UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 001-10898
The Travelers Companies, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________________________________
|
| | |
Minnesota | | 41-0518860 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
485 Lexington Avenue
New York, NY10017
(Address of principal executive offices) (Zip Code)
(917) (917) 778-6000
(Registrant’s telephone number, including area code)
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, without par value | | TRV | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:Act.
|
| | | |
Large accelerated filer | ý | Accelerated filer | o |
| | | |
Non-accelerated filer | o | Smaller reporting company | o |
(Do not check if a smaller reporting company) | | ☐ |
| Emerging growth company | o☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o☐ No ý
The number of shares of the Registrant’s Common Stock, without par value, outstanding at July 16, 201819, 2019 was 267,683,231.
260,385,722.
The Travelers Companies, Inc.
Quarterly Report on Form 10-Q
For Quarterly Period Ended June 30, 20182019
TABLE OF CONTENTS
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Item 1. | | |
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| Consolidated Statement of Income (Unaudited) — Three Months and Six Months Ended June 30, 20182019 and 20172018 | |
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| Consolidated Statement of Comprehensive Income (Loss) (Unaudited) — Three Months and Six Months Ended June 30, 20182019 and 20172018 | |
| | |
| Consolidated Balance Sheet — June 30, 20182019 (Unaudited) and December 31, 20172018 | |
| | |
| Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Three Months and Six Months Ended June 30, 20182019 and 20172018 | |
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| Consolidated Statement of Cash Flows (Unaudited) — Six Months Ended June 30, 20182019 and 20172018 | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 1A.2. | | |
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Item 5. | | |
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Item 6. | | |
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Item 2. | | |
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Item 5. | | |
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Item 6. | | |
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PART 1 — FINANCIAL INFORMATION
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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | | | | |
Premiums | | $ | 6,695 |
| | $ | 6,351 |
| | $ | 13,232 |
| | $ | 12,534 |
| | $ | 6,988 |
| | $ | 6,695 |
| | $ | 13,843 |
| | $ | 13,232 |
|
Net investment income | | 595 |
| | 598 |
| | 1,198 |
| | 1,208 |
| | 648 |
| | 595 |
| | 1,230 |
| | 1,198 |
|
Fee income | | 112 |
| | 116 |
| | 215 |
| | 229 |
| | 116 |
| | 112 |
| | 225 |
| | 215 |
|
Net realized investment gains (1) | | 36 |
| | 80 |
| | 25 |
| | 85 |
| | 25 |
| | 36 |
| | 78 |
| | 25 |
|
Other revenues | | 39 |
| | 39 |
| | 93 |
| | 70 |
| | 57 |
| | 39 |
| | 129 |
| | 93 |
|
| | | | | | | | | | | | | | | | |
Total revenues | | 7,477 |
| | 7,184 |
| | 14,763 |
| | 14,126 |
| | 7,834 |
| | 7,477 |
| | 15,505 |
| | 14,763 |
|
| | | | | | | | | | | | | | | | |
Claims and expenses | | | | | | | | | | | | | | | | |
Claims and claim adjustment expenses | | 4,562 |
| | 4,225 |
| | 8,858 |
| | 8,319 |
| | 4,821 |
| | 4,562 |
| | 9,263 |
| | 8,858 |
|
Amortization of deferred acquisition costs | | 1,081 |
| | 1,032 |
| | 2,142 |
| | 2,035 |
| | 1,134 |
| | 1,081 |
| | 2,251 |
| | 2,142 |
|
General and administrative expenses | | 1,113 |
| | 1,045 |
| | 2,175 |
| | 2,041 |
| | 1,125 |
| | 1,113 |
| | 2,182 |
| | 2,175 |
|
Interest expense | | 90 |
| | 92 |
| | 179 |
| | 181 |
| | 89 |
| | 90 |
| | 177 |
| | 179 |
|
Total claims and expenses | | 6,846 |
| | 6,394 |
| | 13,354 |
| | 12,576 |
| | 7,169 |
| | 6,846 |
| | 13,873 |
| | 13,354 |
|
| | | | | | | | | | | | | | | | |
Income before income taxes | | 631 |
| | 790 |
| | 1,409 |
| | 1,550 |
| | 665 |
| | 631 |
| | 1,632 |
| | 1,409 |
|
Income tax expense | | 107 |
| | 195 |
| | 216 |
| | 338 |
| | 108 |
| | 107 |
| | 279 |
| | 216 |
|
Net income | | $ | 524 |
| | $ | 595 |
| | $ | 1,193 |
| | $ | 1,212 |
| | $ | 557 |
| | $ | 524 |
| | $ | 1,353 |
| | $ | 1,193 |
|
| | | | | | | | | | | | | | | | |
Net income per share | | | | | | | | | | | | | | | | |
Basic | | $ | 1.93 |
| | $ | 2.13 |
| | $ | 4.39 |
| | $ | 4.32 |
| | $ | 2.11 |
| | $ | 1.93 |
| | $ | 5.12 |
| | $ | 4.39 |
|
Diluted | | $ | 1.92 |
| | $ | 2.11 |
| | $ | 4.35 |
| | $ | 4.28 |
| | $ | 2.10 |
| | $ | 1.92 |
| | $ | 5.08 |
| | $ | 4.35 |
|
| | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding | | | | | | | | | | | | | | | | |
Basic | | 268.7 |
| | 277.5 |
| | 269.8 |
| | 278.6 |
| | 261.3 |
| | 268.7 |
| | 262.1 |
| | 269.8 |
|
Diluted | | 271.1 |
| | 280.0 |
| | 272.5 |
| | 281.2 |
| | 263.7 |
| | 271.1 |
| | 264.2 |
| | 272.5 |
|
| | | | | | | | | | | | | | | | |
Cash dividends declared per common share | | $ | 0.77 |
| | $ | 0.72 |
| | $ | 1.49 |
| | $ | 1.39 |
| | $ | 0.82 |
| | $ | 0.77 |
| | $ | 1.59 |
| | $ | 1.49 |
|
| |
(1) | Total other-than-temporary impairment (OTTI) lossesgains (losses) were $(1) million and $(5) million for each of the three months ended June 30, 2019 and 2018, and 2017, respectively,$(2) million and $(1) million and $(6) million for the six months ended June 30, 20182019 and 2017,June 30, 2018, respectively. Of total OTTI, credit losses of $(1) million and $(5) million for each of the three months ended June 30, 2019 and 2018, and 2017, respectively,$(2) million and $(1) million and $(7) million for the six months ended June 30, 20182019 and 2017,June 30, 2018, 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, 20182019 and 2017, respectively,2018 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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Net income | | $ | 524 |
| | $ | 595 |
| | $ | 1,193 |
| | $ | 1,212 |
| | $ | 557 |
| | $ | 524 |
| | $ | 1,353 |
| | $ | 1,193 |
|
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | |
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 |
| | 1,108 |
| | (298 | ) | | 2,524 |
| | (1,501 | ) |
Having credit losses recognized in the consolidated statement of income | | (12 | ) | | 2 |
| | (14 | ) | | 2 |
| | (4 | ) | | (12 | ) | | 1 |
| | (14 | ) |
Net changes in benefit plan assets and obligations | | 21 |
| | 17 |
| | 43 |
| | 34 |
| | 14 |
| | 21 |
| | 26 |
| | 43 |
|
Net changes in unrealized foreign currency translation | | (158 | ) | | 48 |
| | (152 | ) | | 89 |
| | 5 |
| | (158 | ) | | 55 |
| | (152 | ) |
Other comprehensive income (loss) before income taxes | | (447 | ) | | 394 |
| | (1,624 | ) | | 596 |
| | 1,123 |
| | (447 | ) | | 2,606 |
| | (1,624 | ) |
Income tax expense (benefit) | | (81 | ) | | 123 |
| | (325 | ) | | 185 |
| | 235 |
| | (81 | ) | | 541 |
| | (325 | ) |
Other comprehensive income (loss), net of taxes | | (366 | ) | | 271 |
| | (1,299 | ) | | 411 |
| | 888 |
| | (366 | ) | | 2,065 |
| | (1,299 | ) |
Comprehensive income (loss) | | $ | 158 |
| | $ | 866 |
| | $ | (106 | ) | | $ | 1,623 |
| | $ | 1,445 |
| | $ | 158 |
| | $ | 3,418 |
| | $ | (106 | ) |
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 | | June 30, 2019 | | December 31, 2018 |
| | (Unaudited) | | | | (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 |
| |
Fixed maturities, available for sale, at fair value (amortized cost $64,784 and $63,601) | | | $ | 67,172 |
| | $ | 63,464 |
|
Equity securities, at fair value (cost $373 and $382) | | | 406 |
| | 368 |
|
Real estate investments | | 954 |
| | 932 |
| | 965 |
| | 904 |
|
Short-term securities | | 3,692 |
| | 4,895 |
| | 3,487 |
| | 3,985 |
|
Other investments | | 3,555 |
| | 3,528 |
| | 3,466 |
| | 3,557 |
|
Total investments | | 71,161 |
| | 72,502 |
| | 75,496 |
| | 72,278 |
|
Cash | | 415 |
| | 344 |
| | 416 |
| | 373 |
|
Investment income accrued | | 610 |
| | 606 |
| | 615 |
| | 624 |
|
Premiums receivable | | 7,786 |
| | 7,144 |
| | 8,297 |
| | 7,506 |
|
Reinsurance recoverables | | 8,258 |
| | 8,309 |
| | 8,234 |
| | 8,370 |
|
Ceded unearned premiums | | 698 |
| | 551 |
| | 864 |
| | 578 |
|
Deferred acquisition costs | | 2,161 |
| | 2,025 |
| | 2,281 |
| | 2,120 |
|
Deferred taxes | | 463 |
| | 70 |
| | — |
| | 445 |
|
Contractholder receivables | | 4,830 |
| | 4,775 |
| | 4,776 |
| | 4,785 |
|
Goodwill | | 3,931 |
| | 3,951 |
| | 3,943 |
| | 3,937 |
|
Other intangible assets | | 356 |
| | 342 |
| | 335 |
| | 345 |
|
Other assets | | 2,854 |
| | 2,864 |
| | 3,315 |
| | 2,872 |
|
Total assets | | $ | 103,523 |
| | $ | 103,483 |
| | $ | 108,572 |
| | $ | 104,233 |
|
| | | | | | | | |
Liabilities | | |
| | |
| | |
| | |
|
Claims and claim adjustment expense reserves | | $ | 49,961 |
| | $ | 49,650 |
| | $ | 51,073 |
| | $ | 50,668 |
|
Unearned premium reserves | | 13,755 |
| | 12,915 |
| | 14,538 |
| | 13,555 |
|
Contractholder payables | | 4,830 |
| | 4,775 |
| | 4,776 |
| | 4,785 |
|
Payables for reinsurance premiums | | 396 |
| | 274 |
| | 591 |
| | 289 |
|
Deferred taxes | | | 87 |
| | — |
|
Debt | | 6,464 |
| | 6,571 |
| | 6,558 |
| | 6,564 |
|
Other liabilities | | 5,494 |
| | 5,567 |
| | 5,628 |
| | 5,478 |
|
Total liabilities | | 80,900 |
| | 79,752 |
| | 83,251 |
| | 81,339 |
|
| | | | | | | | |
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 |
| |
Common stock (1,750.0 shares authorized; 260.4 and 263.7 shares issued, 260.3 and 263.6 shares outstanding) | | | 23,372 |
| | 23,144 |
|
Retained earnings | | 34,296 |
| | 33,462 |
| | 36,135 |
| | 35,204 |
|
Accumulated other comprehensive loss | | (1,688 | ) | | (343 | ) | |
Treasury stock, at cost (506.4 and 500.9 shares) | | (33,025 | ) | | (32,274 | ) | |
Accumulated other comprehensive income (loss) | | | 206 |
| | (1,859 | ) |
Treasury stock, at cost (516.7 and 510.9 shares) | | | (34,392 | ) | | (33,595 | ) |
Total shareholders’ equity | | 22,623 |
| | 23,731 |
| | 25,321 |
| | 22,894 |
|
Total liabilities and shareholders’ equity | | $ | 103,523 |
| | $ | 103,483 |
| | $ | 108,572 |
| | $ | 104,233 |
|
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 | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | |
Common stock | | |
| | |
| | |
| | |
| | |
| | |
|
Balance, beginning of year | | $ | 22,886 |
| | $ | 22,614 |
| |
Balance, beginning of period | | | $ | 23,243 |
| | $ | 22,995 |
| | $ | 23,144 |
| | $ | 22,886 |
|
Employee share-based compensation | | 77 |
| | 94 |
| | 91 |
| | 12 |
| | 145 |
| | 77 |
|
Compensation amortization under share-based plans | | 77 |
| | 73 |
| |
Compensation amortization under share-based plans and other changes | | | 38 |
| | 33 |
| | 83 |
| | 77 |
|
Balance, end of period | | 23,040 |
| | 22,781 |
| | 23,372 |
| | 23,040 |
| | 23,372 |
| | 23,040 |
|
| | | | | | | | | | | | |
Retained earnings | | |
| | |
| | |
| | |
| | |
| | |
|
Balance, beginning of year | | 33,462 |
| | 32,196 |
| |
Balance, beginning of period | | | 35,795 |
| | 33,981 |
| | 35,204 |
| | 33,462 |
|
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018 | | 22 |
| | — |
| | — |
| | — |
| | — |
| | 22 |
|
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018 | | 24 |
| | — |
| | — |
| | — |
| | — |
| | 24 |
|
Net income | | 1,193 |
| | 1,212 |
| | 557 |
| | 524 |
| | 1,353 |
| | 1,193 |
|
Dividends | | (406 | ) | | (391 | ) | | (217 | ) | | (209 | ) | | (421 | ) | | (406 | ) |
Other | | 1 |
| | (1 | ) | | — |
| | — |
| | (1 | ) | | 1 |
|
Balance, end of period | | 34,296 |
| | 33,016 |
| | 36,135 |
| | 34,296 |
| | 36,135 |
| | 34,296 |
|
| | | | | | | | | | | | |
Accumulated other comprehensive loss, net of tax | | |
| | |
| |
Balance, beginning of year | | (343 | ) | | (755 | ) | |
Accumulated other comprehensive income (loss), net of tax | | | |
| | |
| | |
| | |
|
Balance, beginning of period | | | (682 | ) | | (1,322 | ) | | (1,859 | ) | | (343 | ) |
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018 | | (22 | ) | | — |
| | — |
| | — |
| | — |
| | (22 | ) |
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018 | | (24 | ) | | — |
| | — |
| | — |
| | — |
| | (24 | ) |
Other comprehensive income (loss) | | (1,299 | ) | | 411 |
| | 888 |
| | (366 | ) | | 2,065 |
| | (1,299 | ) |
Balance, end of period | | (1,688 | ) | | (344 | ) | | 206 |
| | (1,688 | ) | | 206 |
| | (1,688 | ) |
| | | | | | | | | | | | |
Treasury stock, at cost | | |
| | |
| | |
| | |
| | |
| | |
|
Balance, beginning of year | | (32,274 | ) | | (30,834 | ) | |
Balance, beginning of period | | | (34,016 | ) | | (32,675 | ) | | (33,595 | ) | | (32,274 | ) |
Treasury stock acquired — share repurchase authorization | | (700 | ) | | (700 | ) | | (375 | ) | | (350 | ) | | (750 | ) | | (700 | ) |
Net shares acquired related to employee share-based compensation plans | | (51 | ) | | (61 | ) | | (1 | ) | | — |
| | (47 | ) | | (51 | ) |
Balance, end of period | | (33,025 | ) | | (31,595 | ) | | (34,392 | ) | | (33,025 | ) | | (34,392 | ) | | (33,025 | ) |
| | | | | | | | | | | | |
Total shareholders’ equity | | $ | 22,623 |
| | $ | 23,858 |
| | $ | 25,321 |
| | $ | 22,623 |
| | $ | 25,321 |
| | $ | 22,623 |
|
| | | | | | | | | | | | |
Common shares outstanding | | |
| | |
| | |
| | |
| | |
| | |
|
Balance, beginning of year | | 271.4 |
| | 279.6 |
| |
Balance, beginning of period | | | 261.9 |
| | 270.2 |
| | 263.6 |
| | 271.4 |
|
Treasury stock acquired — share repurchase authorization | | (5.2 | ) | | (5.7 | ) | | (2.6 | ) | | (2.7 | ) | | (5.5 | ) | | (5.2 | ) |
Net shares issued under employee share-based compensation plans | | 1.5 |
| | 2.0 |
| | 1.0 |
| | 0.2 |
| | 2.2 |
| | 1.5 |
|
Balance, end of period | | 267.7 |
| | 275.9 |
| | 260.3 |
| | 267.7 |
| | 260.3 |
| | 267.7 |
|
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 | |
| | | Six Months Ended |
| | | June 30, |
| | | 2019 | | 2018 |
Cash flows from operating activities | | |
| | |
| | |
| | |
|
Net income | | $ | 1,193 |
| | $ | 1,212 |
| | $ | 1,353 |
| | $ | 1,193 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
| | |
|
Net realized investment gains | | (25 | ) | | (85 | ) | | (78 | ) | | (25 | ) |
Depreciation and amortization | | 411 |
| | 409 |
| | 401 |
| | 411 |
|
Deferred federal income tax expense (benefit) | | (70 | ) | | 106 |
| | 10 |
| | (70 | ) |
Amortization of deferred acquisition costs | | 2,142 |
| | 2,035 |
| | 2,251 |
| | 2,142 |
|
Equity in income from other investments | | (169 | ) | | (210 | ) | | (132 | ) | | (169 | ) |
Premiums receivable | | (660 | ) | | (609 | ) | | (779 | ) | | (660 | ) |
Reinsurance recoverables | | 29 |
| | 157 |
| | 151 |
| | 29 |
|
Deferred acquisition costs | | (2,284 | ) | | (2,157 | ) | | (2,408 | ) | | (2,284 | ) |
Claims and claim adjustment expense reserves | | 435 |
| | 498 |
| | 329 |
| | 435 |
|
Unearned premium reserves | | 879 |
| | 689 |
| | 958 |
| | 879 |
|
Other | | (183 | ) | | (291 | ) | | (264 | ) | | (183 | ) |
Net cash provided by operating activities | | 1,698 |
| | 1,754 |
| | 1,792 |
| | 1,698 |
|
| | | | | | | | |
Cash flows from investing activities | | |
| | |
| | |
| | |
|
Proceeds from maturities of fixed maturities | | 3,657 |
| | 4,300 |
| | 3,038 |
| | 3,657 |
|
Proceeds from sales of investments: | | |
| | |
| | |
| | |
|
Fixed maturities | | 2,607 |
| | 563 |
| | 1,495 |
| | 2,607 |
|
Equity securities | | 92 |
| | 200 |
| | 71 |
| | 92 |
|
Real estate investments | | — |
| | 20 |
| |
Other investments | | 189 |
| | 233 |
| | 240 |
| | 189 |
|
Purchases of investments: | | |
| | |
| | |
| | |
|
Fixed maturities | | (7,952 | ) | | (5,673 | ) | | (5,708 | ) | | (7,952 | ) |
Equity securities | | (60 | ) | | (166 | ) | | (41 | ) | | (60 | ) |
Real estate investments | | (44 | ) | | (26 | ) | | (85 | ) | | (44 | ) |
Other investments | | (275 | ) | | (259 | ) | | (262 | ) | | (275 | ) |
Net (purchases) sales of short-term securities | | 1,202 |
| | (424 | ) | |
Net sales of short-term securities | | | 497 |
| | 1,202 |
|
Securities transactions in course of settlement | | 279 |
| | 170 |
| | 223 |
| | 279 |
|
Other | | (152 | ) | | (128 | ) | | (169 | ) | | (152 | ) |
Net cash used in investing activities | | (457 | ) | | (1,190 | ) | | (701 | ) | | (457 | ) |
| | | | | | | | |
Cash flows from financing activities | | |
| | |
| | |
| | |
|
Treasury stock acquired — share repurchase authorization | | (700 | ) | | (700 | ) | | (750 | ) | | (700 | ) |
Treasury stock acquired — net employee share-based compensation | | (51 | ) | | (61 | ) | | (47 | ) | | (51 | ) |
Dividends paid to shareholders | | (404 | ) | | (389 | ) | | (419 | ) | | (404 | ) |
Payment of debt | | (600 | ) | | (207 | ) | | (500 | ) | | (600 | ) |
Issuance of debt | | 491 |
| | 689 |
| | 492 |
| | 491 |
|
Issuance of common stock — employee share options | | 98 |
| | 118 |
| | 174 |
| | 98 |
|
Net cash used in financing activities | | (1,166 | ) | | (550 | ) | | (1,050 | ) | | (1,166 | ) |
Effect of exchange rate changes on cash | | (4 | ) | | 7 |
| | 2 |
| | (4 | ) |
Net increase in cash | | 71 |
| | 21 |
| | 43 |
| | 71 |
|
Cash at beginning of year | | 344 |
| | 307 |
| | 373 |
| | 344 |
|
Cash at end of period | | $ | 415 |
| | $ | 328 |
| | $ | 416 |
| | $ | 415 |
|
| | | | | | | | |
Supplemental disclosure of cash flow information | | |
| | |
| | |
| | |
|
Income taxes paid | | $ | 238 |
| | $ | 323 |
| | $ | 325 |
| | $ | 238 |
|
Interest paid | | $ | 175 |
| | $ | 178 |
| | $ | 171 |
| | $ | 175 |
|
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, 20172018 (the Company’s 20172018 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 LiabilitiesLeases
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 effectiveEffective for the quarter ended March 31, 2018. The adoption of this guidance resulted in2019, 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, 2018for leases and elected to reclassifyutilize a cumulative-effect adjustment to the income tax effectsopening balance of the TCJA from AOCI to retained earnings asfor the year of January 1, 2018. This reclassification resultedadoption. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in an increasethe financial statements in retained earnings of $24 million as of January 1, 2018 and a decreaseaccordance with previous lease accounting guidance. The Company also elected to apply all practical expedients applicable to the Company in AOCI by the same amount.
Revenue from Contracts with Customers
In May 2014, the FASB issued updated guidance for transition for leases in effect at adoption, including using hindsight to clarifydetermine the principles for recognizing revenue.lease term of existing leases, the option to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. 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 incomeguidance resulted in the Company’sCompany recognizing a right-of-use asset of $320 million as part of other assets and a lease liability of $384 million as part of other liabilities in the consolidated statementbalance sheet, as well as de-recognizing the liability for deferred rent that was required under the previous guidance, for its corporate real estate agreements at March 31, 2019. The cumulative effect adjustment to the opening balance of income.
Commissions earned from on-line insurance brokerage services are also subject to this updated guidance and were also not impacted by theretained earnings was zero. 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 doesguidance did 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 losseshave a material effect on the receivables related to these contracts duringCompany’s results of operations or liquidity.
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
Effective for the six monthsquarter ended June 30, 2018.
TheMarch 31, 2019, the Company adopted the updated guidance effective January 1, 2018.regarding Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, and applied the guidance prospectively. The updated guidance requires an entity to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The updated guidance also requires the entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. The adoption of the updated guidance did not have ana material 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 classificationof 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 additional information regarding accounting standards that the Company adopted during the yearsperiods presented, see the “Adoption of Accounting Standards” section of note 1 of notes to the consolidated financial statements in the Company’s 20172018 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”Adopted” section of note 1 of notes to the consolidated financial statements in the Company’s 20172018 Annual Report.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued
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 20172018 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 | | Business Insurance | | Bond & Specialty Insurance | | Personal Insurance | | Total Reportable Segments |
| | | | | | | | | |
2019 | | | |
| | |
| | |
| | |
|
Premiums | | | $ | 3,783 |
| | $ | 632 |
| | $ | 2,573 |
| | $ | 6,988 |
|
Net investment income | | | 481 |
| | 58 |
| | 109 |
| | 648 |
|
Fee income | | | 111 |
| | — |
| | 5 |
| | 116 |
|
Other revenues | | | 30 |
| | 6 |
| | 21 |
| | 57 |
|
Total segment revenues (1) | | | $ | 4,405 |
| | $ | 696 |
| | $ | 2,708 |
| | $ | 7,809 |
|
Segment income (1) | | | $ | 351 |
| | $ | 174 |
| | $ | 88 |
| | $ | 613 |
|
| | | | | | | | | | | | | | | | |
2018 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Premiums | | $ | 3,641 |
| | $ | 601 |
| | $ | 2,453 |
| | $ | 6,695 |
| | $ | 3,641 |
| | $ | 601 |
| | $ | 2,453 |
| | $ | 6,695 |
|
Net investment income | | 440 |
| | 57 |
| | 98 |
| | 595 |
| | 440 |
| | 57 |
| | 98 |
| | 595 |
|
Fee income | | 107 |
| | — |
| | 5 |
| | 112 |
| | 107 |
| | — |
| | 5 |
| | 112 |
|
Other revenues | | 20 |
| | 5 |
| | 14 |
| | 39 |
| | 20 |
| | 5 |
| | 14 |
| | 39 |
|
Total segment revenues (1) | | $ | 4,208 |
| | $ | 663 |
| | $ | 2,570 |
| | $ | 7,441 |
| | $ | 4,208 |
| | $ | 663 |
| | $ | 2,570 |
| | $ | 7,441 |
|
| | | | | | | | | |
Segment income (loss) (1) | | $ | 385 |
| | $ | 204 |
| | $ | (17 | ) | | $ | 572 |
| | $ | 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 |
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2. SEGMENT INFORMATION, Continued
|
| | | | | | | | | | | | | | | | |
(For the six months ended June 30, in millions) | | Business Insurance | | Bond & Specialty Insurance | | Personal Insurance | | Total Reportable Segments |
2019 | | |
| | |
| | |
| | |
|
Premiums | | $ | 7,525 |
| | $ | 1,238 |
| | $ | 5,080 |
| | $ | 13,843 |
|
Net investment income | | 908 |
| | 114 |
| | 208 |
| | 1,230 |
|
Fee income | | 215 |
| | — |
| | 10 |
| | 225 |
|
Other revenues | | 73 |
| | 12 |
| | 43 |
| | 128 |
|
Total segment revenues (1) | | $ | 8,721 |
| | $ | 1,364 |
| | $ | 5,341 |
| | $ | 15,426 |
|
Segment income (1) | | $ | 765 |
| | $ | 312 |
| | $ | 366 |
| | $ | 1,443 |
|
| | | | | | | | |
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 |
|
| |
(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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Revenue reconciliation | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Earned premiums | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Business Insurance: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Domestic: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Workers’ compensation | | $ | 973 |
| | $ | 999 |
| | $ | 1,944 |
| | $ | 1,975 |
| | $ | 950 |
| | $ | 973 |
| | $ | 1,922 |
| | $ | 1,944 |
|
Commercial automobile | | 587 |
| | 521 |
| | 1,149 |
| | 1,027 |
| | 647 |
| | 587 |
| | 1,275 |
| | 1,149 |
|
Commercial property | | 453 |
| | 443 |
| | 891 |
| | 878 |
| | 473 |
| | 453 |
| | 933 |
| | 891 |
|
General liability | | 535 |
| | 498 |
| | 1,056 |
| | 989 |
| | 585 |
| | 535 |
| | 1,152 |
| | 1,056 |
|
Commercial multi-peril | | 822 |
| | 797 |
| | 1,627 |
| | 1,571 |
| | 856 |
| | 822 |
| | 1,696 |
| | 1,627 |
|
Other | | 6 |
| | 7 |
| | 13 |
| | 14 |
| | 9 |
| | 6 |
| | 17 |
| | 13 |
|
Total Domestic | | 3,376 |
| | 3,265 |
| | 6,680 |
| | 6,454 |
| | 3,520 |
| | 3,376 |
| | 6,995 |
| | 6,680 |
|
International | | 265 |
| | 239 |
| | 529 |
| | 479 |
| | 263 |
| | 265 |
| | 530 |
| | 529 |
|
Total Business Insurance | | 3,641 |
| | 3,504 |
| | 7,209 |
| | 6,933 |
| | 3,783 |
| | 3,641 |
| | 7,525 |
| | 7,209 |
|
Bond & Specialty Insurance: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Domestic: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fidelity and surety | | 253 |
| | 245 |
| | 499 |
| | 479 |
| | 258 |
| | 253 |
| | 504 |
| | 499 |
|
General liability | | 248 |
| | 239 |
| | 490 |
| | 474 |
| | 266 |
| | 248 |
| | 523 |
| | 490 |
|
Other | | 49 |
| | 46 |
| | 96 |
| | 91 |
| | 53 |
| | 49 |
| | 105 |
| | 96 |
|
Total Domestic | | 550 |
| | 530 |
| | 1,085 |
| | 1,044 |
| | 577 |
| | 550 |
| | 1,132 |
| | 1,085 |
|
International | | 51 |
| | 45 |
| | 98 |
| | 86 |
| | 55 |
| | 51 |
| | 106 |
| | 98 |
|
Total Bond & Specialty Insurance | | 601 |
| | 575 |
| | 1,183 |
| | 1,130 |
| | 632 |
| | 601 |
| | 1,238 |
| | 1,183 |
|
Personal Insurance: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Domestic: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Automobile | | 1,261 |
| | 1,145 |
| | 2,486 |
| | 2,239 |
| | 1,321 |
| | 1,261 |
| | 2,618 |
| | 2,486 |
|
Homeowners and Other | | 1,022 |
| | 977 |
| | 2,017 |
| | 1,932 |
| | 1,078 |
| | 1,022 |
| | 2,117 |
| | 2,017 |
|
Total Domestic | | 2,283 |
| | 2,122 |
| | 4,503 |
| | 4,171 |
| | 2,399 |
| | 2,283 |
| | 4,735 |
| | 4,503 |
|
International | | 170 |
| | 150 |
| | 337 |
| | 300 |
| | 174 |
| | 170 |
| | 345 |
| | 337 |
|
Total Personal Insurance | | 2,453 |
| | 2,272 |
| | 4,840 |
| | 4,471 |
| | 2,573 |
| | 2,453 |
| | 5,080 |
| | 4,840 |
|
Total earned premiums | | 6,695 |
| | 6,351 |
| | 13,232 |
| | 12,534 |
| | 6,988 |
| | 6,695 |
| | 13,843 |
| | 13,232 |
|
Net investment income | | 595 |
| | 598 |
| | 1,198 |
| | 1,208 |
| | 648 |
| | 595 |
| | 1,230 |
| | 1,198 |
|
Fee income | | 112 |
| | 116 |
| | 215 |
| | 229 |
| | 116 |
| | 112 |
| | 225 |
| | 215 |
|
Other revenues | | 39 |
| | 36 |
| | 93 |
| | 66 |
| | 57 |
| | 39 |
| | 128 |
| | 93 |
|
Total segment revenues | | 7,441 |
| | 7,101 |
| | 14,738 |
| | 14,037 |
| | 7,809 |
| | 7,441 |
| | 15,426 |
| | 14,738 |
|
Other revenues | | — |
| | 3 |
| | — |
| | 4 |
| | — |
| | — |
| | 1 |
| | — |
|
Net realized investment gains | | 36 |
| | 80 |
| | 25 |
| | 85 |
| | 25 |
| | 36 |
| | 78 |
| | 25 |
|
Total revenues | | $ | 7,477 |
| | $ | 7,184 |
| | $ | 14,763 |
| | $ | 14,126 |
| | $ | 7,834 |
| | $ | 7,477 |
| | $ | 15,505 |
| | $ | 14,763 |
|
Income reconciliation, net of tax | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Total segment income | | $ | 572 |
| | $ | 604 |
| | $ | 1,326 |
| | $ | 1,280 |
| | $ | 613 |
| | $ | 572 |
| | $ | 1,443 |
| | $ | 1,326 |
|
Interest Expense and Other (1) | | (78 | ) | | (61 | ) | | (154 | ) | | (123 | ) | | (76 | ) | | (78 | ) | | (151 | ) | | (154 | ) |
Core income | | 494 |
| | 543 |
| | 1,172 |
| | 1,157 |
| | 537 |
| | 494 |
| | 1,292 |
| | 1,172 |
|
Net realized investment gains | | 30 |
| | 52 |
| | 21 |
| | 55 |
| | 20 |
| | 30 |
| | 61 |
| | 21 |
|
Net income | | $ | 524 |
| | $ | 595 |
| | $ | 1,193 |
| | $ | 1,212 |
| | $ | 557 |
| | $ | 524 |
| | $ | 1,353 |
| | $ | 1,193 |
|
(1) The primary component of Interest Expense and Other was after-tax interest expense of $70 million and $71 million and $60 million infor the three months ended June 30, 2019 and 2018, respectively, and 2017, respectively,$140 million and $141 million and $118 million infor the six months ended June 30, 20182019 and 2017,2018, 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 | | June 30, 2019 | | December 31, 2018 |
Asset reconciliation | | |
| | |
| | |
| | |
|
Business Insurance | | $ | 78,500 |
| | $ | 78,082 |
| | $ | 82,762 |
| | $ | 78,965 |
|
Bond & Specialty Insurance | | 8,757 |
| | 8,776 |
| | 8,445 |
| | 8,693 |
|
Personal Insurance | | 15,697 |
| | 15,949 |
| | 16,602 |
| | 15,943 |
|
Total segment assets | | 102,954 |
| | 102,807 |
| |
Total assets by reportable segment | | | 107,809 |
| | 103,601 |
|
Other assets (1) | | 569 |
| | 676 |
| | 763 |
| | 632 |
|
Total consolidated assets | | $ | 103,523 |
| | $ | 103,483 |
| | $ | 108,572 |
| | $ | 104,233 |
|
_________________________________________________________ | |
(1) | The primary components of other assets at both June 30, 2019 and December 31, 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.assets. |
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 | | Amortized | | Gross Unrealized | | Fair |
(at June 30, 2018, in millions) | | Cost | | Gains | | Losses | | Value | |
(at June 30, 2019, 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 |
| | $ | 2,000 |
| | $ | 20 |
| | $ | 2 |
| | $ | 2,018 |
|
Obligations of states, municipalities and political subdivisions: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Local general obligation | | 13,992 |
| | 201 |
| | 136 |
| | 14,057 |
| | 15,187 |
| | 692 |
| | 1 |
| | 15,878 |
|
Revenue | | 9,857 |
| | 171 |
| | 88 |
| | 9,940 |
| | 9,701 |
| | 499 |
| | — |
| | 10,200 |
|
State general obligation | | 1,384 |
| | 19 |
| | 12 |
| | 1,391 |
| | 1,273 |
| | 53 |
| | — |
| | 1,326 |
|
Pre-refunded | | 3,432 |
| | 111 |
| | 1 |
| | 3,542 |
| | 2,251 |
| | 75 |
| | — |
| | 2,326 |
|
Total obligations of states, municipalities and political subdivisions | | 28,665 |
| | 502 |
| | 237 |
| | 28,930 |
| | 28,412 |
| | 1,319 |
| | 1 |
| | 29,730 |
|
Debt securities issued by foreign governments | | 1,281 |
| | 8 |
| | 8 |
| | 1,281 |
| | 1,112 |
| | 14 |
| | 1 |
| | 1,125 |
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities | | 2,499 |
| | 66 |
| | 49 |
| | 2,516 |
| | 2,839 |
| | 90 |
| | 4 |
| | 2,925 |
|
All other corporate bonds | | 28,102 |
| | 161 |
| | 563 |
| | 27,700 |
| | 30,371 |
| | 982 |
| | 32 |
| | 31,321 |
|
Redeemable preferred stock | | 86 |
| | 4 |
| | — |
| | 90 |
| | 50 |
| | 3 |
| | — |
| | 53 |
|
Total | | $ | 62,674 |
| | $ | 742 |
| | $ | 880 |
| | $ | 62,536 |
| | $ | 64,784 |
| | $ | 2,428 |
| | $ | 40 |
| | $ | 67,172 |
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3. INVESTMENTS, Continued
|
| | | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrealized | | Fair |
(at December 31, 2018, in millions) | | Cost | | Gains | | Losses | | Value |
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities | | $ | 2,076 |
| | $ | 4 |
| | $ | 16 |
| | $ | 2,064 |
|
Obligations of states, municipalities and political subdivisions: | | |
| | |
| | |
| | |
|
Local general obligation | | 14,473 |
| | 219 |
| | 120 |
| | 14,572 |
|
Revenue | | 9,755 |
| | 172 |
| | 74 |
| | 9,853 |
|
State general obligation | | 1,329 |
| | 18 |
| | 13 |
| | 1,334 |
|
Pre-refunded | | 2,772 |
| | 80 |
| | — |
| | 2,852 |
|
Total obligations of states, municipalities and political subdivisions | | 28,329 |
| | 489 |
| | 207 |
| | 28,611 |
|
Debt securities issued by foreign governments | | 1,255 |
| | 7 |
| | 5 |
| | 1,257 |
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities | | 2,557 |
| | 54 |
| | 38 |
| | 2,573 |
|
All other corporate bonds | | 29,307 |
| | 156 |
| | 583 |
| | 28,880 |
|
Redeemable preferred stock | | 77 |
| | 2 |
| | — |
| | 79 |
|
Total | | $ | 63,601 |
| | $ | 712 |
| | $ | 849 |
| | $ | 63,464 |
|
|
| | | | | | | | | | | | | | | | |
| | 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$2.33 billion and $3.90$2.85 billion at June 30, 20182019 and December 31, 2017,2018, 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$1.50 billion and $563 million$2.61 billion during the six months ended June 30, 20182019 and 2017,2018, respectively. Gross gains of $24$35 million and $17$24 million and gross losses of $11$4 million and $4$11 million were realized on those sales during the six months ended June 30, 20182019 and 2017,2018, respectively.
Equity Securities
The cost and fair value of investments in equity securities were as follows:
|
| | | | | | | | | | | | | | | | |
| | | | | | Fair |
(at June 30, 2019, in millions) | | Cost | | Gross Gains | | Gross Losses | | Value |
Public common stock | | $ | 337 |
| | $ | 31 |
| | $ | 5 |
| | $ | 363 |
|
Non-redeemable preferred stock | | 36 |
| | 7 |
| | — |
| | 43 |
|
Total | | $ | 373 |
| | $ | 38 |
| | $ | 5 |
| | $ | 406 |
|
|
| | | | | | | | | | | | | | | | |
| | | | | | 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, 2018, in millions) | | Cost | | Gross Gains | | Gross Losses | | Value |
Public common stock | | $ | 338 |
| | $ | 2 |
| | $ | 24 |
| | $ | 316 |
|
Non-redeemable preferred stock | | 44 |
| | 8 |
| | — |
| | 52 |
|
Total | | $ | 382 |
| | $ | 10 |
| | $ | 24 |
| | $ | 368 |
|
|
| | | | | | | | | | | | | | | | |
| | | | | | 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, 2019, the Company recognized $45 million of net gains on equity securities still held as of June 30, 2019. 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, 20182019 and December 31, 2017,2018, 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 20172018 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 20172018 Annual Report in determiningto determine whether such investments are other-than-temporarily impaired.
| | | | Less than 12 months | | 12 months or longer | | Total | | 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 | |
(at June 30, 2019, 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 |
| | $ | 15 |
| | $ | — |
| | $ | 503 |
| | $ | 2 |
| | $ | 518 |
| | $ | 2 |
|
Obligations of states, municipalities and political subdivisions | | 6,321 |
| | 101 |
| | 2,856 |
| | 136 |
| | 9,177 |
| | 237 |
| | 126 |
| | — |
| | 232 |
| | 1 |
| | 358 |
| | 1 |
|
Debt securities issued by foreign governments | | 206 |
| | 2 |
| | 241 |
| | 6 |
| | 447 |
| | 8 |
| | 24 |
| | — |
| | 210 |
| | 1 |
| | 234 |
| | 1 |
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities | | 1,557 |
| | 41 |
| | 256 |
| | 8 |
| | 1,813 |
| | 49 |
| | 88 |
| | — |
| | 472 |
| | 4 |
| | 560 |
| | 4 |
|
All other corporate bonds | | 17,584 |
| | 441 |
| | 2,313 |
| | 122 |
| | 19,897 |
| | 563 |
| | 277 |
| | 2 |
| | 3,014 |
| | 30 |
| | 3,291 |
| | 32 |
|
Total fixed maturities | | $ | 27,078 |
| | $ | 605 |
| | $ | 6,124 |
| | $ | 275 |
| | $ | 33,202 |
| | $ | 880 |
| | $ | 530 |
| | $ | 2 |
| | $ | 4,431 |
| | $ | 38 |
| | $ | 4,961 |
| | $ | 40 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or longer | | Total |
(at December 31, 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 | | $ | 484 |
| | $ | 5 |
| | $ | 1,011 |
| | $ | 11 |
| | $ | 1,495 |
| | $ | 16 |
|
Obligations of states, municipalities and political subdivisions | | 5,241 |
| | 82 |
| | 3,298 |
| | 125 |
| | 8,539 |
| | 207 |
|
Debt securities issued by foreign governments | | 96 |
| | — |
| | 328 |
| | 5 |
| | 424 |
| | 5 |
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities | | 593 |
| | 9 |
| | 1,070 |
| | 29 |
| | 1,663 |
| | 38 |
|
All other corporate bonds | | 12,622 |
| | 303 |
| | 6,872 |
| | 280 |
| | 19,494 |
| | 583 |
|
Total fixed maturities | | $ | 19,036 |
| | $ | 399 |
| | $ | 12,579 |
| | $ | 450 |
| | $ | 31,615 |
| | $ | 849 |
|
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, 2018,2019, 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.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3. INVESTMENTS, Continued
Impairment Charges
Impairment charges included in net realized investment gains in the consolidated statement of income were $1 million and $5 million for each of the three months ended June 30, 2019 and 2018, and 2017, respectively,$2 million and $1 million and $7 million for the six months ended June 30, 20182019 and 2017,2018, respectively.
The cumulative amount of credit losses on fixed maturities held at June 30, 20182019 and 20172018 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$54 million and $83$67 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 three months and six months ended June 30, 2019 and 2018 and 2017 from thatcompared to what was disclosed in note 3 of notes to the consolidated financial statements in the Company’s 20172018 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.
| |
• | 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%99% of its fixed maturities at both June 30, 20182019 and December 31, 2017.2018.
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 also estimates the fair value of these bonds using ananother internal pricing matrix withthat includes 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 anthis internal pricing matrix was $62$78 million and $127$82 million at June 30, 20182019 and December 31, 2017,2018, 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$32 million and $77$104 million at June 30, 20182019 and December 31, 2017,2018, 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 20172018 Annual Report.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4. FAIR VALUE MEASUREMENTS, Continued
Other Liabilities
The Company has a put/call option that was entered into in connection with a business acquisition that allows the Company to acquire the remaining shares of the acquired company at a future date. The fair value of the put/call at June 30, 2019 and December 31, 2018 was $7 million and $10 million, respectively, and was determined using an internal model and is based on the acquired company's financial performance, adjusted for a risk margin and discounted to present value. The Company includes the fair value estimate of the put/call in Level 3.
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.
|
| | | | | | | | | | | | | | | | |
(at June 30, 2019, 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 | | $ | 2,018 |
| | $ | 2,018 |
| | $ | — |
| | $ | — |
|
Obligations of states, municipalities and political subdivisions | | 29,730 |
| | — |
| | 29,718 |
| | 12 |
|
Debt securities issued by foreign governments | | 1,125 |
| | — |
| | 1,125 |
| | — |
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities | | 2,925 |
| | — |
| | 2,925 |
| | — |
|
All other corporate bonds | | 31,321 |
| | — |
| | 31,223 |
| | 98 |
|
Redeemable preferred stock | | 53 |
| | 3 |
| | 50 |
| | — |
|
Total fixed maturities | | 67,172 |
| | 2,021 |
| | 65,041 |
| | 110 |
|
Equity securities | | |
| | |
| | |
| | |
|
Public common stock | | 363 |
| | 363 |
| | — |
| | — |
|
Non-redeemable preferred stock | | 43 |
| | 19 |
| | 24 |
| | — |
|
Total equity securities | | 406 |
| | 382 |
| | 24 |
| | — |
|
Other investments | | 59 |
| | 16 |
| | — |
| | 43 |
|
Total | | $ | 67,637 |
| | $ | 2,419 |
| | $ | 65,065 |
| | $ | 153 |
|
| | | | | | | | |
Other liabilities | | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 7 |
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4. FAIR VALUE MEASUREMENTS, Continued
|
| | | | | | | | | | | | | | | | |
(at December 31, 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 | | $ | 2,064 |
| | $ | 2,064 |
| | $ | — |
| | $ | — |
|
Obligations of states, municipalities and political subdivisions | | 28,611 |
| | — |
| | 28,599 |
| | 12 |
|
Debt securities issued by foreign governments | | 1,257 |
| | — |
| | 1,257 |
| | — |
|
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities | | 2,573 |
| | — |
| | 2,554 |
| | 19 |
|
All other corporate bonds | | 28,880 |
| | — |
| | 28,725 |
| | 155 |
|
Redeemable preferred stock | | 79 |
| | 3 |
| | 76 |
| | — |
|
Total fixed maturities | | 63,464 |
| | 2,067 |
| | 61,211 |
| | 186 |
|
Equity securities | | |
| | |
| | |
| | |
|
Public common stock | | 316 |
| | 316 |
| | — |
| | — |
|
Non-redeemable preferred stock | | 52 |
| | 30 |
| | 22 |
| | — |
|
Total equity securities | | 368 |
| | 346 |
| | 22 |
| | — |
|
Other investments | | 52 |
| | 16 |
| | — |
| | 36 |
|
Total | | $ | 63,884 |
| | $ | 2,429 |
| | $ | 61,233 |
| | $ | 222 |
|
| | | | | | | | |
Other liabilities | | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 10 |
|
|
| | | | | | | | | | | | | | | | |
(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, 20182019 or the year ended December 31, 2017.2018.
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 June 30, 2019, in millions) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | |
| | |
| | |
| | |
| | |
|
Short-term securities | | $ | 3,487 |
| | $ | 3,487 |
| | $ | 229 |
| | $ | 3,209 |
| | $ | 49 |
|
Financial liabilities | | |
| | |
| | |
| | |
| | |
|
Debt | | $ | 6,458 |
| | $ | 7,936 |
| | $ | — |
| | $ | 7,936 |
| | $ | — |
|
Commercial paper | | $ | 100 |
| | $ | 100 |
| | $ | — |
| | $ | 100 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
(at December 31, 2018, in millions) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | |
| | |
| | |
| | |
| | |
|
Short-term securities | | $ | 3,985 |
| | $ | 3,985 |
| | $ | 632 |
| | $ | 3,316 |
| | $ | 37 |
|
Financial liabilities | | |
| | |
| | |
| | |
| | |
|
Debt | | $ | 6,464 |
| | $ | 7,128 |
| | $ | — |
| | $ | 7,128 |
| | $ | — |
|
Commercial paper | | $ | 100 |
| | $ | 100 |
| | $ | — |
| | $ | 100 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
(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, 20182019 or year ended December 31, 2017.2018.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
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 | | June 30, 2019 | | December 31, 2018 |
Business Insurance | | $ | 2,573 |
| | $ | 2,585 |
| | $ | 2,584 |
| | $ | 2,585 |
|
Bond & Specialty Insurance | | 550 |
| | 550 |
| | 550 |
| | 550 |
|
Personal Insurance | | 782 |
| | 790 |
| | 783 |
| | 776 |
|
Other | | 26 |
| | 26 |
| | 26 |
| | 26 |
|
Total | | $ | 3,931 |
| | $ | 3,951 |
| | $ | 3,943 |
| | $ | 3,937 |
|
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 | |
(at June 30, 2019, in millions) | | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Subject to amortization | | | | | | | | | | | | |
Customer-related | | $ | 100 |
| | $ | 7 |
| | $ | 93 |
| | $ | 96 |
| | $ | 16 |
| | $ | 80 |
|
Contract-based (1) | | 208 |
| | 171 |
| | 37 |
| | 205 |
| | 176 |
| | 29 |
|
Total subject to amortization | | 308 |
| | 178 |
| | 130 |
| | 301 |
| | 192 |
| | 109 |
|
Not subject to amortization | | 226 |
| | — |
| | 226 |
| | 226 |
| | — |
| | 226 |
|
Total | | $ | 534 |
| | $ | 178 |
| | $ | 356 |
| | $ | 527 |
| | $ | 192 |
| | $ | 335 |
|
| | (at December 31, 2017, in millions) | | Gross Carrying Amount | | Accumulated Amortization | | Net | |
(at December 31, 2018, in millions) | | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Subject to amortization | | | | | | | | | | | | |
Customer-related | | $ | 77 |
| | $ | 4 |
| | $ | 73 |
| | $ | 98 |
| | $ | 12 |
| | $ | 86 |
|
Contract-based (1) | | 209 |
| | 167 |
| | 42 |
| | 208 |
| | 175 |
| | 33 |
|
Total subject to amortization | | 286 |
| | 171 |
| | 115 |
| | 306 |
| | 187 |
| | 119 |
|
Not subject to amortization | | 227 |
| | — |
| | 227 |
| | 226 |
| | — |
| | 226 |
|
Total | | $ | 513 |
| | $ | 171 |
| | $ | 342 |
| | $ | 532 |
| | $ | 187 |
| | $ | 345 |
|
_________________________________________________________
| |
(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 both the three months ended June 30, 20182019 and 2017, respectively2018, and $8 million and $5 million for both the six months ended June 30, 20182019 and 2017, respectively. Intangible asset2018. Amortization expense for all intangible assets subject to amortization expense is estimated to be $8$7 million for the remainder of 2018, $16 million in 2019, $15$14 million in 2020, $14$13 million in 2021, and $13 million in 2022.2022 and $12 million
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
5. GOODWILL AND OTHER INTANGIBLE ASSETS, Continued
in 2023. Amortization expense for intangible assets arising from insurance contracts acquired in a business combination is estimated to be $3 million for the remainder of 2019, $5 million in 2020, $4 million in 2021, $3 million in 2022 and $3 million in 2023.
6.INSURANCE CLAIM RESERVES Continued
Claims and claim adjustment expense reserves were as follows:
|
| | | | | | | | |
(in millions) | | June 30, 2019 | | December 31, 2018 |
Property-casualty | | $ | 51,059 |
| | $ | 50,653 |
|
Accident and health | | 14 |
| | 15 |
|
Total | | $ | 51,073 |
| | $ | 50,668 |
|
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:expenses:
|
| | | | | | | | |
| | Six Months Ended June 30, |
(in millions) | | 2019 | | 2018 |
Claims and claim adjustment expense reserves at beginning of year | | $ | 50,653 |
| | $ | 49,633 |
|
Less reinsurance recoverables on unpaid losses | | 8,182 |
| | 8,123 |
|
Net reserves at beginning of year | | 42,471 |
| | 41,510 |
|
| | | | |
Estimated claims and claim adjustment expenses for claims arising in the current year | | 9,329 |
| | 9,084 |
|
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years | | (118 | ) | | (268 | ) |
Total increases | | 9,211 |
| | 8,816 |
|
| | | | |
Claims and claim adjustment expense payments for claims arising in: | | |
| | |
|
Current year | | 2,810 |
| | 2,851 |
|
Prior years | | 5,897 |
| | 5,454 |
|
Total payments | | 8,707 |
| | 8,305 |
|
Unrealized foreign exchange (gain) loss | | 62 |
| | (102 | ) |
Net reserves at end of period | | 43,037 |
| | 41,919 |
|
Plus reinsurance recoverables on unpaid losses | | 8,022 |
| | 8,026 |
|
Claims and claim adjustment expense reserves at end of period | | $ | 51,059 |
| | $ | 49,945 |
|
|
| | | | | | | | |
(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, 20182019 increased by $312$406 million from December 31, 2017,2018, primarily reflecting the impactsimpact 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.development.
Reinsurance recoverables on unpaid losses at June 30, 20182019 decreased by $97$160 million from December 31, 2017,2018, primarily reflecting the impactsimpact of cash collections in the first six months of 2018.2019.
The Company continues to evaluate the estimated realizable value of its subrogation claims related to the 2017 and 2018 California wildfires and the impact of recent developments, including the recent re-organization proposals by various stakeholders in the Pacific Gas & Electric Company (PG&E) bankruptcy. Due to the risks and uncertainties associated with the PG&E bankruptcy and other factors, the Company has not recognized a subrogation benefit related to these claims.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
6. INSURANCE CLAIM RESERVES, Continued
Prior Year Reserve Development
The following disclosures regarding reserve development are on a “net of reinsurance” basis.
For the six months ended June 30, 20182019 and 2017,2018, estimated claims and claim adjustment expenses incurred included $268$118 million and $214$268 million, respectively, of net favorable development for claims arising in prior years, including $336$174 million and $284$336 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 2019 totaled $71 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 higher than expected loss experience in the segment's domestic operations in (ii) the general liability product line for primary and excess coverages for multiple accident years, including a $60 million increase to environmental reserves for accident years 2009 and prior and (iii) the commercial automobile product line for recent accident years, as well as (iv) higher than expected loss experience in the segment's international operations. 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’ssegment'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 segment's domestic operations 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 20182019 totaled $150$50 million, primarily driven by better than expected loss experience in the segment’ssegment'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 segment's domestic operations in (iii) the general liability product line for primary and excess coverages for multiple accident years, including the impact of (a) the enactment of legislation by a $55number of states, which extended the statute of limitations for childhood sexual molestation claims and (b) a $60 million increase to environmental reserves, forboth of which impacted accident years 20082009 and prior, and (iv) higher than expected loss experience in the commercial automobile product line for recent accident years and (v) the commercial multi-peril product line for recent accident years. Net favorable prior year reserve development in the first six months of 20172018 totaled $186$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, (ii)partially offset by higher than expected loss experience in the segment's domestic operations in (iii) 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)including a $65$55 million increase to environmental reserves. The netreserves, for accident years 2008 and prior and (iv) the commercial automobile product line for recent accident years.
Bond & Specialty Insurance. Net favorable prior year reserve development in the segment's domestic operations for thesecond quarter and first six months of 2017 was partially offset by2019 totaled $39 million and $42 million, respectively, and 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. respectively. Net favorable prior year reserve development in the second quarter and first six months of 2018 totaled $13 million and $62 million, respectively,all periods was primarily driven by better than expected loss experience in the segment's domestic operations in the Automobilegeneral liability product line for multiple accident years.
Personal Insurance. Net favorable prior year reserve development in each of the second quarters of 2019 and 2018 totaled $13 million. Net favorable prior year reserve development in the first six months of 2019 totaled $82 million, primarily driven by better than expected loss experience in the segment's domestic operations in both the automobile and homeowners and other product lines for recent accident years. Net favorable prior year reserve development in the second quarter and first six months of 20172018 totaled $0 and $6$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.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
| |
7. | OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME |
The following table presentstables present the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the three months and six months ended June 30, 2018.2019.
|
| | | | | | | | | | | | | | | | | | | | |
| | 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, March 31, 2019 | | 810 |
| | 197 |
| | (863 | ) | | (826 | ) | | (682 | ) |
| | | | | | | | | | |
Other comprehensive income (loss) (OCI) before reclassifications, net of tax | | 884 |
| | (3 | ) | | — |
| | 6 |
| | 887 |
|
Amounts reclassified from AOCI, net of tax | | (10 | ) | | — |
| | 11 |
| | — |
| | 1 |
|
Net OCI, current period | | 874 |
| | (3 | ) | | 11 |
| | 6 |
| | 888 |
|
Balance, June 30, 2019 | | $ | 1,684 |
| | $ | 194 |
| | $ | (852 | ) | | $ | (820 | ) | | $ | 206 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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, 2018 | | $ | (306 | ) | | $ | 193 |
| | $ | (873 | ) | | $ | (873 | ) | | $ | (1,859 | ) |
| | | | | | | | | | |
Other comprehensive income (OCI) before reclassifications, net of tax | | 2,013 |
| | 1 |
| | — |
| | 53 |
| | 2,067 |
|
Amounts reclassified from AOCI, net of tax | | (23 | ) | | — |
| | 21 |
| | — |
| | (2 | ) |
Net OCI, current period | | 1,990 |
| | $ | 1 |
| | $ | 21 |
| | $ | 53 |
| | $ | 2,065 |
|
Balance, June 30, 2019 | | $ | 1,684 |
| | $ | 194 |
| | $ | (852 | ) | | $ | (820 | ) | | $ | 206 |
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME, 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) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Changes in net unrealized gains (losses) on investment securities: | | |
| | |
| | |
| | |
|
Having no credit losses recognized in the consolidated statement of income | | $ | 1,108 |
| | $ | (298 | ) | | $ | 2,524 |
| | $ | (1,501 | ) |
Income tax expense (benefit) | | 234 |
| | (63 | ) | | 534 |
| | (316 | ) |
Net of taxes | | 874 |
| | (235 | ) | | 1,990 |
| | (1,185 | ) |
| | | | | | | | |
Having credit losses recognized in the consolidated statement of income | | (4 | ) | | (12 | ) | | 1 |
| | (14 | ) |
Income tax expense (benefit) | | (1 | ) | | (2 | ) | | — |
| | (3 | ) |
Net of taxes | | (3 | ) | | (10 | ) | | 1 |
| | (11 | ) |
| | | | | | | | |
Net changes in benefit plan assets and obligations | | 14 |
| | 21 |
| | 26 |
| | 43 |
|
Income tax expense | | 3 |
| | 4 |
| | 5 |
| | 9 |
|
Net of taxes | | 11 |
| | 17 |
| | 21 |
| | 34 |
|
| | | | | | | | |
Net changes in unrealized foreign currency translation | | 5 |
| | (158 | ) | | 55 |
| | (152 | ) |
Income tax expense (benefit) | | (1 | ) | | (20 | ) | | 2 |
| | (15 | ) |
Net of taxes | | 6 |
| | (138 | ) | | 53 |
| | (137 | ) |
| | | | | | | | |
Total other comprehensive income (loss) | | 1,123 |
| | (447 | ) | | 2,606 |
| | (1,624 | ) |
Total income tax expense (benefit) | | 235 |
| | (81 | ) | | 541 |
| | (325 | ) |
Total other comprehensive income (loss), net of taxes | | $ | 888 |
| | $ | (366 | ) | | $ | 2,065 |
| | $ | (1,299 | ) |
|
| | | | | | | | | | | | | | | | |
| | 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
| |
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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
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 | ) | | $ | (13 | ) | | $ | (12 | ) | | $ | (29 | ) | | $ | (12 | ) |
Income tax expense (2) | | (3 | ) | | (30 | ) | | (3 | ) | | (33 | ) | | (3 | ) | | (3 | ) | | (6 | ) | | (3 | ) |
Net of taxes | | (9 | ) | | (54 | ) | | (9 | ) | | (61 | ) | | (10 | ) | | (9 | ) | | (23 | ) | | (9 | ) |
| | | | | | | | | | | | | | | | |
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 |
| | 6 |
| | 8 |
| | 11 |
| | 17 |
|
General and administrative expenses (3) | | 13 |
| | 11 |
| | 26 |
| | 21 |
| | 7 |
| | 13 |
| | 15 |
| | 26 |
|
Total | | 21 |
| | 18 |
| | 43 |
| | 35 |
| | 13 |
| | 21 |
| | 26 |
| | 43 |
|
Income tax benefit (2) | | 4 |
| | 7 |
| | 9 |
| | 12 |
| | 2 |
| | 4 |
| | 5 |
| | 9 |
|
Net of taxes | | 17 |
| | 11 |
| | 34 |
| | 23 |
| | 11 |
| | 17 |
| | 21 |
| | 34 |
|
| | | | | | | | | | | | | | | | |
Reclassification adjustment related to foreign currency translation (1) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Income tax benefit (2) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net of taxes | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
Total reclassifications | | 9 |
| | (66 | ) | | 31 |
| | (59 | ) | | — |
| | 9 |
| | (3 | ) | | 31 |
|
Total income tax (expense) benefit | | 1 |
| | (23 | ) | | 6 |
| | (21 | ) | | (1 | ) | | 1 |
| | (1 | ) | | 6 |
|
Total reclassifications, net of taxes | | $ | 8 |
| | $ | (43 | ) | | $ | 25 |
| | $ | (38 | ) | | $ | 1 |
| | $ | 8 |
| | $ | (2 | ) | | $ | 25 |
|
_________________________________________________________
(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, 2018,4, 2019, the Company issued $500 million aggregate principal amount of 4.05%4.10% senior notes that will mature on March 7, 2048.4, 2049. The net proceeds of the issuance, after the deduction of the underwriting discount and expenses payable by the Company, totaled approximately $491$492 million. Interest on the senior notes is payable semi-annually in arrears on March 74 and September 7, commencing on September 7, 2018.4. Prior to September 7, 2047,4, 2048, 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, 20474, 2048 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 1520 basis points. On or after September 7, 2047,4, 2048, 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.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
8.DEBT, Continued
Debt Repayment. Repayment. On May 15, 2018,June 2, 2019, the Company's $500 million, 5.80%5.90% 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 both June 30, 20182019 and December 31, 2017, respectively.2018.
9.COMMON SHARE REPURCHASES
During the three months and six months ended June 30, 2018,2019, the Company repurchased 2.72.6 million and 5.25.5 million shares, respectively, under its share repurchase authorization, for a total cost of $350$375 million and $700$750 million, respectively. The average cost per share repurchased was $129.66$145.87 and $135.47,$137.15, respectively. In addition, the Company acquired 1,3743,460 shares and 0.3 million shares for a total cost of $0.2$0.5 million and $51$47 million during the three months and six months ended June 30, 2018,2019, 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, 2018,2019, the Company had $3.86$2.54 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) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Basic and Diluted | | | | | | |
| | |
|
Net income, as reported | | $ | 557 |
| | $ | 524 |
| | $ | 1,353 |
| | $ | 1,193 |
|
Participating share-based awards — allocated income | | (4 | ) | | (4 | ) | | (10 | ) | | (9 | ) |
Net income available to common shareholders — basic and diluted | | $ | 553 |
| | $ | 520 |
| | $ | 1,343 |
| | $ | 1,184 |
|
| | | | | | | | |
Common Shares | | | | | | |
| | |
|
Basic | | | | | | |
| | |
|
Weighted average shares outstanding | | 261.3 |
| | 268.7 |
| | 262.1 |
| | 269.8 |
|
| | | | | | | | |
Diluted | | | | | | |
| | |
|
Weighted average shares outstanding | | 261.3 |
| | 268.7 |
| | 262.1 |
| | 269.8 |
|
Weighted average effects of dilutive securities — stock options and performance shares | | 2.4 |
| | 2.4 |
| | 2.1 |
| | 2.7 |
|
Total | | 263.7 |
| | 271.1 |
| | 264.2 |
| | 272.5 |
|
| | | | | | | | |
Net Income per Common Share | | | | | | |
| | |
|
Basic | | $ | 2.11 |
| | $ | 1.93 |
| | $ | 5.12 |
| | $ | 4.39 |
|
Diluted | | $ | 2.10 |
| | $ | 1.92 |
| | $ | 5.08 |
| | $ | 4.35 |
|
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
11.SHARE-BASED INCENTIVE COMPENSATION
The following information relates to fully vested stock option awards at June 30, 2018:2019:
| | Stock Options | | Number | | Weighted Average Exercise Price | | Weighted Average Contractual Life Remaining | | Aggregate Intrinsic Value ($ in millions) | | 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 |
| | 6,120,874 |
| | $ | 105.70 |
| | 5.8 years | | $ | 268 |
|
Exercisable at end of period | | 3,850,199 |
| | $ | 85.96 |
| | 4.6 years | | $ | 140 |
| | 4,202,289 |
| | $ | 95.63 |
| | 4.5 years | | $ | 226 |
|
| |
(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$35 million and $31$33 million for the three months ended June 30, 20182019 and 2017,2018, respectively, and $77$80 million and $73$77 million for the six months ended June 30, 20182019 and 2017,2018, respectively. The related tax benefits recognized in the consolidated statement of income were $6 million and $10 million for each of the three months ended June 30, 20182019 and 2017, respectively,2018, and $14 million and $24 million for each of the six months ended June 30, 20182019 and 2017, respectively.2018.
The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at June 30, 20182019 was $201$202 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, 20182019 and 2017.2018.
|
| | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Benefit Plans |
(for the three months ended June 30, in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Net Periodic Benefit Cost: | | |
| | |
| | |
| | |
|
Service cost | | $ | 29 |
| | $ | 33 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
Non-service cost: | | |
| | |
| | |
| | |
|
Interest cost on benefit obligation | | $ | 35 |
| | $ | 32 |
| | $ | 2 |
| | $ | 2 |
|
Expected return on plan assets | | (68 | ) | | (66 | ) | | — |
| | — |
|
Amortization of unrecognized: | | | | | | | | |
Prior service benefit | | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Net actuarial loss | | 14 |
| | 23 |
| | — |
| | — |
|
Total non-service cost (benefit) | | (20 | ) | | (12 | ) | | 1 |
| | 1 |
|
Net periodic benefit cost | | $ | 9 |
| | $ | 21 |
| | $ | 1 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | |
| | 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 costscost (benefit) are presented in the consolidated statement of income for the three months ended June 30, 20182019 and 2017.2018.
|
| | | | | | | | | | | | | | | | |
| | 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
|
| | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Benefit Plans |
(for the three months ended June 30, in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Service Cost: | | |
| | |
| | |
| | |
|
Claims and claim adjustment expenses | | $ | 12 |
| | $ | 14 |
| | $ | — |
| | $ | — |
|
General and administrative expenses | | 17 |
| | 19 |
| | — |
| | — |
|
Total service cost | | 29 |
| | 33 |
| | — |
| | — |
|
| | | | | | | | |
Non-Service Cost (Benefit): | | |
| | |
| | |
| | |
|
Claims and claim adjustment expenses | | (8 | ) | | (5 | ) | | 1 |
| | 1 |
|
General and administrative expenses | | (12 | ) | | (7 | ) | | — |
| | — |
|
Total non-service cost (benefit) | | (20 | ) | | (12 | ) | | 1 |
| | 1 |
|
Net periodic benefit cost | | $ | 9 |
| | $ | 21 |
| | $ | 1 |
| | $ | 1 |
|
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, 20182019 and 2017.2018.
|
| | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Benefit Plans |
(for the six months ended June 30, in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Net Periodic Benefit Cost: | | |
| | |
| | |
| | |
|
Service cost | | $ | 59 |
| | $ | 66 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
Non-service cost: | | |
| | |
| | |
| | |
|
Interest cost on benefit obligation | | 70 |
| | 63 |
| | 4 |
| | 4 |
|
Expected return on plan assets | | (137 | ) | | (132 | ) | | — |
| | — |
|
Amortization of unrecognized: | | | | | | | | |
Prior service benefit | | (1 | ) | | (1 | ) | | (2 | ) | | (2 | ) |
Net actuarial loss | | 28 |
| | 46 |
| | — |
| | — |
|
Total non-service cost (benefit) | | (40 | ) | | (24 | ) | | 2 |
| | 2 |
|
Net periodic benefit cost | | $ | 19 |
| | $ | 42 |
| | $ | 2 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | | |
| | 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 costscost (benefit) are presented in the consolidated statement of income for the six months ended June 30, 20182019 and 2017.2018.
|
| | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Benefit Plans |
(for the six months ended June 30, in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Service Cost: | | |
| | |
| | |
| | |
|
Claims and claim adjustment expenses | | $ | 24 |
| | $ | 27 |
| | $ | — |
| | $ | — |
|
General and administrative expenses | | 35 |
| | 39 |
| | — |
| | — |
|
Total service cost | | 59 |
| | 66 |
| | — |
| | — |
|
| | | | | | | | |
Non-Service Cost (Benefit): | | |
| | |
| | |
| | |
|
Claims and claim adjustment expenses | | (16 | ) | | (10 | ) | | 1 |
| | 1 |
|
General and administrative expenses | | (24 | ) | | (14 | ) | | 1 |
| | 1 |
|
Total non-service cost (benefit) | | (40 | ) | | (24 | ) | | 2 |
| | 2 |
|
Net periodic benefit cost | | $ | 19 |
| | $ | 42 |
| | $ | 2 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | | |
| | 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.LEASES
The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. See note 1 - Adoption of Accounting Standards - Leases for additional information regarding the accounting for leases.
Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments, utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.
Lease expense is included in general and administrative expenses in the consolidated statement of income. Additional information regarding the Company’s real estate operating leases is as follows:
|
| | | | | | | | |
(in millions) | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| | | | |
Lease cost | | | | |
Operating leases | | $ | 23 |
| | $ | 45 |
|
Short-term leases (1) | | 3 |
| | 7 |
|
Lease expense | | 26 |
| | 52 |
|
Less: sublease income (2) | | — |
| | — |
|
Net lease cost | | $ | 26 |
| | $ | 52 |
|
| | | | |
Other information on operating leases | | | | |
Cash payments included in the measurement of lease liabilities reported in operating cash flows | | $ | 26 |
| | $ | 50 |
|
Right-of-use assets obtained in exchange for new lease liabilities | | $ | 28 |
| | $ | 36 |
|
Weighted average discount rate | | 3.05 | % | | 3.05 | % |
Weighted average remaining lease term in years | | 5.2 years |
| | 5.2 years |
|
(1) Leases with an initial term of twelve months or less are not recorded on the balance sheet.
(2) Sublease income consists of rent from third parties of office space and is recognized as part of other revenues in the consolidated statement of income.
The following table presents the contractual maturities of the Company's lease liabilities:
|
| | | | |
(in millions) | | Real Estate Lease Liability |
| | |
Remainder of 2019 | | $ | 51 |
|
2020 | | 103 |
|
2021 | | 89 |
|
2022 | | 67 |
|
2023 | | 47 |
|
Thereafter | | 80 |
|
Total undiscounted lease payments | | 437 |
|
Less: present value adjustment | | 42 |
|
Operating lease liability | | $ | 395 |
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14. 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 loss development offor claims and litigation relating to asbestos and environmental claims. Any such development willcould be affected by future court decisions and interpretations, as well as future changes, if any, 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$1.57 billion and $1.56$1.60 billion at June 30, 20182019 and December 31, 2017,2018, respectively.
Guarantees
The maximum amount of the Company’s contingent obligation for indemnifications related to the sale of businesses that are quantifiable was $358$352 million at June 30, 2018, of which $2 million was recognized on the balance sheet at that date.2019.
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$0 at June 30, 2018, approximately $23 million of which is indemnified by a third party.2019. 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, 2018,2019, 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 20172018 Annual Report.
14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
| |
15. | 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
| |
15. | 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, 2018.2019.
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, 2019
|
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Revenues | | |
| | |
| | |
| | |
| | |
|
Premiums | | $ | 4,786 |
| | $ | 2,202 |
| | $ | — |
| | $ | — |
| | $ | 6,988 |
|
Net investment income | | 455 |
| | 181 |
| | 12 |
| | — |
| | 648 |
|
Fee income | | 116 |
| | — |
| | — |
| | — |
| | 116 |
|
Net realized investment gains (1) | | 14 |
| | 6 |
| | 5 |
| | — |
| | 25 |
|
Other revenues | | 31 |
| | 26 |
| | — |
| | — |
| | 57 |
|
Total revenues | | 5,402 |
| | 2,415 |
| | 17 |
| | — |
| | 7,834 |
|
| | | | | | | | | | |
Claims and expenses | | |
| | |
| | |
| | |
| | |
|
Claims and claim adjustment expenses | | 3,248 |
| | 1,573 |
| | — |
| | — |
| | 4,821 |
|
Amortization of deferred acquisition costs | | 740 |
| | 394 |
| | — |
| | — |
| | 1,134 |
|
General and administrative expenses | | 768 |
| | 352 |
| | 5 |
| | — |
| | 1,125 |
|
Interest expense | | 12 |
| | — |
| | 77 |
| | — |
| | 89 |
|
Total claims and expenses | | 4,768 |
| | 2,319 |
| | 82 |
| | — |
| | 7,169 |
|
Income (loss) before income taxes | | 634 |
| | 96 |
| | (65 | ) | | — |
| | 665 |
|
Income tax expense (benefit) | | 122 |
| | 12 |
| | (26 | ) | | — |
| | 108 |
|
Net income of subsidiaries | | — |
| | — |
| | 596 |
| | (596 | ) | | — |
|
Net income | | $ | 512 |
| | $ | 84 |
| | $ | 557 |
| | $ | (596 | ) | | $ | 557 |
|
| |
(1) | Total other-than-temporary impairments (OTTI) for the three months ended June 30, 2019, and the amounts comprising total OTTI that were recognized in net realized investment gains and in other comprehensive income (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
| |
15. | CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued |
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 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(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
| |
15. | CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued |
CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the threesix months ended June 30, 20172019
|
| | | | | | | | | | | | | | | | | | | | |
(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 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Revenues | | |
| | |
| | |
| | |
| | |
|
Premiums | | $ | 9,475 |
| | $ | 4,368 |
| | $ | — |
| | $ | — |
| | $ | 13,843 |
|
Net investment income | | 871 |
| | 336 |
| | 23 |
| | — |
| | 1,230 |
|
Fee income | | 225 |
| | — |
| | — |
| | — |
| | 225 |
|
Net realized investment gains (1) | | 36 |
| | 21 |
| | 21 |
| | — |
| | 78 |
|
Other revenues | | 69 |
| | 60 |
| | — |
| | — |
| | 129 |
|
Total revenues | | 10,676 |
| | 4,785 |
| | 44 |
| | — |
| | 15,505 |
|
Claims and expenses | | |
| | |
| | |
| | |
| | |
|
Claims and claim adjustment expenses | | 6,272 |
| | 2,991 |
| | — |
| | — |
| | 9,263 |
|
Amortization of deferred acquisition costs | | 1,485 |
| | 766 |
| | — |
| | — |
| | 2,251 |
|
General and administrative expenses | | 1,490 |
| | 682 |
| | 10 |
| | — |
| | 2,182 |
|
Interest expense | | 24 |
| | — |
| | 153 |
| | — |
| | 177 |
|
Total claims and expenses | | 9,271 |
| | 4,439 |
| | 163 |
| | — |
| | 13,873 |
|
Income (loss) before income taxes | | 1,405 |
| | 346 |
| | (119 | ) | | — |
| | 1,632 |
|
Income tax expense (benefit) | | 268 |
| | 54 |
| | (43 | ) | | — |
| | 279 |
|
Net income of subsidiaries | | — |
| | — |
| | 1,429 |
| | (1,429 | ) | | — |
|
Net income | | $ | 1,137 |
| | $ | 292 |
| | $ | 1,353 |
| | $ | (1,429 | ) | | $ | 1,353 |
|
_________________________________________________________
| |
(1) | Total other-than-temporary impairmentsimpairment (OTTI) for the threesix months ended June 30, 2017,2019, 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 | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Total OTTI losses | | $ | (2 | ) | | $ | (3 | ) | | $ | — |
| | $ | — |
| | $ | (5 | ) | | $ | (1 | ) | | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | (2 | ) |
OTTI losses recognized in net realized investment gains (losses) | | $ | (2 | ) | | $ | (3 | ) | | $ | — |
| | $ | — |
| | $ | (5 | ) | |
OTTI gains recognized in OCI | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
OTTI losses recognized in net realized investment gains | | | $ | (1 | ) | | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | (2 | ) |
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
| |
15. | 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 impairmentsimpairment (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 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
(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)15. | 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:CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued |
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the three months ended June 30, 2019
|
| | | | | | | | | | | | | | | | | | | | |
(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 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Net income | | $ | 512 |
| | $ | 84 |
| | $ | 557 |
| | $ | (596 | ) | | $ | 557 |
|
| | | | | | | | | | |
Other comprehensive income: | | |
| | |
| | |
| | |
| | |
|
Changes in net unrealized gains (losses) on investment securities: | | |
| | |
| | |
| | |
| | |
|
Having no credit losses recognized in the consolidated statement of income | | 786 |
| | 321 |
| | 1 |
| | — |
| | 1,108 |
|
Having credit losses recognized in the consolidated statement of income | | (3 | ) | | (1 | ) | | — |
| | — |
| | (4 | ) |
Net changes in benefit plan assets and obligations | | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
Net changes in unrealized foreign currency translation | | 23 |
| | (18 | ) | | — |
| | — |
| | 5 |
|
Other comprehensive income before income taxes and other comprehensive income of subsidiaries | | 806 |
| | 302 |
| | 15 |
| | — |
| | 1,123 |
|
Income tax expense | | 167 |
| | 67 |
| | 1 |
| | — |
| | 235 |
|
Other comprehensive income, net of taxes, before other comprehensive income of subsidiaries | | 639 |
| | 235 |
| | 14 |
| | — |
| | 888 |
|
Other comprehensive income of subsidiaries | | — |
| | — |
| | 874 |
| | (874 | ) | | — |
|
Other comprehensive income | | 639 |
| | 235 |
| | 888 |
| | (874 | ) | | 888 |
|
Comprehensive income | | $ | 1,151 |
| | $ | 319 |
| | $ | 1,445 |
| | $ | (1,470 | ) | | $ | 1,445 |
|
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
| |
15. | 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
| |
15. | CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued |
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the threesix months ended June 30, 20172019
| | (in millions) | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Net income | | $ | 438 |
| | $ | 162 |
| | $ | 595 |
| | $ | (600 | ) | | $ | 595 |
| | $ | 1,137 |
| | $ | 292 |
| | $ | 1,353 |
| | $ | (1,429 | ) | | $ | 1,353 |
|
| | | | | | | | | | | |
Other comprehensive income (loss): | | |
| | |
| | |
| | |
| | |
| |
Other comprehensive income: | | | |
| | |
| | |
| | |
| | |
|
Changes in net unrealized gains on investment securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Having no credit losses recognized in the consolidated statement of income | | 296 |
| | 85 |
| | (54 | ) | | — |
| | 327 |
| | 1,765 |
| | 756 |
| | 3 |
| | — |
| | 2,524 |
|
Having credit losses recognized in the consolidated statement of income | | 1 |
| | 1 |
| | — |
| | — |
| | 2 |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Net changes in benefit plan assets and obligations | | — |
| | (1 | ) | | 18 |
| | — |
| | 17 |
| | — |
| | — |
| | 26 |
| | — |
| | 26 |
|
Net changes in unrealized foreign currency translation | | 14 |
| | 34 |
| | — |
| | — |
| | 48 |
| | 42 |
| | 13 |
| | — |
| | — |
| | 55 |
|
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 before income taxes and other comprehensive income of subsidiaries | | | 1,808 |
| | 769 |
| | 29 |
| | — |
| | 2,606 |
|
Income tax expense | | | 375 |
| | 160 |
| | 6 |
| | — |
| | 541 |
|
Other comprehensive income, net of taxes, before other comprehensive income of subsidiaries | | | 1,433 |
| | 609 |
| | 23 |
| | — |
| | 2,065 |
|
Other comprehensive income of subsidiaries | | — |
| | — |
| | 295 |
| | (295 | ) | | — |
| | — |
| | — |
| | 2,042 |
| | (2,042 | ) | | — |
|
Other comprehensive income | | 209 |
| | 86 |
| | 271 |
| | (295 | ) | | 271 |
| | 1,433 |
| | 609 |
| | 2,065 |
| | (2,042 | ) | | 2,065 |
|
Comprehensive income | | $ | 647 |
| | $ | 248 |
| | $ | 866 |
| | $ | (895 | ) | | $ | 866 |
| | $ | 2,570 |
| | $ | 901 |
| | $ | 3,418 |
| | $ | (3,471 | ) | | $ | 3,418 |
|
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
| |
15. | 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 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
(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
| |
15. | CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued |
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOMEBALANCE SHEET (Unaudited)
For the six months endedAt June 30, 2017
2019
|
| | | | | | | | | | | | | | | | | | | | |
(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 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Assets | | |
| | |
| | |
| | |
| | |
|
Fixed maturities, available for sale, at fair value (amortized cost $64,784) | | $ | 46,480 |
| | $ | 20,604 |
| | $ | 88 |
| | $ | — |
| | $ | 67,172 |
|
Equity securities, at fair value (cost $373) | | 105 |
| | 106 |
| | 195 |
| | — |
| | 406 |
|
Real estate investments | | 2 |
| | 963 |
| | — |
| | — |
| | 965 |
|
Short-term securities | | 1,439 |
| | 633 |
| | 1,415 |
| | — |
| | 3,487 |
|
Other investments | | 2,688 |
| | 777 |
| | 1 |
| | — |
| | 3,466 |
|
Total investments | | 50,714 |
| | 23,083 |
| | 1,699 |
| | — |
| | 75,496 |
|
Cash | | 198 |
| | 218 |
| | — |
| | — |
| | 416 |
|
Investment income accrued | | 430 |
| | 183 |
| | 2 |
| | — |
| | 615 |
|
Premiums receivable | | 5,587 |
| | 2,710 |
| | — |
| | — |
| | 8,297 |
|
Reinsurance recoverables | | 6,472 |
| | 1,762 |
| | — |
| | — |
| | 8,234 |
|
Ceded unearned premiums | | 742 |
| | 122 |
| | — |
| | — |
| | 864 |
|
Deferred acquisition costs | | 2,087 |
| | 194 |
| | — |
| | — |
| | 2,281 |
|
Contractholder receivables | | 4,766 |
| | 10 |
| | — |
| | — |
| | 4,776 |
|
Goodwill | | 2,582 |
| | 1,370 |
| | — |
| | (9 | ) | | 3,943 |
|
Other intangible assets | | 220 |
| | 115 |
| | — |
| | — |
| | 335 |
|
Investment in subsidiaries | | — |
| | — |
| | 29,342 |
| | (29,342 | ) | | — |
|
Other assets | | 2,472 |
| | 158 |
| | 685 |
| | — |
| | 3,315 |
|
Total assets | | $ | 76,270 |
| | $ | 29,925 |
| | $ | 31,728 |
| | $ | (29,351 | ) | | $ | 108,572 |
|
| | | | | | | | | | |
Liabilities | | |
| | |
| | |
| | |
| | |
|
Claims and claim adjustment expense reserves | | $ | 35,055 |
| | $ | 16,018 |
| | $ | — |
| | $ | — |
| | $ | 51,073 |
|
Unearned premium reserves | | 10,116 |
| | 4,422 |
| | — |
| | — |
| | 14,538 |
|
Contractholder payables | | 4,766 |
| | 10 |
| | — |
| | — |
| | 4,776 |
|
Payables for reinsurance premiums | | 340 |
| | 251 |
| | — |
| | — |
| | 591 |
|
Deferred taxes | | 234 |
| | (179 | ) | | 32 |
| | — |
| | 87 |
|
Debt | | 693 |
| | — |
| | 5,865 |
| | — |
| | 6,558 |
|
Other liabilities | | 4,224 |
| | 902 |
| | 502 |
| | — |
| | 5,628 |
|
Total liabilities | | 55,428 |
| | 21,424 |
| | 6,399 |
| | — |
| | 83,251 |
|
| | | | | | | | | | |
Shareholders’ equity | | |
| | |
| | |
| | |
| | |
|
Common stock (1,750.0 shares authorized; 260.4 shares issued and 260.3 shares outstanding) | | — |
| | 484 |
| | 23,372 |
| | (484 | ) | | 23,372 |
|
Additional paid-in capital | | 11,634 |
| | 7,046 |
| | — |
| | (18,680 | ) | | — |
|
Retained earnings | | 8,336 |
| | 808 |
| | 36,143 |
| | (9,152 | ) | | 36,135 |
|
Accumulated other comprehensive income | | 872 |
| | 163 |
| | 206 |
| | (1,035 | ) | | 206 |
|
Treasury stock, at cost (516.7 shares) | | — |
| | — |
| | (34,392 | ) | | — |
| | (34,392 | ) |
Total shareholders’ equity | | 20,842 |
| | 8,501 |
| | 25,329 |
| | (29,351 | ) | | 25,321 |
|
Total liabilities and shareholders’ equity | | $ | 76,270 |
| | $ | 29,925 |
| | $ | 31,728 |
| | $ | (29,351 | ) | | $ | 108,572 |
|
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
| |
15. | CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued |
CONSOLIDATING BALANCE SHEET (Unaudited)
At June 30,December 31, 2018
|
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Assets | | |
| | |
| | |
| | |
| | |
|
Fixed maturities, available for sale, at fair value (amortized cost $63,601) | | $ | 43,683 |
| | $ | 19,697 |
| | $ | 84 |
| | $ | — |
| | $ | 63,464 |
|
Equity securities, available for sale, at fair value (cost $382) | | 105 |
| | 92 |
| | 171 |
| | — |
| | 368 |
|
Real estate investments | | 2 |
| | 902 |
| | — |
| | — |
| | 904 |
|
Short-term securities | | 1,855 |
| | 759 |
| | 1,371 |
| | — |
| | 3,985 |
|
Other investments | | 2,746 |
| | 810 |
| | 1 |
| | — |
| | 3,557 |
|
Total investments | | 48,391 |
| | 22,260 |
| | 1,627 |
| | — |
| | 72,278 |
|
Cash | | 181 |
| | 192 |
| | — |
| | — |
| | 373 |
|
Investment income accrued | | 434 |
| | 187 |
| | 3 |
| | — |
| | 624 |
|
Premiums receivable | | 5,089 |
| | 2,417 |
| | — |
| | — |
| | 7,506 |
|
Reinsurance recoverables | | 5,904 |
| | 2,466 |
| | — |
| | — |
| | 8,370 |
|
Ceded unearned premiums | | 522 |
| | 56 |
| | — |
| | — |
| | 578 |
|
Deferred acquisition costs | | 1,930 |
| | 190 |
| | — |
| | — |
| | 2,120 |
|
Deferred taxes | | 167 |
| | 302 |
| | (24 | ) | | — |
| | 445 |
|
Contractholder receivables | | 3,867 |
| | 918 |
| | — |
| | — |
| | 4,785 |
|
Goodwill | | 2,578 |
| | 1,368 |
| | — |
| | (9 | ) | | 3,937 |
|
Other intangible assets | | 224 |
| | 121 |
| | — |
| | — |
| | 345 |
|
Investment in subsidiaries | | — |
| | — |
| | 26,993 |
| | (26,993 | ) | | — |
|
Other assets | | 2,220 |
| | 15 |
| | 669 |
| | (32 | ) | | 2,872 |
|
Total assets | | $ | 71,507 |
| | $ | 30,492 |
| | $ | 29,268 |
| | $ | (27,034 | ) | | $ | 104,233 |
|
| | | | | | | | | | |
Liabilities | | |
| | |
| | |
| | |
| | |
|
Claims and claim adjustment expense reserves | | $ | 34,093 |
| | $ | 16,575 |
| | $ | — |
| | $ | — |
| | $ | 50,668 |
|
Unearned premium reserves | | 9,414 |
| | 4,141 |
| | — |
| | — |
| | 13,555 |
|
Contractholder payables | | 3,867 |
| | 918 |
| | — |
| | — |
| | 4,785 |
|
Payables for reinsurance premiums | | 169 |
| | 120 |
| | — |
| | — |
| | 289 |
|
Debt | | 693 |
| | 32 |
| | 5,871 |
| | (32 | ) | | 6,564 |
|
Other liabilities | | 4,133 |
| | 849 |
| | 496 |
| | — |
| | 5,478 |
|
Total liabilities | | 52,369 |
| | 22,635 |
| | 6,367 |
| | (32 | ) | | 81,339 |
|
| | | | | | | | | | |
Shareholders’ equity | | |
| | |
| | |
| | |
| | |
|
Common stock (1,750.0 shares authorized; 263.7 shares issued and 263.6 shares outstanding) | | — |
| | 401 |
| | 23,144 |
| | (401 | ) | | 23,144 |
|
Additional paid-in capital | | 11,634 |
| | 7,023 |
| | — |
| | (18,657 | ) | | — |
|
Retained earnings | | 8,065 |
| | 879 |
| | 35,211 |
| | (8,951 | ) | | 35,204 |
|
Accumulated other comprehensive loss | | (561 | ) | | (446 | ) | | (1,859 | ) | | 1,007 |
| | (1,859 | ) |
Treasury stock, at cost (510.9 shares) | | — |
| | — |
| | (33,595 | ) | | — |
| | (33,595 | ) |
Total shareholders’ equity | | 19,138 |
| | 7,857 |
| | 22,901 |
| | (27,002 | ) | | 22,894 |
|
Total liabilities and shareholders’ equity | | $ | 71,507 |
| | $ | 30,492 |
| | $ | 29,268 |
| | $ | (27,034 | ) | | $ | 104,233 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(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
| |
15. | CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued |
CONSOLIDATING BALANCE SHEETSTATEMENT OF CASH FLOWS (Unaudited)
At December 31, 2017
For the six months ended June 30, 2019 |
| | | | | | | | | | | | | | | | | | | | |
(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 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | TPC | | Other Subsidiaries | | TRV | | Eliminations | | Consolidated |
Cash flows from operating activities | | | | | | | | | | |
Net income | | $ | 1,137 |
| | $ | 292 |
| | $ | 1,353 |
| | $ | (1,429 | ) | | $ | 1,353 |
|
Net adjustments to reconcile net income to net cash provided by operating activities | | 314 |
| | 213 |
| | (256 | ) | | 168 |
| | 439 |
|
Net cash provided by operating activities | | 1,451 |
| | 505 |
| | 1,097 |
| | (1,261 | ) | | 1,792 |
|
Cash flows from investing activities | | | | | | | | | | |
Proceeds from maturities of fixed maturities | | 2,106 |
| | 924 |
| | 8 |
| | — |
| | 3,038 |
|
Proceeds from sales of investments: | | | | | | | | | | |
Fixed maturities | | 968 |
| | 526 |
| | 1 |
| | — |
| | 1,495 |
|
Equity securities | | 33 |
| | 38 |
| | — |
| | — |
| | 71 |
|
Other investments | | 201 |
| | 39 |
| | — |
| | — |
| | 240 |
|
Purchases of investments: | | | | | | | | | | |
Fixed maturities | | (4,049 | ) | | (1,650 | ) | | (9 | ) | | — |
| | (5,708 | ) |
Equity securities | | (1 | ) | | (37 | ) | | (3 | ) | | — |
| | (41 | ) |
Real estate investments | | — |
| | (85 | ) | | — |
| | — |
| | (85 | ) |
Other investments | | (234 | ) | | (28 | ) | | — |
| | — |
| | (262 | ) |
Net sales (purchases) of short-term securities | | 416 |
| | 125 |
| | (44 | ) | | — |
| | 497 |
|
Securities transactions in course of settlement | | 157 |
| | 66 |
| | — |
| | — |
| | 223 |
|
Other | | (166 | ) | | (3 | ) | | — |
| | — |
| | (169 | ) |
Net cash used in investing activities | | (569 | ) | | (85 | ) | | (47 | ) | | — |
| | (701 | ) |
Cash flows from financing activities | | | | | | | | | | |
Treasury stock acquired — share repurchase authorization | | — |
| | — |
| | (750 | ) | | — |
| | (750 | ) |
Treasury stock acquired — net employee share-based compensation | | — |
| | — |
| | (47 | ) | | — |
| | (47 | ) |
Dividends paid to shareholders | | — |
| | — |
| | (419 | ) | | — |
| | (419 | ) |
Payment of debt | | — |
| | (32 | ) | | (500 | ) | | 32 |
| | (500 | ) |
Issuance of debt | | — |
| | — |
| | 492 |
| | — |
| | 492 |
|
Issuance of common stock — employee share options | | — |
| | — |
| | 174 |
| | — |
| | 174 |
|
Dividends paid to parent company | | (866 | ) | | (363 | ) | | — |
| | 1,229 |
| | — |
|
Net cash used in financing activities | | (866 | ) | | (395 | ) | | (1,050 | ) | | 1,261 |
| | (1,050 | ) |
Effect of exchange rate changes on cash | | 1 |
| | 1 |
| | — |
| | — |
| | 2 |
|
Net increase in cash | | 17 |
| | 26 |
| | — |
| | — |
| | 43 |
|
Cash at beginning of year | | 181 |
| | 192 |
| | — |
| | — |
| | 373 |
|
Cash at end of period | | $ | 198 |
| | $ | 218 |
| | $ | — |
| | $ | — |
| | $ | 416 |
|
Supplemental disclosure of cash flow information | | | | | | | | | | |
Income taxes paid (received) | | $ | 244 |
| | $ | 91 |
| | $ | (10 | ) | | $ | — |
| | $ | 325 |
|
Interest paid | | $ | 24 |
| | $ | — |
| | $ | 147 |
| | $ | — |
| | $ | 171 |
|
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
| |
15. | 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 |
|
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 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(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
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company’s financial condition and results of operations.
FINANCIAL HIGHLIGHTS
20182019 Second Quarter Consolidated Results of Operations
Net income of $524$557 million, or $1.93$2.11 per share basic and $1.92$2.10 per share diluted
Net earned premiums of $6.70 billion
| |
��• | Catastrophe lossesNet earned premiums of $488 million ($384 million after-tax) increased by $85 million pre-tax ($122 million after-tax) from the prior year quarter$6.99 billion |
Catastrophe losses of $367 million ($290 million after-tax)
Net favorable prior year reserve development of $186$123 million ($14899 million after-tax)
Net income included an incremental charge of $45 million pre-tax associated with a few large commercial losses, primarily fire related, as well as $18 million pre-tax of windpool assessments related to Hurricane Harvey
Combined ratio of 98.1%
Net investment income of $595$648 million ($507548 million after-tax)
Operating cash flows of $1.14 | |
• | Operating cash flows of $1.15 billion |
20182019 Second Quarter Consolidated Financial Condition
Total investments of $71.16$75.50 billion; fixed maturities and short-term securities comprised 93%94% of total investments
Total assets of $103.52 billion
| |
• | Total assets of $108.57 billion |
Total debt of $6.46$6.56 billion, resulting in a debt-to-total capital ratio of 22.2% (22.1%20.6% (21.9% excluding net unrealized investment losses,gains, net of tax)
Repurchased 2.72.6 million common shares for total cost of $350$376 million and paid $207$214 million of dividends to shareholders
Shareholders’ equity of $22.62 billion
| |
• | Shareholders’ equity of $25.32 billion |
Net unrealized investment lossesgains of $135 million$2.39 billion ($112 million1.88 billion after-tax)
Book value per common share of $84.51$97.26
| |
• | Holding company liquidity of $1.46 billion |
Holding company liquidity of $1.44 billion
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
CONSOLIDATED OVERVIEW
Consolidated Results of Operations
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions, except ratio and per share amounts) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Revenues | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Premiums | | $ | 6,695 |
| | $ | 6,351 |
| | $ | 13,232 |
| | $ | 12,534 |
| | $ | 6,988 |
| | $ | 6,695 |
| | $ | 13,843 |
| | $ | 13,232 |
|
Net investment income | | 595 |
| | 598 |
| | 1,198 |
| | 1,208 |
| | 648 |
| | 595 |
| | 1,230 |
| | 1,198 |
|
Fee income | | 112 |
| | 116 |
| | 215 |
| | 229 |
| | 116 |
| | 112 |
| | 225 |
| | 215 |
|
Net realized investment gains | | 36 |
| | 80 |
| | 25 |
| | 85 |
| | 25 |
| | 36 |
| | 78 |
| | 25 |
|
Other revenues | | 39 |
| | 39 |
| | 93 |
| | 70 |
| | 57 |
| | 39 |
| | 129 |
| | 93 |
|
Total revenues | | 7,477 |
| | 7,184 |
| | 14,763 |
| | 14,126 |
| | 7,834 |
| | 7,477 |
| | 15,505 |
| | 14,763 |
|
| | | | | | | | | | | | | | | | |
Claims and expenses | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Claims and claim adjustment expenses | | 4,562 |
| | 4,225 |
| | 8,858 |
| | 8,319 |
| | 4,821 |
| | 4,562 |
| | 9,263 |
| | 8,858 |
|
Amortization of deferred acquisition costs | | 1,081 |
| | 1,032 |
| | 2,142 |
| | 2,035 |
| | 1,134 |
| | 1,081 |
| | 2,251 |
| | 2,142 |
|
General and administrative expenses | | 1,113 |
| | 1,045 |
| | 2,175 |
| | 2,041 |
| | 1,125 |
| | 1,113 |
| | 2,182 |
| | 2,175 |
|
Interest expense | | 90 |
| | 92 |
| | 179 |
| | 181 |
| | 89 |
| | 90 |
| | 177 |
| | 179 |
|
Total claims and expenses | | 6,846 |
| | 6,394 |
| | 13,354 |
| | 12,576 |
| | 7,169 |
| | 6,846 |
| | 13,873 |
| | 13,354 |
|
Income before income taxes | | 631 |
| | 790 |
| | 1,409 |
| | 1,550 |
| | 665 |
| | 631 |
| | 1,632 |
| | 1,409 |
|
Income tax expense | | 107 |
| | 195 |
| | 216 |
| | 338 |
| | 108 |
| | 107 |
| | 279 |
| | 216 |
|
Net income | | $ | 524 |
| | $ | 595 |
| | $ | 1,193 |
| | $ | 1,212 |
| | $ | 557 |
| | $ | 524 |
| | $ | 1,353 |
| | $ | 1,193 |
|
| | | | | | | | | | | | | | | | |
Net income per share | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Basic | | $ | 1.93 |
| | $ | 2.13 |
| | $ | 4.39 |
| | $ | 4.32 |
| | $ | 2.11 |
| | $ | 1.93 |
| | $ | 5.12 |
| | $ | 4.39 |
|
Diluted | | $ | 1.92 |
| | $ | 2.11 |
| | $ | 4.35 |
| | $ | 4.28 |
| | $ | 2.10 |
| | $ | 1.92 |
| | $ | 5.08 |
| | $ | 4.35 |
|
| | | | | | | | | | | | | | | | |
Combined ratio | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Loss and loss adjustment expense ratio | | 67.4 | % | | 65.6 | % | | 66.2 | % | | 65.5 | % | | 68.2 | % | | 67.4 | % | | 66.2 | % | | 66.2 | % |
Underwriting expense ratio | | 30.7 |
| | 31.1 |
| | 30.6 |
| | 30.9 |
| | 30.2 |
| | 30.7 |
| | 29.9 |
| | 30.6 |
|
Combined ratio | | 98.1 | % | | 96.7 | % | | 96.8 | % | | 96.4 | % | | 98.4 | % | | 98.1 | % | | 96.1 | % | | 96.8 | % |
The following discussions of the Company’s net income and segment income are presented on an after-tax basis. Discussions of the components of net income and segment income are presented on a pre-tax basis, unless otherwise noted. Discussions of net income per common share are presented on a diluted basis.
Overview
Diluted net income per share of $1.92$2.10 in the second quarter of 2018 decreased2019 increased by 9% fromover diluted net income per share of $2.11$1.92 in the same period of 2017.2018. Net income of $557 million in the second quarter of 2019 increased by 6% over net income of $524 million in the second quarter of 2018 decreased by 12% from net income of $595 million in the same period of 2017.2018. The lowerhigher rate of decreaseincrease in diluted net income per share reflected the impact of share repurchases in recent periods. The decreaseincrease in income before income taxes primarily reflected the pre-tax impactimpacts of (i) higherlower catastrophe losses and (ii) higher net investment income, partially offset by (iii) lower underwriting margins excluding catastrophe losses and prior year reserve development ("underlying underwriting margins") and (iv) lower net realized investment gains. Income before income taxes in the second quarter of 2018 included an incremental charge of $45 million associated with a few large commercial losses, primarily fire related, as well as $18 million of windpool assessments related to Hurricane Harvey.favorable prior year reserve development. Catastrophe losses in the second quarters of 2019 and 2018 and 2017 were $488$367 million and $403$488 million, respectively. Net favorable prior year reserve development in the second quarters of 2019 and 2018 was $123 million and 2017 was $186 million, respectively. Underlying underwriting margins in the second quarter of 2019 were lower in both Personal Insurance and $203 million, respectively.Business Insurance and were slightly higher in Bond & Specialty Insurance compared to the same period of 2018. Income tax expense in the second quarter of 20182019 was lowerslightly higher than in the same period of 2017,2018, reflecting the impactsimpact of (i) the lower U.S. corporate income tax rate resulting from the Tax Cuts and Jobs Act of 2017 (TCJA) and (ii) the decreaseincrease in income before income taxes.taxes in the second quarter of 2019, largely offset by a higher tax benefit in the second quarter of 2019 related to employee equity compensation plans.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Diluted net income per share of $5.08 in the first six months of 2019 increased by 17% over diluted net income per share of $4.35 in the first six months of 2018 increased by 2% over diluted net income per share of $4.28 in the same period of 2017.2018. Net income of $1.19$1.35 billion in the first six months of 2018 decreased slightly from2019 increased by 13% over net income of $1.21$1.19 billion in the same period of 2017.2018. The higher rate of increase in diluted net income per share compared with the slight decline in net income reflected the impact of share repurchases in recent periods. The decreaseincrease in income before income taxes primarily reflected the pre-tax impactimpacts of (i) higherlower catastrophe losses, and (ii) lowerhigher net realized investment gains and (iii) higher net investment income, partially offset by (iii) higher(iv) lower net favorable prior year reserve development. Catastrophe losses in the first six months of 2019 and 2018 and 2017 were $842$560 million and $750$842 million, respectively. Net favorable prior year reserve development in the first six months of 2019 and 2018 and 2017 was $336$174 million and $284$336 million, respectively. Income tax expense in the first six months of 20182019 was lowerhigher than in the same period of 2017, primarily2018, reflecting (i) the lower U.S. corporate income tax rate resulting fromimpacts of the TCJA and (ii) the decreaseincrease in income before income taxes partially offset byin the impactfirst six months of (iii) the $39 million reduction in income2019 and lower tax expense in the first quartersix months of 2017 as2018 due to a result ofreduction in the resolution of prior yearliability for uncertain tax matters.positions (unrecognized tax benefits).
The Company has insurance operations in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world as a corporate member of Lloyd’s, as well as in Brazil and Colombia, primarily through joint ventures. Because these operations are conducted in local currencies other than the U.S. dollar, the Company is subject to changes in foreign currency exchange rates. For the three months and six months ended June 30, 20182019 and 2017,2018, changes in foreign currency exchange rates impacted reported line items in the statement of income by insignificant amounts. The impact of these changes was not material to the Company’s net income or segment income for the periods reported.
Revenues
Earned Premiums
Earned premiums in the second quarter of 20182019 were $6.70$6.99 billion, $344$293 million or 4% higher than in the same period of 2018. Earned premiums in the first six months of 2019 were $13.84 billion, $611 million or 5% higher than in the same period of 2017. Earned premiums in the first six months of 2018 were $13.23 billion, $698 million or 6% higher than in the same period of 2017.2018. In Business Insurance, earned premiums in both the second quarter and first six months of 2018 both2019 increased by 4% over the same periods of 2017.2018. In Bond & Specialty Insurance, earned premiums in both the second quarter and first six months of 2018 both2019 increased by 5% over the same periods of 2017.2018. In Personal Insurance, earned premiums in both the second quarter and first six months of 2018 both2019 increased by 8%5% over the same periods of 2017.2018. Factors contributing to the changesincreases in earned premiums in each segment are discussed in more detail in the segment discussions that follow.
Net Investment Income
The following table sets forth information regarding the Company’s investments.
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Average investments (1) | | $ | 72,618 |
| | $ | 71,385 |
| | $ | 72,569 |
| | $ | 71,154 |
| | $ | 74,370 |
| | $ | 72,618 |
| | $ | 74,197 |
| | $ | 72,569 |
|
Pre-tax net investment income | | 595 |
| | 598 |
| | 1,198 |
| | 1,208 |
| | 648 |
| | 595 |
| | 1,230 |
| | 1,198 |
|
After-tax net investment income | | 507 |
| | 468 |
| | 1,020 |
| | 948 |
| | 548 |
| | 507 |
| | 1,044 |
| | 1,020 |
|
Average pre-tax yield (2) | | 3.3 | % | | 3.4 | % | | 3.3 | % | | 3.4 | % | | 3.5 | % | | 3.3 | % | | 3.3 | % | | 3.3 | % |
Average after-tax yield (2) | | 2.8 | % | | 2.6 | % | | 2.8 | % | | 2.7 | % | | 2.9 | % | | 2.8 | % | | 2.8 | % | | 2.8 | % |
_________________________________________________________
| |
(1) | Excludes net unrealized investment gains and losses and reflects cash, receivables for investment sales, payables on investment purchases and accrued investment income. |
| |
(2) | Excludes net realized and net unrealized investment gains and losses. |
Net investment income in the second quarter of 20182019 was $595$648 million, $3$53 million or 1% lower9% higher than in the same period of 2017.2018. Net investment income in the first six months of 20182019 was $1.20$1.23 billion, $10$32 million or 1% lower3% higher than in the same period of 2017.2018. Net investment income from fixed maturity investments in the second quarter and first six months of 20182019 was $489$514 million and $970 million,$1.03 billion, respectively, $18$25 million and $22$55 million higher, respectively, than in the same periods of 2017.2018. The increases in both periods of 20182019 primarily resulted from higher long-term reinvestment rates available in the market and a higher average level of fixed maturity investments, partially offset by lower long-term reinvestment rates available in the market.investments. Net investment income from short-term securities in the second quarter and first six months of 20182019 was $21$27 million and $40$55 million, respectively, $8$6 million and $16$15 million higher, respectively, than in the same periods of 2017.2018. The increaseincreases primarily resulted from higher short-term interest rates. Net investment income generated by the Company's remaining investment portfolios in the second quarter and first six months of 20182019 was $94$118 million, and $207$24 million higher than in the same period of
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
2018, primarily resulting from higher returns from private equity limited partnerships. Net investment income generated by the Company's remaining investment portfolios in the first six months of 2019 was $171 million, $36 million lower than in the same period of 2018, primarily resulting from lower returns from private equity limited partnerships and real estate partnerships.
Fee Income
Fee income in the second quarter and first six months of 2019 was $116 million and $225 million, respectively, $30$4 million and $48$10 million lower,higher, respectively, than in the same periods of 2017, primarily due to lower returns from private equity limited partnerships.
Fee Income
2018. The National Accounts market in Business Insurance is the primary source of the Company’s fee-based business. The $4 millionbusiness and $14 million decreases in fee income in the second quarter and first six months of 2018 compared with the same periods of 2017 areis discussed in the Business Insurance segment discussion that follows.
Net Realized Investment Gains
The following table sets forth information regarding the Company’s net realized investment gains.
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Net Realized Investment Gains | | | | | | |
| | |
| |
Other-than-temporary impairment losses | | $ | (1 | ) | | $ | (5 | ) | | $ | (1 | ) | | $ | (7 | ) | | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (1 | ) |
Net realized investment gains on equity securities still held | | 16 |
| | — |
| | 3 |
| | — |
| | 6 |
| | 16 |
| | 45 |
| | 3 |
|
Other net realized investment gains, including from sales | | 21 |
| | 85 |
| | 23 |
| | 92 |
| | 20 |
| | 21 |
| | 35 |
| | 23 |
|
Net realized investment gains | | $ | 36 |
| | $ | 80 |
| | $ | 25 |
| | $ | 85 |
| |
Total | | | $ | 25 |
| | $ | 36 |
| | $ | 78 |
| | $ | 25 |
|
Net realized investment gains from sales of equity securities accounted for the majority of net realized investment gains in the second quarter and first six months of 2017.
Other Revenues
Other revenues in the second quarters and first six months of 20182019 and 20172018 included installment premium charges. Other revenues in the second quartercharges 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 included a gain related to the settlement of a reinsurance dispute.Business.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the second quarter of 20182019 were $4.56$4.82 billion, $337$259 million or 8%6% higher than in the same period of 2017,2018, primarily reflecting the impacts of (i) higher business volumes, (ii) higher non-catastrophe weather-related losses, (iii) loss cost trends, (iv) lower net favorable prior year reserve development, (v) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line, including the re-estimation of losses incurred in the first quarter of 2019, partially offset by (vi) lower catastrophe losses and (vii) a lower level of domestic large losses, primarily fire-related. Catastrophe losses in the second quarter of 2019 primarily resulted from wind storms in several regions of the United States. Catastrophe losses in the second quarter of 2018 primarily resulted from wind and hail storms in several regions of the United States.
Claims and claim adjustment expenses in the first six months of 2019 were $9.26 billion, $405 million or 5% higher than in the same period of 2018, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, (iii) higher catastrophe losses and (iv) lower net favorable prior year reserve development. Catastrophedevelopment, (iv) higher non-catastrophe weather-related losses, (v) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line and (vi) a small number of large losses in the second quarters of both 2018 and 2017 primarily resulted from wind and hail storms in several regions of the United States.
Claims and claim adjustment expensesInternational business in the first six monthsquarter of 2018 were $8.86 billion, $539 million or 6% higher than in the same period of 2017, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends and (iii) higher catastrophe losses,2019, partially offset by (iv) higher net favorable prior year reserve development.(vii) lower catastrophe losses and (viii) a lower level of domestic large losses, primarily fire-related. Catastrophe losses in the first six months of 20182019 and 20172018 included the second quarter events described above, as well as winter storms and wind storms in several regions of the United States in the first quarter of 2019, and winter storms in the eastern United States, a wind and hail storm in the southern United States and mudslides in California in the first quarter of 2018, and wind and hail storms in several regions of the United States and a winter storm in the eastern United States in the first quarter of 2017.2018.
Factors contributing to net favorable prior year reserve development during the second quarters and first six months of 20182019 and 20172018 are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Significant Catastrophe Losses
The following table presents the amount of losses recorded by the Company for significant catastrophes that occurred in the three months and six months ended June 30, 20182019 and 2017,2018, the amount of net unfavorable (favorable) prior year reserve development recognized in the three months and six months ended June 30, 20182019 and 20172018 for significant catastrophes that occurred in 20172018 and 2016,2017, and the estimate of ultimate losses for those catastrophes at June 30, 20182019 and December 31, 2017.2018. For purposes of the table, a significant catastrophe is an event for which the Company estimates its ultimate losses will be $100 million or more after reinsurance and before taxes. The Company's threshold for disclosing catastrophes is primarily determined at the reportable segment level and for 20182019 ranged from approximately $18$19 million to $30 million of losses before reinsurance and taxes. For the Company’s definition of a catastrophe, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations— Consolidated Overview” in the Company’s 20172018 Annual Report.
| | | | Losses Incurred/Unfavorable (Favorable) Prior Year Reserve Development | | | | | | Losses Incurred/Unfavorable (Favorable) Prior Year Reserve Development | | | | |
| | For The Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | |
| Estimated Ultimate Losses | Estimated Ultimate Losses |
(in millions, pre-tax and net of reinsurance) | 2018 | | 2017 | | 2018 | | 2017 | June 30, 2018 | | December 31, 2017 | 2019 | | 2018 | | 2019 | | 2018 | June 30, 2019 | | December 31, 2018 |
| | | | | | | | | | | | | |
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 |
| | (1 | ) | | (2 | ) | | (2 | ) | | (2 | ) | | 107 |
| | 109 |
|
32 — Severe wind and hail storms | | 19 |
| | 198 |
| | 20 |
| | 198 |
| | 230 |
| | 210 |
| | 1 |
| | 19 |
| | 1 |
| | 20 |
| | 230 |
| | 229 |
|
43 — Hurricane Harvey | | (5 | ) | | n/a |
| | (25 | ) | | n/a |
| | 229 |
| | 254 |
| | (3 | ) | | (5 | ) | | (14 | ) | | (25 | ) | | 216 |
| | 230 |
|
44 — Hurricane Irma | | (8 | ) | | n/a |
| | (19 | ) | | n/a |
| | 168 |
| | 187 |
| | 1 |
| | (8 | ) | | (8 | ) | | (19 | ) | | 151 |
| | 159 |
|
48 — California wildfire — Tubbs fire | | — |
| | n/a |
| | 4 |
| | n/a |
| | 511 |
| | 507 |
| | (9 | ) | | — |
| | (6 | ) | | 4 |
| | 502 |
| | 508 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
PCS Serial Number: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
15 — Winter storm | | 3 |
| | n/a |
| | 138 |
| | n/a |
| | 138 |
| | n/a |
| | (4 | ) | | 3 |
| | (4 | ) | | 138 |
| | 140 |
| | 144 |
|
17 — Severe wind and hail storms | | 11 |
| | n/a |
| | 121 |
| | n/a |
| | 121 |
| | n/a |
| | (1 | ) | | 11 |
| | (3 | ) | | 121 |
| | 108 |
| | 111 |
|
33 — Severe wind and hail storms | | | 3 |
| | n/a |
| | (2 | ) | | n/a |
| | 115 |
| | 117 |
|
52 — Hurricane Florence | | | (7 | ) | | n/a |
| | (10 | ) | | n/a |
| | 96 |
| | 106 |
|
57 — Hurricane Michael | | | 3 |
| | n/a |
| | 6 |
| | n/a |
| | 164 |
| | 158 |
|
59 — California wildfire - Camp fire | | | — |
| | n/a |
| | (2 | ) | | n/a |
| | 332 |
| | 334 |
|
60 — California wildfire - Woolsey fire | | | 9 |
| | n/a |
| | 9 |
| | n/a |
| | 128 |
| | 119 |
|
| | | | | | | | | | | | | |
2019 | | | | | | | | | | | | | |
PCS Serial Number: | | | | | | | | | | | | | |
33 — Severe wind storms | | | 185 |
| | n/a |
| | 185 |
| | n/a |
| | 185 |
| | n/a |
|
n/a: not applicable.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the second quarter of 20182019 was $1.08$1.13 billion, $49$53 million or 5% higher than in the same period of 2017.2018. Amortization of deferred acquisition costs in the first six months of 20182019 was $2.14$2.25 billion, $107$109 million or 5% higher than in the same period of 2017.2018. 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 20182019 were $1.11$1.13 billion, $68$12 million or 7%1% higher than in the same period of 2017.2018. General and administrative expenses in the first six months of 20182019 were $2.18 billion, $134 million or 7% higher than incomparable with 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.2018. 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 20182019 was $89 million and $177 million, respectively, compared with $90 million and $179 million, respectively, compared with $92 million and $181 million, respectively, in the same periods of 2017.2018.
Income Tax Expense
Income tax expense in the second quarter of 20182019 was $107$108 million, $88$1 million or 45% lower1% higher than in the same period of 2017,2018, primarily reflecting the impactsimpact of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the $159$34 million decreaseincrease in income before income taxes.taxes in the second quarter of 2019, largely offset by a higher tax benefit in the second quarter of 2019 related to employee equity compensation plans. Income tax expense in the first six months of 20182019 was $216$279 million, $122$63 million or 36% lower29% higher than in the same period of 2017,2018, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the $141$223 million decreaseincrease in income before income taxes partially offset byin the impactfirst six months of (iii) the $39 million reduction in income2019 and lower tax expense in the first quartersix months of 2017 as2018 due to a result ofreduction in the resolution of prior yearliability for uncertain tax matters.positions.
The Company’s effective tax rate was 17%16% and 25%17% in the second quarters of 20182019 and 2017,2018, respectively. The Company's effective tax rate was 15%17% and 22%15% in the first six months of 20182019 and 2017,2018, respectively. The effective tax rates were lower than the statutory ratesrate 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%98.4% in the second quarter of 20182019 was 1.40.3 points higher than the combined ratio of 96.7%98.1% in the same period of 2017.2018. The loss and loss adjustment expense ratio of 67.4%68.2% in the second quarter of 20182019 was 1.80.8 points higher than the loss and loss adjustment expense ratio of 65.6%67.4% in the same period of 2017.2018. The underwriting expense ratio of 30.7%30.2% for the second quarter of 20182019 was 0.40.5 points lower than the underwriting expense ratio of 31.1%30.7% in the same period of 2017.2018.
Catastrophe losses in the second quarters of 20182019 and 20172018 accounted for 7.35.3 points and 6.47.3 points, respectively, of the combined ratios.ratio. Net favorable prior year reserve development in the second quarters of 2019 and 2018 and 2017 provided 2.81.8 points and 3.22.8 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 20182019 was 0.11.3 points higher than the 20172018 ratio on the same basis.basis, primarily reflecting the impact of (i) higher non-catastrophe weather-related losses, (ii) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line, including the re-estimation of losses incurred in the first quarter of 2019 and (iii) the impact on earned premiums related to the Company's new catastrophe reinsurance treaty, partially offset by (iv) a lower level of domestic large losses, primarily fire-related, (v) earned pricing that exceeded loss cost trends in Agency Automobile and (vi) a lower underwriting expense ratio.
The combined ratio of 96.1% in the first six months of 2019 was 0.7 points lower than 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 2017.2018. The loss and loss adjustment expense ratio ofwas 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 2018both 2019 and 2018. The underwriting expense ratio of 29.9% for the first six months of 2019 was 0.30.7 points lower than the underwriting expense ratio of 30.9%30.6% in the same period of 2017.2018.
Catastrophe losses in the first six months of 20182019 and 20172018 accounted for 6.34.1 points and 6.06.3 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first six months of 2019 and 2018 and 2017 provided 2.51.3 points and 2.32.5 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first six months of 20182019 was 0.3 points higher than the 20172018 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 | | Gross Written Premiums |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Business Insurance | | $ | 4,038 |
| | $ | 3,794 |
| | $ | 8,509 |
| | $ | 8,065 |
| | $ | 4,193 |
| | $ | 4,038 |
| | $ | 8,923 |
| | $ | 8,509 |
|
Bond & Specialty Insurance | | 674 |
| | 620 |
| | 1,312 |
| | 1,221 |
| | 747 |
| | 674 |
| | 1,409 |
| | 1,312 |
|
Personal Insurance | | 2,717 |
| | 2,513 |
| | 5,026 |
| | 4,659 |
| | 2,884 |
| | 2,717 |
| | 5,331 |
| | 5,026 |
|
Total | | $ | 7,429 |
| | $ | 6,927 |
| | $ | 14,847 |
| | $ | 13,945 |
| | $ | 7,824 |
| | $ | 7,429 |
| | $ | 15,663 |
| | $ | 14,847 |
|
| | | | Net Written Premiums | | Net Written Premiums |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Business Insurance | | $ | 3,781 |
| | $ | 3,544 |
| | $ | 7,775 |
| | $ | 7,399 |
| | $ | 3,874 |
| | $ | 3,781 |
| | $ | 8,037 |
| | $ | 7,775 |
|
Bond & Specialty Insurance | | 653 |
| | 598 |
| | 1,227 |
| | 1,142 |
| | 710 |
| | 653 |
| | 1,297 |
| | 1,227 |
|
Personal Insurance | | 2,697 |
| | 2,498 |
| | 4,953 |
| | 4,594 |
| | 2,866 |
| | 2,697 |
| | 5,173 |
| | 4,953 |
|
Total | | $ | 7,131 |
| | $ | 6,640 |
| | $ | 13,955 |
| | $ | 13,135 |
| | $ | 7,450 |
| | $ | 7,131 |
| | $ | 14,507 |
| | $ | 13,955 |
|
Gross and net written premiums in second quarter and first six months of 2019 reflected growth in all segments. Gross written premiums in both the second quarter and first six months of 2018 both2019 increased by 7%5% over the same periodperiods of 2017. Gross2018. Net written premiums in both the second quarter and netfirst six months of 2019 increased by 4% over the same periods of 2018. Net written premiumspremium growth in the first six months 2018 both increasedof 2019 was impacted by 6% overceded written premiums related to the same periodnew catastrophe reinsurance treaty entered into in the first quarter of 2017.2019. Factors contributing to the changesincreases 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
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) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Revenues | | |
| | |
| | |
| | |
|
Earned premiums | | $ | 3,783 |
| | $ | 3,641 |
| | $ | 7,525 |
| | $ | 7,209 |
|
Net investment income | | 481 |
| | 440 |
| | 908 |
| | 886 |
|
Fee income | | 111 |
| | 107 |
| | 215 |
| | 206 |
|
Other revenues | | 30 |
| | 20 |
| | 73 |
| | 51 |
|
Total revenues | | 4,405 |
| | 4,208 |
| | 8,721 |
| | 8,352 |
|
| | | | | | | | |
Total claims and expenses | | 3,990 |
| | 3,746 |
| | 7,817 |
| | 7,368 |
|
| | | | | | | | |
Segment income before income taxes | | 415 |
| | 462 |
| | 904 |
| | 984 |
|
Income tax expense | | 64 |
| | 77 |
| | 139 |
| | 147 |
|
Segment income | | $ | 351 |
| | $ | 385 |
| | $ | 765 |
| | $ | 837 |
|
| | | | | | | | |
Loss and loss adjustment expense ratio | | 69.6 | % | | 66.9 | % | | 68.6 | % | | 66.3 | % |
Underwriting expense ratio | | 31.5 |
| | 31.9 |
| | 31.0 |
| | 31.9 |
|
Combined ratio | | 101.1 | % | | 98.8 | % | | 99.6 | % | | 98.2 | % |
Overview
Segment income in the second quarter of 20182019 was $385$351 million, $44$34 million or 10%9% lower than segment income of $429$385 million in the same period of 2017.2018. The decrease in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher catastrophe losses, (ii) lower underlying underwriting margins and (iii) lower net favorable prior year reserve development, partially offset by (iv) higher net investment income. Catastrophe losses in the second quarters of 2019 and 2018 were $211 million and $168 million, respectively. Net favorable prior year reserve development in the second quarters of 2019 and 2018 was $71 million and $84 million, respectively. The lower underlying underwriting margins primarily reflected the impacts of (i) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line, including the re-estimation of losses incurred in the first quarter of 2019, (ii) higher non-catastrophe weather-related losses and (iii) the impact on earned premiums related to the Company's new catastrophe reinsurance treaty, partially offset by (iv) a lower level of domestic large losses, primarily fire-related and (v) higher business volumes. Income tax expense in the second quarter of 2019 was lower than in the same period of 2018, primarily reflecting the impact of the decrease in segment income before income taxes in the second quarter of 2019.
Segment income in the first six months of 2019 was $765 million, $72 million or 9% lower than segment income of $837 million in the same period of 2018. 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 andpartially offset by (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) lowerhigher net favorable prior year reserve development.investment income. Catastrophe losses in the first six months of 2018both 2019 and 20172018 were $306 million and $316 million, respectively.million. Net favorable prior year reserve development in the first six months of 2019 and 2018 was $50 million 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 20182019 was lower than in the same period of 2017,2018, 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 in the first six months of 2019, partially offset by the impact of (iii) the $15 million reduction in income taxes as a result of the resolution of prior year(ii) lower tax mattersexpense in the first quartersix months of 2017.2018 due to a reduction in the liability for uncertain tax positions.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Revenues
Earned Premiums
Earned premiums in the second quarter of 20182019 were $3.64$3.78 billion, $137$142 million or 4% higher than in the same period of 2017.2018. Earned premiums in the first six months of 20182019 were $7.21$7.53 billion, $276$316 million or 4% higher than in the same period of 2017.2018. The increasesincrease in both periods of 20182019 primarily reflected the increase in net written premiums over the preceding twelve months. The increases in earned premiums in both periods of 2019 were reduced by the earned impact of the new catastrophe reinsurance treaty.
Net Investment Income
Net investment income in the second quarter of 20182019 was $440$481 million, $7$41 million or 2% lower9% higher than in the same period of 2017.2018. Net investment income in the first six months of 20182019 was $886$908 million, $14$22 million or 2% lowerhigher than in the same period of 2017.2018. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the decreaseincreases in the Company’s consolidated net investment income in the second quarter and first six months of 20182019 compared with the same periods of 2017.2018. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 20172018 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 revenue from its large deductible policies and service businesses, which include claimrisk management, claims administration, loss control and loss preventionrisk management information services provided to large companies that choose to self-insure a portion of their insurance risks,third parties, as well as claims and policy management services to workers' compensation residual market pools. Fee income in the second quarter of 20182019 was $107$111 million, $5$4 million or 4% lowerhigher than in the same period of 2017.2018. Fee income in the first six months of 20182019 was $206$215 million, $15$9 million or 7% lower4% higher than in the same period of 2017.2018. The decreasesincreases in both periods of 20182019 reflected lower serviced premium in the workers’ compensation residual market pools.higher claim volume under administration associated with its service businesses.
Other Revenues
Other revenues in the second quarters and first six months of 2018both 2019 and 20172018 included installment premium charges and other miscellaneous policyholder service charges.charges, as well as revenues from Simply Business. Other revenues in the second quarter andof 2019 were $30 million, $10 million or 50% higher than in the same period of 2018. Other revenues in the first six months of 2018 also included revenues2019 were $73 million, $22 million or 43% higher than in the same period of 2018. The increases in both periods of 2019 primarily resulted 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.revenue growth.
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 20182019 were $2.48$2.69 billion, $178$202 million or 8% higher than in the same period of 2017,2018, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, (iii) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line, including the re-estimation of losses incurred in the first quarter of 2019, (iv) higher catastrophe losses, (v) higher non-catastrophe weather-related losses and (vi) lower net favorable prior year reserve development, partially offset by (vii) a lower level of domestic large losses, primarily fire-related.
Claims and claim adjustment expenses in the first six months of 2019 were $5.27 billion, $390 million or 8% higher than in the same period of 2018, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, (iii) lower net favorable prior year reserve development, (iv) higher loss estimates in the general liability product line for primary and (iv) normal variabilityexcess coverages and in loss activity,the commercial automobile product line, (v) a small number of large losses in the International business in the first quarter of 2019 and (vi) higher non-catastrophe weather-related losses, partially offset by (v)(vii) a lower catastrophe losses.
Claims and claim adjustment expenses in the first six monthslevel of 2018 were $4.88 billion, $305 million or 7% higher than in the same period of 2017,domestic large losses, 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.fire-related.
Factors contributing to net favorable prior year reserve development during the second quarters and first six months of 20182019 and 20172018 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 20182019 was $588$618 million, $21$30 million or 4%5% higher than in the same period of 2017.2018. Amortization of deferred acquisition costs in the first six months of 20182019 was $1.17$1.23 billion, $47$65 million or 4%6% higher than in the same period of 2017.2018. The increases in both periods of 20182019 were generally consistent with the increases in earned premiums.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
General and Administrative Expenses
General and administrative expenses in the second quarter of 20182019 were $674$686 million, $38$12 million or 6%2% higher than in the same period of 2017.2018. General and administrative expenses in the first six months of 20182019 were $1.32 billion, $78 million or 6% higher than incomparable with 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.2018.
Income Tax Expense
Income tax expense in the second quarter of 20182019 was $77$64 million, $63$13 million, or 45%17% lower than in the same period of 2017,2018, primarily reflecting the impactsimpact of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the $107$47 million decrease in segment income before income taxes.taxes in the second quarter of 2019. Income tax in the first six months of 20182019 was $147$139 million, $122$8 million or 45%5% lower than in the same period of 2017,2018, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA and (ii) the $156$80 million decrease in segment income before income taxes, partially offset by the impact of (iii) the $15 million reduction in income(ii) lower tax expense as a result of the resolution of prior year tax matters in the first quartersix months of 2017.2018 due to a reduction in the liability for uncertain tax positions.
Combined Ratio
The combined ratio of 98.8%101.1% in the second quarter of 20182019 was 2.3 points higher than the combined ratio of 96.5%98.8% in the same period of 2017.2018. The loss and loss adjustment expense ratio of 66.9%69.6% in the second quarter of 20182019 was 2.62.7 points higher than the loss and loss adjustment expense ratio of 64.3%66.9% in the same period of 2017.2018. The underwriting expense ratio of 31.9%31.5% for the second quarter of 20182019 was 0.30.4 points lower than the underwriting expense ratio of 32.2%31.9% in the same period of 2017.2018.
Catastrophe losses in the second quarters of 20182019 and 20172018 accounted for 4.65.6 points and 5.34.6 points, respectively, of the combined ratio. Net favorable prior year reserve development in the second quarters of 2019 and 2018 provided 1.9 points 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 20182019 was 1.70.9 points higher than the 20172018 ratio on the same basis, primarily reflecting the impacts of (i) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line, including the re-estimation of losses incurred in the first quarter of 2019, (ii) higher non-catastrophe weather-related losses and (iii) the impact on earned premiums related to the Company's new catastrophe reinsurance treaty, partially offset by (iv) a lower level of normal quarterly variability in loss activity, including a fewdomestic large losses, primarily fire related,fire-related and windpool assessments related to Hurricane Harvey.(v) a lower underwriting expense ratio.
The combined ratio of 98.2%99.6% in the first six months of 20182019 was 1.71.4 points higher than the combined ratio of 96.5%98.2% in the same period of 2017.2018. The loss and loss adjustment expense ratio of 66.3%68.6% in the first six months of 20182019 was 1.92.3 points higher than the loss and loss adjustment expense ratio of 64.4%66.3% in the same period of 2017.2018. The underwriting expense ratio of 31.9%31.0% for the first six months of 20182019 was 0.20.9 points lower than the underwriting expense ratio of 32.1%31.9% in the same period of 2017.2018.
Catastrophe losses in the first six months of 20182019 and 20172018 accounted for 4.34.1 points and 4.64.3 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first six months of 2019 and 2018 and 2017 provided 2.10.7 points and 2.72.1 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first six months of 20182019 was 1.40.2 points higher
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
than the 20172018 ratio on the same basis, primarily reflecting the impact of normal variability in loss activity, including a few large losses, primarily fire related.basis.
Written Premiums
Business Insurance’s gross and net written premiums by market were as follows:
| | | | Gross Written Premiums | | Gross Written Premiums |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Domestic: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Select Accounts | | $ | 731 |
| | $ | 722 |
| | $ | 1,513 |
| | $ | 1,487 |
| | $ | 759 |
| | $ | 731 |
| | $ | 1,572 |
| | $ | 1,513 |
|
Middle Market | | 2,076 |
| | 1,902 |
| | 4,435 |
| | 4,166 |
| | 2,139 |
| | 2,076 |
| | 4,675 |
| | 4,435 |
|
National Accounts | | 340 |
| | 336 |
| | 861 |
| | 807 |
| | 327 |
| | 340 |
| | 834 |
| | 861 |
|
National Property and Other | | 543 |
| | 522 |
| | 1,006 |
| | 982 |
| | 627 |
| | 543 |
| | 1,136 |
| | 1,006 |
|
Total Domestic | | 3,690 |
| | 3,482 |
| | 7,815 |
| | 7,442 |
| | 3,852 |
| | 3,690 |
| | 8,217 |
| | 7,815 |
|
International | | 348 |
| | 312 |
| | 694 |
| | 623 |
| | 341 |
| | 348 |
| | 706 |
| | 694 |
|
Total Business Insurance | | $ | 4,038 |
| | $ | 3,794 |
| | $ | 8,509 |
| | $ | 8,065 |
| | $ | 4,193 |
| | $ | 4,038 |
| | $ | 8,923 |
| | $ | 8,509 |
|
|
| | | | | | | | | | | | | | | | |
| | 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
|
| | | | | | | | | | | | | | | | |
| | Net Written Premiums |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Domestic: | | |
| | |
| | |
| | |
|
Select Accounts | | $ | 756 |
| | $ | 729 |
| | $ | 1,541 |
| | $ | 1,502 |
|
Middle Market | | 2,009 |
| | 1,985 |
| | 4,419 |
| | 4,247 |
|
National Accounts | | 223 |
| | 231 |
| | 527 |
| | 540 |
|
National Property and Other | | 588 |
| | 518 |
| | 975 |
| | 898 |
|
Total Domestic | | 3,576 |
| | 3,463 |
| | 7,462 |
| | 7,187 |
|
International | | 298 |
| | 318 |
| | 575 |
| | 588 |
|
Total Business Insurance | | $ | 3,874 |
| | $ | 3,781 |
| | $ | 8,037 |
| | $ | 7,775 |
|
Gross written premiums in the second quarter and first six months of 2018 decreased from2019 increased by 4% and 5%, respectively, over the same periods of 2017.
National Property and Other. 2018. Net written premiums of $518 million and $898 million in the second quarter and first six months of 2018, respectively,2019 increased by 4%2% and 2%3%, respectively, over the same periods of 2017.2018. Net written premium growth in the first six months of 2019 was impacted by the Company's new catastrophe reinsurance treaty entered into in the first quarter of 2019.
Select Accounts. Net written premiums of $756 million in the second quarter of 2019 increased by 4% over the same period of 2018. Net written premiums of $1.54 billion in the first six months of 2019 increased by 3% over the same period of 2018. Net written premiums in the first six months of 2019 were reduced by the new catastrophe reinsurance treaty. Business retention rates remained strong in the second quarter and first six months of 2018.2019. Renewal premium changes in the second quarter and first six months of 20182019 remained positive and were higher than incomparable with the same periods of 2017.2018. New business premiums in the second quarter and first six months of 2018 increased over2019 decreased slightly from the same periods of 2017.2018.
International.Middle Market. Net written premiums of $318 million and $588 million$2.01 billion in the second quarter of 2019 increased by 1% over the same period of 2018. Net written premiums of $4.42 billion in the first six months of 2019 increased by 4% over the same period of 2018. Net written premiums in the first six months of 2019 were reduced by the new catastrophe reinsurance treaty. Business retention rates remained strong in the second quarter and first six months of 2018, respectively,2019. Renewal premium changes in the second quarter and first six months of 2019 remained positive and were higher than in the same periods of 2018. New business premiums in the second quarter and first six months of 2019 decreased from the same periods of 2018.
National Accounts. Net written premiums of $223 million in the second quarter of 2019 decreased by 3% from the same period of 2018. Net written premiums of $527 million in the first six months of 2019 decreased by 2% from the same period of 2018. Business retention rates remained strong in the second quarter and first six months of 2019. Renewal premium changes in the second quarter and first six months of 2019 were slightly negative, compared with positive in the same periods of 2018. New business premiums in the second quarter of 2019 decreased from the same period of 2018. New business premiums in the first six months of 2019 increased slightly from the same period of 2018.
National Property and Other. Net written premiums of $588 million in the second quarter of 2019 increased by 10%14% over the same period of 2018. Net written premiums of $975 million in the first six months of 2019 increased by 9% over the same period of 2018. Net written premiums in the first six months of 2019 were reduced by the new catastrophe reinsurance treaty. Business retention rates remained strong in the second quarter and 9%, respectively,first six months of 2019. Renewal premium changes in the second quarter and first six months of 2019 remained positive and were higher than in the same periods of 2018. New business premiums in the second quarter and first six months of 2019 increased over the same periods of 2017,2018.
International. Net written premiums of $298 million in the second quarter of 2019 decreased by 6% from the same period of 2018. Net written premiums of $575 million in the first six months of 2019 decreased by 2% from the same period of 2018. The decreases in the second quarter and first six months of 2019 were primarily driven by the impact of changes in foreign currency exchange rates, and increasesas well as decreases in the Company’sCompany's operations in Canada.at Lloyd's.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Bond & Specialty Insurance
Results of Bond & Specialty Insurance were as follows:
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Revenues | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Earned premiums | | $ | 601 |
| | $ | 575 |
| | $ | 1,183 |
| | $ | 1,130 |
| | $ | 632 |
| | $ | 601 |
| | $ | 1,238 |
| | $ | 1,183 |
|
Net investment income | | 57 |
| | 56 |
| | 115 |
| | 117 |
| | 58 |
| | 57 |
| | 114 |
| | 115 |
|
Other revenues | | 5 |
| | 6 |
| | 11 |
| | 11 |
| | 6 |
| | 5 |
| | 12 |
| | 11 |
|
Total revenues | | 663 |
| | 637 |
| | 1,309 |
| | 1,258 |
| | 696 |
| | 663 |
| | 1,364 |
| | 1,309 |
|
| | | | | | | | | | | | | | | | |
Total claims and expenses | | 404 |
| | 398 |
| | 842 |
| | 841 |
| | 476 |
| | 404 |
| | 971 |
| | 842 |
|
| | | | | | | | | | | | | | | | |
Segment income before income taxes | | 259 |
| | 239 |
| | 467 |
| | 417 |
| | 220 |
| | 259 |
| | 393 |
| | 467 |
|
Income tax expense | | 55 |
| | 76 |
| | 90 |
| | 109 |
| | 46 |
| | 55 |
| | 81 |
| | 90 |
|
Segment income | | $ | 204 |
| | $ | 163 |
| | $ | 377 |
| | $ | 308 |
| | $ | 174 |
| | $ | 204 |
| | $ | 312 |
| | $ | 377 |
|
| | | | | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | 28.8 | % | | 29.7 | % | | 32.6 | % | | 35.1 | % | | 37.4 | % | | 28.8 | % | | 40.3 | % | | 32.6 | % |
Underwriting expense ratio | | 37.7 |
| | 39.0 |
| | 37.9 |
| | 38.9 |
| | 37.5 |
| | 37.7 |
| | 37.6 |
| | 37.9 |
|
Combined ratio | | 66.5 | % | | 68.7 | % | | 70.5 | % | | 74.0 | % | | 74.9 | % | | 66.5 | % | | 77.9 | % | | 70.5 | % |
Overview
Segment income in the second quarter of 20182019 was $204$174 million, $41$30 million or 25% higher15% lower than segment income of $163$204 million in the same period of 2017.2018. The increasedecrease in segment income before income taxes primarily reflected the pre-tax impactsimpact of (i) higher underlying underwriting margins and (ii) higherlower net favorable prior year reserve development. Net favorable prior year reserve development in the second quarters of 2019 and 2018 was $39 million and 2017 was $89 million, and $78 million, respectively. CatastropheNo catastrophe losses were incurred in the second quartersquarter of 2018 and 2017 were2019, compared with $5 million and $1 million, respectively. The higher underlying underwriting margins primarily resulted fromin the impactsame period of higher business volumes.2018. Income tax expense in the second quarter of 20182019 was lower than in the same period of 2017,2018, 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 increasedecrease in segment income before income taxes.taxes in the second quarter of 2019.
Segment income in the first six months of 20182019 was $377$312 million, $69$65 million or 22% higher17% lower than segment income of $308$377 million in the same period of 2017.2018. The increasedecrease in segment income before income taxes primarily reflected the pre-tax impactsimpact of (i) higherlower net favorable prior year reserve development and (ii) higher underlying underwriting margins.development. Net favorable prior year reserve development in the first six months of 2019 and 2018 and 2017 was $124$42 million and $92$124 million, respectively. Catastrophe losses in the first six months of 2019 and 2018 were $3 million 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 20182019 was lower than in the same period of 2017,2018, 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 increasedecrease in segment income before income taxes.taxes in the first six months of 2019, partially offset by the impact of lower tax expense in the first six months of 2018 due to a reduction in the liability for uncertain tax positions.
Revenues
Earned Premiums
Earned premiums in the second quarter of 20182019 were $601$632 million, $26$31 million or 5% higher than in the same period of 2017.2018. Earned premiums in the first six months of 20182019 were $1.18$1.24 billion, $53$55 million or 5% higher than in the same period of 2017.2018. The increases in both periods of 20182019 primarily reflected the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in the second quarter of 20182019 was $57$58 million, $1 million or 2% higher than in the same period of 2017.2018. Net investment income in the first six months of 20182019 of was $115$114 million, $2$1 million or 2%1% lower than in the same period of 2017.2018. 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 decreaseincreases in the Company’s consolidated net investment income in the second quarter and first six months of 2018 as2019 compared with the same periods of 2017.2018. In addition, refer
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
to note 2 of notes to the consolidated financial statements in the Company’s 20172018 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 20182019 were $175$238 million, $1$63 million or 1%36% higher than in the same period of 2017,2018, primarily reflecting the impacts of (i) higher business volumes, largely offset by (ii) higherlower net favorable prior year reserve development.development and (ii) higher business volumes.
Claims and claim adjustment expenses in the first six months of 20182019 were $391$504 million, $10$113 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%29% 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 2019 and 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 20182019 was $380$118 million, $23$5 million or 6%4% higher than in the same period of 2017.2018. Amortization of deferred acquisition costs in the first six months of 20182019 was $754$230 million, $51$10 million or 7%5% higher than in the same period of 2017.2018. The increases in both periods of 2019 were generally consistent with the increases in earned premiums.
General and Administrative Expenses
General and administrative expenses in the second quarter of 2019 were $120 million, $4 million or 3% higher than in the same period of 2018. General and administrative expenses in the first six months of 2019 were $237 million, $6 million or 3% higher than in the same period of 2018. The increases in both periods of 2019 primarily reflected the impact of higher business volumes.
Income Tax Expense
Income tax expense in the second quarter of 2019 was $46 million, $9 million or 16% lower than in the same period of 2018, primarily reflecting the impact of the $39 million decrease in segment income before income taxes in the second quarter of 2019. Income tax expense in the first six months of 2019 was $81 million, $9 million or 10% lower than in the same period of 2018, primarily reflecting the impact of the $74 million decrease in segment income before income taxes in the first six months of 2019, partially offset by the impact of lower tax expense in the first six months of 2018 due to a reduction in the liability for uncertain tax positions.
Combined Ratio
The combined ratio of 74.9% in the second quarter of 2019 was 8.4 points higher than the combined ratio of 66.5% in the same period of 2018. The loss and loss adjustment expense ratio of 37.4% in the second quarter of 2019 was 8.6 points higher than the loss and loss adjustment expense ratio of 28.8% in the same period of 2018. The underwriting expense ratio of 37.5% in the second quarter of 2019 was 0.2 points lower than the underwriting expense ratio of 37.7% in the same period of 2018.
Net favorable prior year reserve development in the second quarters of 2019 and 2018 provided 6.2 points and 14.8 points of benefit, respectively, to the combined ratio. Catastrophe losses in the second quarters of 2019 and 2018 accounted for 0.1 points and 0.8 points, respectively, of the combined ratio. The underlying combined ratio in the second quarter of 2019 was 0.5 points higher than the 2018 ratio on the same basis.
The combined ratio of 77.9% in the first six months of 2019 was 7.4 points higher than the combined ratio of 70.5% in the same period of 2018. The loss and loss adjustment expense ratio of 40.3% in the first six months of 2019 was 7.7 points higher than the loss and loss adjustment expense ratio of 32.6% in the same period of 2018. The underwriting expense ratio of 37.6% in the first six months of 2019 was 0.3 points lower than the underwriting expense ratio of 37.9% in the same period of 2018.
Net favorable prior year reserve development in the first six months of 2019 and 2018 provided 3.4 points and 10.5 points of benefit, respectively, to the combined ratio. Catastrophe losses in the first six months of 2019 and 2018 accounted for 0.2 points
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
and 0.4 points, respectively, of the combined ratio. The underlying combined ratio in the first six months of 2019 was 0.5 points higher than the 2018 ratio on the same basis.
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) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Domestic: | | |
| | |
| | |
| | |
|
Management Liability | | $ | 432 |
| | $ | 378 |
| | $ | 821 |
| | $ | 742 |
|
Surety | | 251 |
| | 240 |
| | 473 |
| | 458 |
|
Total Domestic | | 683 |
| | 618 |
| | 1,294 |
| | 1,200 |
|
International | | 64 |
| | 56 |
| | 115 |
| | 112 |
|
Total Bond & Specialty Insurance | | $ | 747 |
| | $ | 674 |
| | $ | 1,409 |
| | $ | 1,312 |
|
|
| | | | | | | | | | | | | | | | |
| | Net Written Premiums |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Domestic: | | |
| | |
| | |
| | |
|
Management Liability | | $ | 403 |
| | $ | 362 |
| | $ | 770 |
| | $ | 710 |
|
Surety | | 244 |
| | 235 |
| | 428 |
| | 420 |
|
Total Domestic | | 647 |
| | 597 |
| | 1,198 |
| | 1,130 |
|
International | | 63 |
| | 56 |
| | 99 |
| | 97 |
|
Total Bond & Specialty Insurance | | $ | 710 |
| | $ | 653 |
| | $ | 1,297 |
| | $ | 1,227 |
|
Gross and net written premiums in the second quarter of 2019 increased by 11% and 9%, respectively, over the same period of 2018. Gross written premiums in the first six months of 2019 increased by 7% over the same period of 2018. Net written premiums increased at a lower rate of 6% in the first six months of 2019, reflecting higher ceded written premiums for several reinsurance treaties, including those related to the new catastrophe reinsurance treaty.
Domestic. Net written premiums of $647 million and $1.20 billion in the second quarter and first six months of 2019, respectively, increased by 8% and 6%, respectively, over the same periods of 2018. 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 2019. Renewal premium changes in the second quarter and first six months of 2019 remained positive and were comparable with the same periods of 2018. New business premiums in the second quarter and first six months of 2019 increased over the same periods of 2018.
International. Net written premiums of $63 million and $99 million in the second quarter and first six months of 2019, respectively, increased by 13% and 2%, respectively, over the same periods of 2018. The increases in both periods of 2019 were primarily driven by increases in Canada and the United Kingdom, partially offset by the impact of changes in foreign currency exchange rates.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Personal Insurance
Results of Personal Insurance were as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Revenues | | |
| | |
| | |
| | |
|
Earned premiums | | $ | 2,573 |
| | $ | 2,453 |
| | $ | 5,080 |
| | $ | 4,840 |
|
Net investment income | | 109 |
| | 98 |
| | 208 |
| | 197 |
|
Fee income | | 5 |
| | 5 |
| | 10 |
| | 9 |
|
Other revenues | | 21 |
| | 14 |
| | 43 |
| | 31 |
|
Total revenues | | 2,708 |
| | 2,570 |
| | 5,341 |
| | 5,077 |
|
| | | | | | | | |
Total claims and expenses | | 2,606 |
| | 2,599 |
| | 4,892 |
| | 4,949 |
|
| | | | | | | | |
Segment income (loss) before income taxes | | 102 |
| | (29 | ) | | 449 |
| | 128 |
|
Income tax expense (benefit) | | 14 |
| | (12 | ) | | 83 |
| | 16 |
|
Segment income (loss) | | $ | 88 |
| | $ | (17 | ) | | $ | 366 |
| | $ | 112 |
|
| | | | | | | | |
Loss and loss adjustment expense ratio | | 73.7 | % | | 77.6 | % | | 68.8 | % | | 74.2 | % |
Underwriting expense ratio | | 26.5 |
| | 27.3 |
| | 26.4 |
| | 27.1 |
|
Combined ratio | | 100.2 | % | | 104.9 | % | | 95.2 | % | | 101.3 | % |
Overview
Segment income in the second quarter of 2019 was $88 million, compared with a segment loss of $(17) million in the same period of 2018, primarily reflecting the pre-tax impacts of (i) lower catastrophe losses and (ii) higher net investment income, partially offset by (iii) lower underlying underwriting margins. Catastrophe losses in the second quarters of 2019 and 2018 were generally$156 million and $315 million, respectively. Net favorable prior year reserve development in each of the second quarters of 2019 and 2018 was $13 million. The lower underlying underwriting margins primarily resulted from the impacts of (i) higher non-catastrophe weather-related losses in Agency Homeowners and Other and (ii) the impact on earned premiums related to the Company's new catastrophe reinsurance treaty, mostly impacting Agency Homeowners and Other, partially offset by (iii) earned pricing that exceeded loss cost trends in Agency Automobile and (iv) higher business volumes. The segment incurred income tax expense in the second quarter of 2019 compared to an income tax benefit in the same period of 2018.
Segment income in the first six months of 2019 was $366 million, $254 million higher than segment income of $112 million in the same period of 2018. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) lower catastrophe losses and (ii) higher net favorable prior year reserve development. Catastrophe losses in the first six months of 2019 and 2018 were $251 million and $531 million, respectively. Net favorable prior year reserve development in the first six months of 2019 and 2018 was $82 million and $62 million, respectively. Income tax expense in the first six months of 2019 was higher than in the same period of 2018, primarily reflecting the impact of the increase in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in the second quarter of 2019 were $2.57 billion, $120 million or 5% higher than in the same period of 2018. Earned premiums in the first six months of 2019 were $5.08 billion, $240 million or 5% higher than in the same period of 2018. The increases in both periods of 2019 primarily reflected the increase in net written premiums over the preceding twelve months. The increases in earned premiums in both periods of 2019 were reduced by the earned impact of the new catastrophe reinsurance treaty.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Net Investment Income
Net investment income in the second quarter of 2019 was $109 million, $11 million or 11% higher than in the same period of 2018. Net investment income in the first six months of 2019 was $208 million, $11 million or 6% higher than in the same period of 2018. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the increase in the Company’s consolidated net investment income in the second quarter and first six months of 2019 compared with the same periods of 2018. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 2018 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 2019 and 2018 primarily consisted of installment premium charges.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the second quarter of 2019 were $1.90 billion, comparable with the same period of 2018, primarily reflecting the impacts of (i) higher non-catastrophe weather-related losses in Agency Homeowners and Other, (ii) higher business volumes and (iii) loss cost trends, largely offset by (iv) lower catastrophe losses.
Claims and claim adjustment expenses in the first six months of 2019 were $3.49 billion, $98 million or 3% lower than in the same period of 2018, primarily reflecting the impacts of (i) lower catastrophe losses and (ii) higher net favorable prior year reserve development, partially offset by (iii) higher non-catastrophe weather-related losses in Agency Homeowners and Other, (iv) higher business volumes and (v) loss cost trends.
Factors contributing to net favorable prior year reserve development during the first six months of 2019 and 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 2019 was $398 million, $18 million or 5% higher than in the same period of 2018. Amortization of deferred acquisition costs in the first six months of 2019 was $788 million, $34 million or 5% higher than in the same period of 2018. The increases in both periods of 2019 were consistent with the increases in earned premiums.
General and Administrative Expenses
General and administrative expenses in the second quarter of 20182019 were $316$311 million, $31$5 million or 11% higher2% lower than in the same period of 2017.2018. General and administrative expenses in the first six months of 20182019 were $604$611 million, $54$7 million or 10%1% 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.2018.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Income Tax Expense (Benefit)
The incomeIncome tax benefitexpense in the second quarter of 20182019 was $12$14 million, $1 million or 8% lower than thecompared with an income tax benefit of $(12) million in the same period of 2017,2018, 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$131 million increase in the segment income (loss) before income taxes. Income tax expense in the first six months of 20182019 was $16$83 million, compared to no income tax expense or benefit$67 million higher than in the same period of 2017, as2018, primarily reflecting the impactsimpact of (i) the $27$321 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.taxes.
Combined Ratio
The combined ratio of 104.9%100.2% in the second quarter of 20182019 was 0.84.7 points higherlower than the combined ratio of 104.1%104.9% in the same period of 2017.2018. The loss and loss adjustment expense ratio of 73.7% in the second quarter of 2019 was 3.9 points lower than the loss and loss adjustment expense ratio of 77.6% in the same period of 2018. The underwriting expense ratio of 26.5% for the second quarter of 20182019 was 0.8 points higherlower than the loss and loss adjustmentunderwriting expense ratio of 76.8%27.3% 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 2017.2018.
Catastrophe losses in the second quarters of 20182019 and 20172018 accounted for 12.86.1 points and 9.612.8 points, respectively, of the combined ratio. Net favorable prior year reserve development in each of the second quarterquarters of 2019 and 2018 provided 0.5 points of benefit to the combined ratio. The underlying combined ratio in the second quarter of 20182019 was 1.92.0 points lowerhigher than the 20172018 ratio on the same basis, primarily reflecting (i) higher non-catastrophe weather-related losses in Agency Homeowners and Other and (ii) the impactsimpact on earned premiums related to the new catastrophe reinsurance treaty, mostly impacting Agency Homeowners and
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Other, partially offset by the impact of (iii) 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.(iv) a lower underwriting expense ratio.
The combined ratio of 101.3%95.2% in the first six months of 20182019 was 0.66.1 points lower than the combined ratio of 101.9%101.3% in the same period of 2017.2018. The loss and loss adjustment expense ratio of 74.2%68.8% in the first six months of 20182019 was 0.75.4 points lower than the loss and loss adjustment expense ratio of 74.9%74.2% in the same period of 2017.2018. The underwriting expense ratio of 26.4% in the first six months of 2019 was 0.7 points lower than 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 2017.2018.
Catastrophe losses in the first six months of 20182019 and 20172018 accounted for 11.04.9 points and 9.711.0 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first six months of 2019 and 2018 and 2017 provided 1.31.6 points and 0.21.3 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first six months of 20182019 was 0.8%0.3 points lowerhigher than the 20172018 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.basis.
Written Premiums
Personal Insurance’s gross and net written premiums were as follows:
| | | | Gross Written Premiums | | Gross Written Premiums |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Domestic: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Agency: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Automobile | | $ | 1,265 |
| | $ | 1,164 |
| | $ | 2,457 |
| | $ | 2,258 |
| | $ | 1,304 |
| | $ | 1,265 |
| | $ | 2,544 |
| | $ | 2,457 |
|
Homeowners and Other | | 1,148 |
| | 1,085 |
| | 2,021 |
| | 1,920 |
| | 1,268 |
| | 1,148 |
| | 2,222 |
| | 2,021 |
|
Total Agency | | 2,413 |
| | 2,249 |
| | 4,478 |
| | 4,178 |
| | 2,572 |
| | 2,413 |
| | 4,766 |
| | 4,478 |
|
Direct-to-Consumer | | 98 |
| | 88 |
| | 191 |
| | 171 |
| | 103 |
| | 98 |
| | 201 |
| | 191 |
|
Total Domestic | | 2,511 |
| | 2,337 |
| | 4,669 |
| | 4,349 |
| | 2,675 |
| | 2,511 |
| | 4,967 |
| | 4,669 |
|
International | | 206 |
| | 176 |
| | 357 |
| | 310 |
| | 209 |
| | 206 |
| | 364 |
| | 357 |
|
Total Personal Insurance | | $ | 2,717 |
| | $ | 2,513 |
| | $ | 5,026 |
| | $ | 4,659 |
| | $ | 2,884 |
| | $ | 2,717 |
| | $ | 5,331 |
| | $ | 5,026 |
|
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
| | | | Net Written Premiums | | Net Written Premiums |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Domestic: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Agency: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Automobile | | $ | 1,258 |
| | $ | 1,159 |
| | $ | 2,441 |
| | $ | 2,246 |
| | $ | 1,300 |
| | $ | 1,258 |
| | $ | 2,524 |
| | $ | 2,441 |
|
Homeowners and Other | | 1,137 |
| | 1,077 |
| | 1,969 |
| | 1,871 |
| | 1,258 |
| | 1,137 |
| | 2,095 |
| | 1,969 |
|
Total Agency | | 2,395 |
| | 2,236 |
| | 4,410 |
| | 4,117 |
| | 2,558 |
| | 2,395 |
| | 4,619 |
| | 4,410 |
|
Direct-to-Consumer | | 99 |
| | 88 |
| | 191 |
| | 171 |
| | 103 |
| | 99 |
| | 198 |
| | 191 |
|
Total Domestic | | 2,494 |
| | 2,324 |
| | 4,601 |
| | 4,288 |
| | 2,661 |
| | 2,494 |
| | 4,817 |
| | 4,601 |
|
International | | 203 |
| | 174 |
| | 352 |
| | 306 |
| | 205 |
| | 203 |
| | 356 |
| | 352 |
|
Total Personal Insurance | | $ | 2,697 |
| | $ | 2,498 |
| | $ | 4,953 |
| | $ | 4,594 |
| | $ | 2,866 |
| | $ | 2,697 |
| | $ | 5,173 |
| | $ | 4,953 |
|
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 20182019 both increased by 7% over the same periodsperiod of 2017.2018. Domestic Agency gross written premiums in the first six months of 2019 increased by 6% over the same period of 2018.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Domestic Agency net written premiums increased at a lower rate of 5% in the first six months of 2019, primarily reflecting the impact of the new catastrophe reinsurance treaty entered into in the first quarter of 2019.
Domestic Agency Automobile net written premiums of $1.26$1.30 billion and $2.44$2.52 billion in the second quarter and first six months of 2018,2019, respectively, both increased by 9%3% over the same periods of 2017.2018. Net written premiums in the first six months of 2019 were reduced by the new catastrophe reinsurance treaty. Business retention rates remained strong in the second quarter and first six months of 2018.2019. Renewal premium changes in the second quarter and first six months of 20182019 remained positive andbut were higherlower than in the same periods of 2017.2018. New business premiums in the second quarter and first six months of 2018 decreased from2019 increased over the same periods of 2017.2018.
Domestic Agency Homeowners and Other net written premiums of $1.14$1.26 billion and $1.97$2.10 billion in the second quarter and first six months of 2018,2019, respectively, increased by 6%11% and 5%6%, respectively, over the same periods of 2017.2018. Net written premiums in the first six months of 2019 were reduced by the new catastrophe reinsurance treaty. Business retention rates remained strong in the second quarter and first six months of 2018.2019. Renewal premium changes in the second quarter and first six months of 20182019 remained positive and were higher than in the same periods of 2017.2018. New business premiums in the second quarter and first six months of 20182019 increased over the same periods of 2017.2018.
For its Domestic Agency business, the Personal Insurance segment had approximately 7.07.3 million and 6.87.0 million active policies at June 30, 20182019 and 2017,2018, respectively.
Direct-to-Consumer and International Written Premiums
Direct-to-Consumer net written premiums of $99$103 million and $191$198 million in the second quarter and first six months of 2018,2019, respectively, both increased by 13% and 12%, respectively,4% over the same periods of 2017,2018, primarily reflecting growth in automobile nethomeowners and other. Net written premiums due to positive renewal premium changes.in the first six months of 2019 were reduced by the new catastrophe reinsurance treaty.
International net written premiums of $203$205 million and $352$356 million in the second quarter and first six months of 2018,2019, respectively, both increased by 17% and 15%, respectively,1% over the same periods of 2017,2018, primarily driven by growth in automobile net written premiums, andpartially offset by the impact of changes in foreign currency exchange rates.
For its international and direct-to-consumer business, Personal Insurance had approximately 895,000901,000 and 867,000895,000 active policies at June 30, 20182019 and 2017,2018, 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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Income (loss) | | $ | (78 | ) | | $ | (61 | ) | | $ | (154 | ) | | (123 | ) | | $ | (76 | ) | | $ | (78 | ) | | $ | (151 | ) | | $ | (154 | ) |
The Income (loss) for Interest Expense and Other in the second quarters of 2019 and 2018 was $(76) million and 2017 was $(78) million, respectively. Pre-tax interest expense in the second quarters of 2019 and $(61)2018 was $89 million and $90 million respectively. After-tax interest expense in the second quarters of 2019 and 2018 was $70 million and $71 million, respectively. The Income (loss) for Interest Expense and Other in the first six months of 2019 and 2018 and 2017 was $(154)$(151) million and $(123) million, respectively. Pre-tax interest expense in the second quarters of 2018 and 2017 was $90 million and $92$(154) million, respectively. Pre-tax interest expense in the first six months of 2019 and 2018 and 2017 was $179$177 million and $181 million, respectively. After-tax interest expense in the second quarters of 2018 and 2017 was $71 million and $60$179 million, respectively. After-tax interest expense in the first six months of 2019 and 2018 was $140 million and 2017 was $141 million, and $118 million, respectively. The increase in after-tax interest expense in both periods
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
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).claims. 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 coveragedisputes, including litigation, concerningwith a number of policyholders, some of whom have filedare in bankruptcy over coverage 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 whereAlthough the Company has seen a court may not approve a proposed settlement, which may resultreduction in additional litigation and potentially less beneficial outcomes for the Company.overall risk associated with these disputes, it remains difficult to predict the ultimate cost of these claims. 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.
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; the 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.
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 Officehome office and Field Office,field office category and Assumed Reinsurancethe assumed reinsurance and Other categoriesother category 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
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
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 2019 and 2018 and 2017 were $98$102 million and $139$98 million, respectively. Net asbestos reserves were $1.18 billion at both June 30, 2018, compared with $1.19 billion at2019 and June 30, 2017.2018.
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 | | 2019 | | 2018 |
Beginning reserves: | | |
| | |
| | |
| | |
|
Gross | | $ | 1,538 |
| | $ | 1,512 |
| | $ | 1,608 |
| | $ | 1,538 |
|
Ceded | | (257 | ) | | (186 | ) | | (327 | ) | | (257 | ) |
Net | | 1,281 |
| | 1,326 |
| | 1,281 |
| | 1,281 |
|
| | | | | | | | |
Incurred losses and loss expenses: | | |
| | |
| | |
| | |
|
Gross | | — |
| | — |
| | — |
| | — |
|
Ceded | | — |
| | — |
| | — |
| | — |
|
Net | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | |
Paid loss and loss expenses: | | |
| | |
| | |
| | |
|
Gross | | 130 |
| | 166 |
| | 134 |
| | 130 |
|
Ceded | | (32 | ) | | (27 | ) | | (32 | ) | | (32 | ) |
Net | | 98 |
| | 139 |
| | 102 |
| | 98 |
|
| | | | | | | | |
Foreign exchange and other: | | |
| | |
| | |
| | |
|
Gross | | — |
| | 1 |
| | — |
| | — |
|
Ceded | | — |
| | — |
| | — |
| | — |
|
Net | | — |
| | 1 |
| | — |
| | — |
|
| | | | | | | | |
Ending reserves: | | |
| | |
| | |
| | |
|
Gross | | 1,408 |
| | 1,347 |
| | 1,474 |
| | 1,408 |
|
Ceded | | (225 | ) | | (159 | ) | | (295 | ) | | (225 | ) |
Net | | $ | 1,183 |
| | $ | 1,188 |
| | $ | 1,179 |
| | $ | 1,183 |
|
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, theseThese claims are duemainly brought pursuant to various legislative as well as regulatory efforts aimed atstate or federal statutes that require a liable party to undertake or pay for 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 CERCLAthese statutes may be joint and several with other responsible parties.
The Company has also 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
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
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 only extinguish any liability arising from known specified sites or claims. Where appropriate,In many instances, 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 hasas well as the costs associated with coverage litigation on environmental matters have 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$60 million and $65$55 million in the second quarters of 20182019 and 2017,2018, respectively.
Net environmental paid loss and loss expenses in the first six months of 2019 and 2018 and 2017 were $26$35 million and $37$26 million, respectively. At June 30, 2018,2019, approximately 95% of the net environmental reserve (approximately $367$342 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$17 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 | | 2019 | | 2018 |
Beginning reserves: | | |
| | |
| | |
| | |
|
Gross | | $ | 373 |
| | $ | 395 |
| | $ | 358 |
| | $ | 373 |
|
Ceded | | (13 | ) | | (13 | ) | | (24 | ) | | (13 | ) |
Net | | 360 |
| | 382 |
| | 334 |
| | 360 |
|
| | | | | | | | |
Incurred losses and loss expenses: | | |
| | |
| | |
| | |
|
Gross | | 71 |
| | 74 |
| | 67 |
| | 71 |
|
Ceded | | (16 | ) | | (9 | ) | | (7 | ) | | (16 | ) |
Net | | 55 |
| | 65 |
| | 60 |
| | 55 |
|
| | | | | | | | |
Paid loss and loss expenses: | | |
| | |
| | |
| | |
|
Gross | | 30 |
| | 39 |
| | 36 |
| | 30 |
|
Ceded | | (4 | ) | | (2 | ) | | (1 | ) | | (4 | ) |
Net | | 26 |
| | 37 |
| | 35 |
| | 26 |
|
| | | | | | | | |
Foreign exchange and other: | | |
| | |
| | |
| | |
|
Gross | | (1 | ) | | 1 |
| | (1 | ) | | (1 | ) |
Ceded | | — |
| | — |
| | 1 |
| | — |
|
Net | | (1 | ) | | 1 |
| | — |
| | (1 | ) |
| | | | | | | | |
Ending reserves: | | |
| | |
| | |
| | |
|
Gross | | 413 |
| | 431 |
| | 388 |
| | 413 |
|
Ceded | | (25 | ) | | (20 | ) | | (29 | ) | | (25 | ) |
Net | | $ | 388 |
| | $ | 411 |
| | $ | 359 |
| | $ | 388 |
|
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 decreaseChanges in the cost toresolve, and/orlegal, regulatory and legislative environment may impact the resolution of asbestos and environmental claims and result in adverse loss reserve development. The emergence of a greater number of asbestos andor environmental claims beyond that which is anticipated the emergence of a greater number of asbestos claims than anticipated as amay 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 changesadverse loss reserve development. 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 could affect the settlement of asbestos and environmental 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.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
INVESTMENT PORTFOLIO
The Company’s invested assets at June 30, 20182019 were $71.16$75.50 billion, of which 93%94% was invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate investments and 5%4% 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, 20182019 was $62.54$67.17 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, 20182019 and December 31, 2017.2018. Below investment grade securities represented 2.7%2.3% of the total fixed maturity investment portfolio at both June 30, 20182019 and December 31, 2017.2018. The weighted average effective duration of fixed maturities and short-term securities was 4.5 (4.84.2 (4.4 excluding short-term securities) at June 30, 20182019 and 4.0 (4.34.5 (4.7 excluding short-term securities) at December 31, 2017.2018.
Obligations of States, Municipalities and Political Subdivisions
The Company’s fixed maturity investment portfolio at June 30, 20182019 and December 31, 20172018 included $28.93$29.73 billion and $30.92$28.61 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, 20182019 and December 31, 20172018 were $3.54$2.33 billion and $3.90$2.85 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”"Aaa/Aa1" at both June 30, 20182019 and December 31, 2017.2018.
Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities
The Company’s fixed maturity investment portfolio at June 30, 20182019 and December 31, 20172018 included $2.52$2.93 billion and $2.41$2.57 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, 20182019 and December 31, 20172018 were $748 million$1.18 billion and $804$859 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$1.74 billion and $1.61$1.71 billion at June 30, 20182019 and December 31, 2017,2018, respectively. Approximately 51% and 55%52% of the Company’s CMO holdings at June 30, 20182019 and December 31, 2017,2018, respectively, were guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC. The weighted average credit rating of the $874$854 million and $717$828 million of non-guaranteed CMO holdings was “Aa3” at both June 30, 20182019 and “A1” at December 31, 2017.2018 was "Aa1." The weighted average credit rating of all of the above securities was “Aa1”"Aaa/Aa1" at both June 30, 20182019 and December 31, 2017.2018. 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 20172018 Annual Report.
Equity Securities, Real Estate and Short-Term Investments
See note 1 of notes to the consolidated financial statements in the Company’s 20172018 Annual Report for further information about these invested asset classes.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
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, 20182019 and December 31, 2017,2018, the carrying value of the Company’s other investments was $3.56$3.47 billion and $3.53$3.56 billion, respectively.
CATASTROPHE REINSURANCE COVERAGE
The Company’sCompany's catastrophe reinsurance coverage is discussed in the “Catastrophe Reinsurance”"Catastrophe Reinsurance" section of “Part"Part I - Item 1 - Business”Business" in the Company’s 2017Company's 2018 Annual Report. Except as discussed below, there have been no material changes to the Company’sCompany's catastrophe reinsurance coverage from that reported in the Company’s 2017Company's 2018 Annual Report.
Catastrophe Bonds. The Company has catastrophe protection through anWith respect to the Company’s 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 bewere reset as required annually to adjust the expected loss of the layer within a predetermined range. For the period May 25, 20182019 through and including May 24, 2019,2020, the Company will be entitled to begin recovering amounts under thethis reinsurance agreement if the covered losses in the covered area for a single occurrence reach an initial attachment amount of $1.9$1.79 billion. The full $500 million coverage amount is available until such covered losses reach a maximum $2.4$2.29 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.Treaties. Catastrophe reinsurance treaties that renewed on July 1, 20182019 were as follows:
| |
• | Northeast Property Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides up to $600 million part of $850 million of coverage, subject to a $2.25 billion retention (i.e. for every dollar of loss between $2.25 billion and $3.10 billion this treaty provides 71 cents of coverage), 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, 2019 through and including June 30, 2020. Losses from a covered event anywhere in the United States, Canada, the Caribbean and Mexico 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 $225 million part of $250 million of coverage, subject to a $100 million retention (i.e. for every dollar of loss between $100 million and $350 million this treaty provides 90 cents of coverage), 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 Business Insurance for the period July 1, 2019 through and including June 30, 2020. |
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
| |
• | Canadian Property Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides coverage for 50% of losses in excess of C$100 million (US$76 million at June 30, 2019), up to C$200 million (US$153 million at June 30, 2019) and for 100% of losses in excess of C$200 million (US$153 million at June 30, 2019), up to C$600 million (US$458 million at June 30, 2019) for the accumulation of net property losses arising out of one occurrence on business written by the Company’s Canadian businesses for the period July 1, 2019 through and including June 30, 2020. 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. |
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 20172018 Annual Report.
The following table summarizes the composition of the Company’s reinsurance recoverables:
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
| | (in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses | | $ | 3,284 |
| | $ | 3,303 |
| | $ | 3,410 |
| | $ | 3,485 |
|
Allowance for uncollectible reinsurance | | (109 | ) | | (111 | ) | | (107 | ) | | (110 | ) |
Net reinsurance recoverables | | 3,175 |
| | 3,192 |
| | 3,303 |
| | 3,375 |
|
Mandatory pools and associations | | 2,021 |
| | 2,011 |
| | 1,959 |
| | 2,005 |
|
Structured settlements | | 3,062 |
| | 3,106 |
| | 2,972 |
| | 2,990 |
|
Total reinsurance recoverables | | $ | 8,258 |
| | $ | 8,309 |
| | $ | 8,234 |
| | $ | 8,370 |
|
Net reinsurance recoverables at June 30, 2019 decreased by $17$72 million from December 31, 2017.2018, primarily reflecting the impacts of cash collections in the first six months of 2019.
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 20182019 and into 2019.2020. In Business Insurance, the Company expects that domestic renewal premium changes during the remainder of 20182019 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 2017,2018, and that domestic renewal premium changes into 20192020 will remain positive and will be broadly consistent withslightly higher than the levels attained in the same period of 2018.2019. In Bond & Specialty Insurance, the Company expects that renewal premium changes with respect to domestic management liability business during the remainder of 2019 will remain positive and will be higher than the levels attained in the same period of 2018, and that domestic renewal premium changes into 20192020 will remain positive and will be broadly consistent with the levels attained in the same periodsperiod 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 2018.2019. In Personal Insurance, the Company expects that domestic Agency AutoAutomobile renewal premium changes during the remainder of 20182019 and into 20192020 will remain positive but will be lower than the levels attained in the same periods of 20172018 and 2018.2019. The Company expects that domestic Agency Homeowners and Other renewal premium changes during the remainder of 20182019 and into 20192020 will remain positive and will be slightly higher than the levels attained in the same periods of 20172018 and 2018.2019. The need for state regulatory approval for changes to personal and many commercial property and casualty insurance prices, as well as competitive market conditions, may impact the timing and extent of renewal premium changes. With regard to the Company's international business, the Company expects that renewal premium changes during the remainder of 2019 in aggregate will remain positive and will be higher than the levels attained in the same period of 2018, and that renewal premium changes into 2020 in aggregate will remain positive and will be broadly consistent with the levels attained in the same period of 2019. 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 2018can be more volatile 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.therefore difficult to predict.
Property and casualty insurance market conditions are expected to remain competitive during the remainder of 20182019 and into 20192020 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.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Economic conditions in the United States and elsewhere could change, due to a variety of factors, including the political and regulatory environment, changes to fiscal stimulus programs, inflation or deflation (including the U.S. Federal budget,impact of rapid changes in wages and/or commodity prices), the imposition of tariffs or other barriers to international trade, further changesfluctuations in U.S. tax laws, the repeal, replacement or modificationinterest rates and foreign currency exchange rates, high levels of the Affordable Care Act,global debt after an extended period of low interest rates, the United Kingdom’s withdrawal from the European Union, rapida shutdown of the U.S. government, the failure by the U.S. government to raise the debt ceiling, changes to the U.S. Federal budget and further potential changes in commodity prices and fluctuationstax laws in interest rates and foreign currency exchange rates.the United States or modification of the Affordable Care Act. 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 20182019 and into 2019,2020, 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. Underlying underwriting margins can be impacted by a number of factors, including variability in non-catastrophe weather, large loss and other loss activity; changes in current period loss estimates resulting from prior period loss development; changes in business mix; changes in reinsurance coverages and/or costs; premium adjustments; and variability in expenses and assessments.
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 or lower inflation than the Company had anticipated, which could in turn lead to an increase or decrease in the Company’s loss costs and the need to strengthen or reduce 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 20172018 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 20182019 and into 20192020 in aggregate will be higher than in the same periods of 20172018 and 2018,2019, and the underlying combined ratio during the remainder of 20182019 and into 20192020 in aggregate will be lower than in the same periods of 20172018 and 2018,2019, assuming improved results in the Company's international business and lower (andand more normalized)normal levels of non-catastrophe weather-related losses and otherlosses. The outlook for Business Insurance also reflects the timing impact of higher loss activity.estimates in the commercial automobile product line that were recognized in the fourth quarter of 2018.
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 thanduring the remainder of 2019 and into 2020 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 2019aggregate will be broadly consistent with the same periodperiods of 2018.2018 and 2019.
In Personal Insurance, the Company expects underlying underwriting margins during the remainder of 20182019 and into 20192020 in aggregate will be higher than in the same periods of 20172018 and 2018,2019, and the underlying combined ratio during the remainder of 20182019 and into 20192020 in aggregate will be lower than in the same periods of 20172018 and 2018.2019, assuming non-catastrophe weather-related losses return to lower and more normal levels. In Agency Automobile, with the exception of the fourth quarter of 2019, the Company expects that underlying underwriting margins and the underlying combined ratio will improve during the remainder of 2018 compared2019 and into 2020 in aggregate will be broadly consistent with the same periodperiods of 2017, reflecting actions taken to improve profitability,2018 and 2019. In the fourth quarter of 2019, the
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Company expects that the underlying underwriting margins into 2019in Agency Automobile will be slightly higherlower and the underlying combined ratio will be broadly consistent withhigher than in the same period of 2018 due to a low level of loss activity in the fourth quarter of 2018. In Agency Homeowners and Other, the Company expects that underlying underwriting margins during the remainder of 2019 and into 2020 in aggregate will be higher than in the same periods of 2018 and 2019, and the underlying combined ratio will be broadly consistent during the remainder of 20182019 and into 2019 with2020 in aggregate will be lower than in the same periods of 20172018 and 2018,2019, assuming normal levels of non-catastrophe weather-related losses return to lower and other loss activity.more normal levels.
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 (4.84.2 (4.4 excluding short-term securities) at June 30, 2018.2019. 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, 2018,2019, the Company had $100 million notional value ofno 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 equity securities, real estate, private equity limited partnerships, real estate,hedge funds, and real estate partnerships and joint ventures, equity securities and hedge funds.ventures. 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 income investments (fixed maturity investments and (ii) higher short-term investment yields and (iii) slightly higherinvestments), partially offset by expected lower reinvestment yields on fixed maturityincome investments, the Company expects that during the remainder of 2018,2019 after-tax net investment income from the fixed maturity and short-term investmentthose portfolios will be approximately $55$10 million to $60$15 million higher on a quarterly basis as compared to the corresponding quarters of 2017. Additionally, based on both periods being subject to2018. For the lower U.S. corporate income tax rate and the impactsfirst two quarters 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 2019,2020, after-tax net investment income from the fixed maturity and short-term investmentthose portfolios will be approximately $20 million to $25 million higherbroadly consistent on a quarterly basis as compared to the corresponding quarters of 2018.2019. The impact of future market conditions on net investment income from the Company's remaining investment portfolios during the remainder of 20182019 and into 20192020 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). compared with the same periods of 2018 and 2019.
The Company had a net pre-tax unrealized investment lossgain of $138 million$2.39 billion ($114 million1.88 billion 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 2018.2019. 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 The Company's investment portfolio has benefited from certain tax exemptions (primarily those related to updated FASB guidanceinterest from municipal bonds) and beginning January 1, 2018,certain other tax laws, including, but not limited to, those governing dividends-received deductions and tax credits (such as foreign tax credits). Changes in these laws could adversely impact 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 investment portfolio. See "Changes in U.S. tax laws or in the tax laws of other jurisdictions in which we operate could adversely impact us" included in “Part I—Item 1A—Risk Factors” in 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.Annual Report.
For further discussion of the Company’s investment portfolio, see “Investment Portfolio” herein.Portfolio.” 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 or low returns or material realized or unrealized losses” included in “Part I—Item 1A—Risk Factors” in the Company’s 20172018 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 20172018 Annual Report and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate Risk” in the Company’s 20172018 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, changes in levels of written premiums,
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
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 2018,2019, 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.rates (including with respect to the valuation of the Company's foreign investments and interests in joint ventures). 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 20172018 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 20172018 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 20172018 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, 2018,2019, TRV held total cash and short-term invested assets in the United States aggregating $1.44$1.46 billion and having a weighted average maturity of 5047 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$1.19 billion). TRV’s holding company liquidity of $1.44$1.46 billion at June 30, 20182019 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, 2018.2019.
TRV has a shelf registration statement filed with the Securities and Exchange Commission (SEC) that expires on June 17, 201910, 2022 which permits it to issue securities from time to time. On June 4, 2018, the Company entered intoTRV also has a five-year, $1.0 billion revolvingline of credit agreementfacility with a syndicate of financial institutions replacing its five-year $1.0 billion credit agreement that was due to expireexpires on June 7, 2018. For additional information regarding terms and covenants in this revolving credit agreement, see note 84, 2023. At June 30, 2019, the Company had $100 million of notescommercial paper outstanding. TRV is not reliant on its commercial paper program to the unaudited consolidated financial statements in this report.meet its operating cash flow needs.
The Company utilized uncollateralized letters of credit issued by major banks with an aggregate limit of approximately $343$338 million to provide a portion of the capital needed to support its obligations at Lloyd’s at June 30, 2018.2019. 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.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Operating Activities
Net cash provided by operating activities in the first six months of 2019 and 2018 and 2017 was $1.70$1.79 billion and $1.75$1.70 billion, respectively. The slight decreaseincrease in cash flows in the first six months of 20182019 primarily reflected higher levels of cash received for (i) premiums and (ii) net investment income, partially offset by the impacts of higher levels of payments for (i)(iii) claims and claim adjustment expenses, and (ii)(iv) commission expenses partially offset by (iii) higher levels of collected premiums and (iv) lower(v) 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.taxes.
Investing Activities
Net cash used in investing activities in the first six months of 2019 and 2018 was $701 million and 2017 was $457 million, and $1.19 billion, respectively. The Company’s consolidated total investments at June 30, 2018 decreased2019 increased by $1.34$3.22 billion, or 2% from4% over year-end 2017,2018, primarily reflecting the impacts of (i) net unrealized lossesgains on investments at June 30, 20182019 as compared towith net unrealized gainslosses on investments at December 31, 20172018, as a result of increasesdecreases in market interest rates induring the first six months of 2018,2019 and (ii) common share repurchases and (iii) dividends paid to shareholders, partially offset by (iv) net cash flows provided by operating activities.activities, partially offset by (iii) common share repurchases and (iv) dividends paid to shareholders.
Financing Activities
Net cash used in financing activities in the first six months of 2019 and 2018 was $1.05 billion and 2017 was $1.17 billion, and $550 million, respectively. The totals in both periods primarily reflected common share repurchases, the payment of debt and 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 2019 and 2018 and 2017 were $751$797 million and $761$751 million, respectively.
Dividends. Dividends paid to shareholders were $404$419 million and $389$404 million in the first six months of 20182019 and 2017,2018, 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, 2018,23, 2019, the Company announced that it declared a regular quarterly dividend of $0.77$0.82 per share, payable September 28, 201830, 2019 to shareholders of record on September 10, 2018.2019.
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 (including mergers and acquisitions and related financings), market conditions and other factors. During the three months and six months ended June 30, 2018,2019, the Company repurchased 2.72.6 million and 5.25.5 million shares respectively, under its share repurchase authorization, for a total cost of $350$375 million and $700$750 million, respectively. The average cost per share repurchased was $129.66$145.87 and $135.47, respectively.$137.15. At June 30, 2018,2019, the Company had $3.86$2.54 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, 20182019 and December 31, 2017.2018.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
| | (in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Debt: | | |
| | |
| | |
| | |
Short-term | | $ | 500 |
| | $ | 600 |
| | $ | 100 |
| | $ | 600 |
|
Long-term | | 6,004 |
| | 6,004 |
| | 6,504 |
| | 6,004 |
|
Net unamortized fair value adjustments and debt issuance costs | | (40 | ) | | (33 | ) | | (46 | ) | | (40 | ) |
Total debt | | 6,464 |
| | 6,571 |
| | 6,558 |
| | 6,564 |
|
| | | | | | | | |
Shareholders’ equity: | | |
| | |
| | |
| | |
|
Common stock and retained earnings, less treasury stock | | 24,311 |
| | 24,074 |
| | 25,115 |
| | 24,753 |
|
Accumulated other comprehensive loss | | (1,688 | ) | | (343 | ) | |
Accumulated other comprehensive income (loss) | | | 206 |
| | (1,859 | ) |
Total shareholders’ equity | | 22,623 |
| | 23,731 |
| | 25,321 |
| | 22,894 |
|
Total capitalization | | $ | 29,087 |
| | $ | 30,302 |
| | $ | 31,879 |
| | $ | 29,458 |
|
On March 7, 2018,4, 2019, the Company issued $500 million aggregate principal amount of 4.05%4.10% senior notes that will mature on March 7, 2048.4, 2049. The net proceeds were used to repay the Company's $500 million, 5.80%5.90% senior notes on May 15, 2018.June 2, 2019. 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 | | June 30, 2019 | | December 31, 2018 |
Total capitalization | | $ | 29,087 |
| | $ | 30,302 |
| | $ | 31,879 |
| | $ | 29,458 |
|
Less: net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity | | (112 | ) | | 1,112 |
| | 1,878 |
| | (113 | ) |
Total capitalization excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity | | $ | 29,199 |
| | $ | 29,190 |
| | $ | 30,001 |
| | $ | 29,571 |
|
Debt-to-total capital ratio | | 22.2 | % | | 21.7 | % | | 20.6 | % | | 22.3 | % |
Debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity | | 22.1 | % | | 22.5 | % | | 21.9 | % | | 22.2 | % |
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%21.9% at June 30, 20182019 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, 2018,18, 2019, the date on which the Company’s Form 10-Q for the quarter ended March 31, 20182019 was filed with the SEC. For additional discussion of ratings, see “Part I—Item 1—Business—Ratings” in the Company’s 20172018 Annual Report.
•On June 5, 2018,May 20, 2019, Fitch affirmed all ratings of the Company. The outlook for all ratings is stable.
On June 26, 2019, S&P assigned a financial strength rating of "A+" to the Company's newly established insurance subsidiary in the Republic of Ireland, Travelers Insurance Designated Activity Company. The outlook for this rating is stable.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
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 20172018 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, 2017.2018.
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$1.86 billion at June 30, 2018)2019) 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:
| | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
(in millions) | | Case | | IBNR | | Total | | Case | | IBNR | | Total | | Case | | IBNR | | Total | | Case | | IBNR | | Total |
General liability | | $ | 4,808 |
| | $ | 6,899 |
| | $ | 11,707 |
| | $ | 4,878 |
| | $ | 6,823 |
| | $ | 11,701 |
| | $ | 4,852 |
| | $ | 7,100 |
| | $ | 11,952 |
| | $ | 4,780 |
| | $ | 7,092 |
| | $ | 11,872 |
|
Commercial property | | 999 |
| | 326 |
| | 1,325 |
| | 1,039 |
| | 401 |
| | 1,440 |
| | 1,103 |
| | 390 |
| | 1,493 |
| | 1,157 |
| | 297 |
| | 1,454 |
|
Commercial multi-peril | | 1,969 |
| | 2,012 |
| | 3,981 |
| | 1,954 |
| | 1,916 |
| | 3,870 |
| | 2,047 |
| | 1,989 |
| | 4,036 |
| | 2,089 |
| | 1,886 |
| | 3,975 |
|
Commercial automobile | | 2,287 |
| | 1,324 |
| | 3,611 |
| | 2,237 |
| | 1,271 |
| | 3,508 |
| | 2,451 |
| | 1,699 |
| | 4,150 |
| | 2,339 |
| | 1,661 |
| | 4,000 |
|
Workers’ compensation | | 10,334 |
| | 9,285 |
| | 19,619 |
| | 10,379 |
| | 9,092 |
| | 19,471 |
| | 10,234 |
| | 9,250 |
| | 19,484 |
| | 10,299 |
| | 9,216 |
| | 19,515 |
|
Fidelity and surety | | 234 |
| | 356 |
| | 590 |
| | 274 |
| | 300 |
| | 574 |
| | 266 |
| | 294 |
| | 560 |
| | 280 |
| | 288 |
| | 568 |
|
Personal automobile | | 1,977 |
| | 1,359 |
| | 3,336 |
| | 1,946 |
| | 1,329 |
| | 3,275 |
| | 1,999 |
| | 1,389 |
| | 3,388 |
| | 2,038 |
| | 1,400 |
| | 3,438 |
|
Homeowners and personal—other | | 793 |
| | 918 |
| | 1,711 |
| | 795 |
| | 710 |
| | 1,505 |
| | 867 |
| | 946 |
| | 1,813 |
| | 942 |
| | 884 |
| | 1,826 |
|
International and other | | 2,606 |
| | 1,459 |
| | 4,065 |
| | 2,728 |
| | 1,561 |
| | 4,289 |
| | 2,594 |
| | 1,589 |
| | 4,183 |
| | 2,574 |
| | 1,431 |
| | 4,005 |
|
Property-casualty | | 26,007 |
| | 23,938 |
| | 49,945 |
| | 26,230 |
| | 23,403 |
| | 49,633 |
| | 26,413 |
| | 24,646 |
| | 51,059 |
| | 26,498 |
| | 24,155 |
| | 50,653 |
|
Accident and health | | 16 |
| | — |
| | 16 |
| | 17 |
| | — |
| | 17 |
| | 14 |
| | — |
| | 14 |
| | 15 |
| | — |
| | 15 |
|
Claims and claim adjustment expense reserves | | $ | 26,023 |
| | $ | 23,938 |
| | $ | 49,961 |
| | $ | 26,247 |
| | $ | 23,403 |
| | $ | 49,650 |
| | $ | 26,427 |
| | $ | 24,646 |
| | $ | 51,073 |
| | $ | 26,513 |
| | $ | 24,155 |
| | $ | 50,668 |
|
The $311$405 million increase in gross claims and claim adjustment expense reserves since December 31, 20172018 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, partially2019, largely offset by the impacts of (iii) payments related to catastrophe losses incurred in 2017,2018 and (iv) net favorable prior year reserve development and (v) payments related to operations in runoff.development.
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 20172018 Annual Report for a discussion of recently issued accounting pronouncements.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
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:
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 cost and availability of reinsurance coverage;
catastrophe losses;
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;
strategic and operational initiatives to improve profitability and competitiveness;
the Company's competitive advantages;
new product offerings; and
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.trade; and
the impact of legislation enacted or to be enacted by states 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:
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;
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;
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 risk and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses;
the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
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;
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 TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS, Continued
the effects of emerging claim and coverage issues on the Company’s business are uncertain;
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS, Continued
the Company may not be able to collect all amounts due to it from reinsurers, reinsurance coverage may not be available to the Company in the future at commercially reasonable rates or at all and the Company is exposed to credit risk related to its structured settlements;
the Company is 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;
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, includingsuch 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.
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 20172018 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 20172018 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the Company’s disclosures about market risk, please see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 20172018 Annual Report filed with the SEC. There have been no material changes to the Company’s disclosures about market risk in Part II—Item 7A of the Company’s 20172018 Annual Report.
Item 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2018. Consistent with guidance issued by the SEC that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management’s evaluation of disclosure controls and procedures, management is excluding an assessment of such internal controls for Simply Business from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. The Company acquired all of the issued and outstanding shares of Simply Business on August 4, 2017. Simply Business represented less than 1% of the Company’s consolidated total assets, consolidated total revenues and net income as of and for the six months ended June 30, 2018.2019. Based upon that evaluation, and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2018,2019, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
In addition,During the quarter ended June 30, 2019, the Company consolidated the premium collection of automated clearing house (ACH) and credit card payments for Business Insurance and Bond & Specialty Insurance into a single payment processing platform with a third-party provider, which has resulted in certain changes to business processes and internal control over financial reporting. Other than this consolidation to the single payment processing platform, there waswere no changechanges in the Company’sCompany's internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 20182019 that hashave materially affected, or isare reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting. The Company is inManagement reviewed and tested the processeffectiveness of reviewing the internal control structure of Simply Business and, if necessary, will make appropriate changes as it integrates Simply Business into the Company's overall internal controlcontrols over financial reporting process.related to the consolidation to the single payment processing platform and concluded they were effective.
The Company regularly seeks to identify, develop and implement improvements to its technology systems and business processes, some of which may affect its internal control over financial reporting. These changes may include such activities as implementing new, more efficient systems, updating existing systems or platforms, automating manual processes or utilizing technology developed by third parties. These systems changes are often phased in over multiple periods in order to limit the implementation risk in any one period, and as each change is implemented the Company monitors its effectiveness as part of its internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
The information required with respect to this item can be found under “Contingencies” in note 1314 of notes to the unaudited consolidated financial statements contained in this quarterly report and is incorporated by reference into this Item 1.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
Item 1A. RISK FACTORS
For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in the Company’s 20172018 Annual Report filed with the SEC. In addition, please see “Part I—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook” and “—Critical Accounting Estimates” herein and in the Company’s 20172018 Annual Report. There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 20172018 Annual Report.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth information regarding repurchases by the Company of its common stock during the periods indicated.
ISSUER PURCHASES OF EQUITY SECURITIES
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| | | | | | | | | | | | | | | | |
Period Beginning | | Period Ending | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) |
April 1, 2018 | | April 30, 2018 | | 218,400 |
| | $ | 132.82 |
| | 218,400 |
| | $ | 4,177 |
|
May 1, 2018 | | May 31, 2018 | | 1,852,904 |
| | $ | 129.52 |
| | 1,852,735 |
| | $ | 3,937 |
|
June 1, 2018 | | June 30, 2018 | | 629,575 |
| | $ | 128.96 |
| | 628,370 |
| | $ | 3,856 |
|
Total | | | | 2,700,879 |
| | $ | 129.66 |
| | 2,699,505 |
| | $ | 3,856 |
|
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| | | | | | | | | | | | | | | | |
Period Beginning | | Period Ending | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) |
April 1, 2019 | | April 30, 2019 | | 405,098 |
| | $ | 139.23 |
| | 404,700 |
| | $ | 2,855 |
|
May 1, 2019 | | May 31, 2019 | | 1,120,337 |
| | $ | 144.94 |
| | 1,119,155 |
| | $ | 2,692 |
|
June 1, 2019 | | June 30, 2019 | | 1,048,985 |
| | $ | 149.43 |
| | 1,047,105 |
| | $ | 2,536 |
|
Total | | | | 2,574,420 |
| | $ | 145.87 |
| | 2,570,960 |
| | $ | 2,536 |
|
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 most recent authorization was approved by the Board of Directors in April 2017 adding an additionaland added $5.0 billion of repurchase capacity to the $709 million capacity remaining at that 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 (including mergers and acquisitions and related financings), market conditions and other factors.
The Company acquired 1,3743,460 shares for a total cost of $0.2$0.5 million during the three months ended June 30, 20182019 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.
For additional information regarding the Company’s share repurchases, see “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Item 5.OTHER INFORMATION
Executive Ownership and Sales. All of the Company’s executive officers are subject to the Company’s executive stock ownership policy. For a summary of this policy as currently in effect, see “Compensation Discussion and Analysis - Additional Compensation Information - Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions” in the Company’s proxy statement filed with the SEC on April 6, 2018.5, 2019 (Proxy Statement). From time to time, some of the Company’s executives may determine that it is advisable to diversify their investments for personal financial planning reasons, or may seek liquidity for other reasons, and may, in compliance with the stock ownership policy, sell shares of common stock of the Company on the open market, in private transactions or to the Company. To effect such sales, from time to time, some of the Company’s executives may enter into trading plans designed to comply with the Company’s Securities Trading Policy and the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934. The trading plans will not reduce any of the executives’ ownership of the Company’s shares below the applicable executive stock ownership guidelines. The Company does not undertake any obligation to report Rule 10b5-1 plans that may be adopted by any employee or director of the Company in the future, or to report any modifications or termination of any publicly announced plan. As of the date of this report, none of the Company's named executive officers (i.e. an executive
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
Item 5. OTHER INFORMATION, Continued
As of the date of this report, Jay S. Benet, Vice Chairman and Chief Financial Officer, was the only “named executive officer” (i.e. an executive officer namedincluded in the compensation disclosures in the Company’s most recent proxy statement filed) that hasCompany's Proxy Statement) have entered into a Rule 10b5-1 trading plan that remains in effect. Under the Company’s stock ownership guidelines, Mr. Benet has a target ownership level established as the lesser of 30,000 shares or the equivalent value of 300% of base salary (as such amount is calculated for purposes of the stock ownership guidelines). See “Compensation Discussion and Analysis - Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions” in the Company’s proxy statement filed with the SEC on April 6, 2018.
Item 6.EXHIBITS
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Exhibit Number | | Description of Exhibit |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
10.1 | | |
| | |
12.1† | | |
| | |
31.1† | | |
| | |
31.2† | | |
| | |
32.1† | | |
| | |
32.2† | | |
| | |
101.1† | | The following financial information from The Travelers Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 20182019 formatted in Inline XBRL: (i) Consolidated Statement of Income for the three months and six months ended June 30, 20182019 and 2017;2018; (ii) Consolidated Statement of Comprehensive Income for the three months and six months ended June 30, 20182019 and 2017;2018; (iii) Consolidated Balance Sheet at June 30, 20182019 and December 31, 2017;2018; (iv) Consolidated Statement of Changes in Shareholders’ Equity for the three months and six months ended June 30, 20182019 and 2017;2018; (v) Consolidated Statement of Cash Flows for the six months ended June 30, 20182019 and 2017;2018; and (vi) Notes to Consolidated Financial Statements. |
_________________________________________________________
†Filed herewith.
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. Therefore, the Company is not filing any instruments evidencing long-term debt. However, the Company will furnish copies of any such instrument to the Securities and Exchange Commission upon request.
Copies of any of the exhibits referred to above will be furnished to security holders who make written request therefor to The Travelers Companies, Inc., 385 Washington Street, Saint Paul, MN 55102, Attention: Corporate Secretary.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure except for the terms of the agreements or other documents themselves, and you should not rely on them for other than that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
were made solely within the specific context of the relevant agreement or document and do not apply in any other context or at any time other than the date they were made.
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The Travelers Companies, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | |
| | THE TRAVELERS COMPANIES, INC. |
| | (Registrant) |
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Date: July 19, 201823, 2019 | By | /S/ KENNETH F. SPENCE IIICHRISTINE K. KALLA |
| | Kenneth F. Spence IIIChristine K. Kalla
Executive Vice President and General Counsel (Authorized Signatory) |
| | |
Date: July 19, 201823, 2019 | By | /S/ �� DOUGLAS K. RUSSELL |
| | Douglas K. Russell Senior Vice President and Corporate Controller(Principal Accounting Officer) |