Strong Year-to-Date 2022 Return on Equity of
11.1% and Core Return on Equity of 10.9%
Third Quarter 2022 Net Income per Diluted
Share of $1.89 and Return on Equity of 8.5%
Third Quarter 2022 Core Income per Diluted
Share of $2.20 and Core Return on Equity of 7.9%
- Consolidated combined ratio of 98.2% and underlying combined
ratio of 92.5%.
- Catastrophe losses of $512 million pre-tax compared to $501
million pre-tax in the prior year quarter.
- Record net written premiums of $9.198 billion, up 10% compared
to the prior year quarter.
- Net written premium growth in all three segments compared to
the prior year quarter; Business Insurance up 9%, Bond &
Specialty Insurance up 8% and Personal Insurance up 13%.
- Total capital returned to shareholders of $722 million,
including $501 million of share repurchases.
- Book value per share of $84.94, down 27% from September 30,
2021, driven by higher interest rates; adjusted book value per
share of $111.90, up 7% from September 30, 2021.
- Board of Directors declares regular cash dividend of $0.93 per
share.
The Travelers Companies, Inc. today reported net income of $454
million, or $1.89 per diluted share, for the quarter ended
September 30, 2022, compared to $662 million, or $2.62 per diluted
share, in the prior year quarter. Core income in the current
quarter was $526 million, or $2.20 per diluted share, compared to
$655 million, or $2.60 per diluted share, in the prior year
quarter. Core income decreased primarily due to lower net
investment income and a lower underlying underwriting gain (i.e.,
excluding net prior year reserve development and catastrophe
losses), partially offset by net favorable prior year reserve
development compared to net unfavorable prior year reserve
development in the prior year quarter. Net realized investment
losses in the current quarter were $93 million pre-tax ($72 million
after-tax), compared to net realized investment gains of $8 million
pre-tax ($7 million after-tax) in the prior year quarter. Per
diluted share amounts benefited from the impact of share
repurchases.
Consolidated Highlights
($ in millions, except for per share
amounts, and after-tax, except for premiums and revenues)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
Change
2022
2021
Change
Net written premiums
$
9,198
$
8,324
10
%
$
26,585
$
23,964
11
%
Total revenues
$
9,303
$
8,805
6
$
27,248
$
25,805
6
Net income
$
454
$
662
(31
)
$
2,023
$
2,329
(13
)
per diluted share
$
1.89
$
2.62
(28
)
$
8.34
$
9.16
(9
)
Core income
$
526
$
655
(20
)
$
2,188
$
2,233
(2
)
per diluted share
$
2.20
$
2.60
(15
)
$
9.02
$
8.78
3
Diluted weighted average shares
outstanding
237.9
250.1
(5
)
240.9
252.4
(5
)
Combined ratio
98.2
%
98.6
%
(0.4
)
pts
96.0
%
96.8
%
(0.8
)
pts
Underlying combined ratio
92.5
%
91.4
%
1.1
pts
92.2
%
90.8
%
1.4
pts
Return on equity
8.5
%
9.2
%
(0.7
)
pts
11.1
%
10.8
%
0.3
pts
Core return on equity
7.9
%
10.1
%
(2.2
)
pts
10.9
%
11.6
%
(0.7
)
pts
As of
Change From
September 30,
2022
December 31,
2021
September 30,
2021
December 31,
2021
September 30,
2021
Book value per share
$
84.94
$
119.77
$
115.74
(29
)%
(27
)%
Adjusted book value per share
111.90
109.76
104.77
2
%
7
%
See Glossary of Financial Measures for
definitions and the statistical supplement for additional financial
data.
“We are pleased to report solid third quarter 2022 results,
particularly in light of significant industry-wide losses from
Hurricane Ian,” said Alan Schnitzer, Chairman and Chief Executive
Officer. “Our strategic approach to underwriting for catastrophes
has once again served us well. Our focus is now on taking care of
our customers and meeting our industry-leading objective of
resolving 90% of our property claims arising out of catastrophes,
including this historic storm, within 30 days.
“Even in the face of challenging weather, we generated
meaningful profit with core income for the quarter of $526 million,
or $2.20 per diluted share, and core return on equity of 7.9%.
These results benefited from record net earned premiums of $8.6
billion, up 10% compared to the prior year period, and a solid
underlying combined ratio of 92.5%. Underwriting income in our
commercial businesses was excellent, driven by strong net earned
premiums and an aggregate underlying combined ratio for Business
Insurance and Bond & Specialty Insurance of 88.0%. Our
high-quality investment portfolio generated solid after-tax net
investment income of $505 million despite the significant downturn
in the broader equity markets. These results, along with our strong
balance sheet, enabled us to return $722 million of excess capital
to our shareholders this quarter, including $501 million of share
repurchases.
“Our best-in-class marketplace execution produced 10% growth in
net written premiums this quarter to a record $9.2 billion. In
Business Insurance, net written premiums grew by 9%. Renewal
premium change was very strong at an historically high 10.2%, while
renewal rate change of 5.0% was higher than in the first half of
the year. Retention remained very strong at 86%, and new business
increased 9% from the prior year period. In Bond & Specialty
Insurance, net written premiums increased by 8%, driven by
excellent production results in both our surety and management
liability businesses. In Personal Insurance, renewal premium change
was meaningfully higher both year over year and sequentially, as we
continue to address elevated industry-wide loss costs.
“Our meaningful franchise value is reflected in our top- and
bottom-line results for the quarter and year-to-date. Our terrific
quarterly performance over the past two years builds on our
excellent, decade-long track record of growing at industry-leading
returns with industry-low volatility. At the same time, we continue
to focus on, and invest in, our innovation priorities. Given the
success with which we have executed on our Perform & Transform
call to action, we are confident in our ability to continue to
create meaningful shareholder value over time.”
Consolidated Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain:
$
115
$
75
$
40
$
887
$
616
$
271
Underwriting gain
includes:
Net favorable (unfavorable) prior year
reserve development
20
(56
)
76
464
443
21
Catastrophes, net of reinsurance
(512
)
(501
)
(11
)
(1,418
)
(1,811
)
393
Net investment income
593
771
(178
)
1,937
2,290
(353
)
Other income (expense), including
interest expense
(87
)
(68
)
(19
)
(246
)
(211
)
(35
)
Core income before income taxes
621
778
(157
)
2,578
2,695
(117
)
Income tax expense
95
123
(28
)
390
462
(72
)
Core income
526
655
(129
)
2,188
2,233
(45
)
Net realized investment gains (losses)
after income taxes
(72
)
7
(79
)
(165
)
88
(253
)
Impact of changes in tax laws and/or
tax rates (1)
—
—
—
—
8
(8
)
Net income
$
454
$
662
$
(208
)
$
2,023
$
2,329
$
(306
)
Combined ratio
98.2
%
98.6
%
(0.4
)
pts
96.0
%
96.8
%
(0.8
)
pts
Impact on combined
ratio
Net (favorable) unfavorable prior year
reserve development
(0.2
)
pts
0.8
pts
(1.0
)
pts
(1.9
)
pts
(1.9
)
pts
—
pts
Catastrophes, net of reinsurance
5.9
pts
6.4
pts
(0.5
)
pts
5.7
pts
7.9
pts
(2.2
)
pts
Underlying combined ratio
92.5
%
91.4
%
1.1
pts
92.2
%
90.8
%
1.4
pts
Net written premiums
Business Insurance
$
4,370
$
4,021
9
%
$
13,245
$
12,126
9
%
Bond & Specialty Insurance
964
894
8
2,808
2,471
14
Personal Insurance
3,864
3,409
13
10,532
9,367
12
Total
$
9,198
$
8,324
10
%
$
26,585
$
23,964
11
%
(1) Impact is recognized in the accounting
period in which the change is enacted
Third Quarter 2022 Results
(All comparisons vs. third quarter 2021, unless noted
otherwise)
Net income of $454 million decreased $208 million, due to lower
core income and net realized investment losses compared to net
realized investment gains in the prior year quarter. Core income of
$526 million decreased $129 million, primarily due to lower net
investment income and a lower underlying underwriting gain,
partially offset by net favorable prior year reserve development
compared to net unfavorable prior year reserve development in the
prior year quarter. Business Insurance and Bond & Specialty
Insurance reported strong and higher underlying underwriting gains,
which were more than offset by the underlying underwriting results
in Personal Insurance. The underlying underwriting results in all
three segments benefited from higher business volumes. Net realized
investment losses were $93 million pre-tax ($72 million after-tax),
compared to net realized investment gains of $8 million pre-tax ($7
million after-tax) in the prior year quarter.
Combined ratio:
- The combined ratio of 98.2% improved 0.4 points due to net
favorable prior year reserve development compared to net
unfavorable prior year reserve development in the prior year
quarter (1.0 points) and a smaller impact from catastrophe losses
(0.5 points), partially offset by a higher underlying combined
ratio (1.1 points).
- The underlying combined ratio of 92.5% increased 1.1 points.
See below for further details by segment.
- Net favorable prior year reserve development in Bond &
Specialty Insurance and Personal Insurance was partially offset by
net unfavorable prior year reserve development in Business
Insurance. Net prior year reserve development in the third quarter
of 2022 included a $212 million addition to asbestos reserves,
compared to a $225 million addition in the prior year quarter. See
below for further details by segment.
- Catastrophe losses primarily resulted from Hurricanes Ian and
Fiona, as well as severe storms in several regions of the United
States.
Net investment income of $593 million pre-tax ($505 million
after-tax) decreased 23%. Income from the non-fixed income
investment portfolio decreased from a very strong result in the
prior year quarter, primarily due to lower private equity
partnership returns. Non-fixed income returns are generally
reported on a one-quarter lagged basis and directionally follow the
broader equity markets. Income from the fixed income investment
portfolio increased over the prior year quarter due to growth in
fixed maturity investments and a higher average yield.
Net written premiums of $9.198 billion increased 10%. See below
for further details by segment.
Year-to-Date 2022 Results
(All comparisons vs. year-to-date 2021, unless noted otherwise)
Net income of $2.023 billion decreased $306 million, primarily
due to net realized investment losses compared to net realized
investment gains in the prior year period and lower core income.
Core income of $2.188 billion decreased $45 million, primarily due
to lower net investment income and a lower underlying underwriting
gain, partially offset by lower catastrophe losses. Business
Insurance and Bond & Specialty Insurance reported strong and
higher underlying underwriting gains, which were more than offset
by the underlying underwriting results in Personal Insurance. The
underlying underwriting results benefited from higher business
volumes and a $47 million benefit relating to the resolution of
prior year income tax matters. Net realized investment losses were
$211 million pre-tax ($165 million after-tax), compared to net
realized investment gains of $113 million pre-tax ($88 million
after-tax) in the prior year period.
Combined ratio:
- The combined ratio of 96.0% improved 0.8 points due to lower
catastrophe losses (2.2 points), partially offset by a higher
underlying combined ratio (1.4 points).
- The underlying combined ratio of 92.2% increased 1.4 points.
See below for further details by segment.
- Net favorable prior year reserve development occurred in all
segments. See below for further details by segment. Catastrophe
losses included the third quarter events described above, as well
as severe wind and hail storms in several regions of the United
States in the first six months of 2022.
Net investment income of $1.937 billion pre-tax ($1.639 billion
after-tax) decreased 15%. Income from the non-fixed income
investment portfolio decreased from a very strong result in the
prior year period, primarily due to lower private equity
partnership returns. Income from the fixed income investment
portfolio increased over the prior year quarter, primarily due to
growth in fixed maturity investments.
Net written premiums of $26.585 billion increased 11%. See below
for further details by segment.
Shareholders’ Equity
Shareholders’ equity of $19.906 billion decreased 31% from
year-end 2021, primarily due to net unrealized investment losses
compared to net unrealized investment gains at year-end 2021,
common share repurchases and dividends to shareholders, partially
offset by net income of $2.023 billion. Net unrealized investment
losses included in shareholders’ equity were $8.021 billion pre-tax
($6.317 billion after-tax), compared to net unrealized investment
gains of $3.060 billion pre-tax ($2.415 billion after-tax) at
year-end 2021, driven by higher interest rates. Book value per
share of $84.94 decreased 27% from September 30, 2021 and 29% from
year-end 2021. Adjusted book value per share of $111.90, which
excludes net unrealized investment gains (losses), increased 7%
over September 30, 2021 and 2% over year-end 2021.
The Company repurchased 3.1 million shares during the third
quarter at an average price of $163.63 per share for a total of
$501 million. At September 30, 2022, the Company had $2.505 billion
of capacity remaining under its share repurchase authorization
approved by the Board of Directors. At the end of the quarter,
statutory capital and surplus was $23.375 billion, and the ratio of
debt-to-capital was 26.8%. The ratio of debt-to-capital excluding
after-tax net unrealized investment gains (losses) included in
shareholders’ equity was 21.8%, within the Company’s target range
of 15% to 25%.
The Board of Directors declared a regular quarterly dividend of
$0.93 per share. The dividend is payable December 30, 2022 to
shareholders of record at the close of business on December 9,
2022.
Business
Insurance Segment Financial Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain:
$
148
$
88
$
60
$
787
$
117
$
670
Underwriting gain
includes:
Net favorable (unfavorable) prior year
reserve development
(61
)
(108
)
47
254
99
155
Catastrophes, net of reinsurance
(216
)
(181
)
(35
)
(529
)
(836
)
307
Net investment income
426
575
(149
)
1,415
1,713
(298
)
Other income (expense)
(14
)
1
(15
)
(19
)
(14
)
(5
)
Segment income before income
taxes
560
664
(104
)
2,183
1,816
367
Income tax expense
89
106
(17
)
377
298
79
Segment income
$
471
$
558
$
(87
)
$
1,806
$
1,518
$
288
Combined ratio
96.3
%
97.5
%
(1.2
)
pts
93.5
%
98.7
%
(5.2
)
pts
Impact on combined
ratio
Net (favorable) unfavorable prior year
reserve development
1.4
pts
2.7
pts
(1.3
)
pts
(2.0
)
pts
(0.9
)
pts
(1.1
)
pts
Catastrophes, net of reinsurance
4.9
pts
4.6
pts
0.3
pts
4.1
pts
7.2
pts
(3.1
)
pts
Underlying combined ratio
90.0
%
90.2
%
(0.2
)
pts
91.4
%
92.4
%
(1.0
)
pts
Net written premiums by market
Domestic
Select Accounts
$
739
$
685
8
%
$
2,365
$
2,140
11
%
Middle Market
2,465
2,252
9
7,410
6,723
10
National Accounts
247
228
8
790
731
8
National Property and Other
702
638
10
1,889
1,730
9
Total Domestic
4,153
3,803
9
12,454
11,324
10
International
217
218
—
791
802
(1
)
Total
$
4,370
$
4,021
9
%
$
13,245
$
12,126
9
%
Third Quarter 2022 Results
(All comparisons vs. third quarter 2021, unless noted
otherwise)
Segment income for Business Insurance was $471 million
after-tax, a decrease of $87 million. Segment income decreased
primarily due to lower net investment income and higher catastrophe
losses, partially offset by lower net unfavorable prior year
reserve development and a higher underlying underwriting gain. The
underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 96.3% improved 1.2 points due to lower
net unfavorable prior year reserve development (1.3 points) and a
lower underlying combined ratio (0.2 points), partially offset by
higher catastrophe losses (0.3 points).
- The underlying combined ratio of 90.0% improved 0.2 points. The
expense ratio improved 1.1 points. The loss ratio increased 0.9
points, as the benefit of earned pricing was more than offset by
the comparison to both a low level of property losses and the
favorable impact associated with the pandemic in the prior year
quarter.
- Net unfavorable prior year reserve development was primarily
driven by an addition to asbestos reserves of $212 million,
partially offset by better than expected loss experience in the
domestic operations’ workers’ compensation product line for
multiple accident years and in the commercial property product line
for recent accident years. Net unfavorable prior year reserve
development in the prior year quarter included an addition to
asbestos reserves of $225 million.
Net written premiums of $4.370 billion increased 9%, reflecting
strong renewal premium change and retention, as well as higher
levels of new business.
Year-to-Date 2022 Results
(All comparisons vs. year-to-date 2021, unless noted otherwise)
Segment income for Business Insurance was $1.806 billion
after-tax, an increase of $288 million. Segment income increased
primarily due to lower catastrophe losses, a higher underlying
underwriting gain and higher net favorable prior year reserve
development, partially offset by lower net investment income. The
underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 93.5% improved 5.2 points due to lower
catastrophe losses (3.1 points), higher net favorable prior year
reserve development (1.1 points) and a lower underlying combined
ratio (1.0 points).
- The underlying combined ratio of 91.4% improved 1.0 points,
reflecting an improvement of 1.0 points in the expense ratio.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in the domestic
operations’ workers’ compensation product line for multiple
accident years, and in the commercial multi-peril and commercial
property product lines for recent accident years, partially offset
by an addition to asbestos reserves, an addition to reserves in the
domestic operations’ general liability product line (excluding
asbestos and environmental), including for run-off operations, and
an addition to environmental reserves.
Net written premiums of $13.245 billion increased 9%, reflecting
the same factors described above for the third quarter of 2022.
Bond
& Specialty Insurance Segment Financial Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain:
$
234
$
150
$
84
$
629
$
422
$
207
Underwriting gain
includes:
Net favorable prior year reserve
development
63
22
41
171
81
90
Catastrophes, net of reinsurance
(11
)
(3
)
(8
)
(16
)
(30
)
14
Net investment income
65
63
2
188
186
2
Other income
5
4
1
11
13
(2
)
Segment income before income
taxes
304
217
87
828
621
207
Income tax expense
62
43
19
141
123
18
Segment income
$
242
$
174
$
68
$
687
$
498
$
189
Combined ratio
72.5
%
81.1
%
(8.6
)
pts
74.8
%
81.4
%
(6.6
)
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(7.2
)
pts
(2.6
)
pts
(4.6
)
pts
(6.7
)
pts
(3.5
)
pts
(3.2
)
pts
Catastrophes, net of reinsurance
1.3
pts
0.3
pts
1.0
pts
0.6
pts
1.3
pts
(0.7
)
pts
Underlying combined ratio
78.4
%
83.4
%
(5.0
)
pts
80.9
%
83.6
%
(2.7
)
pts
Net written premiums
Domestic
Management Liability
$
554
$
532
4
%
$
1,592
$
1,473
8
%
Surety
284
241
18
828
673
23
Total Domestic
838
773
8
2,420
2,146
13
International
126
121
4
388
325
19
Total
$
964
$
894
8
%
$
2,808
$
2,471
14
%
Third Quarter 2022 Results
(All comparisons vs. third quarter 2021, unless noted
otherwise)
Segment income for Bond & Specialty Insurance was $242
million after-tax, an increase of $68 million. Segment income
increased primarily due to a higher underlying underwriting gain
and higher net favorable prior year reserve development. The
underlying underwriting gain benefited from higher business
volumes.
Combined ratio:
- The combined ratio of 72.5% improved 8.6 points due to a lower
underlying combined ratio (5.0 points) and higher net favorable
prior year reserve development (4.6 points), partially offset by
higher catastrophe losses (1.0 points).
- The underlying combined ratio improved 5.0 points to a very
strong 78.4%, driven primarily by the benefit of earned pricing and
the favorable re-estimation of losses incurred for management
liability coverages in the first six months of 2022.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in the domestic
operations’ fidelity and surety product lines and in the general
liability product line for management liability coverages for
recent accident years.
Net written premiums of $964 million increased 8%, reflecting
strong production in surety and strong renewal premium change,
retention and new business in management liability.
Year-to-Date 2022 Results
(All comparisons vs. year-to-date 2021, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $687
million after-tax, an increase of $189 million. Segment income
increased primarily due to a higher underlying underwriting gain
and higher net favorable prior year reserve development. The
underlying underwriting gain benefited from higher business
volumes. The current year also benefited by $24 million relating to
the resolution of prior year income tax matters.
Combined ratio:
- The combined ratio of 74.8% improved 6.6 points due to higher
net favorable prior year reserve development (3.2 points), a lower
underlying combined ratio (2.7 points) and lower catastrophe losses
(0.7 points).
- The underlying combined ratio improved 2.7 points to a very
strong 80.9%, primarily driven by the benefit of earned
pricing.
- Net favorable prior year reserve development was primarily
driven by better than expected loss experience in the domestic
operations’ fidelity and surety product lines for recent accident
years.
Net written premiums of $2.808 billion increased 14%, reflecting
the same factors described above for the third quarter of 2022.
Personal
Insurance Segment Financial Results
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions and pre-tax, unless
noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain (loss):
$
(267
)
$
(163
)
$
(104
)
$
(529
)
$
77
$
(606
)
Underwriting gain
(loss) includes:
Net favorable prior year reserve
development
18
30
(12
)
39
263
(224
)
Catastrophes, net of reinsurance
(285
)
(317
)
32
(873
)
(945
)
72
Net investment income
102
133
(31
)
334
391
(57
)
Other income
18
22
(4
)
50
64
(14
)
Segment income (loss) before income
taxes
(147
)
(8
)
(139
)
(145
)
532
(677
)
Income tax expense (benefit)
(36
)
(6
)
(30
)
(66
)
99
(165
)
Segment income (loss)
$
(111
)
$
(2
)
$
(109
)
$
(79
)
$
433
$
(512
)
Combined ratio
107.2
%
104.6
%
2.6
pts
104.7
%
98.3
%
6.4
pts
Impact on combined
ratio
Net favorable prior year reserve
development
(0.5
)
pts
(1.0
)
pts
0.5
pts
(0.4
)
pts
(3.0
)
pts
2.6
pts
Catastrophes, net of reinsurance
8.4
pts
10.4
pts
(2.0
)
pts
8.9
pts
10.6
pts
(1.7
)
pts
Underlying combined ratio
99.3
%
95.2
%
4.1
pts
96.2
%
90.7
%
5.5
pts
Net written premiums
Domestic
Automobile
$
1,743
$
1,529
14
%
$
4,868
$
4,371
11
%
Homeowners and Other
1,952
1,698
15
5,164
4,476
15
Total Domestic
3,695
3,227
15
10,032
8,847
13
International
169
182
(7
)
500
520
(4
)
Total
$
3,864
$
3,409
13
%
$
10,532
$
9,367
12
%
Third Quarter 2022 Results
(All comparisons vs. third quarter 2021, unless noted
otherwise)
Segment loss for Personal Insurance was $111 million after-tax,
compared with a segment loss of $2 million after-tax in the prior
year quarter. Segment loss increased primarily due to lower
underlying underwriting results and lower net investment income,
partially offset by lower catastrophe losses. Underlying
underwriting results benefited from higher business volumes.
Combined ratio:
- The combined ratio of 107.2% increased 2.6 points due to a
higher underlying combined ratio (4.1 points) and lower net
favorable prior year reserve development (0.5 points), partially
offset by lower catastrophe losses (2.0 points).
- The underlying combined ratio of 99.3% increased 4.1 points,
driven primarily by elevated severity in both the automobile and
homeowners and other product lines, partially offset by a lower
expense ratio.
- Net favorable prior year reserve development was not
significant in the quarter.
Net written premiums of $3.864 billion increased 13%, primarily
reflecting higher pricing in both Domestic Automobile and Domestic
Homeowners and Other.
Year-to-Date 2022 Results
(All comparisons vs. year-to-date 2021, unless noted otherwise)
Segment loss for Personal Insurance was $79 million after-tax,
compared with segment income of $433 million in the prior year
period. The segment loss was primarily due to a lower underlying
underwriting gain, lower net favorable prior year reserve
development and lower net investment income, partially offset by
lower catastrophe losses. The underlying underwriting results
benefited from higher business volumes. The current year also
benefited by $20 million relating to the resolution of prior year
income tax matters.
Combined ratio:
- The combined ratio of 104.7% increased 6.4 points due to a
higher underlying combined ratio (5.5 points) and lower net
favorable prior year reserve development (2.6 points), partially
offset by lower catastrophe losses (1.7 points).
- The underlying combined ratio of 96.2% increased 5.5 points,
driven primarily by elevated severity in the current year in both
the automobile and homeowners and other product lines and a
comparison to a low level of loss activity in the prior year period
in the automobile product line, partially offset by a lower expense
ratio.
- Net favorable prior year reserve development was not
significant in the current year.
Net written premiums of $10.532 billion increased 12%, primarily
reflecting higher pricing in both Domestic Automobile and Domestic
Homeowners and Other.
Financial Supplement and Conference Call
The information in this press release should be read in
conjunction with the financial supplement that is available on our
website at www.travelers.com. Travelers management will discuss the
contents of this release and other relevant topics via webcast at 9
a.m. Eastern (8 a.m. Central) on Wednesday, October 19, 2022.
Investors can access the call via webcast at
http://investor.travelers.com or by dialing 1.888.440.6281 within
the United States or 1.646.960.0218 outside the United States.
Prior to the webcast, a slide presentation pertaining to the
quarterly earnings will be available on the Company’s website.
Following the live event, replays will be available via webcast
for one year at http://investor.travelers.com and by telephone for
30 days by dialing 1.800.770.2030 within the United States or
1.647.362.9199 outside the United States. All callers should use
conference ID 5449478.
About Travelers
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider
of property casualty insurance for auto, home and business. A
component of the Dow Jones Industrial Average, Travelers has
approximately 30,000 employees and generated revenues of
approximately $35 billion in 2021. For more information, visit
www.travelers.com.
Travelers may use its website and/or social media outlets, such
as Facebook and Twitter, as distribution channels of material
Company information. Financial and other important information
regarding the Company is routinely accessible through and posted on
our website at http://investor.travelers.com, our Facebook page at
https://www.facebook.com/travelers and our Twitter account
(@Travelers) at https://twitter.com/travelers. In addition, you may
automatically receive email alerts and other information about
Travelers when you enroll your email address by visiting the Email
Notifications section at http://investor.travelers.com.
Travelers is organized into the following reportable business
segments:
Business Insurance - Business Insurance offers a broad
array of property and casualty insurance products and services to
its customers, primarily in the United States, as well as in
Canada, the United Kingdom, the Republic of Ireland and throughout
other parts of the world as a corporate member of Lloyd’s.
Bond & Specialty Insurance - Bond & Specialty
Insurance offers surety, fidelity, management liability,
professional liability, and other property and casualty coverages
and related risk management services to its customers, primarily in
the United States, and certain surety and specialty insurance
products in Canada, the United Kingdom and the Republic of Ireland,
as well as Brazil through a joint venture, in each case utilizing
various degrees of financially-based underwriting approaches.
Personal Insurance - Personal Insurance offers a broad
range of property and casualty insurance products and services
covering individuals’ personal risks, primarily in the United
States, as well as in Canada. The primary products of automobile
and homeowners insurance are complemented by a broad suite of
related coverages.
* * * * *
Forward-Looking Statements
This press release contains, and management may make, certain
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, may be forward-looking
statements. Words such as “may,” “will,” “should,” “likely,”
“anticipates,” “expects,” “intends,” “plans,” “projects,”
“believes,” “views,” “estimates” and similar expressions are used
to identify these forward-looking statements. These statements
include, among other things, the Company’s statements about:
- the Company’s outlook, the impact of trends on its business and
its future results of operations and financial condition;
- the impact of COVID-19 and related economic conditions;
- the impact of legislative or regulatory actions or court
decisions;
- 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 and modeling;
- the impact of investment, economic and underwriting market
conditions, including interest rates and inflation;
- the impact of changing climate conditions;
- strategic and operational initiatives to improve profitability
and competitiveness;
- the Company’s competitive advantages and innovation
agenda;
- new product offerings;
- the impact of developments in the tort environment; and
- the impact of developments in the geopolitical
environment.
The Company cautions investors that such statements are subject
to risks and uncertainties, many of which are difficult to predict
and generally beyond the Company’s control, that could cause actual
results to differ materially from those expressed in, or implied or
projected by, the forward-looking information and statements.
Some of the factors that could cause actual results to differ
include, but are not limited to, the following:
Insurance-Related Risks
- high levels of catastrophe losses;
- actual claims may exceed the Company’s claims and claim
adjustment expense reserves, or the estimated level of claims and
claim adjustment expense reserves may increase, including as a
result of, among other things, changes in the legal/tort,
regulatory and economic environments, including increased
inflation;
- the Company’s potential exposure to asbestos and environmental
claims and related litigation;
- the Company is exposed to, and may face adverse developments
involving, mass tort claims; and
- the effects of emerging claim and coverage issues on the
Company’s business are uncertain, and court decisions or
legislative changes that take place after the Company issues its
policies can result in an unexpected increase in the number of
claims.
Financial, Economic and Credit
Risks
- a period of financial market disruption or an economic
downturn;
- the Company’s investment portfolio is subject to credit and
interest rate risk, and may suffer reduced or low returns or
material realized or unrealized losses;
- the Company is exposed to credit risk related to reinsurance
and structured settlements, and reinsurance coverage may not be
available to the Company;
- the Company is exposed to credit risk in certain of its
insurance operations and with respect to certain guarantee or
indemnification arrangements that it has with third parties;
- a downgrade in the Company’s claims-paying and financial
strength ratings; and
- the Company’s insurance subsidiaries may be unable to pay
dividends to the Company’s holding company in sufficient
amounts.
Business and Operational
Risks
- the ongoing impact of COVID-19 and related risks, including
with respect to revenues, claims and claim adjustment expenses,
general and administrative expenses, investments, inflation,
adverse legislative and/or regulatory action, operational
disruptions and heightened cyber security risks;
- the intense competition that the Company faces, including with
respect to attracting and retaining employees, and the impact of
innovation, technological change and changing customer preferences
on the insurance industry and the markets in which it
operates;
- disruptions to the Company’s relationships with its independent
agents and brokers or the Company’s inability to manage effectively
a changing distribution landscape;
- the Company’s efforts to develop new products or services,
expand in targeted markets, improve business processes and
workflows or make acquisitions may not be successful and may create
enhanced risks;
- the Company’s pricing and capital models may provide materially
different indications than actual results;
- loss of or significant restrictions on the use of particular
types of underwriting criteria, such as credit scoring, or other
data or methodologies, in the pricing and underwriting of the
Company’s products; and
- the Company is subject to additional risks associated with its
business outside the United States.
Technology and Intellectual Property
Risks
- as a result of cyber attacks (the risk of which could be
exacerbated by geopolitical tensions) or otherwise, the Company may
experience difficulties with technology, data and network security
or outsourcing relationships;
- the Company’s dependence on effective information technology
systems and on continuing to develop and implement improvements in
technology; and
- the Company may be unable to protect and enforce its own
intellectual property or may be subject to claims for infringing
the intellectual property of others.
Regulatory and Compliance
Risks
- changes in regulation, including higher tax rates; and
- the Company’s compliance controls may not be effective.
In addition, the Company’s share repurchase plans depend on a
variety of factors, including the Company’s financial position,
earnings, share price, catastrophe losses, maintaining capital
levels appropriate for the Company’s business operations, 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, changes in tax laws
(including the Inflation Reduction Act) and other factors.
Our forward-looking statements speak only as of the date of this
press release or as of the date they are made, and we undertake no
obligation to update forward-looking statements. For a more
detailed discussion of these factors, see the information under the
captions “Risk Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Forward Looking
Statements” in the quarterly report on Form 10-Q filed with the
Securities and Exchange Commission (SEC) on October 19, 2022, and
in our most recent annual report on Form 10-K filed with the SEC on
February 17, 2022, in each case as updated by our periodic filings
with the SEC.
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP
MEASURES TO NON-GAAP MEASURES
The following measures are used by the Company’s management to
evaluate financial performance against historical results, to
establish performance targets on a consolidated basis and for other
reasons as discussed below. In some cases, these measures are
considered non-GAAP financial measures under applicable SEC rules
because they are not displayed as separate line items in the
consolidated financial statements or are not required to be
disclosed in the notes to financial statements or, in some cases,
include or exclude certain items not ordinarily included or
excluded in the most comparable GAAP financial measure.
Reconciliations of these measures to the most comparable GAAP
measures also follow.
In the opinion of the Company’s management, a discussion of
these measures provides investors, financial analysts, rating
agencies and other financial statement users with a better
understanding of the significant factors that comprise the
Company’s periodic results of operations and how management
evaluates the Company’s financial performance.
Some of these measures exclude net realized investment gains
(losses), net of tax, and/or net unrealized investment gains
(losses), net of tax, included in shareholders’ equity, which can
be significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by
the Company’s management.
RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER
NON-GAAP MEASURES
Core income (loss) is consolidated net income (loss)
excluding the after-tax impact of net realized investment gains
(losses), discontinued operations, the effect of a change in tax
laws and tax rates at enactment, and cumulative effect of changes
in accounting principles when applicable. Segment income
(loss) is determined in the same manner as core income (loss)
on a segment basis. Management uses segment income (loss) to
analyze each segment’s performance and as a tool in making business
decisions. Financial statement users also consider core income
(loss) when analyzing the results and trends of insurance
companies. Core income (loss) per share is core income
(loss) on a per common share basis.
Reconciliation of Net Income
to Core Income less Preferred Dividends
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax)
2022
2021
2022
2021
Net income
$
454
$
662
$
2,023
$
2,329
Adjustments:
Net realized investment (gains) losses
72
(7
)
165
(88
)
Impact of changes in tax laws and/or tax
rates (1)
—
—
—
(8
)
Core income
$
526
$
655
$
2,188
$
2,233
(1) Impact is recognized in the
accounting period in which the change is enacted
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, pre-tax)
2022
2021
2022
2021
Net income
$
528
$
786
$
2,367
$
2,808
Adjustments:
Net realized investment (gains) losses
93
(8
)
211
(113
)
Core income
$
621
$
778
$
2,578
$
2,695
Twelve Months Ended December
31,
Average Annual
($ in millions, after-tax)
2021
2020
2019
2018
2017
2005 - 2016
Net income
$
3,662
$
2,697
$
2,622
$
2,523
$
2,056
$
3,159
Less: Loss from discontinued
operations
—
—
—
—
—
(37
)
Income from continuing
operations
3,662
2,697
2,622
2,523
2,056
3,196
Adjustments:
Net realized investment (gains) losses
(132
)
(11
)
(85
)
(93
)
(142
)
(29
)
Impact of changes in tax laws and/or tax
rates (1) (2)
(8
)
—
—
—
129
—
Core income
3,522
2,686
2,537
2,430
2,043
3,167
Less: Preferred dividends
—
—
—
—
—
2
Core income, less preferred
dividends
$
3,522
$
2,686
$
2,537
$
2,430
$
2,043
$
3,165
(1) Impact is recognized in the
accounting period in which the change is enacted
(2) 2017 reflects impact of Tax
Cuts and Jobs Act of 2017 (TCJA)
Reconciliation of Net Income
per Share to Core Income per Share on a Basic and Diluted
Basis
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Basic income per
share
Net income
$
1.91
$
2.65
$
8.43
$
9.24
Adjustments:
Net realized investment (gains) losses,
after-tax
0.31
(0.02
)
0.69
(0.35
)
Impact of changes in tax laws and/or tax
rates (1)
—
—
—
(0.03
)
Core income
$
2.22
$
2.63
$
9.12
$
8.86
Diluted income
per share
Net income
$
1.89
$
2.62
$
8.34
$
9.16
Adjustments:
Net realized investment (gains) losses,
after-tax
0.31
(0.02
)
0.68
(0.35
)
Impact of changes in tax laws and/or tax
rates (1)
—
—
—
(0.03
)
Core income
$
2.20
$
2.60
$
9.02
$
8.78
(1) Impact is recognized in the
accounting period in which the change is enacted
Reconciliation of Segment Income (Loss)
to Total Core Income
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax)
2022
2021
2022
2021
Business Insurance
$
471
$
558
$
1,806
$
1,518
Bond & Specialty Insurance
242
174
687
498
Personal Insurance
(111
)
(2
)
(79
)
433
Total segment income
602
730
2,414
2,449
Interest Expense and Other
(76
)
(75
)
(226
)
(216
)
Total core income
$
526
$
655
$
2,188
$
2,233
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO ADJUSTED
SHAREHOLDERS’ EQUITY AND CALCULATION OF RETURN ON EQUITY AND CORE
RETURN ON EQUITY
Adjusted shareholders’ equity is shareholders’ equity
excluding net unrealized investment gains (losses), net of tax,
included in shareholders’ equity, net realized investment gains
(losses), net of tax, for the period presented, the effect of a
change in tax laws and tax rates at enactment (excluding the
portion related to net unrealized investment gains (losses)),
preferred stock and discontinued operations.
Reconciliation of Shareholders’ Equity
to Adjusted Shareholders’ Equity
As of September 30,
($ in millions)
2022
2021
Shareholders’ equity
$
19,906
$
28,474
Adjustments:
Net unrealized investment (gains) losses,
net of tax, included in shareholders’ equity
6,317
(2,699
)
Net realized investment (gains) losses,
net of tax
165
(88
)
Impact of changes in tax laws and/or tax
rates (1)
—
(8
)
Adjusted shareholders’ equity
$
26,388
$
25,679
(1) Impact is recognized in the
accounting period in which the change is enacted
As of December 31,
Average Annual
($ in millions)
2021
2020
2019
2018
2017
2005 - 2016
Shareholders’ equity
$
28,887
$
29,201
$
25,943
$
22,894
$
23,731
$
24,883
Adjustments:
Net unrealized investment (gains) losses,
net of tax, included in shareholders’ equity
(2,415
)
(4,074
)
(2,246
)
113
(1,112
)
(1,354
)
Net realized investment (gains) losses,
net of tax
(132
)
(11
)
(85
)
(93
)
(142
)
(29
)
Impact of changes in tax laws and/or tax
rates (1) (2)
(8
)
—
—
—
287
—
Preferred stock
—
—
—
—
—
(53
)
Loss from discontinued operations
—
—
—
—
—
37
Adjusted shareholders’ equity
$
26,332
$
25,116
$
23,612
$
22,914
$
22,764
$
23,484
(1) Impact is recognized in the
accounting period in which the change is enacted
(2) 2017 reflects impact of Tax
Cuts and Jobs Act of 2017 (TCJA)
Return on equity is the ratio of annualized net income
(loss) less preferred dividends to average shareholders’ equity for
the periods presented. Core return on equity is the ratio of
annualized core income (loss) less preferred dividends to adjusted
average shareholders’ equity for the periods presented. In the
opinion of the Company’s management, these are important indicators
of how well management creates value for its shareholders through
its operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and
end of each of the quarters for the period presented divided by (b)
the number of quarters in the period presented times two.
Adjusted average shareholders’ equity is (a) the sum of
total adjusted shareholders’ equity at the beginning and end of
each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two.
Calculation of Return on
Equity and Core Return on Equity
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax)
2022
2021
2022
2021
Annualized net income
$
1,815
$
2,645
$
2,697
$
3,105
Average shareholders’ equity
21,390
28,815
24,267
28,754
Return on equity
8.5
%
9.2
%
11.1
%
10.8
%
Annualized core income
$
2,104
$
2,620
$
2,917
$
2,977
Adjusted average shareholders’ equity
26,481
25,842
26,673
25,590
Core return on equity
7.9
%
10.1
%
10.9
%
11.6
%
Twelve Months Ended December
31,
Average Annual
($ in millions, after-tax)
2021
2020
2019
2018
2017
2005 - 2016
Net income, less preferred dividends
$
3,662
$
2,697
$
2,622
$
2,523
$
2,056
$
3,157
Average shareholders’ equity
28,735
26,892
24,922
22,843
23,671
24,913
Return on equity
12.7
%
10.0
%
10.5
%
11.0
%
8.7
%
12.7
%
Core income, less preferred dividends
$
3,522
$
2,686
$
2,537
$
2,430
$
2,043
$
3,165
Adjusted average shareholders’ equity
25,718
23,790
23,335
22,814
22,743
23,505
Core return on equity
13.7
%
11.3
%
10.9
%
10.7
%
9.0
%
13.5
%
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN
ITEMS TO NET INCOME
Underwriting gain (loss) is net earned premiums and fee
income less claims and claim adjustment expenses and
insurance-related expenses. In the opinion of the Company’s
management, it is important to measure the profitability of each
segment excluding the results of investing activities, which are
managed separately from the insurance business. This measure is
used to assess each segment’s business performance and as a tool in
making business decisions. Pre-tax underwriting gain,
excluding the impact of catastrophes and net favorable
(unfavorable) prior year loss reserve development, is the
underwriting gain adjusted to exclude claims and claim adjustment
expenses, reinstatement premiums and assessments related to
catastrophes and loss reserve development related to time periods
prior to the current year. In the opinion of the Company’s
management, this measure is meaningful to users of the financial
statements to understand the Company’s periodic earnings and the
variability of earnings caused by the unpredictable nature (i.e.,
the timing and amount) of catastrophes and loss reserve
development. This measure is also referred to as underlying
underwriting gain, underlying underwriting margin,
underlying underwriting income or underlying underwriting
result.
A catastrophe is a severe loss designated a catastrophe
by internationally recognized organizations that track and report
on insured losses resulting from catastrophic events, such as
Property Claim Services (PCS) for events in the United States and
Canada. Catastrophes can be caused by various natural events,
including, among others, hurricanes, tornadoes and other
windstorms, earthquakes, hail, wildfires, severe winter weather,
floods, tsunamis, volcanic eruptions and other naturally-occurring
events, such as solar flares. Catastrophes can also be man-made,
such as terrorist attacks and other intentionally destructive acts
including those involving nuclear, biological, chemical and
radiological events, cyber events, explosions and destruction of
infrastructure. Each catastrophe has unique characteristics and
catastrophes are not predictable as to timing or amount. Their
effects are included in net and core income and claims and claim
adjustment expense reserves upon occurrence. A catastrophe may
result in the payment of reinsurance reinstatement premiums and
assessments from various pools.
The Company’s threshold for disclosing catastrophes is primarily
determined at the reportable segment level. If a threshold for one
segment or a combination thereof is exceeded and the other segments
have losses from the same event, losses from the event are
identified as catastrophe losses in the segment results and for the
consolidated results of the Company. Additionally, an aggregate
threshold is applied for international business across all
reportable segments. The threshold for 2022 ranges from $20 million
to $30 million of losses before reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Reconciliation of Net Income
to Pre-Tax Underlying Underwriting Income (also known as Underlying
Underwriting Gain)
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax, except as
noted)
2022
2021
2022
2021
Net income
$
454
$
662
$
2,023
$
2,329
Net realized investment (gains) losses
72
(7
)
165
(88
)
Impact of changes in tax laws and/or tax
rates (1)
—
—
—
(8
)
Core income
526
655
2,188
2,233
Net investment income
(505
)
(645
)
(1,639
)
(1,917
)
Other (income) expense, including interest
expense
69
58
202
171
Underwriting income
90
68
751
487
Income tax expense on underwriting
results
25
7
136
129
Pre-tax underwriting income
115
75
887
616
Pre-tax impact of net (favorable)
unfavorable prior year loss reserve development
(20
)
56
(464
)
(443
)
Pre-tax impact of catastrophes
512
501
1,418
1,811
Pre-tax underlying underwriting
income
$
607
$
632
$
1,841
$
1,984
(1) Impact is recognized in the
accounting period in which the change is enacted
Reconciliation of Net Income
to After-Tax Underlying Underwriting Income (also known as
Underlying Underwriting Gain)
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, after-tax)
2022
2021
2022
2021
Net income
$
454
$
662
$
2,023
$
2,329
Net realized investment (gains) losses
72
(7
)
165
(88
)
Impact of changes in tax laws and/or tax
rates (1)
—
—
—
(8
)
Core income
526
655
2,188
2,233
Net investment income
(505
)
(645
)
(1,639
)
(1,917
)
Other (income) expense, including interest
expense
69
58
202
171
Underwriting income
90
68
751
487
Impact of net (favorable) unfavorable
prior year reserve development
(16
)
44
(367
)
(349
)
Impact of catastrophes
404
395
1,118
1,430
Underlying underwriting income
$
478
$
507
$
1,502
$
1,568
(1) Impact is recognized in the accounting
period in which the change is enacted
Twelve Months Ended December
31,
($ in millions, after-tax)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Net income
$
3,662
$
2,697
$
2,622
$
2,523
$
2,056
$
3,014
$
3,439
$
3,692
$
3,673
$
2,473
$
1,426
Net realized investment gains
(132
)
(11
)
(85
)
(93
)
(142
)
(47
)
(2
)
(51
)
(106
)
(32
)
(36
)
Impact of changes in tax laws and/or tax
rates (1) (2)
(8
)
—
—
—
129
—
—
—
—
—
—
Core income
3,522
2,686
2,537
2,430
2,043
2,967
3,437
3,641
3,567
2,441
1,390
Net investment income
(2,541
)
(1,908
)
(2,097
)
(2,102
)
(1,872
)
(1,846
)
(1,905
)
(2,216
)
(2,186
)
(2,316
)
(2,330
)
Other (income) expense, including interest
expense
235
232
214
248
179
78
193
159
61
171
195
Underwriting income (loss)
1,216
1,010
654
576
350
1,199
1,725
1,584
1,442
296
(745
)
Impact of net (favorable) unfavorable
prior year reserve development
(424
)
(276
)
47
(409
)
(378
)
(510
)
(617
)
(616
)
(552
)
(622
)
(473
)
Impact of catastrophes
1,459
1,274
699
1,355
1,267
576
338
462
387
1,214
1,669
Underlying underwriting income
$
2,251
$
2,008
$
1,400
$
1,522
$
1,239
$
1,265
$
1,446
$
1,430
$
1,277
$
888
$
451
(1) Impact is recognized in the
accounting period in which the change is enacted
(2) 2017 reflects impact of Tax
Cuts and Jobs Act of 2017 (TCJA)
COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED
RATIO
Combined ratio: For Statutory Accounting Practices (SAP),
the combined ratio is the sum of the SAP loss and LAE ratio and the
SAP underwriting expense ratio as defined in the statutory
financial statements required by insurance regulators. The combined
ratio, as used in this earnings release, is the equivalent of, and
is calculated in the same manner as, the SAP combined ratio except
that the SAP underwriting expense ratio is based on net written
premiums and the underwriting expense ratio as used in this
earnings release is based on net earned premiums.
For SAP, the loss and LAE ratio is the ratio of incurred losses
and loss adjustment expenses less certain administrative services
fee income to net earned premiums as defined in the statutory
financial statements required by insurance regulators. The loss and
LAE ratio as used in this earnings release is calculated in the
same manner as the SAP ratio.
For SAP, the underwriting expense ratio is the ratio of
underwriting expenses incurred (including commissions paid), less
certain administrative services fee income and billing and policy
fees and other, to net written premiums as defined in the statutory
financial statements required by insurance regulators. The
underwriting expense ratio as used in this earnings release, is the
ratio of underwriting expenses (including the amortization of
deferred acquisition costs), less certain administrative services
fee income, billing and policy fees and other, to net earned
premiums.
The combined ratio, loss and LAE ratio, and underwriting expense
ratio are used as indicators of the Company’s underwriting
discipline, efficiency in acquiring and servicing its business and
overall underwriting profitability. A combined ratio under 100%
generally indicates an underwriting profit. A combined ratio over
100% generally indicates an underwriting loss.
Underlying combined ratio represents the combined ratio
excluding the impact of net prior year reserve development and
catastrophes. The underlying combined ratio is an indicator of the
Company’s underwriting discipline and underwriting profitability
for the current accident year.
Other companies’ method of computing similarly titled measures
may not be comparable to the Company’s method of computing these
ratios.
Calculation of the Combined
Ratio
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions, pre-tax)
2022
2021
2022
2021
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses
$
6,088
$
5,464
$
16,930
$
15,479
Less:
Policyholder dividends
14
10
31
31
Allocated fee income
38
36
112
113
Loss ratio numerator
$
6,036
$
5,418
$
16,787
$
15,335
Underwriting
expense ratio
Amortization of deferred acquisition
costs
$
1,406
$
1,281
$
4,081
$
3,742
General and administrative expenses
(G&A)
1,193
1,187
3,607
3,524
Less:
Non-insurance G&A
83
81
252
228
Allocated fee income
66
61
195
189
Billing and policy fees and other
27
27
81
81
Expense ratio numerator
$
2,423
$
2,299
$
7,160
$
6,768
Earned premium
$
8,615
$
7,829
$
24,946
$
22,831
Combined ratio (1)
Loss and loss adjustment expense ratio
70.1
%
69.2
%
67.3
%
67.2
%
Underwriting expense ratio
28.1
%
29.4
%
28.7
%
29.6
%
Combined ratio
98.2
%
98.6
%
96.0
%
96.8
%
Impact on combined ratio:
Net (favorable) unfavorable prior year
reserve development
(0.2
) %
0.8
%
(1.9
) %
(1.9
) %
Catastrophes, net of reinsurance
5.9
%
6.4
%
5.7
%
7.9
%
Underlying combined ratio
92.5
%
91.4
%
92.2
%
90.8
%
(1) For purposes of computing ratios,
billing and policy fees and other (which are a component of other
revenues) are allocated as a reduction of underwriting expenses. In
addition, fee income is allocated as a reduction of losses and loss
adjustment expenses and underwriting expenses. These allocations
are to conform the calculation of the combined ratio with statutory
accounting. Additionally, general and administrative expenses
include non-insurance expenses that are excluded from underwriting
expenses, and accordingly are excluded in calculating the combined
ratio.
RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS’
EQUITY TO CERTAIN NON-GAAP MEASURES
Book value per share is total common shareholders’ equity
divided by the number of common shares outstanding. Adjusted
book value per share is total common shareholders’ equity
excluding net unrealized investment gains and losses, net of tax,
included in shareholders’ equity, divided by the number of common
shares outstanding. In the opinion of the Company’s management,
adjusted book value per share is useful in an analysis of a
property casualty company’s book value per share as it removes the
effect of changing prices on invested assets (i.e., net unrealized
investment gains (losses), net of tax), which do not have an
equivalent impact on unpaid claims and claim adjustment expense
reserves. Tangible book value per share is adjusted book
value per share excluding the after-tax value of goodwill and other
intangible assets divided by the number of common shares
outstanding. In the opinion of the Company’s management, tangible
book value per share is useful in an analysis of a property
casualty company’s book value on a nominal basis as it removes
certain effects of purchase accounting (i.e., goodwill and other
intangible assets), in addition to the effect of changing prices on
invested assets.
Reconciliation of
Shareholders’ Equity to Tangible Shareholders’ Equity, Excluding
Net Unrealized Investment Gains (Losses), Net of Tax
As of
($ in millions, except per share
amounts)
September 30,
2022
December 31,
2021
September 30,
2021
Shareholders’ equity
$
19,906
$
28,887
$
28,474
Less: Net unrealized investment gains
(losses), net of tax, included in shareholders’ equity
(6,317
)
2,415
2,699
Shareholders’ equity, excluding net
unrealized investment gains (losses), net of tax, included in
shareholders’ equity
26,223
26,472
25,775
Less:
Goodwill
3,922
4,008
4,005
Other intangible assets
287
306
309
Impact of deferred tax on other intangible
assets
(54
)
(66
)
(63
)
Tangible shareholders’ equity,
excluding net unrealized investment gains (losses), net of tax,
included in shareholders’ equity
$
22,068
$
22,224
$
21,524
Common shares outstanding
234.3
241.2
246.0
Book value per share
$
84.94
$
119.77
$
115.74
Adjusted book value per share
111.90
109.76
104.77
Tangible book value per share, excluding
net unrealized investment gains (losses), net of tax, included in
shareholders’ equity
94.17
92.15
87.49
RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL
CAPITALIZATION EXCLUDING NET UNREALIZED INVESTMENT GAINS (LOSSES),
NET OF TAX
Total capitalization is the sum of total shareholders’
equity and debt. Debt-to-capital ratio excluding net unrealized
gain (loss) on investments, net of tax, included in shareholders’
equity, is the ratio of debt to total capitalization excluding
the after-tax impact of net unrealized investment gains and losses
included in shareholders’ equity. In the opinion of the Company’s
management, the debt-to-capital ratio is useful in an analysis of
the Company’s financial leverage.
As of
($ in millions)
September 30,
2022
December 31,
2021
Debt
$
7,291
$
7,290
Shareholders’ equity
19,906
28,887
Total capitalization
27,197
36,177
Less: Net unrealized investment gains
(losses), net of tax, included in shareholders’ equity
(6,317
)
2,415
Total capitalization excluding net
unrealized gain (loss) on investments, net of tax, included in
shareholders’ equity
$
33,514
$
33,762
Debt-to-capital ratio
26.8
%
20.2
%
Debt-to-capital ratio excluding net
unrealized investment gains (losses), net of tax, included in
shareholders’ equity
21.8
%
21.6
%
RECONCILIATION OF INVESTED ASSETS TO INVESTED ASSETS
EXCLUDING NET UNREALIZED INVESTMENT GAINS (LOSSES)
As of September 30,
($ in millions, pre-tax)
2022
2021
Invested assets
$
78,113
$
87,506
Less: Net unrealized investment gains
(losses), pre-tax
(8,021
)
3,426
Invested assets excluding net
unrealized investment gains (losses)
$
86,134
$
84,080
As of December 31,
($ in millions, pre-tax)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Invested assets
$
87,375
$
84,423
$
77,884
$
72,278
$
72,502
$
70,488
$
70,470
$
73,261
$
73,160
$
73,838
$
72,701
Less: Net unrealized investment gains
(losses), pre-tax
3,060
5,175
2,853
(137
)
1,414
1,112
1,974
3,008
2,030
4,761
4,399
Invested assets excluding net
unrealized investment gains (losses)
$
84,315
$
79,248
$
75,031
$
72,415
$
71,088
$
69,376
$
68,496
$
70,253
$
71,130
$
69,077
$
68,302
OTHER DEFINITIONS
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to policyholders for the
effective period of the contract based on the terms and conditions
of the insurance contract. Net written premiums reflect
gross written premiums less premiums ceded to reinsurers.
For Business Insurance and Bond & Specialty Insurance,
retention is the amount of premium available for renewal
that was retained, excluding rate and exposure changes. For
Personal Insurance, retention is the ratio of the expected
number of renewal policies that will be retained throughout the
annual policy period to the number of available renewal base
policies. For all of the segments, renewal rate change
represents the estimated change in average premium on policies that
renew, excluding exposure changes. Exposure is the measure
of risk used in the pricing of an insurance product. The change in
exposure is the amount of change in premium on policies that renew
attributable to the change in portfolio risk. Renewal premium
change represents the estimated change in average premium on
policies that renew, including rate and exposure changes. New
business is the amount of written premium related to new
policyholders and additional products sold to existing
policyholders. These are operating statistics, which are in part
dependent on the use of estimates and are therefore subject to
change. For Business Insurance, retention, renewal premium change
and new business exclude National Accounts. For Bond &
Specialty Insurance, retention, renewal premium change and new
business exclude surety and other products that are generally sold
on a non-recurring, project specific basis. For each of the
segments, production statistics referred to herein are domestic
only unless otherwise indicated.
Statutory capital and surplus represents the excess of an
insurance company’s admitted assets over its liabilities, including
loss reserves, as determined in accordance with statutory
accounting practices.
Holding company liquidity is the total funds available at
the holding company level to fund general corporate purposes,
primarily the payment of shareholder dividends and debt service.
These funds consist of total cash, short-term invested assets and
other readily marketable securities held by the holding
company.
For a glossary of other financial terms used in this press
release, we refer you to the Company’s most recent annual report on
Form 10-K filed with the SEC on February 17, 2022, and subsequent
periodic filings with the SEC.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221017005943/en/
Media: Patrick Linehan
917.778.6267
Institutional Investors: Abbe
Goldstein 917.778.6825
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