in the
second
quarters of
2018
and
2017
accounted for
4.6
points and
5.3
points, respectively, of the combined ratio. Net favorable prior year reserve development in the
second
quarters of
2018
and
2017
provided
2.3
points and
3.6
points of benefit, respectively, to the combined ratio. The underlying combined ratio in the
second
quarter of
2018
was
1.7
points higher than the
2017
ratio on the same basis, primarily reflecting the impact of normal quarterly variability in loss activity, including a few large losses, primarily fire related, and windpool assessments related to Hurricane Harvey.
The combined ratio of
98.2%
in the first
six
months of 2018 was
1.7
points higher than the combined ratio of
96.5%
in the same period of 2017. The loss and loss adjustment expense ratio of
66.3%
in the first
six
months of
2018
was
1.9
points higher than the loss and loss adjustment expense ratio of
64.4%
in the same period of
2017
. The underwriting expense ratio of
31.9%
for the first
six
months of
2018
was
0.2
points lower than the underwriting expense ratio of
32.1%
in the same period of
2017
.
Catastrophe losses in the first
six
months of
2018
and
2017
accounted for
4.3
points and
4.6
points, respectively, of the combined ratio. Net favorable prior year reserve development in the first
six
months of
2018
and
2017
provided
2.1
points and
2.7
points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first
six
months of
2018
was
1.4
points higher
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
than the
2017
ratio on the same basis, primarily reflecting the impact of normal variability in loss activity, including a few large losses, primarily fire related.
Written Premiums
Business Insurance’s gross and net written premiums by market were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Select Accounts
|
|
$
|
731
|
|
|
$
|
722
|
|
|
$
|
1,513
|
|
|
$
|
1,487
|
|
Middle Market
|
|
2,076
|
|
|
1,902
|
|
|
4,435
|
|
|
4,166
|
|
National Accounts
|
|
340
|
|
|
336
|
|
|
861
|
|
|
807
|
|
National Property and Other
|
|
543
|
|
|
522
|
|
|
1,006
|
|
|
982
|
|
Total Domestic
|
|
3,690
|
|
|
3,482
|
|
|
7,815
|
|
|
7,442
|
|
International
|
|
348
|
|
|
312
|
|
|
694
|
|
|
623
|
|
Total Business Insurance
|
|
$
|
4,038
|
|
|
$
|
3,794
|
|
|
$
|
8,509
|
|
|
$
|
8,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Select Accounts
|
|
$
|
729
|
|
|
$
|
720
|
|
|
$
|
1,502
|
|
|
$
|
1,475
|
|
Middle Market
|
|
1,985
|
|
|
1,820
|
|
|
4,247
|
|
|
3,997
|
|
National Accounts
|
|
231
|
|
|
219
|
|
|
540
|
|
|
507
|
|
National Property and Other
|
|
518
|
|
|
496
|
|
|
898
|
|
|
882
|
|
Total Domestic
|
|
3,463
|
|
|
3,255
|
|
|
7,187
|
|
|
6,861
|
|
International
|
|
318
|
|
|
289
|
|
|
588
|
|
|
538
|
|
Total Business Insurance
|
|
$
|
3,781
|
|
|
$
|
3,544
|
|
|
$
|
7,775
|
|
|
$
|
7,399
|
|
Gross and net written premiums in the
second
quarter of
2018
increased by 6% and
7%
, respectively, over the same period of
2017
. Gross and net written premiums in the first
six
months of
2018
increased by 6% and
5%
, respectively, over the same period of
2017
.
Select Accounts
. Net written premiums of
$729 million
and
$1.50 billion
in the
second
quarter and first
six
months of
2018
, respectively, increased by
1%
and
2%
, respectively, over the same periods of
2017
. Business retention rates remained strong in the
second
quarter and first
six
months of
2018
. Renewal premium changes in the
second
quarter and first
six
months of
2018
remained positive and were comparable with same periods of
2017
. New business premiums in the
second
quarter and first
six
months of
2018
increased over the same periods of
2017
.
Middle Market.
Net written premiums of
$1.99 billion
and
$4.25 billion
in the
second
quarter and first
six
months of
2018
, respectively, increased by
9%
and
6%
, respectively, over the same periods of
2017
. Business retention rates remained strong in the
second
quarter and first
six
months of
2018
. Renewal premium changes in the
second
quarter and first
six
months of
2018
remained positive and were higher than in the same periods of
2017
. New business premiums in the
second
quarter and first
six
months of
2018
increased over the same periods of
2017
.
National Accounts.
Net written premiums of
$231 million
and
$540 million
in the
second
quarter and first
six
months of
2018
, respectively, increased by
5%
and
7%
, respectively, over the same periods of
2017
. Business retention rates remained strong in the
second
quarter and first
six
months of
2018
. Renewal premium changes in the
second
quarter and first
six
months of
2018
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
remained positive and were higher than in the same periods of
2017
. New business premiums in the
second
quarter and first
six
months of
2018
decreased from the same periods of
2017
.
National Property and Other.
Net written premiums of
$518 million
and
$898 million
in the
second
quarter and first
six
months of
2018
, respectively, increased by
4%
and
2%
, respectively, over the same periods of
2017
. Business retention rates remained strong in the
second
quarter and first
six
months of
2018
. Renewal premium changes in the
second
quarter and first
six
months of
2018
remained positive and were higher than in the same periods of
2017
. New business premiums in the
second
quarter and first
six
months of
2018
increased over the same periods of
2017
.
International.
Net written premiums of
$318 million
and
$588 million
in the
second
quarter and first
six
months of
2018
, respectively, increased by
10%
and
9%
, respectively, over the same periods of
2017
, primarily driven by the impact of changes in foreign currency exchange rates and increases in the Company’s operations in Canada.
Bond & Specialty Insurance
Results of Bond & Specialty Insurance were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(dollars in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
|
$
|
601
|
|
|
$
|
575
|
|
|
$
|
1,183
|
|
|
$
|
1,130
|
|
Net investment income
|
|
57
|
|
|
56
|
|
|
115
|
|
|
117
|
|
Other revenues
|
|
5
|
|
|
6
|
|
|
11
|
|
|
11
|
|
Total revenues
|
|
663
|
|
|
637
|
|
|
1,309
|
|
|
1,258
|
|
|
|
|
|
|
|
|
|
|
Total claims and expenses
|
|
404
|
|
|
398
|
|
|
842
|
|
|
841
|
|
|
|
|
|
|
|
|
|
|
Segment income before income taxes
|
|
259
|
|
|
239
|
|
|
467
|
|
|
417
|
|
Income tax expense
|
|
55
|
|
|
76
|
|
|
90
|
|
|
109
|
|
Segment income
|
|
$
|
204
|
|
|
$
|
163
|
|
|
$
|
377
|
|
|
$
|
308
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio
|
|
28.8
|
%
|
|
29.7
|
%
|
|
32.6
|
%
|
|
35.1
|
%
|
Underwriting expense ratio
|
|
37.7
|
|
|
39.0
|
|
|
37.9
|
|
|
38.9
|
|
Combined ratio
|
|
66.5
|
%
|
|
68.7
|
%
|
|
70.5
|
%
|
|
74.0
|
%
|
Overview
Segment income in the
second
quarter of
2018
was
$204 million
,
$41 million
or
25%
higher than segment income of
$163 million
in the same period of
2017
. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher underlying underwriting margins and (ii) higher net favorable prior year reserve development. Net favorable prior year reserve development in the
second
quarters of
2018
and
2017
was
$89 million
and
$78 million
, respectively. Catastrophe losses in the
second
quarters of
2018
and
2017
were
$5 million
and
$1 million
, respectively. The higher underlying underwriting margins primarily resulted from the impact of higher business volumes. Income tax expense in the
second
quarter of
2018
was lower than in the same period of
2017
, primarily reflecting the impact of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by the impact of (ii) the increase in segment income before income taxes.
Segment income in the first
six
months of
2018
was
$377 million
,
$69 million
or
22%
higher than segment income of
$308 million
in the same period of
2017
. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher net favorable prior year reserve development and (ii) higher underlying underwriting margins. Net favorable prior year reserve development in the first
six
months of
2018
and
2017
was
$124 million
and
$92 million
, respectively. Catastrophe losses in the first
six
months of
2018
and
2017
were
$5 million
and
$2 million
, respectively. The higher underlying underwriting margins primarily resulted from the impact of higher business volumes. Income tax expense in the first six months of
2018
was lower than in the same period of
2017
, primarily reflecting the impact of (i) the lower U.S. corporate income tax rate resulting from the TCJA,
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
partially offset by the impacts of (ii) the $17 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of
2017
and (iii) the increase in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in the
second
quarter of
2018
were
$601 million
,
$26 million
or
5%
higher than in the same period of
2017
. Earned premiums in the first
six
months of
2018
were
$1.18 billion
,
$53 million
or
5%
higher than in the same period of 2017. The increases in both periods of
2018
primarily reflected the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in the
second
quarter of
2018
was
$57 million
,
$1 million
or
2%
higher than in the same period of
2017
. Net investment income in the first
six
months of
2018
was
$115 million
,
$2 million
or
2%
lower than in the same period of
2017
. Included in Bond & Specialty Insurance are certain legal entities whose invested assets and related net investment income are reported exclusively in this segment and not allocated among all business segments. Refer to the “Net Investment Income” section of “Consolidated Results of Operations” herein for a discussion of the decrease in the Company’s consolidated net investment income in the
second
quarter and first
six
months of
2018
as compared with the same periods of
2017
. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s
2017
Annual Report for a discussion of the Company’s net investment income allocation methodology.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the
second
quarter of
2018
were
$175 million
,
$1 million
or
1%
higher than in the same period of
2017
, primarily reflecting (i) higher business volumes, largely offset by (ii) higher net favorable prior year reserve development.
Claims and claim adjustment expenses in the first
six
months of
2018
were
$391 million
,
$10 million
or
2%
lower than in the same period of
2017
, primarily reflecting (i) higher net favorable prior year reserve development, partially offset by the impact of (ii) higher business volumes.
Factors contributing to net favorable prior year reserve development during the
second
quarters and first
six
months of
2018
and
2017
are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the
second
quarter of
2018
was
$113 million
,
$5 million
or
5%
higher than in the same period of
2017
. Amortization of deferred acquisition costs in the first
six
months of
2018
was
$220 million
,
$9 million
or
4%
higher than in the same period of
2017
. The increases in both periods of
2018
were generally consistent with the increases in earned premiums.
General and Administrative Expenses
General and administrative expenses in the
second
quarter of
2018
were
$116 million
, level with the same period of
2017
. General and administrative expenses in the first
six
months of
2018
were
$231 million
,
$2 million
or
1%
higher than in the same period of
2017
.
Income Tax Expense
Income tax expense in the
second
quarter of
2018
was
$55 million
,
$21 million
or
28%
lower than in the same period of
2017
, primarily reflecting the impact of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by the impact of (ii) the
$20 million
increase in segment income before income taxes. Income tax expense in the first
six
months of
2018
was
$90 million
,
$19 million
or
17%
lower than in the same period of
2017
, primarily reflecting the impact of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by the impacts of (ii) the $17 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of
2017
and (iii) the
$50 million
increase in segment income before income taxes.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Combined Ratio
The combined ratio of
66.5%
in the
second
quarter of
2018
was
2.2
points lower than the combined ratio of
68.7%
in the same period of
2017
. The loss and loss adjustment expense ratio of
28.8%
in the
second
quarter of
2018
was
0.9
points lower than the loss and loss adjustment expense ratio of
29.7%
in the same period of
2017
. The underwriting expense ratio of
37.7%
in the
second
quarter of
2018
was
1.3
points lower than the underwriting expense ratio of
39.0%
in the same period of
2017
, primarily reflecting the impact of higher levels of earned premiums.
Net favorable prior year reserve development in the
second
quarters of
2018
and
2017
provided
14.8
points and
13.5
points of benefit, respectively, to the combined ratio. Catastrophe losses in the
second
quarters of
2018
and
2017
accounted for
0.8
points and
0.2
points, respectively, of the combined ratio. The underlying combined ratio in the
second
quarter of
2018
was
1.5
points
lower
than the
2017
ratio on the same basis, primarily due to a lower underwriting expense ratio.
The combined ratio of
70.5%
in the first
six
months of 2018 was
3.5
points lower than the combined ratio of
74.0%
in the same period of 2017. The loss and loss adjustment expense ratio of
32.6%
in the first
six
months of
2018
was
2.5
points lower than the loss and loss adjustment expense ratio of
35.1%
in the same period of
2017
. The underwriting expense ratio of
37.9%
in the first
six
months of
2018
was
1.0
points lower than the underwriting expense ratio of
38.9%
in the same period of
2017
, primarily reflecting the impact of higher levels of earned premiums.
Net favorable prior year reserve development in the first
six
months of
2018
and
2017
provided
10.5
points and
8.2
points of benefit, respectively, to the combined ratio. Catastrophe losses in the first
six
months of
2018
and
2017
accounted for
0.4
points and
0.2
points, respectively, of the combined ratio. The underlying combined ratio in the first
six
months of
2018
was
1.4
points
lower
than the
2017
ratio on the same basis, primarily due to a lower underwriting expense ratio.
Written Premiums
The Bond & Specialty Insurance segment’s gross and net written premiums were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Liability
|
|
$
|
378
|
|
|
$
|
352
|
|
|
$
|
742
|
|
|
$
|
697
|
|
Surety
|
|
240
|
|
|
219
|
|
|
458
|
|
|
423
|
|
Total Domestic
|
|
618
|
|
|
571
|
|
|
1,200
|
|
|
1,120
|
|
International
|
|
56
|
|
|
49
|
|
|
112
|
|
|
101
|
|
Total Bond & Specialty Insurance
|
|
$
|
674
|
|
|
$
|
620
|
|
|
$
|
1,312
|
|
|
$
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Liability
|
|
$
|
362
|
|
|
$
|
341
|
|
|
$
|
710
|
|
|
$
|
671
|
|
Surety
|
|
235
|
|
|
211
|
|
|
420
|
|
|
385
|
|
Total Domestic
|
|
597
|
|
|
552
|
|
|
1,130
|
|
|
1,056
|
|
International
|
|
56
|
|
|
46
|
|
|
97
|
|
|
86
|
|
Total Bond & Specialty Insurance
|
|
$
|
653
|
|
|
$
|
598
|
|
|
$
|
1,227
|
|
|
$
|
1,142
|
|
Gross and net written premiums in the
second
quarter of
2018
both increased by 9% over the same period of
2017
. Gross and net written premiums in the first
six
months of
2018
both increased by 7% over the same period of
2017
.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Domestic.
Net written premiums of
$597 million
and
$1.13 billion
in the
second
quarter and first
six
months of
2018
, respectively, increased by
8%
and
7%
, respectively, over the same periods of
2017
. Excluding the surety line of business, for which the following are not relevant measures, business retention rates remained strong in the
second
quarter and first
six
months of
2018
. Renewal premium changes in the
second
quarter of
2018
remained positive and were higher than in the same period of
2017
. Renewal premium changes in the first
six
months of
2018
remained positive and were comparable with the same period of
2017
. New business premiums in the
second
quarter and first
six
months of
2018
increased over the same periods of
2017
.
International.
Net written premiums of
$56 million
and
$97 million
in the
second
quarter and first
six
months of
2018
, respectively, increased by
22%
and
13%
, respectively, over the same periods of
2017
, driven by increases in the United Kingdom and changes in foreign currency exchange rates.
Personal Insurance
Results of Personal Insurance were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(dollars in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
|
$
|
2,453
|
|
|
$
|
2,272
|
|
|
$
|
4,840
|
|
|
$
|
4,471
|
|
Net investment income
|
|
98
|
|
|
95
|
|
|
197
|
|
|
191
|
|
Fee income
|
|
5
|
|
|
4
|
|
|
9
|
|
|
8
|
|
Other revenues
|
|
14
|
|
|
15
|
|
|
31
|
|
|
31
|
|
Total revenues
|
|
2,570
|
|
|
2,386
|
|
|
5,077
|
|
|
4,701
|
|
|
|
|
|
|
|
|
|
|
Total claims and expenses
|
|
2,599
|
|
|
2,387
|
|
|
4,949
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before income taxes
|
|
(29
|
)
|
|
(1
|
)
|
|
128
|
|
|
101
|
|
Income tax expense (benefit)
|
|
(12
|
)
|
|
(13
|
)
|
|
16
|
|
|
—
|
|
Segment income (loss)
|
|
$
|
(17
|
)
|
|
$
|
12
|
|
|
$
|
112
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio
|
|
77.6
|
%
|
|
76.8
|
%
|
|
74.2
|
%
|
|
74.9
|
%
|
Underwriting expense ratio
|
|
27.3
|
|
|
27.3
|
|
|
27.1
|
|
|
27.0
|
|
Combined ratio
|
|
104.9
|
%
|
|
104.1
|
%
|
|
101.3
|
%
|
|
101.9
|
%
|
Overview
The segment loss in the
second
quarter of
2018
of
$(17) million
compared with segment income of
$12 million
in the same period of
2017
primarily reflected the pre-tax impacts of (i) higher catastrophe losses, partially offset by (ii) higher underlying underwriting margins and (iii) higher net favorable prior year reserve development. Catastrophe losses in the
second
quarters of
2018
and
2017
were
$315 million
and
$218 million
, respectively. Net favorable prior year reserve development in the
second
quarter of
2018
was
$13 million
, compared to no net prior year reserve development in the same period of
2017
. The higher underlying underwriting margins primarily resulted from the impacts of (i) higher underlying underwriting margins in the Agency Automobile product line, driven by earned pricing that exceeded loss cost trends, partially offset by (ii) lower underlying underwriting margins in the Agency Homeowners and Other product line driven by normal quarterly variability in loss activity. The income tax benefit in the
second
quarter of
2018
was
$12 million
, compared with an income tax benefit of
$13 million
in the same period of
2017
, primarily reflecting the impact of (i) the lower U.S. corporate income tax rate resulting from the TCJA, largely offset by the impact of (ii) the decrease in the segment income (loss) before income taxes.
Segment income in the first
six
months of
2018
was
$112 million
,
$11 million
or
11%
higher than segment income of
$101 million
in the same period of
2017
. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher underlying underwriting margins and (ii) higher net favorable prior year reserve development, partially offset by (iii) higher catastrophe losses. Catastrophe losses in the first
six
months of
2018
and
2017
were
$531 million
and
$432 million
, respectively. Net favorable prior year reserve development in the first
six
months of
2018
and
2017
was
$62 million
and
$6 million
, respectively. The higher underlying underwriting margins primarily resulted from the impacts of (i) higher underlying underwriting margins in
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
the Agency Automobile product line, driven by earned pricing that exceeded loss cost trends, partially offset by (ii) lower underlying underwriting margins in the Agency Homeowners and Other product line driven by normal variability in loss activity. Income tax expense in the first
six
months of
2018
was higher than in the same period of
2017
, primarily reflecting the impacts of (i) the increase in segment income before income taxes and (ii) the $7 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of
2017
, partially offset by (iii) the lower U.S. corporate income tax rate resulting from the TCJA.
Revenues
Earned Premiums
Earned premiums in the
second
quarter of
2018
were
$2.45 billion
,
$181 million
or
8%
higher than in the same period of
2017
. Earned premiums in the first
six
months of
2018
were
$4.84 billion
,
$369 million
or
8%
higher than in the same period of
2017
. The increases in both periods of
2018
primarily reflected the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in the
second
quarter of
2018
was
$98 million
,
$3 million
or
3%
higher than in the same period of
2017
. Net investment income in the first
six
months of
2018
was
$197 million
,
$6 million
or
3%
higher than in the same period of
2017
. The increases in both periods of
2018
primarily reflected the impact of growth in business volumes. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the decrease in the Company’s consolidated net investment income in the
second
quarter and first
six
months of
2018
compared with the same periods of
2017
. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s
2017
Annual Report for a discussion of the Company’s net investment income allocation methodology.
Other Revenues
Other revenues in the
second
quarters and first
six
months of
2018
and
2017
primarily consisted of installment premium charges.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the
second
quarter of
2018
were
$1.90 billion
,
$158 million
or
9%
higher than in the same period of
2017
, primarily reflecting the impacts of (i) higher business volumes, (ii) higher catastrophe losses, (iii) loss cost trends and (iv) normal quarterly variability in loss activity in the Homeowners and Other product line, partially offset by (v) higher net favorable prior year reserve development.
Claims and claim adjustment expenses in the first
six
months of
2018
were
$3.59 billion
,
$244 million
or
7%
higher than in the same period of
2017
, primarily reflecting the impacts of (i) higher business volumes, (ii) higher catastrophe losses, (iii) loss cost trends and (iv) normal variability in loss activity in the Homeowners and Other product line, partially offset by (v) higher net favorable prior year reserve development.
Factors contributing to net favorable prior year reserve development during the
second
quarter and first
six
months of
2018
are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the
second
quarter of
2018
was
$380 million
,
$23 million
or
6%
higher than in the same period of
2017
. Amortization of deferred acquisition costs in the first
six
months of
2018
was
$754 million
,
$51 million
or
7%
higher than in the same period of
2017
. The increases in both periods of
2018
were generally consistent with the increases in earned premiums.
General and Administrative Expenses
General and administrative expenses in the
second
quarter of
2018
were
$316 million
,
$31 million
or
11%
higher than in the same period of
2017
. General and administrative expenses in the first
six
months of
2018
were
$604 million
,
$54 million
or
10%
higher than in the same period of
2017
. The increases in both periods of
2018
primarily reflected the impacts of (i) variable costs associated with higher business volumes and (ii) windpool assessments incurred in 2018 related to Hurricane Harvey.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Income Tax Expense (Benefit)
The income tax benefit in the
second
quarter of
2018
was
$12 million
,
$1 million
or
8%
lower than the income tax benefit in the same period of
2017
, primarily reflecting the impact of (i) the lower U.S. corporate income tax rate resulting from the TCJA, largely offset by the impact of (ii) the decrease in the segment income (loss) before income taxes. Income tax expense in the first
six
months of
2018
was
$16 million
, compared to no income tax expense or benefit in the same period of
2017
, as the impacts of (i) the
$27 million
increase in segment income before income taxes and (ii) the $7 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of
2017
were partially offset by the impact of (iii) the lower U.S. corporate income tax rate resulting from the TCJA.
Combined Ratio
The combined ratio of
104.9%
in the
second
quarter of
2018
was
0.8
points higher than the combined ratio of
104.1%
in the same period of
2017
. The loss and loss adjustment expense ratio of
77.6%
in the
second
quarter of
2018
was
0.8
points higher than the loss and loss adjustment expense ratio of
76.8%
in the same period of
2017
. The underwriting expense ratio of
27.3%
for the
second
quarter of
2018
was level with the underwriting expense ratio in the same period of
2017
.
Catastrophe losses in the
second
quarters of
2018
and
2017
accounted for
12.8
points and
9.6
points, respectively, of the combined ratio. Net favorable prior year reserve development in the
second
quarter of
2018
provided
0.5
points of benefit to the combined ratio. The underlying combined ratio in the
second
quarter of
2018
was
1.9
points
lower
than the
2017
ratio on the same basis, primarily reflecting the impacts of (i) earned pricing that exceeded loss cost trends in the Agency Automobile product line, partially offset by (ii) normal quarterly variability in loss activity in the Agency Homeowners and Other product line.
The combined ratio of
101.3%
in the first
six
months of
2018
was
0.6
points lower than the combined ratio of
101.9%
in the same period of
2017
. The loss and loss adjustment expense ratio of
74.2%
in the first
six
months of
2018
was
0.7
points lower than the loss and loss adjustment expense ratio of
74.9%
in the same period of
2017
. The underwriting expense ratio of
27.1%
in the first
six
months of
2018
was
0.1
points higher than the underwriting expense ratio of
27.0%
in the same period of
2017
.
Catastrophe losses in the first
six
months of
2018
and
2017
accounted for
11.0
points and
9.7
points, respectively, of the combined ratio. Net favorable prior year reserve development in the first
six
months of
2018
and
2017
provided
1.3
points and
0.2
points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first
six
months of
2018
was
0.8%
points
lower
than the
2017
ratio on the same basis, primarily reflecting the impacts of (i) earned pricing that exceeded loss cost trends in the Agency Automobile product line, partially offset by (ii) normal variability in loss activity in the Agency Homeowners and Other product line.
Written Premiums
Personal Insurance’s gross and net written premiums were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
1,265
|
|
|
$
|
1,164
|
|
|
$
|
2,457
|
|
|
$
|
2,258
|
|
Homeowners and Other
|
|
1,148
|
|
|
1,085
|
|
|
2,021
|
|
|
1,920
|
|
Total Agency
|
|
2,413
|
|
|
2,249
|
|
|
4,478
|
|
|
4,178
|
|
Direct-to-Consumer
|
|
98
|
|
|
88
|
|
|
191
|
|
|
171
|
|
Total Domestic
|
|
2,511
|
|
|
2,337
|
|
|
4,669
|
|
|
4,349
|
|
International
|
|
206
|
|
|
176
|
|
|
357
|
|
|
310
|
|
Total Personal Insurance
|
|
$
|
2,717
|
|
|
$
|
2,513
|
|
|
$
|
5,026
|
|
|
$
|
4,659
|
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Written Premiums
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
1,258
|
|
|
$
|
1,159
|
|
|
$
|
2,441
|
|
|
$
|
2,246
|
|
Homeowners and Other
|
|
1,137
|
|
|
1,077
|
|
|
1,969
|
|
|
1,871
|
|
Total Agency
|
|
2,395
|
|
|
2,236
|
|
|
4,410
|
|
|
4,117
|
|
Direct-to-Consumer
|
|
99
|
|
|
88
|
|
|
191
|
|
|
171
|
|
Total Domestic
|
|
2,494
|
|
|
2,324
|
|
|
4,601
|
|
|
4,288
|
|
International
|
|
203
|
|
|
174
|
|
|
352
|
|
|
306
|
|
Total Personal Insurance
|
|
$
|
2,697
|
|
|
$
|
2,498
|
|
|
$
|
4,953
|
|
|
$
|
4,594
|
|
Domestic Agency Written Premiums
Personal Insurance’s domestic Agency business comprises business written through agents, brokers and other intermediaries.
Domestic Agency gross and net written premiums in the
second
quarter and first
six
months of
2018
both increased by 7% over the same periods of
2017
.
Domestic Agency Automobile net written premiums of
$1.26 billion
and
$2.44 billion
in the
second
quarter and first
six
months of
2018
, respectively, both increased by
9%
over the same periods of
2017
. Business retention rates remained strong in the
second
quarter and first
six
months of
2018
. Renewal premium changes in the
second
quarter and first
six
months of
2018
remained positive and were higher than in the same periods of
2017
. New business premiums in the
second
quarter and first
six
months of
2018
decreased from the same periods of
2017
.
Domestic Agency Homeowners and Other net written premiums of
$1.14 billion
and
$1.97 billion
in the
second
quarter and first
six
months of
2018
, respectively, increased by
6%
and
5%
, respectively, over the same periods of
2017
. Business retention rates remained strong in the
second
quarter and first
six
months of
2018
. Renewal premium changes in the
second
quarter and first
six
months of
2018
remained positive and were higher than in the same periods of
2017
. New business premiums in the
second
quarter and first
six
months of
2018
increased over the same periods of
2017
.
For its Domestic Agency business, the Personal Insurance segment had approximately 7.0 million and 6.8 million active policies at
June 30,
2018
and
2017
, respectively.
Direct-to-Consumer and International Written Premiums
Direct-to-Consumer net written premiums of
$99 million
and
$191 million
in the
second
quarter and first
six
months of
2018
, respectively, increased by
13%
and
12%
, respectively, over the same periods of
2017
, primarily reflecting growth in automobile net written premiums due to positive renewal premium changes.
International net written premiums of
$203 million
and
$352 million
in the
second
quarter and first
six
months of
2018
, respectively, increased by
17%
and
15%
, respectively, over the same periods of
2017
, primarily driven by growth in automobile net written premiums and the impact of changes in foreign currency exchange rates.
For its international and direct-to-consumer business, Personal Insurance had approximately 895,000 and 867,000 active policies at
June 30,
2018
and
2017
, respectively.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Interest Expense and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Income (loss)
|
|
$
|
(78
|
)
|
|
$
|
(61
|
)
|
|
$
|
(154
|
)
|
|
(123
|
)
|
The Income (loss) for Interest Expense and Other in the
second
quarters of
2018
and
2017
was
$(78) million
and
$(61) million
, respectively. The Income (loss) for Interest Expense and Other in the first
six
months of
2018
and
2017
was
$(154) million
and
$(123) million
, respectively. Pre-tax interest expense in the
second
quarters of
2018
and
2017
was
$90 million
and
$92 million
respectively. Pre-tax interest expense in the first
six
months of
2018
and
2017
was
$179 million
and
$181 million
, respectively. After-tax interest expense in the
second
quarters of
2018
and
2017
was
$71 million
and
$60 million
, respectively. After-tax interest expense in the first six months of
2018
and
2017
was
$141 million
and
$118 million
, respectively. The increase in after-tax interest expense in both periods of
2018
primarily reflected the impact of the lower U.S. corporate income tax rate in
2018
resulting from the TCJA.
ASBESTOS CLAIMS AND LITIGATION
The Company believes that the property and casualty insurance industry has suffered from court decisions and other trends that have expanded insurance coverage for asbestos claims far beyond the original intent of insurers and policyholders. The Company has received and continues to receive a significant number of asbestos claims from the Company’s policyholders (which includes others seeking coverage under a policy). Factors underlying these claim filings include continued intensive advertising by lawyers seeking asbestos claimants and the continued focus by plaintiffs on defendants who were not traditionally primary targets of asbestos litigation. The focus on these defendants is primarily the result of the number of traditional asbestos defendants who have sought bankruptcy protection in previous years. In addition to contributing to the overall number of claims, bankruptcy proceedings may increase the volatility of asbestos-related losses by initially delaying the reporting of claims and later by significantly accelerating and increasing loss payments by insurers, including the Company. The bankruptcy of many traditional defendants has also caused increased settlement demands against those policyholders who are not in bankruptcy but remain in the tort system. Currently, in many jurisdictions, those who allege very serious injury and who can present credible medical evidence of their injuries are receiving priority trial settings in the courts, while those who have not shown any credible disease manifestation are having their hearing dates delayed or placed on an inactive docket. Prioritizing claims involving credible evidence of injuries, along with the focus on defendants who were not traditionally primary targets of asbestos litigation, contributes to the claims and claim adjustment expense payment patterns experienced by the Company. The Company’s asbestos-related claims and claim adjustment expense experience also has been impacted by the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers.
The Company continues to be involved in coverage litigation concerning a number of policyholders, some of whom have filed for bankruptcy, who in some instances have asserted that all or a portion of their asbestos-related claims are not subject to aggregate limits on coverage. In these instances, policyholders also may assert that each individual bodily injury claim should be treated as a separate occurrence under the policy. It is difficult to predict whether these policyholders will be successful on both issues. To the extent both issues are resolved in a policyholder’s favor and other Company defenses are not successful, the Company’s coverage obligations under the policies at issue would be materially increased and bounded only by the applicable per-occurrence limits and the number of asbestos bodily injury claims against the policyholders. Although the Company has seen a reduction in the overall risk associated with these lawsuits, it remains difficult to predict the ultimate cost of these claims.
Many coverage disputes with policyholders are only resolved through settlement agreements. Because many policyholders make exaggerated demands, it is difficult to predict the outcome of settlement negotiations. Settlements involving bankrupt policyholders may include extensive releases which are favorable to the Company but which could result in settlements for larger amounts than originally anticipated. There also may be instances where a court may not approve a proposed settlement, which may result in additional litigation and potentially less beneficial outcomes for the Company. As in the past, the Company will continue to pursue settlement opportunities.
In addition to claims against policyholders, proceedings have been launched directly against insurers, including the Company, by individuals challenging insurers’ conduct with respect to the handling of past asbestos claims and by individuals seeking damages arising from alleged asbestos-related bodily injuries. It is possible that the filing of other direct actions against insurers, including the Company, could be made in the future. It is difficult to predict the outcome of these proceedings, including whether the plaintiffs
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
would be able to sustain these actions against insurers based on novel legal theories of liability. The Company believes it has meritorious defenses to any such claims and has received favorable rulings in certain jurisdictions.
The Company’s quarterly asbestos reserve reviews include an analysis of exposure and claim payment patterns by policyholder category, as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative actions. The Company also analyzes developing payment patterns among policyholders in the Home Office and Field Office, and Assumed Reinsurance and Other categories as well as projected reinsurance billings and recoveries. In addition, the Company reviews its historical gross and net loss and expense paid experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid activity. Conventional actuarial methods are not utilized to establish asbestos reserves and the Company’s evaluations have not resulted in a reliable method to determine a meaningful average asbestos defense or indemnity payment. Over the past decade, the property and casualty insurance industry, including the Company, has experienced net unfavorable prior year reserve development with regard to asbestos reserves, but the Company believes that over that period there has been a reduction in the volatility associated with the Company’s overall asbestos exposure as the overall asbestos environment has evolved from one dominated by exposure to significant litigation risks, particularly coverage disputes relating to policyholders in bankruptcy who were asserting that their claims were not subject to the aggregate limits contained in their policies, to an environment primarily driven by a frequency of litigation related to individuals with mesothelioma. The Company’s overall view of the current underlying
asbestos environment is essentially unchanged from recent periods and there remains a high degree of uncertainty with respect to future exposure to asbestos claims.
Because each policyholder presents different liability and coverage issues, the Company generally reviews the exposure presented by each policyholder at least annually. Among the factors which the Company may consider in the course of this review are: available insurance coverage, including the role of any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles; an analysis of the policyholder’s potential liability; the jurisdictions involved; past and anticipated future claim activity and loss development on pending claims; past settlement values of similar claims; allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether or not an asbestos claim is a products/completed operation claim subject to an aggregate limit and the available coverage, if any, for that claim.
Net asbestos paid loss and loss expenses in the first
six
months of
2018
and
2017
were $98 million and $139 million, respectively. Net asbestos reserves were $1.18 billion at
June 30, 2018
, compared with $1.19 billion at
June 30, 2017
.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
The following table displays activity for asbestos losses and loss expenses and reserves:
|
|
|
|
|
|
|
|
|
|
(at and for the six months ended June 30, in millions)
|
|
2018
|
|
2017
|
Beginning reserves:
|
|
|
|
|
|
|
Gross
|
|
$
|
1,538
|
|
|
$
|
1,512
|
|
Ceded
|
|
(257
|
)
|
|
(186
|
)
|
Net
|
|
1,281
|
|
|
1,326
|
|
|
|
|
|
|
Incurred losses and loss expenses:
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
—
|
|
Ceded
|
|
—
|
|
|
—
|
|
Net
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Paid loss and loss expenses:
|
|
|
|
|
|
|
Gross
|
|
130
|
|
|
166
|
|
Ceded
|
|
(32
|
)
|
|
(27
|
)
|
Net
|
|
98
|
|
|
139
|
|
|
|
|
|
|
Foreign exchange and other:
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
1
|
|
Ceded
|
|
—
|
|
|
—
|
|
Net
|
|
—
|
|
|
1
|
|
|
|
|
|
|
Ending reserves:
|
|
|
|
|
|
|
Gross
|
|
1,408
|
|
|
1,347
|
|
Ceded
|
|
(225
|
)
|
|
(159
|
)
|
Net
|
|
$
|
1,183
|
|
|
$
|
1,188
|
|
_________________________________________________________
See “—Uncertainty Regarding Adequacy of Asbestos and Environmental Reserves.”
ENVIRONMENTAL CLAIMS AND LITIGATION
The Company has received and continues to receive claims from policyholders who allege that they are liable for injury or damage arising out of their alleged disposition of toxic substances. Mostly, these claims are due to various legislative as well as regulatory efforts aimed at environmental remediation. For instance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), enacted in 1980 and later modified, enables private parties as well as federal and state governments to take action with respect to releases and threatened releases of hazardous substances. This federal statute permits the recovery of response costs from some liable parties and may require liable parties to undertake their own remedial action. Liability under CERCLA may be joint and several with other responsible parties.
The Company has been, and continues to be, involved in litigation involving insurance coverage issues pertaining to environmental claims. The Company believes that some court decisions have interpreted the insurance coverage to be broader than the original intent of the insurers and policyholders. These decisions often pertain to insurance policies that were issued by the Company prior to the mid-1980s. These decisions continue to be inconsistent and vary from jurisdiction to jurisdiction. Environmental claims, when submitted, rarely indicate the monetary amount being sought by the claimant from the policyholder, and the Company does not keep track of the monetary amount being sought in those few claims which indicate a monetary amount.
The resolution of environmental exposures by the Company generally occurs through settlements with policyholders as opposed to claimants. Generally, the Company strives to extinguish any obligations it may have under any policy issued to the policyholder for past, present and future environmental liabilities and extinguish any pending coverage litigation dispute with the policyholder. This form of settlement is commonly referred to as a “buy-back” of policies for future environmental liability. In addition, many of the agreements have also extinguished any insurance obligation which the Company may have for other claims, including, but
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
not limited to, asbestos and other cumulative injury claims. The Company and its policyholders may also agree to settlements which extinguish any liability arising from known specified sites or claims. Where appropriate, these agreements also include indemnities and hold harmless provisions to protect the Company. The Company’s general purpose in executing these agreements is to reduce the Company’s potential environmental exposure and eliminate the risks presented by coverage litigation with the policyholder and related costs.
In establishing environmental reserves, the Company evaluates the exposure presented by each policyholder and the anticipated cost of resolution, if any. In the course of this analysis, the Company generally considers the probable liability, available coverage and relevant judicial interpretations. In addition, the Company considers the many variables presented, such as: the nature of the alleged activities of the policyholder at each site; the number of sites; the total number of potentially responsible parties at each site; the nature of the alleged environmental harm and the corresponding remedy at each site; the nature of government enforcement activities at each site; the ownership and general use of each site; the overall nature of the insurance relationship between the Company and the policyholder, including the role of any umbrella or excess insurance the Company has issued to the policyholder; the involvement of other insurers; the potential for other available coverage, including the number of years of coverage; the role, if any, of non-environmental claims or potential non-environmental claims in any resolution process; and the applicable law in each jurisdiction. The evaluation of the exposure presented by a policyholder can change as information concerning that policyholder and the many variables presented is developed. Conventional actuarial methods are not used to estimate these reserves.
In its review of environmental reserves, the Company considers: past settlement payments; changing judicial and legislative trends; its reserves for the costs of litigating environmental coverage matters; the potential for policyholders with smaller exposures to be named in new clean-up actions for both on- and off-site waste disposal activities; the potential for adverse development; the potential for additional new claims beyond previous expectations; and the potential higher costs for new settlements.
The duration of the Company’s investigation and review of these claims and the time necessary to determine an appropriate estimate, if any, of the value of the claim to the Company vary significantly and are dependent upon a number of factors. These factors include, but are not limited to, the cooperation of the policyholder in providing claim information, the pace of underlying litigation or claim processes, the pace of coverage litigation between the policyholder and the Company and the willingness of the policyholder and the Company to negotiate, if appropriate, a resolution of any dispute pertaining to these claims. Because these factors vary from claim-to-claim and policyholder-by-policyholder, the Company cannot provide a meaningful average of the duration of an environmental claim. However, based upon the Company’s experience in resolving these claims, the duration may vary from months to several years.
The Company continues to receive notices from policyholders tendering claims for the first time, frequently under policies issued prior to the mid-1980s. These policyholders continue to present smaller exposures, have fewer sites and are lower tier defendants. Further, in many instances, clean-up costs have been reduced because regulatory agencies are willing to accept risk-based site analyses and more efficient clean-up technologies. Over the past several years, the Company has experienced generally favorable trends in the number of new policyholders tendering environmental claims for the first time and in the number of pending declaratory judgment actions relating to environmental matters. However, the degree to which those favorable trends have continued has been less than anticipated. In addition, reserve development on existing environmental claims has been greater than anticipated, driven by claims and legal developments in a limited number of jurisdictions. As a result of these factors, the Company increased its net environmental reserves by $55 million and $65 million in the second quarters of
2018
and
2017
, respectively.
Net environmental paid loss and loss expenses in the first
six
months of
2018
and
2017
were $26 million and $37 million, respectively. At
June 30, 2018
, approximately 95% of the net environmental reserve (approximately $367 million) was carried in a bulk reserve and included unresolved environmental claims, incurred but not reported environmental claims and the anticipated cost of coverage litigation disputes relating to these claims. The bulk reserve the Company carries is established and adjusted based upon the aggregate volume of in-process environmental claims and the Company’s experience in resolving those claims. The balance, approximately 5% of the net environmental reserve (approximately $21 million), consists of case reserves.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
The following table displays activity for environmental losses and loss expenses and reserves:
|
|
|
|
|
|
|
|
|
|
(at and for the six months ended June 30, in millions)
|
|
2018
|
|
2017
|
Beginning reserves:
|
|
|
|
|
|
|
Gross
|
|
$
|
373
|
|
|
$
|
395
|
|
Ceded
|
|
(13
|
)
|
|
(13
|
)
|
Net
|
|
360
|
|
|
382
|
|
|
|
|
|
|
Incurred losses and loss expenses:
|
|
|
|
|
|
|
Gross
|
|
71
|
|
|
74
|
|
Ceded
|
|
(16
|
)
|
|
(9
|
)
|
Net
|
|
55
|
|
|
65
|
|
|
|
|
|
|
Paid loss and loss expenses:
|
|
|
|
|
|
|
Gross
|
|
30
|
|
|
39
|
|
Ceded
|
|
(4
|
)
|
|
(2
|
)
|
Net
|
|
26
|
|
|
37
|
|
|
|
|
|
|
Foreign exchange and other:
|
|
|
|
|
|
|
Gross
|
|
(1
|
)
|
|
1
|
|
Ceded
|
|
—
|
|
|
—
|
|
Net
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
Ending reserves:
|
|
|
|
|
|
|
Gross
|
|
413
|
|
|
431
|
|
Ceded
|
|
(25
|
)
|
|
(20
|
)
|
Net
|
|
$
|
388
|
|
|
$
|
411
|
|
UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES
As a result of the processes and procedures discussed above, management believes that the reserves carried for asbestos and environmental claims are appropriately established based upon known facts, current law and management’s judgment. However, the uncertainties surrounding the final resolution of these claims continue, and it is difficult to determine the ultimate exposure for asbestos and environmental claims and related litigation. As a result, these reserves are subject to revision as new information becomes available and as claims develop. The continuing uncertainties include, without limitation, the risks and lack of predictability inherent in complex litigation, any impact from the bankruptcy protection sought by various asbestos producers and other asbestos defendants, a further increase or decrease in the cost to
resolve, and/or the number of, asbestos and environmental claims beyond that which is anticipated, the emergence of a greater number of asbestos claims than anticipated as a result of extended life expectancies resulting from medical advances and lifestyle improvements, the role of any umbrella or excess policies the Company has issued, the resolution or adjudication of disputes pertaining to the amount of available coverage for asbestos and environmental claims in a manner inconsistent with the Company’s previous assessment of these claims, the number and outcome of direct actions against the Company, future developments pertaining to the Company’s ability to recover reinsurance for asbestos and environmental claims and the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers. In addition, uncertainties arise from the insolvency or bankruptcy of policyholders and other defendants. It is also not possible to predict changes in the legal, regulatory and legislative environment and their impact on the future development of asbestos and environmental claims. This environment could be affected by changes in applicable legislation and future court and regulatory decisions and interpretations, including the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for the pursuit of asbestos claims. It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement negotiations near completion and significant legal questions are resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case with policyholders in bankruptcy where negotiations often involve a large number of claimants and other parties and require court
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
approval to be effective. As part of its continuing analysis of asbestos and environmental reserves, the Company continues to study the implications of these and other developments.
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the Company’s current insurance reserves. In addition, the Company’s estimate of claims and claim adjustment expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s operating results in future periods.
INVESTMENT PORTFOLIO
The Company’s invested assets at
June 30, 2018
were
$71.16 billion
, of which 93% was invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate investments and 5% in other investments. Because the primary purpose of the investment portfolio is to fund future claims payments, the Company employs a conservative investment philosophy. A significant majority of funds available for investment are deployed in a widely diversified portfolio of high quality, liquid, taxable U.S. government, tax-exempt U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.
The carrying value of the Company’s fixed maturity portfolio at
June 30, 2018
was
$62.54 billion
. The Company closely monitors the duration of its fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy the Company’s insurance and debt obligations. The weighted average credit quality of the Company’s fixed maturity portfolio, both including and excluding U.S. Treasury securities, was “Aa2” at both
June 30, 2018
and
December 31, 2017
. Below investment grade securities represented 2.7% of the total fixed maturity investment portfolio at both
June 30, 2018
and
December 31, 2017
. The weighted average effective duration of fixed maturities and short-term securities was 4.5 (4.8 excluding short-term securities) at
June 30, 2018
and 4.0 (4.3 excluding short-term securities) at
December 31, 2017
.
Obligations of States, Municipalities and Political Subdivisions
The Company’s fixed maturity investment portfolio at
June 30, 2018
and
December 31, 2017
included
$28.93 billion
and
$30.92 billion
, respectively, of securities which are obligations of states, municipalities and political subdivisions (collectively referred to as the municipal bond portfolio). The municipal bond portfolio is diversified across the United States, the District of Columbia and Puerto Rico and includes general obligation and revenue bonds issued by states, cities, counties, school districts and similar issuers. Included in the municipal bond portfolio at
June 30, 2018
and
December 31, 2017
were
$3.54 billion
and
$3.90 billion
, respectively, of pre-refunded bonds, which are bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of principal and interest due under the bonds. The irrevocable trusts are verified as to their sufficiency by an independent verification agent of the underwriter, issuer or trustee. All of the Company’s holdings of securities issued by Puerto Rico and related entities have been pre-refunded and therefore are defeased by U.S. Treasury securities.
The Company bases its investment decision on the underlying credit characteristics of the municipal security. The weighted average credit rating of the municipal bond portfolio was “Aa1” at both
June 30, 2018
and
December 31, 2017
.
Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities
The Company’s fixed maturity investment portfolio at
June 30, 2018
and
December 31, 2017
included
$2.52 billion
and
$2.41 billion
, respectively, of residential mortgage-backed securities, which include pass-through securities and collateralized mortgage obligations (CMOs), all of which are subject to prepayment risk (either shortening or lengthening of duration). While prepayment risk for securities and its effect on income cannot be fully controlled, particularly when interest rates move dramatically, the Company’s investment strategy generally favors securities that reduce this risk within expected interest rate ranges. Included in the totals at
June 30, 2018
and
December 31, 2017
were $748 million and $804 million, respectively, of GNMA, FNMA, FHLMC (excluding FHA project loans) and Canadian government guaranteed residential mortgage-backed pass-through securities classified as available for sale. Also included in those totals were residential CMOs classified as available for sale with a fair value of $1.77 billion and $1.61 billion at
June 30, 2018
and
December 31, 2017
, respectively. Approximately 51% and 55% of the Company’s CMO holdings at
June 30, 2018
and
December 31, 2017
, respectively, were guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC. The weighted average credit rating of the $874 million and $717 million of non-guaranteed CMO holdings was “Aa3” at
June 30, 2018
and “A1” at
December 31, 2017
. The weighted average credit rating of all of the above securities was “Aa1” at both
June 30, 2018
and
December 31, 2017
. For further discussion regarding the Company’s
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
investments in residential CMOs, see “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investment Portfolio” in the Company’s 2017 Annual Report.
Equity Securities, Real Estate and Short-Term Investments
See note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report for further information about these invested asset classes.
Other Investments
The Company also invests in private equity limited partnerships, hedge funds and real estate partnerships and joint ventures. Also included in other investments are non-public common and preferred equities and derivatives. These asset classes have historically provided a higher return than fixed maturities but are subject to more volatility. At
June 30, 2018
and
December 31, 2017
, the carrying value of the Company’s other investments was
$3.56 billion
and
$3.53 billion
, respectively.
CATASTROPHE REINSURANCE COVERAGE
The Company’s catastrophe reinsurance coverage is discussed in the “Catastrophe Reinsurance” section of “Part I - Item 1 - Business” in the Company’s 2017 Annual Report. Except as discussed below, there have been no material changes to the Company’s catastrophe reinsurance coverage from that reported in the Company’s 2017 Annual Report.
Catastrophe Bonds
. The Company has catastrophe protection through an indemnity reinsurance agreement with Long Point Re III Ltd. (Long Point Re III), an independent Cayman Islands company licensed as a Class C insurer in the Cayman Islands. The reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. In connection with the reinsurance agreement, Long Point Re III issued notes (generally referred to as “catastrophe bonds”) to investors in amounts equal to the full coverage provided under the reinsurance agreement as described below. The proceeds of the issuance were deposited in a reinsurance trust account. The businesses covered by the reinsurance agreement are subsets of the Company’s overall insurance portfolio, comprising specified property coverages spread across the following geographic locations: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Vermont.
The reinsurance agreement was entered into in May 2018 in connection with Long Point Re III’s offering to unrelated investors of $500 million aggregate principal amount of catastrophe bonds. This reinsurance agreement provides coverage to the Company through May 24, 2022 for certain losses from tropical cyclones, earthquakes, severe thunderstorms or winter storms in the locations listed above. The attachment point and maximum limit under this agreement will be reset annually to adjust the expected loss of the layer within a predetermined range. For the period May 25, 2018 through and including May 24, 2019, the Company will be entitled to begin recovering amounts under the reinsurance agreement if the losses in the covered area for a single occurrence reach an initial attachment amount of $1.9 billion. The full $500 million coverage amount is available until such covered losses reach a maximum $2.4 billion. The coverage under the reinsurance agreement is limited to specified property coverage written in Personal Insurance; Select Accounts, Middle Market (excluding Excess Casualty and Boiler & Machinery) and National Property and Other in Business Insurance; and Bond & Specialty Insurance Other in Bond & Specialty Insurance.
The Company's previous reinsurance agreement with Long Point Re III expired in May 2018 without the Company incurring any losses that resulted in a recovery under the agreement since its inception.
See the “Catastrophe Reinsurance” section of “Part I - Item 1 - Business” in the Company’s 2017 Annual Report for more details, including a discussion of the structure of and accounting for Long Point Re III.
Other Catastrophe Reinsurance Treaties
. Catastrophe reinsurance treaties that renewed on July 1, 2018 were as follows:
|
|
•
|
Northeast Property Catastrophe Excess-of-Loss Reinsurance Treaty.
This provides up to $600 million part of $850 million of coverage, subject to a $2.25 billion retention, for losses arising from a single occurrence, subject to one reinstatement. Coverage is provided on an all perils basis including but not limited to hurricanes, tornadoes, hail storms, earthquakes and winter storm and/or freeze losses (coverage is included for terrorism events in limited circumstances, but nuclear, biological and radiological attacks are entirely excluded) from Virginia to Maine for the period July 1, 2018 through and including June 30, 2019. Losses from a covered event anywhere in the United States, Canada, the Caribbean and Mexico
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
and waters contiguous thereto may be used to satisfy the retention. Recoveries under catastrophe bonds (if any) would be first applied to reduce losses subject to this treaty.
|
|
•
|
Middle Market Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty
. This treaty provides for up to $184.5 million part of $205 million of coverage, subject to a $95 million retention, for losses arising from an earthquake, including fire following and sprinkler leakage incurred under policies written by Technology, Public Sector Services and Commercial Accounts in the Company’s Business Insurance segment for the period July 1, 2018 through and including June 30, 2019.
|
|
|
•
|
Canadian Property Catastrophe Excess-of-Loss Reinsurance Treaty.
This treaty, effective for the period July 1, 2018 through and including June 30, 2019, covers the accumulation of net property losses arising out of one occurrence on business written by the Company’s Canadian businesses. The treaty covers all property written by the Company’s Canadian businesses, including, but not limited to, habitational property, commercial property, inland marine, ocean marine and auto physical damages exposures, with respect to risks located worldwide. The treaty provides coverage for 50% of losses in excess of C$100 million (US$76 million at
June 30, 2018
), up to C$200 million (US$152 million at
June 30, 2018
) and for 100% of losses in excess of C$200 million (US$152 million at
June 30, 2018
), up to C$600 million (US$456 million at
June 30, 2018
).
|
The Company regularly reviews its catastrophe reinsurance coverage and may adjust such coverage in the future.
REINSURANCE RECOVERABLES
For a description of the Company’s reinsurance recoverables, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reinsurance Recoverables” in the Company’s 2017 Annual Report.
The following table summarizes the composition of the Company’s reinsurance recoverables:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30, 2018
|
|
December 31, 2017
|
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses
|
|
$
|
3,284
|
|
|
$
|
3,303
|
|
Allowance for uncollectible reinsurance
|
|
(109
|
)
|
|
(111
|
)
|
Net reinsurance recoverables
|
|
3,175
|
|
|
3,192
|
|
Mandatory pools and associations
|
|
2,021
|
|
|
2,011
|
|
Structured settlements
|
|
3,062
|
|
|
3,106
|
|
Total reinsurance recoverables
|
|
$
|
8,258
|
|
|
$
|
8,309
|
|
Net reinsurance recoverables decreased by $17 million from December 31, 2017.
OUTLOOK
The following discussion provides outlook information for certain key drivers of the Company’s results of operations and capital position.
Premiums.
The Company’s earned premiums are a function of net written premium volume. Net written premiums comprise both renewal business and new business and are recognized as earned premium over the life of the underlying policies. When business renews, the amount of net written premiums associated with that business may increase or decrease (renewal premium change) as a result of increases or decreases in rate and/or insured exposures, which the Company considers as a measure of units of exposure (such as the number and value of vehicles or properties insured). Net written premiums from both renewal and new business, and therefore earned premiums, are impacted by competitive market conditions as well as general economic conditions, which, particularly in the case of Business Insurance, affect audit premium adjustments, policy endorsements and mid-term cancellations. Property and casualty insurance market conditions are expected to remain competitive. Net written premiums may also be impacted by the structure of reinsurance programs and related costs, as well as changes in foreign currency exchange rates.
Overall, the Company expects retention levels (the amount of expiring premium that renews, before the impact of renewal premium changes) will remain strong by historical standards during the remainder of 2018 and into 2019. In Business Insurance, the Company expects that domestic renewal premium changes during the remainder of 2018 will remain positive and will be higher
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
than the levels attained in the same period of 2017, and that domestic renewal premium changes into 2019 will remain positive and will be broadly consistent with the levels attained in the same period of 2018. In Bond & Specialty Insurance, the Company expects that renewal premium changes with respect to domestic management liability business during the remainder of 2018 and into 2019 will remain positive and will be broadly consistent with the levels attained in the same periods of 2017 and 2018. With respect to domestic surety business within Bond & Specialty Insurance, the Company expects that net written premium volume during the remainder of 2018 and into 2019 will be slightly higher than the levels attained in the same periods of 2017 and 2018. In Personal Insurance, the Company expects that domestic Agency Auto renewal premium changes during the remainder of 2018 and into 2019 will remain positive but will be lower than the levels attained in the same periods of 2017 and 2018. The Company expects that domestic Agency Homeowners and Other renewal premium changes during the remainder of 2018 and into 2019 will remain positive and will be slightly higher than the levels attained in the same periods of 2017 and 2018. The need for state regulatory approval for changes to personal property and casualty insurance prices, as well as competitive market conditions, may impact the timing and extent of renewal premium changes. Given the relatively smaller amount of premium that the Company generates from outside the United States and the transactional nature of some of those markets, particularly Lloyd’s, international renewal premium changes in each segment during the remainder of 2018 and into 2019 could be somewhat higher, broadly consistent with or somewhat lower than the levels attained in the same periods of 2017 and 2018.
Property and casualty insurance market conditions are expected to remain competitive during the remainder of 2018 and into 2019 for new business. In each of the Company’s business segments, new business generally has less of an impact on underwriting profitability than renewal business, given the volume of new business relative to renewal business. However, in periods of meaningful increases in new business, despite its positive impact on underwriting gains over time, the impact of higher new business levels may negatively impact the combined ratio for a period of time.
Economic conditions in the United States and elsewhere could change, due to a variety of factors, including the political and regulatory environment, the U.S. Federal budget, the imposition of tariffs or other barriers to international trade, further changes in U.S. tax laws, the repeal, replacement or modification of the Affordable Care Act, the United Kingdom’s withdrawal from the European Union, rapid changes in commodity prices and fluctuations in interest rates and foreign currency exchange rates. The resulting changes in levels of economic activity could positively or negatively impact exposure changes at renewal and the Company’s ability to write business at acceptable rates. Additionally, changes in levels of economic activity could positively or negatively impact audit premium adjustments, policy endorsements and mid-term cancellations after policies are written. All of the foregoing, in turn, could positively or negatively impact net written premiums during the remainder of 2018 and into 2019, and because earned premiums are a function of net written premiums, earned premiums could be impacted on a lagging basis.
Underwriting Gain/Loss
. The Company’s underwriting gain/loss can be significantly impacted by catastrophe losses and net favorable or unfavorable prior year reserve development, as well as underlying underwriting margins.
Catastrophe losses and non-catastrophe weather-related losses are inherently unpredictable from period to period. The Company’s results of operations could be adversely impacted if significant catastrophe and non-catastrophe weather-related losses were to occur.
For a number of years, the Company’s results have included significant amounts of net favorable prior year reserve development driven by better than expected loss experience. However, given the inherent uncertainty in estimating claims and claim adjustment expense reserves, loss experience could develop such that the Company recognizes higher or lower levels of favorable prior year reserve development, no favorable prior year reserve development or unfavorable prior year reserve development in future periods. In addition, the ongoing review of prior year claims and claim adjustment expense reserves, or other changes in current period circumstances, may result in the Company revising current year loss estimates upward or downward in future periods of the current year.
It is possible that changes in economic conditions, including the imposition of tariffs or other barriers to international trade, could lead to higher inflation than the Company had anticipated, which could in turn lead to an increase in the Company’s loss costs and the need to strengthen claims and claim adjustment expense reserves. These impacts of inflation on loss costs and claims and claim adjustment expense reserves could be more pronounced for those lines of business that require a relatively longer period of time to finalize and settle claims for a given accident year and, accordingly, are relatively more inflation sensitive. For a further discussion, see “Part I-Item 1A-Risk Factors-If actual claims exceed our claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal, regulatory and economic environments in which the Company operates, our financial results could be materially and adversely affected” in the Company’s 2017 Annual Report.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
In Business Insurance, the Company expects underlying underwriting margins during the remainder of 2018 and into 2019 will be higher than in the same periods of 2017 and 2018, and the underlying combined ratio during the remainder of 2018 and into 2019 will be lower than in the same periods of 2017 and 2018, assuming lower (and more normalized) levels of non-catastrophe weather-related losses and other loss activity.
In Bond & Specialty Insurance, the Company expects that underlying underwriting margins during the remainder of 2018 will be higher and the underlying combined ratio will be lower than in the same period of 2017, primarily due to a charge for a single international surety loss in the fourth quarter of 2017. The Company expects that underlying underwriting margins and the underlying combined ratio into 2019 will be broadly consistent with the same period of 2018.
In Personal Insurance, the Company expects underlying underwriting margins during the remainder of 2018 and into 2019 will be higher than in the same periods of 2017 and 2018, and the underlying combined ratio during the remainder of 2018 and into 2019 will be lower than in the same periods of 2017 and 2018. In Agency Automobile, the Company expects that underlying underwriting margins and the underlying combined ratio will improve during the remainder of 2018 compared with the same period of 2017, reflecting actions taken to improve profitability, and that the underlying underwriting margins into 2019 will be slightly higher and the underlying combined ratio will be broadly consistent with the same period of 2018. In Agency Homeowners and Other, the Company expects that underlying underwriting margins and the underlying combined ratio will be broadly consistent during the remainder of 2018 and into 2019 with the same periods of 2017 and 2018, assuming normal levels of non-catastrophe weather-related losses and other loss activity.
Income Taxes.
As a result of the decrease in the U.S. corporate income tax rate from 35% to 21% due to the enactment of the Tax Cuts and Jobs Act (TCJA), the Company’s effective tax rate will decline in 2018. The Company expects its results of operations for the remainder of 2018 and into 2019 will benefit from the impact of that rate change.
Investment Portfolio
. The Company expects to continue to focus its investment strategy on maintaining a high-quality investment portfolio and a relatively short average effective duration. The weighted average effective duration of fixed maturities and short-term securities was 4.5 (4.8 excluding short-term securities) at
June 30, 2018
. From time to time, the Company enters into short positions in U.S. Treasury futures contracts to manage the duration of its fixed maturity portfolio. At
June 30, 2018
, the Company had
$100 million
notional value of open U.S. Treasury futures contracts. The Company continually evaluates its investment alternatives and mix. Currently, the majority of the Company’s investments are comprised of a widely diversified portfolio of high-quality, liquid, taxable U.S. government, tax-exempt U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.
The Company also invests much smaller amounts in private equity limited partnerships, real estate, real estate partnerships and joint ventures, equity securities and hedge funds. These investment classes have the potential for higher returns but also the potential for higher degrees of risk, including less stable rates of return and less liquidity.
Net investment income is a material contributor to the Company’s results of operations. Based primarily on the impact of the lower U.S. corporate income tax rate in 2018, as well as the impacts of (i) slightly higher levels of fixed maturity investments and (ii) higher short-term investment yields and (iii) slightly higher reinvestment yields on fixed maturity investments, the Company expects that during the remainder of 2018, after-tax net investment income from the fixed maturity and short-term investment portfolios will be approximately $55 million to $60 million higher on a quarterly basis as compared to the corresponding quarters of 2017. Additionally, based on both periods being subject to the lower U.S. corporate income tax rate and the impacts of (i) slightly higher levels of fixed maturity investments, (ii) slightly higher reinvestment yields on fixed maturity investments and (iii) higher short-term investment yields, the Company expects that into 2019, after-tax net investment income from the fixed maturity and short-term investment portfolios will be approximately $20 million to $25 million higher on a quarterly basis as compared to the corresponding quarters of 2018. The impact of future market conditions on net investment income from the Company's remaining investment portfolios during the remainder of 2018 and into 2019 is hard to predict. If general economic conditions and/or investment market conditions change during the remainder of 2018 and into 2019, the Company could experience an increase or decrease in net investment income and/or significant realized investment gains or losses (including impairments).
The Company had a net pre-tax unrealized investment loss of $138 million ($114 million after-tax) in its fixed maturity investment portfolio at
June 30, 2018
, compared to a net pre-tax unrealized investment gain of $1.38 billion ($1.09 billion after-tax) at
December 31, 2017
, resulting from an increasing interest rate environment during the first six months of 2018. While the Company does not attempt to predict future interest rate movements, a rising interest rate environment would reduce the market value of
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
fixed maturity investments and, therefore, reduce shareholders’ equity, and a declining interest rate environment would have the opposite effects.
Pursuant to updated FASB guidance and beginning January 1, 2018, the Company’s equity securities, except those accounted for under the equity method of accounting, that have readily determinable fair values are measured at fair value with changes in fair value recognized as part of net realized investment gains. At
June 30, 2018
, the carrying value of the Company’s equity securities was
$424 million
. The Company currently expects that net pre-tax realized investment gains related to equity securities during the remainder of 2018 and into 2019, if any, will be lower than in 2017.
For further discussion of the Company’s investment portfolio, see “Investment Portfolio” herein. For a discussion of the risks to the Company’s business during or following a financial market disruption and risks to the Company’s investment portfolio, see the risk factors entitled “During or following a period of financial market disruption or an economic downturn, our business could be materially and adversely affected” and “Our investment portfolio is subject to credit and interest rate risk, and may suffer reduced returns or material realized or unrealized losses” included in “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report. For a discussion of the risks to the Company’s investments from foreign currency exchange rate fluctuations, see the risk factor entitled “We are also subject to a number of additional risks associated with our business outside the United States” included in “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate Risk” in the Company’s 2017 Annual Report.
Capital Position.
The Company believes it has a strong capital position and, as part of its ongoing efforts to create shareholder value, expects to continue to return capital not needed to support its business operations to its shareholders. The Company expects that, generally over time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income. In addition, the timing and actual number of shares to be repurchased in the future will depend on a variety of additional factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors. For information regarding the Company’s common share repurchases in 2018, see “Liquidity and Capital Resources.”
As a result of the Company’s business outside of the United States, primarily in Canada, the United Kingdom (including Lloyd’s), the Republic of Ireland and Brazil, the Company’s capital is also subject to the effects of changes in foreign currency exchange rates. For example, strengthening of the U.S. dollar in comparison to other currencies could result in a reduction of shareholders’ equity. For additional discussion of the Company’s foreign exchange market risk exposure, see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 2017 Annual Report.
Many of the statements in this “Outlook” section are forward-looking statements, which are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control. Actual results could differ materially from those expressed or implied by such forward-looking statements. Further, such forward-looking statements speak only as of the date of this report and the Company undertakes no obligation to update them. See “—Forward Looking Statements.” For a discussion of potential risks and uncertainties that could impact the Company’s results of operations or financial position, see “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report and “Critical Accounting Estimates.”
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the cash requirements of its business operations and to satisfy general corporate purposes when needed.
Operating Company Liquidity.
The liquidity requirements of the Company’s insurance subsidiaries are met primarily by funds generated from premiums, fees, income received on investments and investment maturities. For further discussion of operating company liquidity, see “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in the Company’s 2017 Annual Report.
Holding Company Liquidity
. TRV’s liquidity requirements primarily include shareholder dividends, debt servicing, common share repurchases and, from time to time, contributions to its qualified domestic pension plan. At
June 30, 2018
, TRV held total cash and short-term invested assets in the United States aggregating
$1.44 billion
and having a weighted average maturity of 50 days. TRV has established a holding company liquidity target equal to its estimated annual pre-tax interest expense and common
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
shareholder dividends (currently approximately $1.16 billion). TRV’s holding company liquidity of
$1.44 billion
at
June 30, 2018
exceeded this target and it is the opinion of the Company’s management that these assets are sufficient to meet TRV’s current liquidity requirements.
TRV is not dependent on dividends or other forms of repatriation from its foreign operations to support its liquidity needs. The undistributed earnings of the Company’s foreign operations are intended to be permanently reinvested in those operations, and such earnings were not material to the Company’s financial position or liquidity at
June 30, 2018
.
TRV has a shelf registration statement filed with the Securities and Exchange Commission (SEC) that expires on June 17, 2019 which permits it to issue securities from time to time. On June 4, 2018, the Company entered into a five-year, $1.0 billion revolving credit agreement with a syndicate of financial institutions, replacing its five-year $1.0 billion credit agreement that was due to expire on June 7, 2018. For additional information regarding terms and covenants in this revolving credit agreement, see note 8 of notes to the unaudited consolidated financial statements in this report.
The Company utilized uncollateralized letters of credit issued by major banks with an aggregate limit of approximately $343 million to provide a portion of the capital needed to support its obligations at Lloyd’s at
June 30, 2018
. If uncollateralized letters of credit are not available at a reasonable price or at all in the future, the Company can collateralize these letters of credit or may have to seek alternative means of supporting its obligations at Lloyd’s, which could include utilizing holding company funds on hand.
Operating Activities
Net cash provided by operating activities in the first
six
months of
2018
and
2017
was
$1.70 billion
and
$1.75 billion
, respectively. The slight decrease in cash flows in the first
six
months of
2018
primarily reflected higher levels of payments for (i) claims and claim adjustment expenses and (ii) commission expenses, partially offset by (iii) higher levels of collected premiums and (iv) lower income tax payments. The higher level of payments for claims and claim adjustment expenses in the first
six
months of
2018
included the impact of payments related to catastrophe losses incurred in
2017
and increased business volumes.
Investing Activities
Net cash used in investing activities in the first
six
months of
2018
and
2017
was
$457 million
and
$1.19 billion
, respectively. The Company’s consolidated total investments at
June 30, 2018
decreased by $1.34 billion, or 2% from year-end
2017
, primarily reflecting the impacts of (i) net unrealized losses on investments at June 30, 2018 as compared to net unrealized gains on investments at December 31, 2017 as a result of increases in market interest rates in the first six months of 2018, (ii) common share repurchases and (iii) dividends paid to shareholders, partially offset by (iv) net cash flows provided by operating activities.
Financing Activities
Net cash used in financing activities in the first
six
months of
2018
and
2017
was
$1.17 billion
and
$550 million
, respectively. The totals in both periods reflected common share repurchases, dividends paid to shareholders and the payment of debt, partially offset by the issuance of debt and the net proceeds from employee stock option exercises. Common share repurchases in the first
six
months of
2018
and
2017
were
$751 million
and
$761 million
, respectively.
Dividends
. Dividends paid to shareholders were $404 million and $389 million in the first
six
months of
2018
and
2017
, respectively. The declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the Company’s Board of Directors and will depend upon many factors, including the Company’s financial position, earnings, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints and other factors as the Board of Directors deems relevant. Dividends will be paid by the Company only if declared by its Board of Directors out of funds legally available, subject to any other restrictions that may be applicable to the Company. On July 19, 2018, the Company announced that it declared a regular quarterly dividend of $0.77 per share, payable September 28, 2018 to shareholders of record on September 10, 2018.
Share Repurchase Authorization
. The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise. The authorizations do not have a stated expiration date. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
(including mergers and acquisitions and related financings), market conditions and other factors. During the three months and six months ended
June 30, 2018
, the Company repurchased
2.7 million
and
5.2 million
shares, respectively, under its share repurchase authorization, for a total cost of
$350 million
and
$700 million
, respectively. The average cost per share repurchased was
$129.66
and
$135.47
, respectively. At
June 30, 2018
, the Company had
$3.86 billion
of capacity remaining under the share repurchase authorization.
Capital Structure
. The following table summarizes the components of the Company’s capital structure at
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2018
|
|
December 31, 2017
|
Debt:
|
|
|
|
|
|
|
Short-term
|
|
$
|
500
|
|
|
$
|
600
|
|
Long-term
|
|
6,004
|
|
|
6,004
|
|
Net unamortized fair value adjustments and debt issuance costs
|
|
(40
|
)
|
|
(33
|
)
|
Total debt
|
|
6,464
|
|
|
6,571
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
Common stock and retained earnings, less treasury stock
|
|
24,311
|
|
|
24,074
|
|
Accumulated other comprehensive loss
|
|
(1,688
|
)
|
|
(343
|
)
|
Total shareholders’ equity
|
|
22,623
|
|
|
23,731
|
|
Total capitalization
|
|
$
|
29,087
|
|
|
$
|
30,302
|
|
On March 7, 2018, the Company issued $500 million aggregate principal amount of 4.05% senior notes that will mature on March 7, 2048. The net proceeds were used to repay the Company's $500 million, 5.80% senior notes on May 15, 2018. See note 8 of notes to the unaudited consolidated financial statements for further discussion regarding the terms of the senior notes.
The following table provides a reconciliation of total capitalization presented in the foregoing table to total capitalization excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity.
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
June 30, 2018
|
|
December 31, 2017
|
Total capitalization
|
|
$
|
29,087
|
|
|
$
|
30,302
|
|
Less: net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity
|
|
(112
|
)
|
|
1,112
|
|
Total capitalization excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity
|
|
$
|
29,199
|
|
|
$
|
29,190
|
|
Debt-to-total capital ratio
|
|
22.2
|
%
|
|
21.7
|
%
|
Debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity
|
|
22.1
|
%
|
|
22.5
|
%
|
The debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders’ equity, is calculated by dividing (a) debt by (b) total capitalization excluding net unrealized gains and losses on investments, net of taxes, included in shareholders’ equity. Net unrealized gains and losses on investments can be significantly impacted by both interest rate movements and other economic factors. Accordingly, in the opinion of the Company’s management, the debt-to-total capital ratio calculated on this basis provides another useful metric for investors to understand the Company’s financial leverage position. The Company’s ratio of debt-to-total capital excluding after-tax net unrealized investment gains (losses) included in shareholders’ equity of 22.1% at
June 30, 2018
was within the Company’s target range of 15% to 25%.
RATINGS
Ratings are an important factor in assessing the Company’s competitive position in the insurance industry. The Company receives ratings from the following major rating agencies: A.M. Best Company (A.M. Best), Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s) and Standard & Poor’s (S&P). The following rating agency actions were taken with respect to the Company
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
since April 24, 2018, the date on which the Company’s Form 10-Q for the quarter ended March 31, 2018 was filed with the SEC. For additional discussion of ratings, see “Part I—Item 1—Business—Ratings” in the Company’s 2017 Annual Report.
•
On June 5, 2018, Fitch affirmed all ratings of the Company. The outlook for all ratings is stable.
CRITICAL ACCOUNTING ESTIMATES
For a description of the Company’s critical accounting estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in the Company’s 2017 Annual Report. The Company considers its most significant accounting estimates to be those applied to claims and claim adjustment expense reserves and related reinsurance recoverables, investment valuation and impairments, and goodwill and other intangible assets impairments. Except as shown in the table below, there have been no material changes to the Company’s critical accounting estimates since
December 31, 2017
.
Claims and Claim Adjustment Expense Reserves
The table below displays the Company’s gross claims and claim adjustment expense reserves by product line. Because the establishment of claims and claim adjustment expense reserves is an inherently uncertain process involving estimates, currently established claims and claim adjustment expense reserves may change. The Company reflects adjustments to the reserves in the results of operations in the period the estimates are changed. These changes in estimates could result in income statement charges that could be material to the Company’s operating results in future periods. In particular, a portion of the Company’s gross claims and claim adjustment expense reserves (totaling $1.82 billion at
June 30, 2018
) are for asbestos and environmental claims and related litigation. Asbestos and environmental reserves are included in the General liability, Commercial multi-peril and International and other lines in the summary table below. While the ongoing review of asbestos and environmental claims and associated liabilities considers the inconsistencies of court decisions as to coverage, plaintiffs’ expanded theories of liability and the risks inherent in complex litigation and other uncertainties, in the opinion of the Company’s management, it is possible that the outcome of the continued uncertainties regarding these claims could result in liability in future periods that differs from current reserves by an amount that could be material to the Company’s future operating results. Asbestos and environmental reserves are discussed separately; see “Asbestos Claims and Litigation”, “Environmental Claims and Litigation” and “Uncertainty Regarding Adequacy of Asbestos and Environmental Reserves” in this report.
Gross claims and claim adjustment expense reserves by product line were as follows:
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June 30, 2018
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December 31, 2017
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(in millions)
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Case
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IBNR
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Total
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Case
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IBNR
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Total
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General liability
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$
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4,808
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$
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6,899
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$
|
11,707
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$
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4,878
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$
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6,823
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$
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11,701
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Commercial property
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999
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326
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1,325
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|
1,039
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401
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1,440
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Commercial multi-peril
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1,969
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|
2,012
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3,981
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1,954
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1,916
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3,870
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Commercial automobile
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2,287
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1,324
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3,611
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2,237
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1,271
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3,508
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Workers’ compensation
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10,334
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9,285
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19,619
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10,379
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9,092
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19,471
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Fidelity and surety
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234
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356
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590
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274
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300
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574
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Personal automobile
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1,977
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1,359
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3,336
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1,946
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1,329
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3,275
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Homeowners and personal—other
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793
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918
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1,711
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795
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710
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1,505
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International and other
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2,606
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1,459
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4,065
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2,728
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1,561
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4,289
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Property-casualty
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26,007
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23,938
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49,945
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26,230
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23,403
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49,633
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Accident and health
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16
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—
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16
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17
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—
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17
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Claims and claim adjustment expense reserves
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$
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26,023
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$
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23,938
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$
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49,961
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$
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26,247
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$
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23,403
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$
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49,650
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The $311 million increase in gross claims and claim adjustment expense reserves since
December 31, 2017
primarily reflected the impacts of (i) higher volumes of insured exposures and loss cost trends for the current accident year and (ii) catastrophe losses in the first
six
months of
2018
, partially offset by the impacts of (iii) payments related to catastrophe losses incurred in 2017, (iv) net favorable prior year reserve development and (v) payments related to operations in runoff.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See note 1 of notes to the unaudited consolidated financial statements contained in this quarterly report and in the Company’s 2017 Annual Report for a discussion of recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
This report 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:
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•
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the Company’s outlook and its future results of operations and financial condition (including, among other things, anticipated premium volume, premium rates, margins, net and core income, investment income and performance, loss costs, return on equity, core return on equity and expected current returns and combined ratios);
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•
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share repurchase plans;
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•
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future pension plan contributions;
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•
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the sufficiency of the Company’s asbestos and other reserves;
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•
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the impact of emerging claims issues as well as other insurance and non-insurance litigation;
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•
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the cost and availability of reinsurance coverage;
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•
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the impact of investment (including changes in interest rates), economic (including inflation, recent changes in tax law, rapid changes in commodity prices and fluctuations in foreign currency exchange rates) and underwriting market conditions;
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•
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strategic and operational initiatives to improve profitability and competitiveness;
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•
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the Company's competitive advantages;
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•
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new product offerings; and
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•
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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.
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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:
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•
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catastrophe losses could materially and adversely affect the Company’s results of operations, its financial position and/or liquidity, and could adversely impact the Company’s ratings, the Company’s ability to raise capital and the availability and cost of reinsurance;
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•
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if actual claims exceed the Company’s claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal, regulatory and economic environments in which the Company operates, the Company’s financial results could be materially and adversely affected;
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•
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during or following a period of financial market disruption or an economic downturn, the Company’s business could be materially and adversely affected;
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•
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the Company’s investment portfolio is subject to credit risk and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses;
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•
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the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
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•
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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 the Company operates, could harm its ability to maintain or increase its business volumes and its profitability;
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•
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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;
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•
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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;
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS, Continued
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•
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the effects of emerging claim and coverage issues on the Company’s business are uncertain;
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•
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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;
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•
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the Company is also 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;
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•
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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;
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•
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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;
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•
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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;
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•
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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;
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•
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the Company may be adversely affected if its pricing and capital models provide materially different indications than actual results;
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•
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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;
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•
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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;
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•
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the Company is also subject to a number of additional risks associated with its business outside the United States, including foreign currency exchange fluctuations and restrictive regulations as well as the risks and uncertainties associated with the United Kingdom's withdrawal from the European Union;
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•
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regulatory changes outside of the United States, including in Canada, the United Kingdom and the European Union, could adversely impact the Company’s results of operations and limit its growth;
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•
|
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;
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•
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acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences;
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•
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the Company could be adversely affected if its controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective;
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•
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the Company’s businesses may be adversely affected if it is unable to hire and retain qualified employees;
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•
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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;
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•
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changes in federal regulation could impose significant burdens on the Company and otherwise adversely impact the Company’s results;
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•
|
changes in U.S. tax laws or in the tax laws of other jurisdictions where the Company operates could adversely impact the Company; and
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•
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the Company’s share repurchase plans depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.
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The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and the Company undertakes no obligation to update forward-looking statements. For a more detailed discussion of these factors, see the information under the captions “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report filed with the SEC and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the Company’s 2017 Annual Report as updated by the Company's periodic filings with the SEC.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
WEBSITE AND SOCIAL MEDIA DISCLOSURE
The Company 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 posted on and accessible through the Company’s website at
http://investor.travelers.com
, its Facebook page at
https://www.facebook.com/travelers
and its Twitter account (@Travelers) at
https://twitter.com/Travelers
. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Notifications” section under the "For Investors" heading at
http://investor.travelers.com
.