Le Lézard
Classified in: Business
Subjects: EARNINGS, Dividend, Conference Call, Webcast

Travelers Reports Record Net and Core Income per Diluted Share in Fourth Quarter 2019


The Travelers Companies, Inc. today reported net income of $873 million, or $3.35 per diluted share, for the quarter ended December 31, 2019, compared to $621 million, or $2.32 per diluted share, in the prior year quarter. Core income in the current quarter was $867 million, or $3.32 per diluted share, compared to $571 million, or $2.13 per diluted share, in the prior year quarter. Core income increased primarily due to significantly lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a lower underlying underwriting gain (i.e., excluding net favorable prior year reserve development and catastrophe losses), in each case primarily due to the impact of an increasingly challenging tort environment. Net realized investment gains were $12 million pre-tax ($6 million after-tax), compared to $60 million pre-tax ($50 million after-tax) in the prior year quarter. Per diluted share amounts benefited from the impact of share repurchases.

Consolidated Highlights

 

($ in millions, except for per share amounts, and after-tax, except for premiums and revenues)

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

Net written premiums

 

$

7,075

 

 

$

6,691

 

 

6

%

 

$

29,151

 

 

$

27,708

 

 

5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

8,063

 

 

$

7,796

 

 

3

 

 

$

31,581

 

 

$

30,282

 

 

4

 

 

Net income

 

$

873

 

 

$

621

 

 

41

 

 

$

2,622

 

 

$

2,523

 

 

4

 

 

per diluted share

 

$

3.35

 

 

$

2.32

 

 

44

 

 

$

9.92

 

 

$

9.28

 

 

7

 

 

Core income

 

$

867

 

 

$

571

 

 

52

 

 

$

2,537

 

 

$

2,430

 

 

4

 

 

per diluted share

 

$

3.32

 

 

$

2.13

 

 

56

 

 

$

9.60

 

 

$

8.94

 

 

7

 

 

Diluted weighted average shares outstanding

 

259.0

 

 

266.0

 

 

(3

)

 

262.3

 

 

269.8

 

 

(3

)

 

Combined ratio

 

92.4

%

 

97.5

%

 

(5.1

)

pts

96.5

%

 

96.9

%

 

(0.4

)

pts

Underlying combined ratio

 

92.1

%

 

91.1

%

 

1.0

 

pts

93.2

%

 

92.5

%

 

0.7

 

pts

Return on equity

 

13.5

%

 

10.9

%

 

2.6

 

pts

10.5

%

 

11.0

%

 

(0.5

)

pts

Core return on equity

 

14.8

%

 

10.0

%

 

4.8

 

pts

10.9

%

 

10.7

%

 

0.2

 

pts

 

As of December 31,

 

 

 

 

2019

 

2018

 

Change

Book value per share

 

$

101.55

 

 

$

86.84

 

 

17

%

Adjusted book value per share

 

92.76

 

 

87.27

 

 

6

%

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

"We are pleased to report fourth quarter core income of $867 million and core return on equity of 14.8%," said Alan Schnitzer, Chairman and Chief Executive Officer. "Our strong earnings and improved combined ratio of 92.4% benefited from lower catastrophe losses and the continued successful execution of our strategy to grow the top line at attractive returns while improving operating leverage. Earned premiums increased by 4% over the prior year quarter to a record $7.3 billion. Our expense ratio improved to 29.1%, lowering our full year expense ratio to 29.6%, a significant improvement from recent years. These improvements were partially offset by the impacts of ongoing challenges in the tort environment. Our high-quality investment portfolio continued to perform well, generating net investment income of $525 million after-tax. Our results, together with our strong balance sheet, enabled us to return $588 million of excess capital to shareholders this quarter, including $376 million of share repurchases. For the full year, we returned $2.4 billion of excess capital to shareholders, including more than $1.5 billion in share repurchases.

"Turning to the top line, we continue to be pleased with our marketplace execution. Net written premiums increased by 6% to a fourth quarter record of $7.1 billion, marking the twelfth consecutive quarter in which we generated premium growth in all three business segments. In an environment of elevated loss activity and persistently low interest rates, we were once again successful in achieving meaningful improvement in renewal premium change while maintaining high levels of retention. In domestic Business Insurance, renewal premium change was 7.8%, including renewal rate change of 5.1%, in both cases the highest levels since 2013, while retention remained very strong at 84%. In our domestic management liability business in Bond & Specialty Insurance, renewal premium change was 6.6%, the highest level since 2014, while retention remained historically high at 89%. In Personal Insurance, retention and new business remained strong in both Agency Auto and Agency Homeowners. In our Agency Homeowners business, renewal premium change increased to 7.4%, its highest level since 2014.

"In this more challenging tort and low interest rate environment, we generated full year core income in excess of $2.5 billion and core return on equity of 10.9%, demonstrating the strength and resilience of our franchise. We grew full year net written premiums by 5% to a record $29.2 billion and generated cash flow from operations of $5.2 billion, its highest level in more than a decade. Our performance enabled us to continue to make significant investments in support of our ambitious innovation agenda, while growing our investment portfolio and returning a substantial amount of capital to our shareholders. With our significant competitive advantages, including the best talent in the industry and deep experience in successfully managing our diversified business through a variety of market conditions, we remain well positioned to continue to deliver superior returns over time."

Consolidated Results

 

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

($ in millions and pre-tax, unless noted otherwise)

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

Underwriting gain:

 

$

513

 

 

$

135

 

 

$

378

 

 

$

833

 

 

$

681

 

 

$

152

 

 

Underwriting gain includes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable (unfavorable) prior year reserve development

 

60

 

 

167

 

 

(107

)

 

(60

)

 

517

 

 

(577

)

 

Catastrophes, net of reinsurance

 

(85

)

 

(610

)

 

525

 

 

(886

)

 

(1,716

)

 

830

 

 

Net investment income

 

616

 

 

630

 

 

(14

)

 

2,468

 

 

2,474

 

 

(6

)

 

Other income (expense), including interest expense

 

(67

)

 

(79

)

 

12

 

 

(276

)

 

(308

)

 

32

 

 

Core income before income taxes

 

1,062

 

 

686

 

 

376

 

 

3,025

 

 

2,847

 

 

178

 

 

Income tax expense

 

195

 

 

115

 

 

80

 

 

488

 

 

417

 

 

71

 

 

Core income

 

867

 

 

571

 

 

296

 

 

2,537

 

 

2,430

 

 

107

 

 

Net realized investment gains after income taxes

 

6

 

 

50

 

 

(44

)

 

85

 

 

93

 

 

(8

)

 

Net income

 

$

873

 

 

$

621

 

 

$

252

 

 

$

2,622

 

 

$

2,523

 

 

$

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined ratio

 

92.4

%

 

97.5

%

 

(5.1

)

pts

96.5

%

 

96.9

%

 

(0.4

)

pts

Impact on combined ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (favorable) unfavorable prior year reserve development

 

(0.8

)

pts

(2.4

)

pts

1.6

 

pts

0.2

 

pts

(1.9

)

pts

2.1

 

pts

Catastrophes, net of reinsurance

 

1.1

 

pts

8.8

 

pts

(7.7

)

pts

3.1

 

pts

6.3

 

pts

(3.2

)

pts

Underlying combined ratio

 

92.1

%

 

91.1

%

 

1.0

 

pts

93.2

%

 

92.5

%

 

0.7

 

pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Insurance

 

$

3,703

 

 

$

3,533

 

 

5

%

 

$

15,629

 

 

$

14,956

 

 

4

%

 

Bond & Specialty Insurance

 

714

 

 

657

 

 

9

 

 

2,739

 

 

2,528

 

 

8

 

 

Personal Insurance

 

2,658

 

 

2,501

 

 

6

 

 

10,783

 

 

10,224

 

 

5

 

 

Total

 

$

7,075

 

 

$

6,691

 

 

6

%

 

$

29,151

 

 

$

27,708

 

 

5

%

 

Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)

Net income of $873 million increased $252 million due to higher core income, partially offset by lower net realized investment gains. Core income of $867 million increased $296 million, primarily due to significantly lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

Net investment income of $616 million pre-tax ($525 million after-tax) decreased 2%. Income from the fixed income investment portfolio increased due to a higher average level of fixed maturity investments, partially offset by slightly lower interest rates. Private equity partnership returns were lower than in the prior year quarter.

Net written premiums of $7.075 billion increased 6%. See below for further details by segment.

Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)

Net income of $2.622 billion increased $99 million due to higher core income. Core income of $2.537 billion increased by $107 million, primarily due to significantly lower catastrophe losses, partially offset by net unfavorable prior year reserve development in the current year compared to net favorable prior year reserve development in the prior year and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes. Net realized investment gains of $113 million pre-tax were comparable with the prior year.

Combined ratio:

Net investment income of $2.468 billion pre-tax ($2.097 billion after-tax) was comparable to the prior year. Income from the fixed income investment portfolio increased due to the impacts of a higher average level of fixed maturity investments and higher long-term and short-term interest rates. Private equity partnership and real estate partnership returns were strong but lower than in the prior year.

Record gross written premiums of $31.063 billion grew 6%. Record net written premiums of $29.151 billion increased 5%, reflecting growth in all segments. Growth in net written premiums was impacted by the Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty entered into effective January 1, 2019 ("the new catastrophe reinsurance treaty"), the entire cost of which impacted net written premiums in the first quarter. Accordingly, the treaty did not impact net written premiums in the final three quarters of the year. See below for further details by segment.

Shareholders' Equity

Shareholders' equity of $25.943 billion increased 13% from year-end 2018, primarily due to the impact of lower interest rates on net unrealized investment gains (losses). Net unrealized investment gains included in shareholders' equity were $2.853 billion pre-tax ($2.246 billion after-tax), compared to net unrealized investment losses of $137 million pre-tax ($113 million after-tax) at year-end 2018. Book value per share of $101.55 increased 17% from year-end 2018, also primarily due to the impact of lower interest rates on net unrealized investment gains (losses). Adjusted book value per share of $92.76, which excludes net unrealized investment gains (losses), increased 6% from year-end 2018.

The Company repurchased 2.9 million shares during the fourth quarter at an average price of $134.34 per share for a total cost of $376 million. Capacity remaining under the existing share repurchase authorization was $1.786 billion at the end of the quarter. Also at the end of the quarter, statutory capital and surplus was $21.330 billion, and the ratio of debt-to-capital was 20.2%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains included in shareholders' equity was 21.7%, within the Company's target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.82 per share. The dividend is payable on March 31, 2020, to shareholders of record at the close of business on March 10, 2020.

Business Insurance Segment Financial Results

 

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

($ in millions and pre-tax, unless noted otherwise)

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

Underwriting gain (loss):

 

$

87

 

 

$

7

 

 

$

80

 

 

$

(195

)

 

$

76

 

 

$

(271

)

 

Underwriting gain (loss) includes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable (unfavorable) prior year reserve development

 

8

 

 

48

 

 

(40

)

 

(258

)

 

142

 

 

(400

)

 

Catastrophes, net of reinsurance

 

(48

)

 

(197

)

 

149

 

 

(470

)

 

(639

)

 

169

 

 

Net investment income

 

451

 

 

465

 

 

(14

)

 

1,816

 

 

1,833

 

 

(17

)

 

Other income (expense)

 

?

 

 

(9

)

 

9

 

 

(6

)

 

(12

)

 

6

 

 

Segment income before income taxes

 

538

 

 

463

 

 

75

 

 

1,615

 

 

1,897

 

 

(282

)

 

Income tax expense

 

90

 

 

72

 

 

18

 

 

223

 

 

259

 

 

(36

)

 

Segment income

 

$

448

 

 

$

391

 

 

$

57

 

 

$

1,392

 

 

$

1,638

 

 

$

(246

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined ratio

 

97.5

%

 

99.4

%

 

(1.9

)

pts

100.9

%

 

99.1

%

 

1.8

 

pts

Impact on combined ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (favorable) unfavorable prior year reserve development

 

(0.2

)

pts

(1.2

)

pts

1.0

 

pts

1.7

 

pts

(1.0

)

pts

2.7

 

pts

Catastrophes, net of reinsurance

 

1.3

 

pts

5.2

 

pts

(3.9

)

pts

3.0

 

pts

4.4

 

pts

(1.4

)

pts

Underlying combined ratio

 

96.4

%

 

95.4

%

 

1.0

 

pts

96.2

%

 

95.7

%

 

0.5

 

pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums by market

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

Select Accounts

 

$

675

 

 

$

660

 

 

2

%

 

$

2,911

 

 

$

2,828

 

 

3

%

 

Middle Market

 

2,061

 

 

1,935

 

 

7

 

 

8,630

 

 

8,214

 

 

5

 

 

National Accounts

 

251

 

 

247

 

 

2

 

 

1,051

 

 

1,025

 

 

3

 

 

National Property and Other

 

437

 

 

422

 

 

4

 

 

1,965

 

 

1,805

 

 

9

 

 

Total Domestic

 

3,424

 

 

3,264

 

 

5

 

 

14,557

 

 

13,872

 

 

5

 

 

International

 

279

 

 

269

 

 

4

 

 

1,072

 

 

1,084

 

 

(1

)

 

Total

 

$

3,703

 

 

$

3,533

 

 

5

%

 

$

15,629

 

 

$

14,956

 

 

4

%

 

Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)

Segment income for Business Insurance was $448 million after-tax, an increase of $57 million. Segment income increased primarily due to significantly lower catastrophe losses, partially offset by lower net favorable prior year reserve development and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple accident years.

Largely offset by:

General liability - higher than expected loss experience in the segment's domestic operations for primary and excess coverages primarily for recent accident years; and

Commercial multi-peril - higher than expected loss experience in the segment's domestic operations primarily for recent accident years.

Net written premiums of $3.703 billion increased 5%, benefiting from continued strong retention and new business, as well as higher renewal premium change.

Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)

Segment income for Business Insurance was $1.392 billion after-tax, a decrease of $246 million. Segment income decreased primarily due to net unfavorable prior year reserve development in the current year compared to net favorable prior year reserve development in the prior year and a lower underlying underwriting gain, partially offset by lower catastrophe losses. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

General liability (excluding asbestos and environmental) - higher than expected loss experience in the segment's domestic operations for primary and excess coverages for multiple accident years, including the impact for accident years 2009 and prior related to the enactment of legislation by a number of states that extended the statute of limitations for childhood sexual molestation claims;

Commercial automobile - higher than expected loss experience in the segment's domestic operations for recent accident years;

Asbestos reserves - an increase of $220 million, primarily in the segment's domestic general liability product line;

Commercial multi-peril - higher than expected loss experience in the segment's domestic operations for recent accident years; and

Environmental reserves - an increase of $76 million, primarily in the segment's domestic general liability product line.

Partially offset by:

Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple accident years; and

Commercial property - better than expected loss experience in the segment's domestic operations for recent accident years.

Gross written premiums of $17.151 billion grew 6%, benefiting from continued strong retention, higher renewal premium change and higher levels of new business. Net written premiums of $15.629 billion increased 4%. Growth in net written premiums was impacted by the new catastrophe reinsurance treaty.

Bond & Specialty Insurance Segment Financial Results

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

($ in millions and pre-tax, unless noted otherwise)

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

Underwriting gain:

$

142

 

 

$

214

 

 

$

(72

)

 

$

515

 

 

$

740

 

 

$

(225

)

 

Underwriting gain includes:

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable prior year reserve development

20

 

 

89

 

 

(69

)

 

65

 

 

266

 

 

(201

)

 

Catastrophes, net of reinsurance

(1

)

 

(7

)

 

6

 

 

(5

)

 

(16

)

 

11

 

 

Net investment income

60

 

 

61

 

 

(1

)

 

233

 

 

233

 

 

?

 

 

Other income

5

 

 

5

 

 

?

 

 

21

 

 

18

 

 

3

 

 

Segment income before income taxes

207

 

 

280

 

 

(73

)

 

769

 

 

991

 

 

(222

)

 

Income tax expense

40

 

 

60

 

 

(20

)

 

151

 

 

198

 

 

(47

)

 

Segment income

$

167

 

 

$

220

 

 

$

(53

)

 

$

618

 

 

$

793

 

 

$

(175

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined ratio

78.6

%

 

64.8

%

 

13.8

 

pts

79.5

%

 

69.0

%

 

10.5

 

pts

Impact on combined ratio

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable prior year reserve development

(2.9

)

pts

(14.4

)

pts

11.5

 

pts

(2.5

)

pts

(11.0

)

pts

8.5

 

pts

Catastrophes, net of reinsurance

0.2

 

pts

1.1

 

pts

(0.9

)

pts

0.2

 

pts

0.6

 

pts

(0.4

)

pts

Underlying combined ratio

81.3

%

 

78.1

%

 

3.2

 

pts

81.8

%

 

79.4

%

 

2.4

 

pts

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

Management Liability

$

411

 

 

$

366

 

 

12

%

 

$

1,605

 

 

$

1,455

 

 

10

%

 

Surety

206

 

 

198

 

 

4

 

 

866

 

 

835

 

 

4

 

 

Total Domestic

617

 

 

564

 

 

9

 

 

2,471

 

 

2,290

 

 

8

 

 

International

97

 

 

93

 

 

4

 

 

268

 

 

238

 

 

13

 

 

Total

$

714

 

 

$

657

 

 

9

%

 

$

2,739

 

 

$

2,528

 

 

8

%

 

Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)

Segment income for Bond & Specialty Insurance was $167 million after-tax, a decrease of $53 million. Segment income decreased primarily due to lower net favorable prior year reserve development. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

Net written premiums of $714 million increased 9%, reflecting continued strong retention, increased levels of renewal premium change and strong new business in management liability and continued strong surety production.

Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)

Segment income for Bond & Specialty Insurance was $618 million after-tax, a decrease of $175 million. Segment income decreased primarily due to lower net favorable prior year reserve development and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

Net written premiums of $2.739 billion increased 8% and benefited from the same factors as discussed above for the fourth quarter 2019.

Personal Insurance Segment Financial Results

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

($ in millions and pre-tax, unless noted otherwise)

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

Underwriting gain (loss):

$

284

 

 

$

(86

)

 

$

370

 

 

$

513

 

 

$

(135

)

 

$

648

 

 

Underwriting gain (loss) includes:

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable prior year reserve development

32

 

 

30

 

 

2

 

 

133

 

 

109

 

 

24

 

 

Catastrophes, net of reinsurance

(36

)

 

(406

)

 

370

 

 

(411

)

 

(1,061

)

 

650

 

 

Net investment income

105

 

 

104

 

 

1

 

 

419

 

 

408

 

 

11

 

 

Other income

22

 

 

18

 

 

4

 

 

87

 

 

66

 

 

21

 

 

Segment income before income taxes

411

 

 

36

 

 

375

 

 

1,019

 

 

339

 

 

680

 

 

Income tax expense

84

 

 

4

 

 

80

 

 

195

 

 

42

 

 

153

 

 

Segment income

$

327

 

 

$

32

 

 

$

295

 

 

$

824

 

 

$

297

 

 

$

527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined ratio

88.5

%

 

102.6

%

 

(14.1

)

pts

94.2

%

 

100.6

%

 

(6.4

)

pts

Impact on combined ratio

 

 

 

 

 

 

 

 

 

 

 

 

Net favorable prior year reserve development

(1.2

)

pts

(1.1

)

pts

(0.1

)

pts

(1.3

)

pts

(1.1

)

pts

(0.2

)

pts

Catastrophes, net of reinsurance

1.3

 

pts

15.9

 

pts

(14.6

)

pts

4.0

 

pts

10.7

 

pts

(6.7

)

pts

Underlying combined ratio

88.4

%

 

87.8

%

 

0.6

 

pts

91.5

%

 

91.0

%

 

0.5

 

pts

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

Agency (1)

 

 

 

 

 

 

 

 

 

 

 

 

Automobile

$

1,253

 

 

$

1,226

 

 

2

%

 

$

5,124

 

 

$

4,972

 

 

3

%

 

Homeowners and Other

1,145

 

 

1,011

 

 

13

 

 

4,540

 

 

4,148

 

 

9

 

 

Total Agency

2,398

 

 

2,237

 

 

7

 

 

9,664

 

 

9,120

 

 

6

 

 

Direct to Consumer

99

 

 

97

 

 

2

 

 

412

 

 

396

 

 

4

 

 

Total Domestic

2,497

 

 

2,334

 

 

7

 

 

10,076

 

 

9,516

 

 

6

 

 

International

161

 

 

167

 

 

(4

)

 

707

 

 

708

 

 

?

 

 

Total

$

2,658

 

 

$

2,501

 

 

6

%

 

$

10,783

 

 

$

10,224

 

 

5

%

 

(1) Represents business sold through agents, brokers and other intermediaries, and excludes direct to consumer and international.

Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise)

Segment income for Personal Insurance was $327 million after-tax, an increase of $295 million. Segment income increased primarily due to significantly lower catastrophe losses. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

Net written premiums of $2.658 billion increased 6%. Agency Automobile net written premiums increased 2%, driven by strong retention, renewal premium change of 3% and higher levels of new business. Agency Homeowners and Other net written premiums increased 13%, driven by strong retention, renewal premium change of 7% and higher levels of new business.

Full Year 2019 Results
(All comparisons vs. full year 2018, unless noted otherwise)

Segment income for Personal Insurance was $824 million after-tax, an increase of $527 million. Segment income increased primarily due to significantly lower catastrophe losses and higher net favorable prior year reserve development, partially offset by a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

Gross written premiums of $10.981 billion grew 6%. Net written premiums of $10.783 billion increased 5%.

Agency Automobile gross written premiums of $5.154 billion grew 3%, driven by strong retention, renewal premium change of 4% and higher levels of new business. Net written premiums increased 3%.

Agency Homeowners and Other gross written premiums of $4.685 billion grew 11% driven by strong retention, renewal premium change of 7% and higher levels of new business. Net written premiums increased 9%.

Growth in net written premiums was impacted by the new catastrophe reinsurance treaty.

Financial Supplement and Conference Call

The information in this press release should be read in conjunction with the financial supplement that is available on our website at www.travelers.com. Travelers management will discuss the contents of this release and other relevant topics via webcast at 9 a.m. Eastern (8 a.m. Central) on Thursday, January 23, 2020. Investors can access the call via webcast at http://investor.travelers.com or by dialing 1.844.895.1976 within the United States and 1.647.689.5389 outside the United States. Prior to the webcast, a slide presentation pertaining to the quarterly earnings will be available on the Company's website.

Following the live event, an audio playback of the webcast and the slide presentation will be available on the same website.

About Travelers

The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of property casualty insurance for auto, home and business. A component of the Dow Jones Industrial Average, Travelers has approximately 31,000 employees and generated revenues of approximately $32 billion in 2019. For more information, visit www.travelers.com.

Travelers may use its website and/or social media outlets, such as Facebook and Twitter, as distribution channels of material Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website at http://investor.travelers.com, our Facebook page at https://www.facebook.com/travelers and our Twitter account (@Travelers) at https://twitter.com/travelers. In addition, you may automatically receive email alerts and other information about Travelers when you enroll your email address by visiting the Email Notifications section at http://investor.travelers.com.

Travelers is organized into the following reportable business segments:

Business Insurance - Business Insurance offers a broad array of property and casualty insurance and insurance-related services to its customers, primarily in the United States, as well as in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world as a corporate member of Lloyd's.

Bond & Specialty Insurance - Bond & Specialty Insurance provides surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services to its customers in the United States and certain specialty insurance products in Canada, the United Kingdom and the Republic of Ireland, as well as Brazil through a joint venture, utilizing various degrees of financially-based underwriting approaches.

Personal Insurance - Personal Insurance writes a broad range of property and casualty insurance covering individuals' personal risks, primarily in the United States, as well as in Canada. The primary products of automobile and homeowners insurance are complemented by a broad suite of related coverages.

* * * * *

Forward-Looking Statements

This press release contains, and management may make, certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as "may," "will," "should," "likely," "anticipates," "expects," "intends," "plans," "projects," "believes," "estimates" and similar expressions are used to identify these forward-looking statements. These statements include, among other things, the Company's statements about:

The Company 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:

Our forward-looking statements speak only as of the date of this press release or as of the date they are made, and we undertake no obligation to update forward-looking statements. For a more detailed discussion of these factors, see the information under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 14, 2019, as updated by our periodic filings with the SEC.

*****

GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

The following measures are used by the Company's management to evaluate financial performance against historical results, to establish performance targets on a consolidated basis, and for other reasons as discussed below. In some cases, these measures are considered non-GAAP financial measures under applicable SEC rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. Reconciliations of these measures to the most comparable GAAP measures also follow.

In the opinion of the Company's management, a discussion of these measures provides investors, financial analysts, rating agencies and other financial statement users with a better understanding of the significant factors that comprise the Company's periodic results of operations and how management evaluates the Company's financial performance.

Some of these measures exclude net realized investment gains (losses), net of tax, and/or net unrealized investment gains (losses), net of tax, included in shareholders' equity, which can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends.

Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by the Company's management.

RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER NON-GAAP MEASURES

Core income (loss) is consolidated net income (loss) excluding the after-tax impact of net realized investment gains (losses), discontinued operations, the effect of a change in tax laws and tax rates at enactment, and cumulative effect of changes in accounting principles when applicable. Segment income (loss) is determined in the same manner as core income (loss) on a segment basis. Management uses segment income (loss) to analyze each segment's performance and as a tool in making business decisions. Financial statement users also consider core income (loss) when analyzing the results and trends of insurance companies. Core income (loss) per share is core income (loss) on a per common share basis.

Reconciliation of Net Income to Core Income less Preferred Dividends

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

($ in millions, after-tax)

 

2019

 

2018

 

2019

 

2018

Net income

 

$

873

 

 

$

621

 

 

$

2,622

 

 

$

2,523

 

Less: Net realized investment gains

 

(6

)

 

(50

)

 

(85

)

 

(93

)

Core income

 

$

867

 

 

$

571

 

 

$

2,537

 

 

$

2,430

 

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

($ in millions, pre-tax)

 

2019

 

2018

 

2019

 

2018

Net income

 

$

1,074

 

 

$

746

 

 

$

3,138

 

 

$

2,961

 

Less: Net realized investment gains

 

(12

)

 

(60

)

 

(113

)

 

(114

)

Core income

 

$

1,062

 

 

$

686

 

 

$

3,025

 

 

$

2,847

 

 

Twelve Months Ended December 31,

($ in millions, after-tax)

 

2019

 

2018

 

2017

 

2016

 

2015

 

2014

 

2013

 

2012

 

2011

 

2010

 

2009

 

2008

 

2007

 

2006

 

2005

Net income

 

$2,622

 

$2,523

 

$2,056

 

$3,014

 

$3,439

 

$3,692

 

$3,673

 

$2,473

 

$1,426

 

$3,216

 

$3,622

 

$2,924

 

$4,601

 

$4,208

 

$1,622

Less: Loss from discontinued operations

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

(439)

Income from continuing operations

 

2,622

 

2,523

 

2,056

 

3,014

 

3,439

 

3,692

 

3,673

 

2,473

 

1,426

 

3,216

 

3,622

 

2,924

 

4,601

 

4,208

 

2,061

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized investment (gains) losses

 

(85)

 

(93)

 

(142)

 

(47)

 

(2)

 

(51)

 

(106)

 

(32)

 

(36)

 

(173)

 

(22)

 

271

 

(101)

 

(8)

 

(35)

Impact of TCJA at enactment (1)

 

?

 

?

 

129

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

Core income

 

2,537

 

2,430

 

2,043

 

2,967

 

3,437

 

3,641

 

3,567

 

2,441

 

1,390

 

3,043

 

3,600

 

3,195

 

4,500

 

4,200

 

2,026

Less: Preferred dividends

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

1

 

3

 

3

 

4

 

4

 

5

 

6

Core income, less preferred dividends

 

$2,537

 

$2,430

 

$2,043

 

$2,967

 

$3,437

 

$3,641

 

$3,567

 

$2,441

 

$1,389

 

$3,040

 

$3,597

 

$3,191

 

$4,496

 

$4,195

 

$2,020

(1) Tax Cuts and Jobs Act of 2017 (TCJA)

Reconciliation of Net Income per Share to Core Income per Share on a Basic and Diluted Basis

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

 

 

2019

 

2018

 

2019

 

2018

Basic income per share

 

 

 

 

 

 

 

 

Net income

 

$

3.37

 

 

$

2.33

 

 

$

10.01

 

 

$

9.37

 

Adjustments:

 

 

 

 

 

 

 

 

Net realized investment gains, after-tax

 

(0.02

)

 

(0.18

)

 

(0.32

)

 

(0.35

)

Core income

 

$

3.35

 

 

$

2.15

 

 

$

9.69

 

 

$

9.02

 

Diluted income per share

 

 

 

 

 

 

 

 

Net income

 

$

3.35

 

 

$

2.32

 

 

$

9.92

 

 

$

9.28

 

Adjustments:

 

 

 

 

 

 

 

 

Net realized investment gains, after-tax

 

(0.03

)

 

(0.19

)

 

(0.32

)

 

(0.34

)

Core income

 

$

3.32

 

 

$

2.13

 

 

$

9.60

 

 

$

8.94

 

 

Reconciliation of Segment Income to Total Core Income

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

($ in millions, after-tax)

 

2019

 

2018

 

2019

 

2018

Business Insurance

 

$

448

 

 

$

391

 

 

$

1,392

 

 

$

1,638

 

Bond & Specialty Insurance

 

167

 

 

220

 

 

618

 

 

793

 

Personal Insurance

 

327

 

 

32

 

 

824

 

 

297

 

Total segment income

 

942

 

 

643

 

 

2,834

 

 

2,728

 

Interest Expense and Other

 

(75

)

 

(72

)

 

(297

)

 

(298

)

Total core income

 

$

867

 

 

$

571

 

 

$

2,537

 

 

$

2,430

 

RECONCILIATION OF SHAREHOLDERS' EQUITY TO ADJUSTED SHAREHOLDERS' EQUITY AND CALCULATION OF RETURN ON EQUITY AND CORE RETURN ON EQUITY

Adjusted shareholders' equity is shareholders' equity excluding net unrealized investment gains (losses), net of tax, included in shareholders' equity, net realized investment gains (losses), net of tax, for the period presented, the effect of a change in tax laws and tax rates at enactment (excluding the portion related to net unrealized investment gains (losses)), preferred stock and discontinued operations.

Reconciliation of Shareholders' Equity to Adjusted Shareholders' Equity

 

 

 

As of December 31,

($ in millions)

 

2019

 

2018

 

2017

 

2016

 

2015

 

2014

 

2013

 

2012

 

2011

 

2010

 

2009

 

2008

 

2007

 

2006

 

2005

Shareholders' equity

 

$25,943

 

$22,894

 

$23,731

 

$23,221

 

$23,598

 

$24,836

 

$24,796

 

$25,405

 

$24,477

 

$25,475

 

$27,415

 

$25,319

 

$26,616

 

$25,135

 

$22,303

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized investment (gains) losses, net of tax, included in shareholders' equity

 

(2,246)

 

113

 

(1,112)

 

(730)

 

(1,289)

 

(1,966)

 

(1,322)

 

(3,103)

 

(2,871)

 

(1,859)

 

(1,856)

 

146

 

(620)

 

(453)

 

(327)

Net realized investment (gains) losses, net of tax

 

(85)

 

(93)

 

(142)

 

(47)

 

(2)

 

(51)

 

(106)

 

(32)

 

(36)

 

(173)

 

(22)

 

271

 

(101)

 

(8)

 

(35)

Impact of TCJA at enactment

 

?

 

?

 

287

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

Preferred stock

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

(68)

 

(79)

 

(89)

 

(112)

 

(129)

 

(153)

Loss from discontinued operations

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

?

 

439

Adjusted shareholders' equity

 

$23,612

 

$22,914

 

$22,764

 

$22,444

 

$22,307

 

$22,819

 

$23,368

 

$22,270

 

$21,570

 

$23,375

 

$25,458

 

$25,647

 

$25,783

 

$24,545

 

$22,227

Return on equity is the ratio of annualized net income (loss) less preferred dividends to average shareholders' equity for the periods presented. Core return on equity is the ratio of annualized core income (loss) less preferred dividends to adjusted average shareholders' equity for the periods presented. In the opinion of the Company's management, these are important indicators of how well management creates value for its shareholders through its operating activities and its capital management.

Average shareholders' equity is (a) the sum of total shareholders' equity excluding preferred stock at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two. Adjusted average shareholders' equity is (a) the sum of total adjusted shareholders' equity at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two.

Calculation of Return on Equity and Core Return on Equity

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

($ in millions, after-tax)

 

2019

 

2018

 

2019

 

2018

Annualized net income

 

$

3,490

 

 

$

2,483

 

 

$

2,622

 

 

$

2,523

 

Average shareholders' equity

 

25,775

 

 

22,677

 

 

24,922

 

 

22,843

 

Return on equity

 

13.5

%

 

10.9

%

 

10.5

%

 

11.0

%

Annualized core income

 

$

3,468

 

 

$

2,286

 

 

$

2,537

 

 

$

2,430

 

Adjusted average shareholders' equity

 

23,472

 

 

22,932

 

 

23,335

 

 

22,814

 

Core return on equity

 

14.8

%

 

10.0

%

 

10.9

%

 

10.7

%

Average annual core return on equity over a period is the ratio of:
a) the sum of core income less preferred dividends for the periods presented to b) the sum of: 1) the sum of the adjusted average shareholders' equity for all full years in the period presented, and 2) for partial years in the period presented, the number of quarters in that partial year divided by four, multiplied by the adjusted average shareholders' equity of the partial year.

Calculation of Average Annual Core Return on Equity from January 1, 2005 through December 31, 2019

 

 

 

Twelve Months Ended December 31,

($ in millions)

 

2019

 

2018

 

2017

 

2016

 

2015

 

2014

 

2013

 

2012

 

2011

 

2010

 

2009

 

2008

 

2007

 

2006

 

2005

Core income, less preferred dividends

 

$2,537

 

$2,430

 

$2,043

 

$2,967

 

$3,437

 

$3,641

 

$3,567

 

$2,441

 

$1,389

 

$3,040

 

$3,597

 

$3,191

 

$4,496

 

$4,195

 

$2,020

Adjusted average shareholders' equity

 

23,335

 

22,814

 

22,743

 

22,386

 

22,681

 

23,447

 

23,004

 

22,158

 

22,806

 

24,285

 

25,777

 

25,668

 

25,350

 

23,381

 

21,118

Core return on equity

 

10.9%

 

10.7%

 

9.0%

 

13.3%

 

15.2%

 

15.5%

 

15.5%

 

11.0%

 

6.1%

 

12.5%

 

14.0%

 

12.4%

 

17.7%

 

17.9%

 

9.6%

Average annual core return on equity for the period Jan. 1, 2005 through December 31, 2019

 

12.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN ITEMS TO NET INCOME

Underwriting gain (loss) is net earned premiums and fee income less claims and claim adjustment expenses and insurance-related expenses. In the opinion of the Company's management, it is important to measure the profitability of each segment excluding the results of investing activities, which are managed separately from the insurance business. This measure is used to assess each segment's business performance and as a tool in making business decisions. Pre-tax underwriting gain, excluding the impact of catastrophes and net favorable (unfavorable) prior year loss reserve development, is the underwriting gain adjusted to exclude claims and claim adjustment expenses, reinstatement premiums and assessments related to catastrophes and loss reserve development related to time periods prior to the current year. In the opinion of the Company's management, this measure is meaningful to users of the financial statements to understand the Company's periodic earnings and the variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophes and loss reserve development. This measure is also referred to as underlying underwriting margin or underlying underwriting gain.

A catastrophe is a severe loss designated a catastrophe by internationally recognized organizations that track and report on insured losses resulting from catastrophic events, such as Property Claim Services (PCS) for events in the United States and Canada. Catastrophes can be caused by various natural events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions and other naturally-occurring events, such as solar flares. Catastrophes can also be man-made, such as terrorist attacks and other intentionally destructive acts including those involving nuclear, biological, chemical and radiological events, cyber events, explosions and destruction of infrastructure. Each catastrophe has unique characteristics and catastrophes are not predictable as to timing or amount. Their effects are included in net and core income and claims and claim adjustment expense reserves upon occurrence. A catastrophe may result in the payment of reinsurance reinstatement premiums and assessments from various pools.

The Company's threshold for disclosing catastrophes is primarily determined at the reportable segment level. If a threshold for one segment or a combination thereof is exceeded and the other segments have losses from the same event, losses from the event are identified as catastrophe losses in the segment results and for the consolidated results of the Company. Additionally, an aggregate threshold is applied for international business across all reportable segments. The threshold for 2019 ranges from approximately $19 million to $30 million of losses before reinsurance and taxes.

Net favorable (unfavorable) prior year loss reserve development is the increase or decrease in incurred claims and claim adjustment expenses as a result of the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given group of claims, which may be related to one or more prior years. In the opinion of the Company's management, a discussion of loss reserve development is meaningful to users of the financial statements as it allows them to assess the impact between prior and current year development on incurred claims and claim adjustment expenses, net and core income (loss), and changes in claims and claim adjustment expense reserve levels from period to period.

Components of Net Income

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

($ in millions, after-tax except as noted)

 

2019

 

2018

 

2019

 

2018

Pre-tax underwriting gain excluding the impact of catastrophes and net prior year loss reserve development

 

$

538

 

 

$

578

 

 

$

1,779

 

 

$

1,880

 

Pre-tax impact of catastrophes

 

(85

)

 

(610

)

 

(886

)

 

(1,716

)

Pre-tax impact of net favorable (unfavorable) prior year loss reserve development

 

60

 

 

167

 

 

(60

)

 

517

 

Pre-tax underwriting gain

 

513

 

 

135

 

 

833

 

 

681

 

Income tax expense on underwriting results

 

117

 

 

36

 

 

179

 

 

105

 

Underwriting gain

 

396

 

 

99

 

 

654

 

 

576

 

Net investment income

 

525

 

 

535

 

 

2,097

 

 

2,102

 

Other income (expense), including interest expense

 

(54

)

 

(63

)

 

(214

)

 

(248

)

Core income

 

867

 

 

571

 

 

2,537

 

 

2,430

 

Net realized investment gains

 

6

 

 

50

 

 

85

 

 

93

 

Net income

 

$

873

 

 

$

621

 

 

$

2,622

 

 

$

2,523

 

COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED RATIO

Combined ratio: For Statutory Accounting Practices (SAP), the combined ratio is the sum of the SAP loss and LAE ratio and the SAP underwriting expense ratio as defined in the statutory financial statements required by insurance regulators. The combined ratio, as used in this earnings release, is the equivalent of, and is calculated in the same manner as, the SAP combined ratio except that the SAP underwriting expense ratio is based on net written premiums and the underwriting expense ratio as used in this earnings release is based on net earned premiums.

For SAP, the loss and LAE ratio is the ratio of incurred losses and loss adjustment expenses less certain administrative services fee income to net earned premiums as defined in the statutory financial statements required by insurance regulators. The loss and LAE ratio as used in this earnings release is calculated in the same manner as the SAP ratio.

For SAP, the underwriting expense ratio is the ratio of underwriting expenses incurred (including commissions paid), less certain administrative services fee income and billing and policy fees and other, to net written premiums as defined in the statutory financial statements required by insurance regulators. The underwriting expense ratio as used in this earnings release, is the ratio of underwriting expenses (including the amortization of deferred acquisition costs), less certain administrative services fee income, billing and policy fees and other, to net earned premiums.

The combined ratio, loss and LAE ratio, and underwriting expense ratio are used as indicators of the Company's underwriting discipline, efficiency in acquiring and servicing its business and overall underwriting profitability. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.

Underlying combined ratio represents the combined ratio excluding the impact of net prior year reserve development and catastrophes. The underlying combined ratio is an indicator of the Company's underwriting discipline and underwriting profitability for the current accident year.

Other companies' method of computing similarly titled measures may not be comparable to the Company's method of computing these ratios.

Calculation of the Combined Ratio

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

($ in millions, pre-tax)

 

2019

 

2018

 

2019

 

2018

Loss and loss adjustment expense ratio

 

 

 

 

 

 

 

 

Claims and claim adjustment expenses

 

$

4,640

 

 

$

4,778

 

 

$

19,133

 

 

$

18,291

 

Less:

 

 

 

 

 

 

 

 

Policyholder dividends

 

10

 

 

15

 

 

47

 

 

52

 

Allocated fee income

 

42

 

 

39

 

 

174

 

 

154

 

Loss ratio numerator

 

$

4,588

 

 

$

4,724

 

 

$

18,912

 

 

$

18,085

 

Underwriting expense ratio

 

 

 

 

 

 

 

 

Amortization of deferred acquisition costs

 

$

1,181

 

 

$

1,122

 

 

$

4,601

 

 

$

4,381

 

General and administrative expenses (G&A)

 

1,085

 

 

1,063

 

 

4,365

 

 

4,297

 

Less:

 

 

 

 

 

 

 

 

Non-insurance G&A

 

56

 

 

45

 

 

201

 

 

159

 

Allocated fee income

 

71

 

 

69

 

 

285

 

 

278

 

Billing and policy fees and other

 

27

 

 

24

 

 

108

 

 

93

 

Expense ratio numerator

 

$

2,112

 

 

$

2,047

 

 

$

8,372

 

 

$

8,148

 

Earned premium

 

$

7,250

 

 

$

6,945

 

 

$

28,272

 

 

$

27,059

 

Combined ratio (1)

 

 

 

 

 

 

 

 

Loss and loss adjustment expense ratio

 

63.3

%

 

68.0

%

 

66.9

%

 

66.8

%

Underwriting expense ratio

 

29.1

%

 

29.5

%

 

29.6

%

 

30.1

%

Combined ratio

 

92.4

%

 

97.5

%

 

96.5

%

 

96.9

%

(1) For purposes of computing ratios, billing and policy fees and other (which are a component of other revenues) are allocated as a reduction of underwriting expenses. In addition, fee income is allocated as a reduction of losses and loss adjustment expenses and underwriting expenses. In addition, G&A include non-insurance expenses that are excluded from underwriting expenses, and accordingly are excluded in calculating the combined ratio.

RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS' EQUITY TO CERTAIN NON-GAAP MEASURES

Book value per share is total common shareholders' equity divided by the number of common shares outstanding. Adjusted book value per share is total common shareholders' equity excluding net unrealized investment gains and losses, net of tax, included in shareholders' equity, divided by the number of common shares outstanding. In the opinion of the Company's management, adjusted book value per share is useful in an analysis of a property casualty company's book value per share as it removes the effect of changing prices on invested assets (i.e., net unrealized investment gains (losses), net of tax), which do not have an equivalent impact on unpaid claims and claim adjustment expense reserves. Tangible book value per share is adjusted book value per share excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding. In the opinion of the Company's management, tangible book value per share is useful in an analysis of a property casualty company's book value on a nominal basis as it removes certain effects of purchase accounting (i.e., goodwill and other intangible assets), in addition to the effect of changing prices on invested assets.

Reconciliation of Shareholders' Equity to Tangible Shareholders' Equity, Excluding Net Unrealized Investment Gains (Losses), Net of Tax

 

 

 

As of

($ in millions, except per share amounts)

 

December 31,
2019

 

December 31,
2018

Shareholders' equity

 

$

25,943

 

 

$

22,894

 

Less: Net unrealized investment gains (losses), net of tax, included in shareholders' equity

 

2,246

 

 

(113

)

Shareholders' equity, excluding net unrealized investment gains (losses), net of tax, included in shareholders' equity

 

23,697

 

 

23,007

 

Less:

 

 

 

 

Goodwill

 

3,961

 

 

3,937

 

Other intangible assets

 

330

 

 

345

 

Impact of deferred tax on other intangible assets

 

(51

)

 

(44

)

Tangible shareholders' equity

 

$

19,457

 

 

$

18,769

 

Common shares outstanding

 

255.5

 

 

263.6

 

Book value per share

 

$

101.55

 

 

$

86.84

 

Adjusted book value per share

 

92.76

 

 

87.27

 

Tangible book value per share

 

76.17

 

 

71.20

 

RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL CAPITALIZATION EXCLUDING NET UNREALIZED INVESTMENT GAINS (LOSSES), NET OF TAX

Total capitalization is the sum of total shareholders' equity and debt. Debt-to-capital ratio excluding net unrealized gain (loss) on investments, net of tax, included in shareholders' equity, is the ratio of debt to total capitalization excluding the after-tax impact of net unrealized investment gains and losses included in shareholders' equity. In the opinion of the Company's management, the debt-to-capital ratio is useful in an analysis of the Company's financial leverage.

 

 

As of

($ in millions)

 

December 31,
2019

 

December 31,
2018

Debt

 

$

6,558

 

 

$

6,564

 

Shareholders' equity

 

25,943

 

 

22,894

 

Total capitalization

 

32,501

 

 

29,458

 

Less: Net unrealized investment gains (losses), net of tax, included in shareholders' equity

 

2,246

 

 

(113

)

Total capitalization excluding net unrealized gain (loss) on investments, net of tax, included in shareholders' equity

 

$

30,255

 

 

$

29,571

 

Debt-to-capital ratio

 

20.2

%

 

22.3

%

Debt-to-capital ratio excluding net unrealized investment gains (losses), net of tax, included in shareholders' equity

 

21.7

%

 

22.2

%

OTHER DEFINITIONS

Gross written premiums reflect the direct and assumed contractually determined amounts charged to policyholders for the effective period of the contract based on the terms and conditions of the insurance contract. Net written premiums reflect gross written premiums less premiums ceded to reinsurers.

For Business Insurance and Bond & Specialty Insurance, retention is the amount of premium available for renewal that was retained, excluding rate and exposure changes. For Personal Insurance, retention is the ratio of the expected number of renewal policies that will be retained throughout the annual policy period to the number of available renewal base policies. For all of the segments, renewal rate change represents the estimated change in average premium on policies that renew, excluding exposure changes. Exposure is the measure of risk used in the pricing of an insurance product. The change in exposure is the amount of change in premium on policies that renew attributable to the change in portfolio risk. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. New business is the amount of written premium related to new policyholders and additional products sold to existing policyholders. These are operating statistics, which are in part dependent on the use of estimates and are therefore subject to change. For Business Insurance, retention, renewal premium change and new business exclude National Accounts. For Bond & Specialty Insurance, retention, renewal premium change and new business exclude surety and other products that are generally sold on a non-recurring, project specific basis.

Statutory capital and surplus represents the excess of an insurance company's admitted assets over its liabilities, including loss reserves, as determined in accordance with statutory accounting practices.

Holding company liquidity is the total funds available at the holding company level to fund general corporate purposes, primarily the payment of shareholder dividends and debt service. These funds consist of total cash, short-term invested assets and other readily marketable securities held by the holding company.

For a glossary of other financial terms used in this press release, we refer you to the Company's most recent annual report on Form 10-K filed with the SEC on February 14, 2019, and subsequent periodic filings with the SEC.


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