Fourth Quarter Net Income per Diluted Share
of $3.35, up 44%, and Return on Equity of 13.5%
Fourth Quarter Core Income per Diluted Share
of $3.32, up 56%, and Core Return on Equity of 14.8%
Full Year Net Income of $2.622 billion, up
4%, and Return on Equity of 10.5%
Full Year Core Income of $2.537 billion, up
4%, and Core Return on Equity of 10.9%
- Fourth quarter net income of $873 million and core income of
$867 million.
- Catastrophe losses of $85 million pre-tax decreased from $610
million pre-tax in the prior year quarter.
- Fourth quarter consolidated combined ratio of 92.4% improved by
5.1 points; underlying combined ratio of 92.1%.
- Fourth quarter net written premiums of $7.075 billion, up 6%;
record full year net written premiums of $29.151 billion, up 5%;
both periods reflect growth in all segments.
- Fourth quarter renewal premium change in domestic Business
Insurance of 7.8%, highest level since 2013.
- Total capital returned to shareholders of $588 million,
including $376 million of share repurchases. Full year total
capital returned to shareholders of $2.396 billion, including
$1.548 billion of share repurchases.
- Book value per share of $101.55, up 17% from year-end 2018.
Adjusted book value per share of $92.76, up 6% from year-end
2018.
- Board of Directors declared quarterly dividend per share of
$0.82.
The Travelers Companies, Inc. today reported net income of $873
million, or $3.35 per diluted share, for the quarter ended December
31, 2019, compared to $621 million, or $2.32 per diluted share, in
the prior year quarter. Core income in the current quarter was $867
million, or $3.32 per diluted share, compared to $571 million, or
$2.13 per diluted share, in the prior year quarter. Core income
increased primarily due to significantly lower catastrophe losses,
partially offset by lower net favorable prior year reserve
development and a lower underlying underwriting gain (i.e.,
excluding net favorable prior year reserve development and
catastrophe losses), in each case primarily due to the impact of an
increasingly challenging tort environment. Net realized investment
gains were $12 million pre-tax ($6 million after-tax), compared to
$60 million pre-tax ($50 million after-tax) in the prior year
quarter. Per diluted share amounts benefited from the impact of
share repurchases.
Consolidated Highlights
($ in millions, except for per share
amounts, and after-tax, except for premiums and revenues)
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
Change
2019
2018
Change
Net written premiums
$
7,075
$
6,691
6
%
$
29,151
$
27,708
5
%
Total revenues
$
8,063
$
7,796
3
$
31,581
$
30,282
4
Net income
$
873
$
621
41
$
2,622
$
2,523
4
per diluted share
$
3.35
$
2.32
44
$
9.92
$
9.28
7
Core income
$
867
$
571
52
$
2,537
$
2,430
4
per diluted share
$
3.32
$
2.13
56
$
9.60
$
8.94
7
Diluted weighted average shares
outstanding
259.0
266.0
(3
)
262.3
269.8
(3
)
Combined ratio
92.4
%
97.5
%
(5.1
)
pts
96.5
%
96.9
%
(0.4
)
pts
Underlying combined ratio
92.1
%
91.1
%
1.0
pts
93.2
%
92.5
%
0.7
pts
Return on equity
13.5
%
10.9
%
2.6
pts
10.5
%
11.0
%
(0.5
)
pts
Core return on equity
14.8
%
10.0
%
4.8
pts
10.9
%
10.7
%
0.2
pts
As of December 31,
2019
2018
Change
Book value per share
$
101.55
$
86.84
17
%
Adjusted book value per share
92.76
87.27
6
%
See Glossary of Financial Measures for definitions and the
statistical supplement for additional financial data.
“We are pleased to report fourth quarter core income of $867
million and core return on equity of 14.8%,” said Alan Schnitzer,
Chairman and Chief Executive Officer. “Our strong earnings and
improved combined ratio of 92.4% benefited from lower catastrophe
losses and the continued successful execution of our strategy to
grow the top line at attractive returns while improving operating
leverage. Earned premiums increased by 4% over the prior year
quarter to a record $7.3 billion. Our expense ratio improved to
29.1%, lowering our full year expense ratio to 29.6%, a significant
improvement from recent years. These improvements were partially
offset by the impacts of ongoing challenges in the tort
environment. Our high-quality investment portfolio continued to
perform well, generating net investment income of $525 million
after-tax. Our results, together with our strong balance sheet,
enabled us to return $588 million of excess capital to shareholders
this quarter, including $376 million of share repurchases. For the
full year, we returned $2.4 billion of excess capital to
shareholders, including more than $1.5 billion in share
repurchases.
“Turning to the top line, we continue to be pleased with our
marketplace execution. Net written premiums increased by 6% to a
fourth quarter record of $7.1 billion, marking the twelfth
consecutive quarter in which we generated premium growth in all
three business segments. In an environment of elevated loss
activity and persistently low interest rates, we were once again
successful in achieving meaningful improvement in renewal premium
change while maintaining high levels of retention. In domestic
Business Insurance, renewal premium change was 7.8%, including
renewal rate change of 5.1%, in both cases the highest levels since
2013, while retention remained very strong at 84%. In our domestic
management liability business in Bond & Specialty Insurance,
renewal premium change was 6.6%, the highest level since 2014,
while retention remained historically high at 89%. In Personal
Insurance, retention and new business remained strong in both
Agency Auto and Agency Homeowners. In our Agency Homeowners
business, renewal premium change increased to 7.4%, its highest
level since 2014.
“In this more challenging tort and low interest rate
environment, we generated full year core income in excess of $2.5
billion and core return on equity of 10.9%, demonstrating the
strength and resilience of our franchise. We grew full year net
written premiums by 5% to a record $29.2 billion and generated cash
flow from operations of $5.2 billion, its highest level in more
than a decade. Our performance enabled us to continue to make
significant investments in support of our ambitious innovation
agenda, while growing our investment portfolio and returning a
substantial amount of capital to our shareholders. With our
significant competitive advantages, including the best talent in
the industry and deep experience in successfully managing our
diversified business through a variety of market conditions, we
remain well positioned to continue to deliver superior returns over
time.”
Consolidated Results
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions and pre-tax, unless
noted otherwise)
2019
2018
Change
2019
2018
Change
Underwriting gain:
$
513
$
135
$
378
$
833
$
681
$
152
Underwriting gain
includes:
Net favorable (unfavorable) prior year
reserve development
60
167
(107
)
(60
)
517
(577
)
Catastrophes, net of reinsurance
(85
)
(610
)
525
(886
)
(1,716
)
830
Net investment income
616
630
(14
)
2,468
2,474
(6
)
Other income (expense), including
interest expense
(67
)
(79
)
12
(276
)
(308
)
32
Core income before income taxes
1,062
686
376
3,025
2,847
178
Income tax expense
195
115
80
488
417
71
Core income
867
571
296
2,537
2,430
107
Net realized investment gains after
income taxes
6
50
(44
)
85
93
(8
)
Net income
$
873
$
621
$
252
$
2,622
$
2,523
$
99
Combined ratio
92.4
%
97.5
%
(5.1
)
pts
96.5
%
96.9
%
(0.4
)
pts
Impact on combined
ratio
Net (favorable) unfavorable prior year
reserve development
(0.8
)
pts
(2.4
)
pts
1.6
pts
0.2
pts
(1.9
)
pts
2.1
pts
Catastrophes, net of reinsurance
1.1
pts
8.8
pts
(7.7
)
pts
3.1
pts
6.3
pts
(3.2
)
pts
Underlying combined ratio
92.1
%
91.1
%
1.0
pts
93.2
%
92.5
%
0.7
pts
Net written premiums
Business Insurance
$
3,703
$
3,533
5
%
$
15,629
$
14,956
4
%
Bond & Specialty Insurance
714
657
9
2,739
2,528
8
Personal Insurance
2,658
2,501
6
10,783
10,224
5
Total
$
7,075
$
6,691
6
%
$
29,151
$
27,708
5
%
Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted
otherwise)
Net income of $873 million increased $252 million due to higher
core income, partially offset by lower net realized investment
gains. Core income of $867 million increased $296 million,
primarily due to significantly lower catastrophe losses, partially
offset by lower net favorable prior year reserve development and a
lower underlying underwriting gain. The underlying underwriting
gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 92.4% decreased 5.1 points due to
significantly lower catastrophe losses (7.7 points), partially
offset by lower net favorable prior year reserve development (1.6
points) and a higher underlying combined ratio (1.0 points).
- The underlying combined ratio of 92.1% increased 1.0 points.
See below for further details by segment.
- Net favorable prior year reserve development occurred in all
segments. See below for further details by segment. Catastrophe
losses primarily resulted from wind and hail storms in several
regions of the United States and a wildfire in California.
Net investment income of $616 million pre-tax ($525 million
after-tax) decreased 2%. Income from the fixed income investment
portfolio increased due to a higher average level of fixed maturity
investments, partially offset by slightly lower interest rates.
Private equity partnership returns were lower than in the prior
year quarter.
Net written premiums of $7.075 billion increased 6%. See below
for further details by segment.
Full Year 2019 Results (All
comparisons vs. full year 2018, unless noted otherwise)
Net income of $2.622 billion increased $99 million due to higher
core income. Core income of $2.537 billion increased by $107
million, primarily due to significantly lower catastrophe losses,
partially offset by net unfavorable prior year reserve development
in the current year compared to net favorable prior year reserve
development in the prior year and a lower underlying underwriting
gain. The underlying underwriting gain benefited from higher
business volumes. Net realized investment gains of $113 million
pre-tax were comparable with the prior year.
Combined ratio:
- The combined ratio of 96.5% decreased 0.4 points due to
significantly lower catastrophe losses (3.2 points), partially
offset by net unfavorable prior year reserve development in the
current year compared to net favorable prior year reserve
development in the prior year (2.1 points) and a higher underlying
combined ratio (0.7 points).
- The underlying combined ratio of 93.2% increased 0.7 points.
See below for further details by segment.
- Net unfavorable prior year reserve development occurred in
Business Insurance. Net favorable prior year reserve development
occurred in Personal Insurance and Bond & Specialty Insurance.
See below for further details by segment. Catastrophe losses
included the fourth quarter events described above, as well as
winter storms and wind storms in several regions of the United
States and Hurricane Dorian in the first nine months of 2019.
Net investment income of $2.468 billion pre-tax ($2.097 billion
after-tax) was comparable to the prior year. Income from the fixed
income investment portfolio increased due to the impacts of a
higher average level of fixed maturity investments and higher
long-term and short-term interest rates. Private equity partnership
and real estate partnership returns were strong but lower than in
the prior year.
Record gross written premiums of $31.063 billion grew 6%. Record
net written premiums of $29.151 billion increased 5%, reflecting
growth in all segments. Growth in net written premiums was impacted
by the Underlying Property Aggregate Catastrophe Excess-of-Loss
Reinsurance Treaty entered into effective January 1, 2019 (“the new
catastrophe reinsurance treaty”), the entire cost of which impacted
net written premiums in the first quarter. Accordingly, the treaty
did not impact net written premiums in the final three quarters of
the year. See below for further details by segment.
Shareholders’ Equity
Shareholders’ equity of $25.943 billion increased 13% from
year-end 2018, primarily due to the impact of lower interest rates
on net unrealized investment gains (losses). Net unrealized
investment gains included in shareholders’ equity were $2.853
billion pre-tax ($2.246 billion after-tax), compared to net
unrealized investment losses of $137 million pre-tax ($113 million
after-tax) at year-end 2018. Book value per share of $101.55
increased 17% from year-end 2018, also primarily due to the impact
of lower interest rates on net unrealized investment gains
(losses). Adjusted book value per share of $92.76, which excludes
net unrealized investment gains (losses), increased 6% from
year-end 2018.
The Company repurchased 2.9 million shares during the fourth
quarter at an average price of $134.34 per share for a total cost
of $376 million. Capacity remaining under the existing share
repurchase authorization was $1.786 billion at the end of the
quarter. Also at the end of the quarter, statutory capital and
surplus was $21.330 billion, and the ratio of debt-to-capital was
20.2%. The ratio of debt-to-capital excluding after-tax net
unrealized investment gains included in shareholders’ equity was
21.7%, within the Company’s target range of 15% to 25%.
The Board of Directors declared a quarterly dividend of $0.82
per share. The dividend is payable on March 31, 2020, to
shareholders of record at the close of business on March 10,
2020.
Business
Insurance Segment Financial Results
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions and pre-tax, unless
noted otherwise)
2019
2018
Change
2019
2018
Change
Underwriting gain (loss):
$
87
$
7
$
80
$
(195
)
$
76
$
(271
)
Underwriting gain
(loss) includes:
Net favorable (unfavorable) prior year
reserve development
8
48
(40
)
(258
)
142
(400
)
Catastrophes, net of reinsurance
(48
)
(197
)
149
(470
)
(639
)
169
Net investment income
451
465
(14
)
1,816
1,833
(17
)
Other income (expense)
—
(9
)
9
(6
)
(12
)
6
Segment income before income
taxes
538
463
75
1,615
1,897
(282
)
Income tax expense
90
72
18
223
259
(36
)
Segment income
$
448
$
391
$
57
$
1,392
$
1,638
$
(246
)
Combined ratio
97.5
%
99.4
%
(1.9
)
pts
100.9
%
99.1
%
1.8
pts
Impact on combined
ratio
Net (favorable) unfavorable prior year
reserve development
(0.2
)
pts
(1.2
)
pts
1.0
pts
1.7
pts
(1.0
)
pts
2.7
pts
Catastrophes, net of reinsurance
1.3
pts
5.2
pts
(3.9
)
pts
3.0
pts
4.4
pts
(1.4
)
pts
Underlying combined ratio
96.4
%
95.4
%
1.0
pts
96.2
%
95.7
%
0.5
pts
Net written premiums by market
Domestic
Select Accounts
$
675
$
660
2
%
$
2,911
$
2,828
3
%
Middle Market
2,061
1,935
7
8,630
8,214
5
National Accounts
251
247
2
1,051
1,025
3
National Property and Other
437
422
4
1,965
1,805
9
Total Domestic
3,424
3,264
5
14,557
13,872
5
International
279
269
4
1,072
1,084
(1
)
Total
$
3,703
$
3,533
5
%
$
15,629
$
14,956
4
%
Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted
otherwise)
Segment income for Business Insurance was $448 million
after-tax, an increase of $57 million. Segment income increased
primarily due to significantly lower catastrophe losses, partially
offset by lower net favorable prior year reserve development and a
lower underlying underwriting gain. The underlying underwriting
gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 97.5% decreased 1.9 points due to
significantly lower catastrophe losses (3.9 points), partially
offset by lower net favorable prior year reserve development (1.0
points) and a higher underlying combined ratio (1.0 points).
- The underlying combined ratio of 96.4% increased 1.0 points,
primarily driven by the impacts of (1) higher loss estimates in the
general liability product line for primary and excess coverages and
in the commercial automobile product line, including the current
quarter impacts of higher loss estimates initially reflected in the
first nine months of the year, and (2) a higher level of
international loss activity, partially offset by (3) lower loss
estimates in the workers’ compensation product line due to the
current quarter impacts of lower loss estimates initially reflected
in the first nine months of the year and (4) a lower underwriting
expense ratio. The underlying combined ratios in both the current
and prior year quarters are elevated due to comparable impacts from
the re-estimation of losses incurred in the first nine months of
each year.
- Net favorable prior year reserve development was primarily
driven by the following:
Workers’ compensation - better than expected
loss experience in the segment’s domestic operations for multiple
accident years.
Largely offset by:
General liability - higher than expected loss
experience in the segment’s domestic operations for primary and
excess coverages primarily for recent accident years; and
Commercial multi-peril - higher than expected
loss experience in the segment’s domestic operations primarily for
recent accident years.
Net written premiums of $3.703 billion increased 5%, benefiting
from continued strong retention and new business, as well as higher
renewal premium change.
Full Year 2019 Results (All
comparisons vs. full year 2018, unless noted otherwise)
Segment income for Business Insurance was $1.392 billion
after-tax, a decrease of $246 million. Segment income decreased
primarily due to net unfavorable prior year reserve development in
the current year compared to net favorable prior year reserve
development in the prior year and a lower underlying underwriting
gain, partially offset by lower catastrophe losses. The underlying
underwriting gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 100.9% increased 1.8 points due to net
unfavorable prior year reserve development in the current year
compared to net favorable prior year reserve development in the
prior year (2.7 points) and a higher underlying combined ratio (0.5
points), partially offset by lower catastrophe losses (1.4
points).
- The underlying combined ratio of 96.2% increased 0.5 points,
primarily driven by the impacts of higher loss estimates in the
general liability product line for primary and excess coverages and
the commercial automobile product line, partially offset by a lower
underwriting expense ratio.
- Net unfavorable prior year reserve development was primarily
driven by the following:
General liability (excluding asbestos and
environmental) - higher than expected loss experience in the
segment’s domestic operations for primary and excess coverages for
multiple accident years, including the impact for accident years
2009 and prior related to the enactment of legislation by a number
of states that extended the statute of limitations for childhood
sexual molestation claims;
Commercial automobile - higher than expected
loss experience in the segment’s domestic operations for recent
accident years;
Asbestos reserves - an increase of $220
million, primarily in the segment’s domestic general liability
product line;
Commercial multi-peril - higher than expected
loss experience in the segment’s domestic operations for recent
accident years; and
Environmental reserves - an increase of $76
million, primarily in the segment’s domestic general liability
product line.
Partially offset by:
Workers’ compensation - better than expected
loss experience in the segment’s domestic operations for multiple
accident years; and
Commercial property - better than expected
loss experience in the segment’s domestic operations for recent
accident years.
Gross written premiums of $17.151 billion grew 6%, benefiting
from continued strong retention, higher renewal premium change and
higher levels of new business. Net written premiums of $15.629
billion increased 4%. Growth in net written premiums was impacted
by the new catastrophe reinsurance treaty.
Bond
& Specialty Insurance Segment Financial Results
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions and pre-tax, unless
noted otherwise)
2019
2018
Change
2019
2018
Change
Underwriting gain:
$
142
$
214
$
(72
)
$
515
$
740
$
(225
)
Underwriting gain
includes:
Net favorable prior year reserve
development
20
89
(69
)
65
266
(201
)
Catastrophes, net of reinsurance
(1
)
(7
)
6
(5
)
(16
)
11
Net investment income
60
61
(1
)
233
233
—
Other income
5
5
—
21
18
3
Segment income before income
taxes
207
280
(73
)
769
991
(222
)
Income tax expense
40
60
(20
)
151
198
(47
)
Segment income
$
167
$
220
$
(53
)
$
618
$
793
$
(175
)
Combined ratio
78.6
%
64.8
%
13.8
pts
79.5
%
69.0
%
10.5
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(2.9
)
pts
(14.4
)
pts
11.5
pts
(2.5
)
pts
(11.0
)
pts
8.5
pts
Catastrophes, net of reinsurance
0.2
pts
1.1
pts
(0.9
)
pts
0.2
pts
0.6
pts
(0.4
)
pts
Underlying combined ratio
81.3
%
78.1
%
3.2
pts
81.8
%
79.4
%
2.4
pts
Net written premiums
Domestic
Management Liability
$
411
$
366
12
%
$
1,605
$
1,455
10
%
Surety
206
198
4
866
835
4
Total Domestic
617
564
9
2,471
2,290
8
International
97
93
4
268
238
13
Total
$
714
$
657
9
%
$
2,739
$
2,528
8
%
Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted
otherwise)
Segment income for Bond & Specialty Insurance was $167
million after-tax, a decrease of $53 million. Segment income
decreased primarily due to lower net favorable prior year reserve
development. The underlying underwriting gain benefited from higher
business volumes.
Combined ratio:
- The combined ratio of 78.6% increased 13.8 points due to lower
net favorable prior year reserve development (11.5 points) and a
higher underlying combined ratio (3.2 points), partially offset by
lower catastrophe losses (0.9 points).
- The underlying combined ratio of 81.3% remained very strong.
The increase of 3.2 points from the prior year quarter reflected
higher loss estimates related to management liability coverages due
to the current quarter impacts of higher loss estimates initially
reflected in the first nine months of the year and a particular
loss reflected in the current quarter, partially offset by lower
surety loss estimates and a lower underwriting expense ratio.
- Net favorable prior year reserve development was driven by
better than expected loss experience in the domestic fidelity and
surety product line for multiple accident years.
Net written premiums of $714 million increased 9%, reflecting
continued strong retention, increased levels of renewal premium
change and strong new business in management liability and
continued strong surety production.
Full Year 2019 Results (All
comparisons vs. full year 2018, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $618
million after-tax, a decrease of $175 million. Segment income
decreased primarily due to lower net favorable prior year reserve
development and a lower underlying underwriting gain. The
underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 79.5% increased 10.5 points due to lower
net favorable prior year reserve development (8.5 points) and a
higher underlying combined ratio (2.4 points), partially offset by
lower catastrophe losses (0.4 points).
- The underlying combined ratio of 81.8% remained very
strong.
- Net favorable prior year reserve development was driven by
better than expected loss experience in the domestic general
liability product line for management liability coverages and in
the fidelity and surety product line for multiple accident
years.
Net written premiums of $2.739 billion increased 8% and
benefited from the same factors as discussed above for the fourth
quarter 2019.
Personal
Insurance Segment Financial Results
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions and pre-tax, unless
noted otherwise)
2019
2018
Change
2019
2018
Change
Underwriting gain (loss):
$
284
$
(86
)
$
370
$
513
$
(135
)
$
648
Underwriting gain
(loss) includes:
Net favorable prior year reserve
development
32
30
2
133
109
24
Catastrophes, net of reinsurance
(36
)
(406
)
370
(411
)
(1,061
)
650
Net investment income
105
104
1
419
408
11
Other income
22
18
4
87
66
21
Segment income before income
taxes
411
36
375
1,019
339
680
Income tax expense
84
4
80
195
42
153
Segment income
$
327
$
32
$
295
$
824
$
297
$
527
Combined ratio
88.5
%
102.6
%
(14.1
)
pts
94.2
%
100.6
%
(6.4
)
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(1.2
)
pts
(1.1
)
pts
(0.1
)
pts
(1.3
)
pts
(1.1
)
pts
(0.2
)
pts
Catastrophes, net of reinsurance
1.3
pts
15.9
pts
(14.6
)
pts
4.0
pts
10.7
pts
(6.7
)
pts
Underlying combined ratio
88.4
%
87.8
%
0.6
pts
91.5
%
91.0
%
0.5
pts
Net written premiums
Domestic
Agency (1)
Automobile
$
1,253
$
1,226
2
%
$
5,124
$
4,972
3
%
Homeowners and Other
1,145
1,011
13
4,540
4,148
9
Total Agency
2,398
2,237
7
9,664
9,120
6
Direct to Consumer
99
97
2
412
396
4
Total Domestic
2,497
2,334
7
10,076
9,516
6
International
161
167
(4
)
707
708
—
Total
$
2,658
$
2,501
6
%
$
10,783
$
10,224
5
%
(1) Represents business sold through agents, brokers and other
intermediaries, and excludes direct to consumer and
international.
Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted
otherwise)
Segment income for Personal Insurance was $327 million
after-tax, an increase of $295 million. Segment income increased
primarily due to significantly lower catastrophe losses. The
underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 88.5% decreased 14.1 points due to
significantly lower catastrophe losses (14.6 points) and higher net
favorable prior year reserve development (0.1 points), partially
offset by a higher underlying combined ratio (0.6 points).
- The underlying combined ratio of 88.4% increased 0.6 points,
primarily reflecting a comparison to a low level of loss activity
in the prior year quarter for Agency Automobile.
- Net favorable prior year reserve development was driven by
better than expected loss experience in the automobile product line
and homeowners and other product line for multiple accident
years.
Net written premiums of $2.658 billion increased 6%. Agency
Automobile net written premiums increased 2%, driven by strong
retention, renewal premium change of 3% and higher levels of new
business. Agency Homeowners and Other net written premiums
increased 13%, driven by strong retention, renewal premium change
of 7% and higher levels of new business.
Full Year 2019 Results (All
comparisons vs. full year 2018, unless noted otherwise)
Segment income for Personal Insurance was $824 million
after-tax, an increase of $527 million. Segment income increased
primarily due to significantly lower catastrophe losses and higher
net favorable prior year reserve development, partially offset by a
lower underlying underwriting gain. The underlying underwriting
gain benefited from higher business volumes.
Combined ratio:
- The combined ratio of 94.2% improved 6.4 points due to
significantly lower catastrophe losses (6.7 points) and higher net
favorable prior year reserve development (0.2 points), partially
offset by a higher underlying combined ratio (0.5 points).
- The underlying combined ratio of 91.5% increased 0.5 points,
primarily driven by the impacts of (1) higher non-catastrophe
weather-related losses in Agency Homeowners and Other and (2) the
new catastrophe reinsurance treaty, mostly impacting Agency
Homeowners and Other, partially offset by (3) earned pricing that
exceeded loss cost trends in Agency Automobile and (4) a lower
underwriting expense ratio.
- Net favorable prior year reserve development was driven by
better than expected loss experience in the domestic automobile and
homeowners and other product lines for recent accident years.
Gross written premiums of $10.981 billion grew 6%. Net written
premiums of $10.783 billion increased 5%.
Agency Automobile gross written premiums of $5.154 billion grew
3%, driven by strong retention, renewal premium change of 4% and
higher levels of new business. Net written premiums increased
3%.
Agency Homeowners and Other gross written premiums of $4.685
billion grew 11% driven by strong retention, renewal premium change
of 7% and higher levels of new business. Net written premiums
increased 9%.
Growth in net written premiums was impacted by the new
catastrophe reinsurance treaty.
Financial Supplement and Conference Call
The information in this press release should be read in
conjunction with the financial supplement that is available on our
website at www.travelers.com. Travelers management will discuss the
contents of this release and other relevant topics via webcast at 9
a.m. Eastern (8 a.m. Central) on Thursday, January 23, 2020.
Investors can access the call via webcast at
http://investor.travelers.com or by dialing 1.844.895.1976 within
the United States and 1.647.689.5389 outside the United States.
Prior to the webcast, a slide presentation pertaining to the
quarterly earnings will be available on the Company’s website.
Following the live event, an audio playback of the webcast and
the slide presentation will be available on the same website.
About Travelers
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider
of property casualty insurance for auto, home and business. A
component of the Dow Jones Industrial Average, Travelers has
approximately 31,000 employees and generated revenues of
approximately $32 billion in 2019. For more information, visit
www.travelers.com.
Travelers may use its website and/or social media outlets, such
as Facebook and Twitter, as distribution channels of material
Company information. Financial and other important information
regarding the Company is routinely accessible through and posted on
our website at http://investor.travelers.com, our Facebook page at
https://www.facebook.com/travelers and our Twitter account
(@Travelers) at https://twitter.com/travelers. In addition, you may
automatically receive email alerts and other information about
Travelers when you enroll your email address by visiting the Email
Notifications section at http://investor.travelers.com.
Travelers is organized into the following reportable business
segments:
Business Insurance - Business Insurance offers a broad
array of property and casualty insurance and insurance-related
services to its customers, primarily in the United States, as well
as in Canada, the United Kingdom, the Republic of Ireland and
throughout other parts of the world as a corporate member of
Lloyd’s.
Bond & Specialty Insurance - Bond & Specialty
Insurance provides surety, fidelity, management liability,
professional liability, and other property and casualty coverages
and related risk management services to its customers in the United
States and certain specialty insurance products in Canada, the
United Kingdom and the Republic of Ireland, as well as Brazil
through a joint venture, utilizing various degrees of
financially-based underwriting approaches.
Personal Insurance - Personal Insurance writes a broad
range of property and casualty insurance covering individuals’
personal risks, primarily in the United States, as well as in
Canada. The primary products of automobile and homeowners insurance
are complemented by a broad suite of related coverages.
* * * * *
Forward-Looking Statements
This press release contains, and management may make, certain
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, may be forward-looking
statements. Words such as “may,” “will,” “should,” “likely,”
“anticipates,” “expects,” “intends,” “plans,” “projects,”
“believes,” “estimates” and similar expressions are used to
identify these forward-looking statements. These statements
include, among other things, the Company’s statements about:
- the Company’s outlook and its future results of operations and
financial condition (including, among other things, anticipated
premium volume, premium rates, renewal premium changes,
underwriting margins and underlying underwriting margins, net and
core income, investment income and performance, loss costs, return
on equity, core return on equity and expected current returns, and
combined ratios and underlying combined ratios);
- share repurchase plans;
- future pension plan contributions;
- the sufficiency of the Company’s asbestos and other
reserves;
- the impact of emerging claims issues as well as other insurance
and non-insurance litigation;
- the potential benefit associated with the Company’s ability to
recover on its subrogation claims;
- the cost and availability of reinsurance coverage;
- catastrophe losses;
- the impact of investment (including changes in interest rates),
economic (including inflation, changes in tax law, changes in
commodity prices and fluctuations in foreign currency exchange
rates) and underwriting market conditions;
- strategic and operational initiatives to improve profitability
and competitiveness;
- the Company’s competitive advantages;
- new product offerings;
- the impact of new or potential regulations imposed or to be
imposed by the United States or other nations, including tariffs or
other barriers to international trade; and
- the impact of developments in the tort environment, such as
increased attorney involvement in insurance claims and legislation
allowing victims of sexual abuse to file or proceed with claims
that otherwise would have been time-barred.
The Company cautions investors that such statements are subject
to risks and uncertainties, many of which are difficult to predict
and generally beyond the Company’s control, that could cause actual
results to differ materially from those expressed in, or implied or
projected by, the forward-looking information and statements.
Some of the factors that could cause actual results to differ
include, but are not limited to, the following:
- high levels of catastrophe losses, including as a result of
factors such as changing climate conditions and increased
concentrations of insured properties in catastrophe-prone areas,
could materially and adversely affect the Company’s results of
operations, its financial position and/or liquidity, and could
adversely impact the Company’s ratings, the Company’s ability to
raise capital and the availability and cost of reinsurance;
- if actual claims exceed the Company’s claims and claim
adjustment expense reserves, or if changes in the estimated level
of claims and claim adjustment expense reserves are necessary,
including as a result of, among other things, changes in the
legal/tort, regulatory and economic environments in which the
Company operates, the Company’s financial results could be
materially and adversely affected;
- during or following a period of financial market disruption or
an economic downturn, the Company’s business could be materially
and adversely affected;
- the Company’s investment portfolio is subject to credit and
interest rate risk, and may suffer reduced or low returns or
material realized or unrealized losses;
- the intense competition that the Company faces, and the impact
of innovation, technological change and changing customer
preferences on the insurance industry and the markets in which it
operates, could harm its ability to maintain or increase its
business volumes and its profitability;
- the Company’s business could be harmed because of its potential
exposure to asbestos and environmental claims and related
litigation;
- disruptions to the Company’s relationships with its independent
agents and brokers or the Company’s inability to manage effectively
a changing distribution landscape could adversely affect the
Company;
- the Company is exposed to, and may face adverse developments
involving, mass tort claims such as those relating to exposure to
potentially harmful products or substances;
- the effects of emerging claim and coverage issues on the
Company’s business are uncertain, and court decisions or
legislative changes that take place after the Company issues its
policies can result in an unexpected increase in the number of
claims and have a material adverse impact on the Company’s results
of operations;
- the Company may not be able to collect all amounts due to it
from reinsurers, reinsurance coverage may not be available to the
Company in the future at commercially reasonable rates or at all
and we are exposed to credit risk related to our structured
settlements;
- the Company is exposed to credit risk in certain of its
insurance operations and with respect to certain guarantee or
indemnification arrangements that it has with third parties;
- within the United States, the Company’s businesses are heavily
regulated by the states in which it conducts business, including
licensing, market conduct and financial supervision, and changes in
regulation may reduce the Company’s profitability and limit its
growth;
- a downgrade in the Company’s claims-paying and financial
strength ratings could adversely impact the Company’s business
volumes, adversely impact the Company’s ability to access the
capital markets and increase the Company’s borrowing costs;
- the inability of the Company’s insurance subsidiaries to pay
dividends to the Company’s holding company in sufficient amounts
would harm the Company’s ability to meet its obligations, pay
future shareholder dividends and/or make future share
repurchases;
- the Company’s efforts to develop new products, expand in
targeted markets or improve business processes and workflows may
not be successful and may create enhanced risks;
- the Company may be adversely affected if its pricing and
capital models provide materially different indications than actual
results;
- the Company’s business success and profitability depend, in
part, on effective information technology systems and on continuing
to develop and implement improvements in technology, particularly
as its business processes become more digital;
- if the Company experiences difficulties with technology, data
and network security (including as a result of cyber attacks),
outsourcing relationships or cloud-based technology, the Company’s
ability to conduct its business could be negatively impacted;
- the Company is also subject to a number of additional risks
associated with its business outside the United States, such as
foreign currency exchange fluctuations (including with respect to
the valuation of the Company’s foreign investments and interests in
joint ventures) and restrictive regulations as well as the risks
and uncertainties associated with the United Kingdom’s withdrawal
from the European Union;
- regulatory changes outside of the United States, including in
Canada, the United Kingdom, the Republic of Ireland and the
European Union, could adversely impact the Company’s results of
operations and limit its growth;
- loss of or significant restrictions on the use of particular
types of underwriting criteria, such as credit scoring, or other
data or methodologies, in the pricing and underwriting of the
Company’s products could reduce the Company’s future
profitability;
- acquisitions and integration of acquired businesses may result
in operating difficulties and other unintended consequences;
- the Company could be adversely affected if its controls
designed to ensure compliance with guidelines, policies and legal
and regulatory standards are not effective;
- the Company’s businesses may be adversely affected if it is
unable to hire and retain qualified employees;
- intellectual property is important to the Company’s business,
and the Company may be unable to protect and enforce its own
intellectual property or the Company may be subject to claims for
infringing the intellectual property of others;
- changes in federal regulation could impose significant burdens
on the Company, and otherwise adversely impact the Company’s
results;
- changes in U.S. tax laws or in the tax laws of other
jurisdictions where the Company operates could adversely impact the
Company; and
- the Company’s share repurchase plans depend on a variety of
factors, including the Company’s financial position, earnings,
share price, catastrophe losses, maintaining capital levels
commensurate with the Company’s desired ratings from independent
rating agencies, changes in levels of written premiums, funding of
the Company’s qualified pension plan, capital requirements of the
Company’s operating subsidiaries, legal requirements, regulatory
constraints, other investment opportunities (including mergers and
acquisitions and related financings), market conditions and other
factors.
Our forward-looking statements speak only as of the date of this
press release or as of the date they are made, and we undertake no
obligation to update forward-looking statements. For a more
detailed discussion of these factors, see the information under the
captions “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in our most
recent annual report on Form 10-K filed with the Securities and
Exchange Commission (SEC) on February 14, 2019, as updated by our
periodic filings with the SEC.
*****
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP
MEASURES TO NON-GAAP MEASURES
The following measures are used by the Company’s management to
evaluate financial performance against historical results, to
establish performance targets on a consolidated basis, and for
other reasons as discussed below. In some cases, these measures are
considered non-GAAP financial measures under applicable SEC rules
because they are not displayed as separate line items in the
consolidated financial statements or are not required to be
disclosed in the notes to financial statements or, in some cases,
include or exclude certain items not ordinarily included or
excluded in the most comparable GAAP financial measure.
Reconciliations of these measures to the most comparable GAAP
measures also follow.
In the opinion of the Company’s management, a discussion of
these measures provides investors, financial analysts, rating
agencies and other financial statement users with a better
understanding of the significant factors that comprise the
Company’s periodic results of operations and how management
evaluates the Company’s financial performance.
Some of these measures exclude net realized investment gains
(losses), net of tax, and/or net unrealized investment gains
(losses), net of tax, included in shareholders’ equity, which can
be significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by
the Company’s management.
RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER
NON-GAAP MEASURES
Core income (loss) is consolidated net income (loss)
excluding the after-tax impact of net realized investment gains
(losses), discontinued operations, the effect of a change in tax
laws and tax rates at enactment, and cumulative effect of changes
in accounting principles when applicable. Segment income
(loss) is determined in the same manner as core income (loss)
on a segment basis. Management uses segment income (loss) to
analyze each segment’s performance and as a tool in making business
decisions. Financial statement users also consider core income
(loss) when analyzing the results and trends of insurance
companies. Core income (loss) per share is core income
(loss) on a per common share basis.
Reconciliation of Net Income to Core
Income less Preferred Dividends
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions, after-tax)
2019
2018
2019
2018
Net income
$
873
$
621
$
2,622
$
2,523
Less: Net realized investment gains
(6
)
(50
)
(85
)
(93
)
Core income
$
867
$
571
$
2,537
$
2,430
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions, pre-tax)
2019
2018
2019
2018
Net income
$
1,074
$
746
$
3,138
$
2,961
Less: Net realized investment gains
(12
)
(60
)
(113
)
(114
)
Core income
$
1,062
$
686
$
3,025
$
2,847
Twelve Months Ended December
31,
($ in millions, after-tax)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Net income
$2,622
$2,523
$2,056
$3,014
$3,439
$3,692
$3,673
$2,473
$1,426
$3,216
$3,622
$2,924
$4,601
$4,208
$1,622
Less: Loss from discontinued
operations
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(439)
Income from continuing
operations
2,622
2,523
2,056
3,014
3,439
3,692
3,673
2,473
1,426
3,216
3,622
2,924
4,601
4,208
2,061
Adjustments:
Net realized investment (gains) losses
(85)
(93)
(142)
(47)
(2)
(51)
(106)
(32)
(36)
(173)
(22)
271
(101)
(8)
(35)
Impact of TCJA at enactment (1)
—
—
129
—
—
—
—
—
—
—
—
—
—
—
—
Core income
2,537
2,430
2,043
2,967
3,437
3,641
3,567
2,441
1,390
3,043
3,600
3,195
4,500
4,200
2,026
Less: Preferred dividends
—
—
—
—
—
—
—
—
1
3
3
4
4
5
6
Core income, less preferred
dividends
$2,537
$2,430
$2,043
$2,967
$3,437
$3,641
$3,567
$2,441
$1,389
$3,040
$3,597
$3,191
$4,496
$4,195
$2,020
(1) Tax Cuts and Jobs Act of 2017 (TCJA)
Reconciliation of Net Income per Share
to Core Income per Share on a Basic and Diluted Basis
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Basic income per
share
Net income
$
3.37
$
2.33
$
10.01
$
9.37
Adjustments:
Net realized investment gains,
after-tax
(0.02
)
(0.18
)
(0.32
)
(0.35
)
Core income
$
3.35
$
2.15
$
9.69
$
9.02
Diluted income
per share
Net income
$
3.35
$
2.32
$
9.92
$
9.28
Adjustments:
Net realized investment gains,
after-tax
(0.03
)
(0.19
)
(0.32
)
(0.34
)
Core income
$
3.32
$
2.13
$
9.60
$
8.94
Reconciliation of Segment Income to
Total Core Income
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions, after-tax)
2019
2018
2019
2018
Business Insurance
$
448
$
391
$
1,392
$
1,638
Bond & Specialty Insurance
167
220
618
793
Personal Insurance
327
32
824
297
Total segment income
942
643
2,834
2,728
Interest Expense and Other
(75
)
(72
)
(297
)
(298
)
Total core income
$
867
$
571
$
2,537
$
2,430
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO ADJUSTED
SHAREHOLDERS’ EQUITY AND CALCULATION OF RETURN ON EQUITY AND CORE
RETURN ON EQUITY
Adjusted shareholders’ equity is shareholders’ equity
excluding net unrealized investment gains (losses), net of tax,
included in shareholders’ equity, net realized investment gains
(losses), net of tax, for the period presented, the effect of a
change in tax laws and tax rates at enactment (excluding the
portion related to net unrealized investment gains (losses)),
preferred stock and discontinued operations.
Reconciliation of Shareholders’ Equity
to Adjusted Shareholders’ Equity
As of December 31,
($ in millions)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Shareholders’ equity
$25,943
$22,894
$23,731
$23,221
$23,598
$24,836
$24,796
$25,405
$24,477
$25,475
$27,415
$25,319
$26,616
$25,135
$22,303
Adjustments:
Net unrealized investment (gains) losses,
net of tax, included in shareholders’ equity
(2,246)
113
(1,112)
(730)
(1,289)
(1,966)
(1,322)
(3,103)
(2,871)
(1,859)
(1,856)
146
(620)
(453)
(327)
Net realized investment (gains) losses,
net of tax
(85)
(93)
(142)
(47)
(2)
(51)
(106)
(32)
(36)
(173)
(22)
271
(101)
(8)
(35)
Impact of TCJA at enactment
—
—
287
—
—
—
—
—
—
—
—
—
—
—
—
Preferred stock
—
—
—
—
—
—
—
—
—
(68)
(79)
(89)
(112)
(129)
(153)
Loss from discontinued operations
—
—
—
—
—
—
—
—
—
—
—
—
—
—
439
Adjusted shareholders’ equity
$23,612
$22,914
$22,764
$22,444
$22,307
$22,819
$23,368
$22,270
$21,570
$23,375
$25,458
$25,647
$25,783
$24,545
$22,227
Return on equity is the ratio of annualized net income
(loss) less preferred dividends to average shareholders’ equity for
the periods presented. Core return on equity is the ratio of
annualized core income (loss) less preferred dividends to adjusted
average shareholders’ equity for the periods presented. In the
opinion of the Company’s management, these are important indicators
of how well management creates value for its shareholders through
its operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and
end of each of the quarters for the period presented divided by (b)
the number of quarters in the period presented times two.
Adjusted average shareholders’ equity is (a) the sum of
total adjusted shareholders’ equity at the beginning and end of
each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two.
Calculation of Return on Equity and
Core Return on Equity
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions, after-tax)
2019
2018
2019
2018
Annualized net income
$
3,490
$
2,483
$
2,622
$
2,523
Average shareholders’ equity
25,775
22,677
24,922
22,843
Return on equity
13.5
%
10.9
%
10.5
%
11.0
%
Annualized core income
$
3,468
$
2,286
$
2,537
$
2,430
Adjusted average shareholders’ equity
23,472
22,932
23,335
22,814
Core return on equity
14.8
%
10.0
%
10.9
%
10.7
%
Average annual core return on equity over a period is the
ratio of: a) the sum of core income less preferred dividends for
the periods presented to b) the sum of: 1) the sum of the adjusted
average shareholders’ equity for all full years in the period
presented, and 2) for partial years in the period presented, the
number of quarters in that partial year divided by four, multiplied
by the adjusted average shareholders’ equity of the partial
year.
Calculation of Average Annual Core
Return on Equity from January 1, 2005 through December 31,
2019
Twelve Months Ended December
31,
($ in millions)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Core income, less preferred dividends
$2,537
$2,430
$2,043
$2,967
$3,437
$3,641
$3,567
$2,441
$1,389
$3,040
$3,597
$3,191
$4,496
$4,195
$2,020
Adjusted average shareholders’ equity
23,335
22,814
22,743
22,386
22,681
23,447
23,004
22,158
22,806
24,285
25,777
25,668
25,350
23,381
21,118
Core return on equity
10.9%
10.7%
9.0%
13.3%
15.2%
15.5%
15.5%
11.0%
6.1%
12.5%
14.0%
12.4%
17.7%
17.9%
9.6%
Average annual core return on equity
for the period Jan. 1, 2005 through December 31, 2019
12.8%
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN
ITEMS TO NET INCOME
Underwriting gain (loss) is net earned premiums and fee
income less claims and claim adjustment expenses and
insurance-related expenses. In the opinion of the Company’s
management, it is important to measure the profitability of each
segment excluding the results of investing activities, which are
managed separately from the insurance business. This measure is
used to assess each segment’s business performance and as a tool in
making business decisions. Pre-tax underwriting gain,
excluding the impact of catastrophes and net favorable
(unfavorable) prior year loss reserve development, is the
underwriting gain adjusted to exclude claims and claim adjustment
expenses, reinstatement premiums and assessments related to
catastrophes and loss reserve development related to time periods
prior to the current year. In the opinion of the Company’s
management, this measure is meaningful to users of the financial
statements to understand the Company’s periodic earnings and the
variability of earnings caused by the unpredictable nature (i.e.,
the timing and amount) of catastrophes and loss reserve
development. This measure is also referred to as underlying
underwriting margin or underlying underwriting gain.
A catastrophe is a severe loss designated a catastrophe
by internationally recognized organizations that track and report
on insured losses resulting from catastrophic events, such as
Property Claim Services (PCS) for events in the United States and
Canada. Catastrophes can be caused by various natural events,
including, among others, hurricanes, tornadoes and other
windstorms, earthquakes, hail, wildfires, severe winter weather,
floods, tsunamis, volcanic eruptions and other naturally-occurring
events, such as solar flares. Catastrophes can also be man-made,
such as terrorist attacks and other intentionally destructive acts
including those involving nuclear, biological, chemical and
radiological events, cyber events, explosions and destruction of
infrastructure. Each catastrophe has unique characteristics and
catastrophes are not predictable as to timing or amount. Their
effects are included in net and core income and claims and claim
adjustment expense reserves upon occurrence. A catastrophe may
result in the payment of reinsurance reinstatement premiums and
assessments from various pools.
The Company’s threshold for disclosing catastrophes is primarily
determined at the reportable segment level. If a threshold for one
segment or a combination thereof is exceeded and the other segments
have losses from the same event, losses from the event are
identified as catastrophe losses in the segment results and for the
consolidated results of the Company. Additionally, an aggregate
threshold is applied for international business across all
reportable segments. The threshold for 2019 ranges from
approximately $19 million to $30 million of losses before
reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Components of Net Income
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions, after-tax except as
noted)
2019
2018
2019
2018
Pre-tax underwriting gain excluding the
impact of catastrophes and net prior year loss reserve
development
$
538
$
578
$
1,779
$
1,880
Pre-tax impact of catastrophes
(85
)
(610
)
(886
)
(1,716
)
Pre-tax impact of net favorable
(unfavorable) prior year loss reserve development
60
167
(60
)
517
Pre-tax underwriting gain
513
135
833
681
Income tax expense on underwriting
results
117
36
179
105
Underwriting gain
396
99
654
576
Net investment income
525
535
2,097
2,102
Other income (expense), including interest
expense
(54
)
(63
)
(214
)
(248
)
Core income
867
571
2,537
2,430
Net realized investment gains
6
50
85
93
Net income
$
873
$
621
$
2,622
$
2,523
COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED
RATIO
Combined ratio: For Statutory Accounting Practices (SAP),
the combined ratio is the sum of the SAP loss and LAE ratio and the
SAP underwriting expense ratio as defined in the statutory
financial statements required by insurance regulators. The combined
ratio, as used in this earnings release, is the equivalent of, and
is calculated in the same manner as, the SAP combined ratio except
that the SAP underwriting expense ratio is based on net written
premiums and the underwriting expense ratio as used in this
earnings release is based on net earned premiums.
For SAP, the loss and LAE ratio is the ratio of incurred losses
and loss adjustment expenses less certain administrative services
fee income to net earned premiums as defined in the statutory
financial statements required by insurance regulators. The loss and
LAE ratio as used in this earnings release is calculated in the
same manner as the SAP ratio.
For SAP, the underwriting expense ratio is the ratio of
underwriting expenses incurred (including commissions paid), less
certain administrative services fee income and billing and policy
fees and other, to net written premiums as defined in the statutory
financial statements required by insurance regulators. The
underwriting expense ratio as used in this earnings release, is the
ratio of underwriting expenses (including the amortization of
deferred acquisition costs), less certain administrative services
fee income, billing and policy fees and other, to net earned
premiums.
The combined ratio, loss and LAE ratio, and underwriting expense
ratio are used as indicators of the Company’s underwriting
discipline, efficiency in acquiring and servicing its business and
overall underwriting profitability. A combined ratio under 100%
generally indicates an underwriting profit. A combined ratio over
100% generally indicates an underwriting loss.
Underlying combined ratio represents the combined ratio
excluding the impact of net prior year reserve development and
catastrophes. The underlying combined ratio is an indicator of the
Company’s underwriting discipline and underwriting profitability
for the current accident year.
Other companies’ method of computing similarly titled measures
may not be comparable to the Company’s method of computing these
ratios.
Calculation of the Combined
Ratio
Three Months Ended December
31,
Twelve Months Ended December
31,
($ in millions, pre-tax)
2019
2018
2019
2018
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses
$
4,640
$
4,778
$
19,133
$
18,291
Less:
Policyholder dividends
10
15
47
52
Allocated fee income
42
39
174
154
Loss ratio numerator
$
4,588
$
4,724
$
18,912
$
18,085
Underwriting
expense ratio
Amortization of deferred acquisition
costs
$
1,181
$
1,122
$
4,601
$
4,381
General and administrative expenses
(G&A)
1,085
1,063
4,365
4,297
Less:
Non-insurance G&A
56
45
201
159
Allocated fee income
71
69
285
278
Billing and policy fees and other
27
24
108
93
Expense ratio numerator
$
2,112
$
2,047
$
8,372
$
8,148
Earned premium
$
7,250
$
6,945
$
28,272
$
27,059
Combined ratio (1)
Loss and loss adjustment expense ratio
63.3
%
68.0
%
66.9
%
66.8
%
Underwriting expense ratio
29.1
%
29.5
%
29.6
%
30.1
%
Combined ratio
92.4
%
97.5
%
96.5
%
96.9
%
(1) For purposes of computing ratios, billing and policy fees
and other (which are a component of other revenues) are allocated
as a reduction of underwriting expenses. In addition, fee income is
allocated as a reduction of losses and loss adjustment expenses and
underwriting expenses. In addition, G&A include non-insurance
expenses that are excluded from underwriting expenses, and
accordingly are excluded in calculating the combined ratio.
RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS’
EQUITY TO CERTAIN NON-GAAP MEASURES
Book value per share is total common shareholders’ equity
divided by the number of common shares outstanding. Adjusted
book value per share is total common shareholders’ equity
excluding net unrealized investment gains and losses, net of tax,
included in shareholders’ equity, divided by the number of common
shares outstanding. In the opinion of the Company’s management,
adjusted book value per share is useful in an analysis of a
property casualty company’s book value per share as it removes the
effect of changing prices on invested assets (i.e., net unrealized
investment gains (losses), net of tax), which do not have an
equivalent impact on unpaid claims and claim adjustment expense
reserves. Tangible book value per share is adjusted book
value per share excluding the after-tax value of goodwill and other
intangible assets divided by the number of common shares
outstanding. In the opinion of the Company’s management, tangible
book value per share is useful in an analysis of a property
casualty company’s book value on a nominal basis as it removes
certain effects of purchase accounting (i.e., goodwill and other
intangible assets), in addition to the effect of changing prices on
invested assets.
Reconciliation of Shareholders’ Equity
to Tangible Shareholders’ Equity, Excluding Net Unrealized
Investment Gains (Losses), Net of Tax
As of
($ in millions, except per share
amounts)
December 31, 2019
December 31, 2018
Shareholders’ equity
$
25,943
$
22,894
Less: Net unrealized investment gains
(losses), net of tax, included in shareholders’ equity
2,246
(113
)
Shareholders’ equity, excluding net
unrealized investment gains (losses), net of tax, included in
shareholders’ equity
23,697
23,007
Less:
Goodwill
3,961
3,937
Other intangible assets
330
345
Impact of deferred tax on other intangible
assets
(51
)
(44
)
Tangible shareholders’ equity
$
19,457
$
18,769
Common shares outstanding
255.5
263.6
Book value per share
$
101.55
$
86.84
Adjusted book value per share
92.76
87.27
Tangible book value per share
76.17
71.20
RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL
CAPITALIZATION EXCLUDING NET UNREALIZED INVESTMENT GAINS (LOSSES),
NET OF TAX
Total capitalization is the sum of total shareholders’
equity and debt. Debt-to-capital ratio excluding net unrealized
gain (loss) on investments, net of tax, included in shareholders’
equity, is the ratio of debt to total capitalization excluding
the after-tax impact of net unrealized investment gains and losses
included in shareholders’ equity. In the opinion of the Company’s
management, the debt-to-capital ratio is useful in an analysis of
the Company’s financial leverage.
As of
($ in millions)
December 31, 2019
December 31, 2018
Debt
$
6,558
$
6,564
Shareholders’ equity
25,943
22,894
Total capitalization
32,501
29,458
Less: Net unrealized investment gains
(losses), net of tax, included in shareholders’ equity
2,246
(113
)
Total capitalization excluding net
unrealized gain (loss) on investments, net of tax, included in
shareholders’ equity
$
30,255
$
29,571
Debt-to-capital ratio
20.2
%
22.3
%
Debt-to-capital ratio excluding net
unrealized investment gains (losses), net of tax, included in
shareholders’ equity
21.7
%
22.2
%
OTHER DEFINITIONS
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to policyholders for the
effective period of the contract based on the terms and conditions
of the insurance contract. Net written premiums reflect
gross written premiums less premiums ceded to reinsurers.
For Business Insurance and Bond & Specialty Insurance,
retention is the amount of premium available for renewal
that was retained, excluding rate and exposure changes. For
Personal Insurance, retention is the ratio of the expected
number of renewal policies that will be retained throughout the
annual policy period to the number of available renewal base
policies. For all of the segments, renewal rate change
represents the estimated change in average premium on policies that
renew, excluding exposure changes. Exposure is the measure
of risk used in the pricing of an insurance product. The change in
exposure is the amount of change in premium on policies that renew
attributable to the change in portfolio risk. Renewal premium
change represents the estimated change in average premium on
policies that renew, including rate and exposure changes. New
business is the amount of written premium related to new
policyholders and additional products sold to existing
policyholders. These are operating statistics, which are in part
dependent on the use of estimates and are therefore subject to
change. For Business Insurance, retention, renewal premium change
and new business exclude National Accounts. For Bond &
Specialty Insurance, retention, renewal premium change and new
business exclude surety and other products that are generally sold
on a non-recurring, project specific basis.
Statutory capital and surplus represents the excess of an
insurance company’s admitted assets over its liabilities, including
loss reserves, as determined in accordance with statutory
accounting practices.
Holding company liquidity is the total funds available at
the holding company level to fund general corporate purposes,
primarily the payment of shareholder dividends and debt service.
These funds consist of total cash, short-term invested assets and
other readily marketable securities held by the holding
company.
For a glossary of other financial terms used in this press
release, we refer you to the Company’s most recent annual report on
Form 10-K filed with the SEC on February 14, 2019, and subsequent
periodic filings with the SEC.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200123005369/en/
Media: Patrick Linehan
917.778.6267
Institutional Investors: Abbe
Goldstein 917.778.6825
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