Travelers Reports Second Quarter 2019 Net Income per Diluted Share of $2.10, up 9%, and Return on Equity of 9.0%

Second Quarter 2019 Core Income per Diluted Share of $2.02, up 12%, and Core Return on Equity of 9.2%

• Second quarter net income of $557 million and core income of $537 million, up 6% and 9%, respectively.
• Consolidated combined ratio of 98.4%; underlying combined ratio of 94.9%, an increase from the prior year quarter due to higher non-catastrophe weather-related losses.
• Record net written premiums of $7.450 billion, up 4%, reflecting growth in all segments.
• Renewal premium change in Business Insurance of 6.7% at highest level since 2014.
• Total capital returned to shareholders of $593 million, including $376 million of share repurchases. Year-to-date total capital returned to shareholders of $1.218 billion, including $797 million of share repurchases.
• Book value per share of $97.26, up 12% from year-end 2018. Adjusted book value per share of $90.05, up 3% from year-end 2018.
• Board of Directors declared quarterly dividend per share of $0.82.

NEW YORK–(BUSINESS WIRE)–The Travelers Companies, Inc. today reported net income of $557 million, or $2.10 per diluted share, for the quarter ended June 30, 2019, compared to $524 million, or $1.92 per diluted share, in the prior year quarter. Core income in the current quarter was $537 million, or $2.02 per diluted share, compared to $494 million, or $1.81 per diluted share, in the prior year quarter. Core income increased primarily due to lower catastrophe losses and higher net investment income, partially offset by elevated non-catastrophe weather-related losses and lower net favorable prior year reserve development. Net realized investment gains were $25 million pre-tax ($20 million after-tax), compared to $36 million pre-tax ($30 million after-tax) in the prior year quarter. Per diluted share amounts benefited from the impact of share repurchases.

See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.

“We are pleased to report solid second quarter core income of $537 million, an increase of 9% over the prior year quarter, and core return on equity of 9.2%,” said Alan Schnitzer, Chairman and Chief Executive Officer. “The increase in earnings was driven by the successful execution of our strategy to profitably grow our top line and thoughtfully manage our expenses, along with strong performance from our investment portfolio, partially offset by lower favorable prior year reserve development. While catastrophe losses were lower than in the prior year quarter, all-in weather losses were modestly higher, due to higher non-catastrophe weather-related losses which adversely impacted the underlying combined ratio of 94.9% by nearly two points compared to the prior year quarter. In addition and to a lesser degree, the change in the underlying combined ratio in the quarter was impacted by a number of favorable items, including lower large losses and improved expense leverage, partially offset by a modest impact from continuing challenges in the tort environment. In terms of capital management, we returned $593 million of excess capital to our shareholders this quarter, including $376 million through share repurchases, bringing the total capital returned to shareholders so far this year to more than $1.2 billion.

“We remain extremely pleased with our performance in the marketplace. We grew net written premiums by 4% to a record $7.5 billion, marking the tenth consecutive quarter in which we generated premium growth in all three of our business segments. In Business Insurance, we achieved renewal premium change of 6.7%, including renewal rate change of 3.6%, in both cases the highest levels in five years, while maintaining historically high levels of retention. This is the twelfth consecutive quarter of higher year-over-year renewal premium change. In Bond & Specialty Insurance, we once again achieved strong production in both Management Liability and Surety. In Personal Insurance, higher net written premiums benefited from renewal premium increases in both our Agency Automobile and Agency Home businesses.

“Our performance this quarter and year-to-date reflect both the successful execution of our long-term strategy and our relentless execution in the marketplace every day. In an environment of persistently low interest rates, ongoing uncertainty surrounding weather-related losses and a more challenging tort environment, we will continue to leverage the power of our franchise to meet our return objectives, including by selectively and thoughtfully seeking price and improved terms and conditions. With leading data and analytics in the hands of our frontline underwriters, the best talent in the industry and deep relationships with our agents and brokers, we remain well positioned to continue to generate industry-leading returns and deliver shareholder value over time.”

Second Quarter 2019 Results

(All comparisons vs. second quarter 2018, unless noted otherwise)

Net income of $557 million increased $33 million due to higher core income, partially offset by lower net realized investment gains. Core income of $537 million increased $43 million. Core income increased primarily due to lower catastrophe losses and higher net investment income, partially offset by a lower underlying underwriting gain and lower net favorable prior year reserve development. The benefit of higher business volumes on the underlying underwriting gain was more than offset by higher levels of non-catastrophe weather-related losses.

Underwriting results:

• The combined ratio of 98.4% increased 0.3 points due to a higher underlying combined ratio (1.3 points) and lower net favorable prior year reserve development (1.0 points), partially offset by lower catastrophe losses (2.0 points).
• The underlying combined ratio of 94.9% increased 1.3 points, including a 0.6 point increase related to the Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty entered into effective January 1, 2019 (“the new catastrophe reinsurance treaty”). See below for further details by segment.
• Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from wind storms in several regions of the United States.

Net investment income of $648 million pre-tax ($548 million after-tax) increased 9%. Income from the fixed income investment portfolio increased due to a higher average level of fixed maturity investments, as well as higher long-term and short-term interest rates. Private equity partnership returns were higher than in the prior year quarter.

Record net written premiums of $7.450 billion increased 4%, reflecting growth in all segments.

Year-to-Date 2019 Results

(All comparisons vs. year-to-date 2018, unless noted otherwise)

Net income of $1.353 billion increased $160 million due to higher core income and higher net realized investment gains. Core income of $1.292 billion increased $120 million. Core income increased due to lower catastrophe losses and higher net investment income, partially offset by lower net favorable prior year reserve development. Net realized investment gains of $78 million pre-tax ($61 million after-tax) were higher by $53 million pre-tax ($40 million after-tax).

Underwriting results:

• The combined ratio of 96.1% decreased 0.7 points due to lower catastrophe losses (2.2 points), partially offset by lower net favorable prior year reserve development (1.2 points) and a higher underlying combined ratio (0.3 points).
• The underlying combined ratio of 93.3% increased 0.3 points, including a 0.6 point increase related to the new catastrophe reinsurance treaty. See below for further details by segment.
• Net favorable prior year reserve development occurred in all segments. Catastrophe losses 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.

Net investment income of $1.230 billion pre-tax ($1.044 billion after-tax) increased 3%. Income from the fixed income investment portfolio increased due to higher long-term and short-term interest rates, as well as a higher average level of fixed maturity investments. Private equity partnership and real estate partnership returns were lower than in the prior year.

Record gross written premiums of $15.663 billion grew 5%, reflecting growth in all segments. Net written premiums of $14.507 billion increased 4%. Growth in net written premiums was impacted by the new catastrophe reinsurance treaty, the entire cost of which impacted net written premiums in the first quarter. Accordingly, the treaty did not impact net written premiums in the second quarter and will not impact net written premiums in the remaining quarters of the year.

Shareholders’ Equity

Shareholders’ equity of $25.321 billion increased 11% from year-end 2018, primarily due to the impact of lower interest rates on net unrealized investment gains (losses). Net unrealized investment gains included in shareholders’ equity were $2.389 billion pre-tax ($1.878 billion after-tax), compared to net unrealized investment losses of $137 million pre-tax ($113 million after-tax) at year-end 2018. Book value per share of $97.26 increased 12% from year-end 2018, also primarily due to the impact of lower interest rates on net unrealized investment gains (losses). Adjusted book value per share of $90.05 increased 3% from year-end 2018.

The Company repurchased 2.6 million shares during the second quarter at an average price of $145.87 per share for a total cost of $376 million. Capacity remaining under the existing share repurchase authorization was $2.536 billion at the end of the quarter. Also at the end of the quarter, statutory capital and surplus was $21.080 billion, and the ratio of debt-to-capital was 20.6%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains included in shareholders’ equity was 21.9%, within the Company’s target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.82 per share. The dividend is payable on September 30, 2019 to shareholders of record at the close of business on September 10, 2019.

Second Quarter 2019 Results

(All comparisons vs. second quarter 2018, unless noted otherwise)

Segment income for Business Insurance was $351 million after-tax, a decrease of $34 million. Segment income decreased primarily due to higher catastrophe losses, a lower underlying underwriting gain and lower net favorable prior year reserve development, partially offset by higher net investment income. The benefit of higher business volumes on the underlying underwriting gain was more than offset by a higher underlying combined ratio, as described below.

Underwriting results:

• The combined ratio of 101.1% increased 2.3 points due to higher catastrophe losses (1.0 points), a higher underlying combined ratio (0.9 points) and lower net favorable prior year reserve development (0.4 points).
• The underlying combined ratio of 97.4% increased 0.9 points, primarily driven by the impact in the quarter of (1) higher loss estimates in the general liability product line for primary and excess coverages and in the commercial automobile product line, including the re-estimation of losses incurred in the first quarter of 2019, (2) higher non-catastrophe weather-related losses and (3) a 0.5 point impact from the new catastrophe reinsurance treaty, partially offset by (4) a lower level of domestic large losses, primarily fire-related and (5) a lower underwriting expense ratio.
• Net favorable prior year reserve development was primarily driven by better than expected loss experience in the segment’s domestic operations in the workers’ compensation product line for multiple accident years, partially offset by higher than expected loss experience in the segment’s domestic operations (1) in 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, (2) in the commercial automobile product line for recent accident years and (3) higher than expected loss experience in the segment’s international operations.

Net written premiums of $3.874 billion increased 2%, benefiting from continued strong retention and higher renewal premium change.

Year-to-date 2019 Results

(All comparisons vs. year-to-date 2018, unless noted otherwise)

Segment income for Business Insurance was $765 million after-tax, a decrease of $72 million. Segment income decreased primarily due to lower net favorable prior year reserve development, partially offset by higher net investment income.

Underwriting results:

• The combined ratio of 99.6% increased 1.4 points due to lower net favorable prior year reserve development (1.4 points) and a higher underlying combined ratio (0.2 points), partially offset by the impact of catastrophe losses (0.2 points).
• The underlying combined ratio of 96.2% increased 0.2 points. The new catastrophe reinsurance treaty resulted in a 0.5 point increase in the underlying combined ratio.
• Net favorable prior year reserve development was primarily driven by better than expected loss experience in the segment’s domestic operations in (1) the workers’ compensation product line for multiple accident years and (2) the commercial property product line for recent accident years, partially offset by higher than expected loss experience in the segment’s domestic operations in (3) 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 number of states, which extended the statute of limitations for childhood sexual molestation claims and (b) a $60 million increase to environmental reserves, both of which impacted accident years 2009 and prior, (4) the commercial automobile product line for recent accident years and (5) the commercial multi-peril product line for recent accident years.

Gross written premiums of $8.923 billion grew 5%, benefiting from the same factors as discussed above for the second quarter 2019. Net written premiums of $8.037 billion increased 3%. Growth in net written premiums was impacted by the new catastrophe reinsurance treaty.

Second Quarter 2019 Results

(All comparisons vs. second quarter 2018, unless noted otherwise)

Segment income for Bond & Specialty Insurance was $174 million after-tax, a decrease of $30 million. Segment income decreased primarily due to lower net favorable prior year reserve development.

Underwriting results:

• The combined ratio of 74.9% increased 8.4 points due to lower net favorable prior year reserve development (8.6 points) and a higher underlying combined ratio (0.5 points), partially offset by lower catastrophe losses (0.7 points).
• The underlying combined ratio remained very strong at 81.0%.
• Net favorable prior year reserve development was driven by better than expected loss experience in domestic general liability for management liability coverages for multiple accident years.

Net written premiums of $710 million increased 9%, with contributions from both management liability and surety.

Year-to-Date 2019 Results

(All comparisons vs. year-to-date 2018, unless noted otherwise)

Segment income for Bond & Specialty Insurance was $312 million after-tax, a decrease of $65 million. Segment income decreased primarily due to lower net favorable prior year reserve development.

Underwriting results:

• The combined ratio of 77.9% increased 7.4 points due to lower net favorable prior year reserve development (7.1 points) and a higher underlying combined ratio (0.5 points), partially offset by lower catastrophe losses 0.2 points.
• The underlying combined ratio remained very strong at 81.1%.
• Net favorable prior year reserve development was driven by better than expected loss experience in domestic general liability for management liability coverages for multiple accident years.

Net written premiums of $1.297 billion increased 6% and benefited from the same factors as discussed above for the second quarter 2019.

Contacts

Media:

Patrick Linehan

917.778.6267

Institutional Investors:

Abbe Goldstein

917.778.6825

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