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Share Name | Share Symbol | Market | Type |
---|---|---|---|
The Travelers Companies Inc | NYSE:TRV | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.07 | 0.03% | 219.29 | 220.31 | 219.00 | 220.01 | 96,662 | 15:25:37 |
Second Quarter Return on Equity of 9.2% and Core Return on Equity of 8.7%
The Travelers Companies, Inc. today reported net income of $524 million, or $1.92 per diluted share, for the quarter ended June 30, 2018, compared to $595 million, or $2.11 per diluted share, in the prior year quarter. Core income in the current quarter was $494 million, or $1.81 per diluted share, compared to $543 million, or $1.92 per diluted share, in the prior year quarter. Core income before income taxes decreased primarily due to an increase in catastrophe losses of $85 million, an incremental charge of $45 million associated with a few large commercial losses, primarily fire related, and an $18 million assessment from the Texas Windstorm Insurance Association (TWIA) related to Hurricane Harvey. Core income benefited by $54 million from a lower U.S. corporate income tax rate. Net realized investment gains of $36 million pre-tax ($30 million after-tax) decreased due to lower gains on equity securities. Per diluted share amounts benefited from the impact of share repurchases.
Consolidated Highlights
($ in millions, except for per share amounts, and after-tax, Three Months Ended June 30, Six Months Ended June 30, except for premiums & revenues) 2018 2017 Change 2018 2017 Change Net written premiums $ 7,131 $ 6,640 7 % $ 13,955 $ 13,135 6 % Total revenues $ 7,477 $ 7,184 4 $ 14,763 $ 14,126 5 Net income $ 524 $ 595 (12 ) $ 1,193 $ 1,212 (2 ) per diluted share $ 1.92 $ 2.11 (9 ) $ 4.35 $ 4.28 2 Core income $ 494 $ 543 (9 ) $ 1,172 $ 1,157 1 per diluted share $ 1.81 $ 1.92 (6 ) $ 4.27 $ 4.08 5 Diluted weighted average 271.1 280.0 (3 ) 272.5 281.2 (3 ) shares outstanding Combined ratio 98.1 % 96.7 % 1.4 pts 96.8 % 96.4 % 0.4 pts Underlying combined ratio 93.6 % 93.5 % 0.1 pts 93.0 % 92.7 % 0.3 pts Return on equity 9.2 % 10.0 % (0.8 ) pts 10.3 % 10.3 % - pts Core return on equity 8.7 % 9.5 % (0.8 ) pts 10.3 % 10.2 % 0.1 ptsChange from June 30, December 31, June 30, December 31, June 30, 2018 2017 2017 2017 2017 Book value per share $ 84.51 $ 87.46 $ 86.46 (3 ) % (2 ) % Adjusted book value per share 84.93 83.36 82.71 2 3
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.
“Second quarter core income was $494 million, down from $543 million in the prior year quarter, due to a $122 million after-tax increase in catastrophe losses resulting from an active tornado and hail season,” said Alan Schnitzer, Chairman and Chief Executive Officer. “Results excluding catastrophe losses were strong, reflecting record net earned premiums and a consolidated underlying combined ratio of 93.6%, with each of our business segments contributing. The underlying combined ratio in Business Insurance was a solid 96.5%. The underlying combined ratio in our Bond & Specialty Insurance business was strong at 80.5%. The underlying combined ratio in Personal Insurance improved to 92.6%, reflecting a 6.9 point improvement in Agency Auto as a result of our actions in recent quarters to increase profitability. The consolidated expense ratio improved by 0.4 points from disciplined top line growth and expense management, along with the successful execution of our productivity initiatives. Our investment portfolio continued to perform well, with income from our fixed income portfolio continuing to increase. Our capital management strategy remains unchanged, and we returned approximately $560 million of excess capital to our shareholders this quarter, including $350 million of share repurchases, bringing the year-to-date total to over $1.15 billion.
“We are pleased with the execution of our marketplace strategies. Net written premiums increased by 7% to a record $7.1 billion. Net written premiums in Business Insurance increased by 7%. This was driven by very strong execution by our domestic field organization, which resulted in renewal premium change that reached 5.3%, its highest level since 2014, while still achieving retention of 85%, consistent with historical highs. The recent establishment of business centers in our Commercial Accounts business contributed to an 8% increase in domestic new business in Business Insurance. In Bond & Specialty Insurance, net written premiums increased by 9%, with strong production across our Management Liability and Surety businesses. In Personal Insurance, net written premiums increased by 8%, benefiting from renewal premium change of 9% in Agency Auto and continued growth in Agency Homeowners.
“Turning to weather more broadly, absent a severe hurricane season, we expect catastrophe losses to be highest in the second quarter. Catastrophe losses were $488 million this quarter, approximately $50 million more than we would have expected, but within the range of normal variability. This follows several recent quarters in which catastrophe losses exceeded our historical experience and expectations. Weather is inherently unpredictable, and accordingly, we take a balanced approach to developing conclusions from what happens in a relatively short period of time. As always, the impact of weather on our business has our full attention, and we will continue to use our leading actuarial expertise and the latest in weather modeling to inform our underwriting and pricing decisions.
“With a strong foundation, an active innovation agenda, superior talent and a track record of successfully managing our businesses for the long term, we remain well positioned to continue to deliver leading returns over time.”
Consolidated Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended June 30, Six Months Ended June 30, 2018 2017 Change 2018 2017 Change Underwriting gain: $ 90 $ 173 $ (83 ) $ 348 $ 384 $ (36 )Underwriting gain includes:
Net favorable prior year reserve development 186 203 (17 ) 336 284 52 Catastrophes, net of reinsurance (488 ) (403 ) (85 ) (842 ) (750 ) (92 ) Net investment income 595 598 (3 ) 1,198 1,208 (10 ) Other income/(expense), including interest expense (90 ) (61 ) (29 ) (162 ) (127 ) (35 ) Core income before income taxes 595 710 (115 ) 1,384 1,465 (81 ) Income tax expense 101 167 (66 ) 212 308 (96 ) Core income 494 543 (49 ) 1,172 1,157 15 Net realized investment gains after income taxes 30 52 (22 ) 21 55 (34 ) Net income $ 524 $ 595 $ (71 ) $ 1,193 $ 1,212 $ (19 ) Combined ratio 98.1 % 96.7 % 1.4 pts 96.8 % 96.4 % 0.4 ptsImpact on combined ratio
Net favorable prior year reserve development (2.8 ) pts (3.2 ) pts 0.4 pts (2.5 ) pts (2.3 ) pts (0.2 ) pts Catastrophes, net of reinsurance 7.3 pts 6.4 pts 0.9 pts 6.3 pts 6.0 pts 0.3 pts Underlying combined ratio 93.6 % 93.5 % 0.1 pts 93.0 % 92.7 % 0.3 pts Net written premiums Business Insurance $ 3,781 $ 3,544 7 % $ 7,775 $ 7,399 5 % Bond & Specialty Insurance 653 598 9 1,227 1,142 7 Personal Insurance 2,697 2,498 8 4,953 4,594 8 Total $ 7,131 $ 6,640 7 % $ 13,955 $ 13,135 6 %Second Quarter 2018 Results(All comparisons vs. second quarter 2017, unless noted otherwise)
Net income of $524 million decreased $71 million due to lower core income and lower net realized investment gains. Core income of $494 million decreased $49 million. Core income before income taxes decreased primarily due to an increase in catastrophe losses of $85 million, an incremental charge of $45 million associated with a few large commercial losses, primarily fire related, and the $18 million assessment from TWIA. Core income benefited by $54 million from a lower U.S. corporate income tax rate. Net realized investment gains of $36 million pre-tax ($30 million after-tax) decreased due to lower gains on equity securities.
Underwriting results:
Net investment income of $595 million pre-tax was comparable to the prior year quarter. Private equity returns, although strong, were lower than the prior year quarter, while income from our fixed income investment portfolio increased due to a higher average level of fixed maturity investments and higher short-term interest rates.
Record net written premiums of $7.131 billion increased 7%, reflecting growth in all segments.
Year-to-Date 2018 Results(All comparisons vs. year-to-date 2017, unless noted otherwise)
Net income of $1.193 billion decreased $19 million due to lower net realized investment gains, partially offset by higher core income. Core income of $1.172 million increased $15 million. Core income before income taxes decreased due to higher catastrophe losses, partially offset by higher net favorable prior year reserve development. Core income benefited by $127 million from a lower U.S. corporate income tax rate. Net realized investment gains of $25 million pre-tax ($21 million after-tax) were lower, primarily driven by gains on the sale of equity securities in the prior year period.
Underwriting results:
Net investment income of $1.198 billion pre-tax ($1.020 billion after-tax) was comparable to the prior year period and benefited from the same factors as discussed above for the second quarter 2018.
Record net written premiums of $13.955 billion increased 6%, reflecting growth in all segments.
Shareholders’ Equity
Shareholders’ equity of $22.623 billion decreased 5% from year-end 2017 due to the impact of higher interest rates on net unrealized investment gains/(losses). Net unrealized investment losses included in shareholders’ equity were $(135) million pre-tax ($(112) million after-tax), compared to net unrealized investment gains of $1.414 billion pre-tax ($1.112 billion after-tax) at year-end 2017. Book value per share of $84.51 decreased 3% from year-end 2017, also due to the impact of higher interest rates on net unrealized investment gains/(losses), and adjusted book value per share of $84.93 increased 2% from year-end 2017.
The Company repurchased 2.7 million shares during the second quarter at an average price of $129.66 per share for a total cost of $350 million. Capacity remaining under the existing share repurchase authorization was $3.856 billion at the end of the quarter. At the end of second quarter 2018, statutory capital and surplus was $20.371 billion and the ratio of debt-to-capital was 22.2%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains/(losses) included in shareholders’ equity was 22.1%, within the Company’s target range of 15% to 25%.
The Board of Directors declared a quarterly dividend of $0.77 per share. This dividend is payable on September 28, 2018, to shareholders of record as of the close of business on September 10, 2018.
Business Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended June 30, Six Months Ended June 30, 2018 2017 Change 2018 2017 Change Underwriting gain: $ 32 $ 107 $ (75 ) $ 105 $ 216 $ (111 )Underwriting gain includes:
Net favorable prior year reserve development 84 125 (41 ) 150 186 (36 ) Catastrophes, net of reinsurance (168 ) (184 ) 16 (306 ) (316 ) 10 Net investment income 440 447 (7 ) 886 900 (14 ) Other income/(expense) (10 ) 15 (25 ) (7 ) 24 (31 ) Segment income before income taxes 462 569 (107 ) 984 1,140 (156 ) Income tax expense 77 140 (63 ) 147 269 (122 ) Segment income $ 385 $ 429 $ (44 ) $ 837 $ 871 $ (34 ) Combined ratio 98.8 % 96.5 % 2.3 pts 98.2 % 96.5 % 1.7 ptsImpact on combined ratio
Net favorable prior year reserve development (2.3 ) pts (3.6 ) pts 1.3 pts (2.1 ) pts (2.7 ) pts 0.6 pts Catastrophes, net of reinsurance 4.6 pts 5.3 pts (0.7 ) pts 4.3 pts 4.6 pts (0.3 ) pts Underlying combined ratio 96.5 % 94.8 % 1.7 pts 96.0 % 94.6 % 1.4 pts Net written premiums by market Domestic Select Accounts $ 729 $ 720 1 % $ 1,502 $ 1,475 2 % Middle Market 1,985 1,820 9 4,247 3,997 6 National Accounts 231 219 5 540 507 7 National Property and Other 518 496 4 898 882 2 Total Domestic 3,463 3,255 6 7,187 6,861 5 International 318 289 10 588 538 9 Total $ 3,781 $ 3,544 7 % $ 7,775 $ 7,399 5 %Second Quarter 2018 Results(All comparisons vs. second quarter 2017, unless noted otherwise)
Segment income for Business Insurance was $385 million after-tax, a decrease of $44 million. Segment income before income taxes was impacted by a lower underlying underwriting gain and lower net favorable prior year reserve development. The lower underlying underwriting gain was driven by normal quarterly variability in both loss and expense activity, including an incremental charge of $45 million associated with a few large commercial losses, primarily fire related, and $9 million from the TWIA assessment. Segment income in the current quarter benefited from a lower U.S. corporate income tax rate.
Underwriting results:
Net written premiums of $3.781 billion increased 7%, benefiting from continued strong retention, higher renewal premium change and higher levels of new business.
Year-to-Date 2018 Results(All comparisons vs. year-to-date 2017, unless noted otherwise)
Segment income for Business Insurance was $837 million after-tax, a decrease of $34 million. Segment income before income taxes was impacted by a lower underlying underwriting gain, primarily driven by normal variability in loss activity, including a charge of $45 million associated with a few large commercial losses, primarily fire related, and lower net favorable prior year reserve development. Segment income in the current quarter benefited from a lower U.S. corporate income tax rate. Segment income in the prior year period included a $15 million benefit from the resolution of prior year tax matters.
Underwriting results:
Net written premiums of $7.775 billion increased 5% and benefited from the same factors discussed above for the second quarter 2018.
Bond & Specialty Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended June 30, Six Months Ended June 30, 2018 2017 Change 2018 2017 Change Underwriting gain: $ 199 $ 177 $ 22 $ 343 $ 289 $ 54Underwriting gain includes:
Net favorable prior year reserve development 89 78 11 124 92 32 Catastrophes, net of reinsurance (5 ) (1 ) (4 ) (5 ) (2 ) (3 ) Net investment income 57 56 1 115 117 (2 ) Other income 3 6 (3 ) 9 11 (2 ) Segment income before income taxes 259 239 20 467 417 50 Income tax expense 55 76 (21 ) 90 109 (19 ) Segment income $ 204 $ 163 $ 41 $ 377 $ 308 $ 69 Combined ratio 66.5 % 68.7 % (2.2 ) pts 70.5 % 74.0 % (3.5 ) ptsImpact on combined ratio
Net favorable prior year reserve development (14.8 ) pts (13.5 ) pts (1.3 ) pts (10.5 ) pts (8.2 ) pts (2.3 ) pts Catastrophes, net of reinsurance 0.8 pts 0.2 pts 0.6 pts 0.4 pts 0.2 pts 0.2 pts Underlying combined ratio 80.5 % 82.0 % (1.5 ) pts 80.6 % 82.0 % (1.4 ) pts Net written premiums Domestic Management Liability $ 362 $ 341 6 % $ 710 $ 671 6 % Surety 235 211 11 420 385 9 Total Domestic 597 552 8 1,130 1,056 7 International 56 46 22 97 86 13 Total $ 653 $ 598 9 % $ 1,227 $ 1,142 7 %Second Quarter 2018 Results(All comparisons vs. second quarter 2017, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $204 million, an increase of $41 million. Segment income before income taxes benefited from a higher underlying underwriting gain and higher net favorable prior year reserve development. Segment income in the current quarter benefited from a lower U.S. corporate income tax rate.
Underwriting results:
Net written premiums of $653 million increased 9%, reflecting an increase in surety premiums, as well as continued strong retention and an increase in new business in management liability.
Year-to-Date 2018 Results(All comparisons vs. year-to-date 2017, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $377 million, an increase of $69 million. Segment income before income taxes benefited from higher net favorable prior year reserve development and a higher underlying underwriting gain. Segment income in the current period benefited from a lower U.S. corporate income tax rate. Segment income in the prior year period included a $17 million benefit from the resolution of prior year tax matters.
Underwriting results:
Net written premiums of $1.227 billion grew 7% from the prior year period and benefited from the same factors as discussed above for second quarter 2018.
Personal Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended June 30, Six Months Ended June 30, 2018 2017 Change 2018 2017 Change Underwriting gain/(loss): $ (141 )$ (111 ) $ (30 ) $ (100 ) $ (121 ) $ 21
Underwriting gain includes:
Net favorable prior year reserve development 13 - 13 62 6 56 Catastrophes, net of reinsurance (315 ) (218 ) (97 ) (531 ) (432 ) (99 ) Net investment income 98 95 3 197 191 6 Other income 14 15 (1 ) 31 31 - Segment income/(loss) before income taxes (29 ) (1 ) (28 ) 128 101 27 Income tax expense/(benefit) (12 ) (13 ) 1 16 - 16 Segment income/(loss) $ (17 ) $ 12 $ (29 ) $ 112 $ 101 $ 11 Combined ratio 104.9 % 104.1 % 0.8 pts 101.3 % 101.9 % (0.6 ) ptsImpact on combined ratio
Net favorable prior year reserve development (0.5 ) pts - pts (0.5 ) pts (1.3 ) pts (0.2 ) pts (1.1 ) pts Catastrophes, net of reinsurance 12.8 pts 9.6 pts 3.2 pts 11.0 pts 9.7 pts 1.3 pts Underlying combined ratio 92.6 % 94.5 % (1.9 ) pts 91.6 % 92.4 % (0.8 ) pts Net written premiums Domestic Agency 1 Automobile $ 1,258 $ 1,159 9 % $ 2,441 $ 2,246 9 % Homeowners & Other 1,137 1,077 6 1,969 1,871 5 Total Agency 2,395 2,236 7 4,410 4,117 7 Direct to Consumer 99 88 13 191 171 12 Total Domestic 2,494 2,324 7 4,601 4,288 7 International 203 174 17 352 306 15 Total $ 2,697 $ 2,498 8 % $ 4,953 $ 4,594 8 % 1 Represents business sold through agents, brokers and other intermediaries, and excludes direct to consumer.Second Quarter 2018 Results(All comparisons vs. second quarter 2017, unless noted otherwise)
Segment loss for Personal Insurance was $(17) million, as compared to segment income of $12 million in the prior year quarter, due to lower segment income before income taxes. The segment loss before income taxes resulted from higher catastrophe losses, partially offset by a higher underlying underwriting gain and net favorable prior year reserve development, compared to no net reserve development in the prior year quarter. The higher underlying underwriting gain resulted from improvement in Agency Automobile, driven by earned pricing that exceeded loss cost trends, partially offset by a reduction in Agency Homeowners & Other due to normal variability in loss activity as well as the inclusion of $9 million from the TWIA assessment. Segment loss in the current quarter was impacted by a lower U.S. corporate income tax rate.
Underwriting results:
Net written premiums of $2.697 billion increased 8%. Agency Automobile net written premiums grew 9%, driven by renewal premium change of 9%. Agency Homeowners & Other net written premiums grew 6%, benefiting from year-over-year policies in force growth of 6% and positive renewal premium change.
Year-to-Date 2018 Results(All comparisons vs. year-to-date 2017, unless noted otherwise)
Segment income for Personal Insurance was $112 million, an increase of $11 million. Segment income before income taxes benefited from a higher underlying underwriting gain and higher net favorable prior year reserve development, partially offset by higher catastrophe losses. The higher underlying underwriting gain was driven by earned pricing that exceeded loss cost trends in the Agency Automobile product line, partially offset by a reduction in Agency Homeowners & Other due to normal variability in loss activity. Segment income in the current period benefited from a lower U.S. corporate income tax rate. Segment income in the prior year period included a $7 million benefit from the resolution of prior year income tax matters.
Underwriting results:
Net written premiums of $4.953 billion increased 8%. Agency Automobile net written premiums grew 9% and Agency Homeowners & Other net written premiums grew 5%, benefiting from the same factors as discussed above for second quarter 2018.
Financial Supplement and Conference Call
The information in this press release should be read in conjunction with a 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, July 19, 2018. Investors can access the call via webcast at http://investor.travelers.com or by dialing 1.866.393.4306 within the United States and 1.734.385.2616 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 30,000 employees and generated revenues of approximately $29 billion in 2017. 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, Brazil 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, the Republic of Ireland and Brazil, 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.
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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 15, 2018, as updated by our periodic filings with the SEC.
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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 and establish targets on a consolidated basis. 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. Internally, the Company’s management uses these measures to evaluate performance against historical results, to establish financial targets on a consolidated basis and for other reasons, which are discussed below.
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 Six Months Ended June 30, June 30, ($ in millions, after-tax) 2018 2017 2018 2017 Net income $ 524 $ 595 $ 1,193 $ 1,212 Less: Net realized investment gains 30 52 21 55 Core income $ 494 $ 543 $ 1,172 $ 1,157 Three Months Ended Six Months Ended June 30, June 30, ($ in millions, pre-tax) 2018 2017 2018 2017 Net income $ 631 $ 790 $ 1,409 $ 1,550 Less: Net realized investment gains 36 80 25 85 Core income $ 595 $ 710 $ 1,384 $ 1,465 Twelve Months Ended December 31, ($ in millions, after-tax) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Net income $ 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 2,056 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 (142 ) (47 ) (2 ) (51 ) (106 ) (32 ) (36 ) (173 ) (22 ) 271 (101 ) (8 ) (35 ) Impact of TCJA at enactment 1 129 - - - - - - - - - - - - Core income 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 6Core income, less preferred dividends
$ 2,043 $ 2,967 $ 3,437 $ 3,641 $ 3,567 $ 2,441 $ 1,389 $ 3,040 $ 3,597 $ 3,191 $ 4,496 $ 4,195 $ 2,0201Tax 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 Six Months Ended June 30, June 30, 2018 2017 2018 2017Basic income per share
Net income $ 1.93 $ 2.13 $ 4.39 $ 4.32 Adjustments: Net realized investment gains, after-tax (0.10 ) (0.19 ) (0.08 ) (0.20 ) Core income $ 1.83 $ 1.94 $ 4.31 $ 4.12Diluted income per share
Net income $ 1.92 $ 2.11 $ 4.35 $ 4.28 Adjustments: Net realized investment gains, after-tax (0.11 ) (0.19 ) (0.08 ) (0.20 ) Core income $ 1.81 $ 1.92 $ 4.27 $ 4.08
Reconciliation of Segment Income/(Loss) to Total Core Income
Three Months Ended Six Months Ended June 30, June 30, ($ in millions, after-tax) 2018 2017 2018 2017 Business Insurance $ 385 $ 429 $ 837 $ 871 Bond & Specialty Insurance 204 163 377 308 Personal Insurance (17 ) 12 112 101 Total segment income 572 604 1,326 1,280 Interest Expense and Other (78 ) (61 ) (154 ) (123 ) Total core income $ 494 $ 543 $ 1,172 $ 1,157RECONCILIATION 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 June 30, ($ in millions) 2018 2017 Shareholders' equity $ 22,623 $ 23,858 Adjustments: Net unrealized investment (gains)/losses, net of tax, included in shareholders' equity 112 (1,035 ) Net realized investment gains, net of tax (21 ) (55 ) Adjusted shareholders' equity $ 22,714 $ 22,768 As of December 31, ($ in millions) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Shareholders' equity $ 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 (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 (142 ) (47 ) (2 ) (51 ) (106 ) (32 ) (36 ) (173 ) (22 ) 271 (101 ) (8 ) (35 ) Impact of TCJA1 at enactment 287 - - - - - - - - - - - - Preferred stock - - - - - - - (68 ) (79 ) (89 ) (112 ) (129 ) (153 ) Loss from discontinued operations - - - - - - - - - - - - 439 Adjusted shareholders' equity $ 22,764 $ 22,444 $ 22,307 $ 22,819 $ 23,368 $ 22,270 $ 21,570 $ 23,375 $ 25,458 $ 25,647 $ 25,783 $ 24,545 $ 22,2271 Tax Cuts and Jobs Act of 2017 (TCJA)
Return on equity is the ratio of annualized net income less preferred dividends to average shareholders’ equity for the periods presented. Core return on equity is the ratio of annualized core income 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 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 Six Months Ended June 30, June 30, ($ in millions, after-tax) 2018 2017 2018 2017 Annualized net income $ 2,094 $ 2,379 $ 2,385 $ 2,424 Average shareholders' equity 22,801 23,735 23,078 23,576 Return on equity 9.2% 10.0% 10.3% 10.3% Annualized core income $ 1,978 $ 2,171 $ 2,344 $ 2,313 Adjusted average shareholders' equity 22,776 22,780 22,757 22,709 Core return on equity 8.7% 9.5% 10.3% 10.2%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 tob) 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 June 30, 2018
Six Months Ended June 30, Twelve Months Ended December 31, ($ in millions) 2018 2017 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Core income, less preferred dividends $ 1,172 $ 1,157 $ 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 Annualized core income 2,344 2,313 Adjusted average shareholders' equity 22,757 22,709 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 10.3 % 10.2 % 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 13.0 %for the period Jan. 1, 2005 through June 30, 2018
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 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 or radiological events, cyber attacks, explosions and infrastructure failures. 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 2018 ranges from approximately $18 million to $30 million of losses before reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve development is the increase or decrease in incurred claims and claim adjustment expenses as a result of the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given group of claims, which may be related to one or more prior years. In the opinion of the Company’s management, a discussion of loss reserve development is meaningful to users of the financial statements as it allows them to assess the impact between prior and current year development on incurred claims and claim adjustment expenses, net and core income (loss), and changes in claims and claim adjustment expense reserve levels from period to period.
Components of Net Income
Three Months Ended Six Months Ended June 30, June 30, ($ in millions, after-tax except as noted) 2018 2017 2018 2017 Pre-tax underwriting gain excluding the impact of catastrophes and net favorable prior year loss reserve development $ 392 $ 373 $ 854 $ 850 Pre-tax impact of catastrophes (488 ) (403 ) (842 ) (750 ) Pre-tax impact of net favorable prior year loss reserve development 186 203 336 284 Pre-tax underwriting gain 90 173 348 384 Income tax expense on underwriting results 29 61 65 97 Underwriting gain 61 112 283 287 Net investment income 507 468 1,020 948 Other income/(expense), including interest expense (74 ) (37 ) (131 ) (78 ) Core income 494 543 1,172 1,157 Net realized investment gains 30 52 21 55 Net income $ 524 $ 595 $ 1,193 $ 1,212COMBINED 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, 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 Six Months Ended June 30, June 30, ($ in millions, pre-tax) 2018 2017 2018 2017Loss and loss adjustment expense ratio
Claims and claim adjustment expenses $ 4,562 $ 4,225 $ 8,858 $ 8,319 Less: Policyholder dividends 12 15 25 26 Allocated fee income 40 42 77 84 Loss ratio numerator $ 4,510 $ 4,168 $ 8,756 $ 8,209Underwriting expense ratio
Amortization of deferred acquisition costs $ 1,081 $ 1,032 $ 2,142 $ 2,035 General and administrative expenses (G&A) 1,113 1,045 2,175 2,041 Less: Non-insurance G&A 39 8 76 16 Allocated fee income 72 74 138 145 Billing and policy fees and other 22 22 45 45 Expense ratio numerator $ 2,061 $ 1,973 $ 4,058 $ 3,870 Earned premium $ 6,695 $ 6,351 $ 13,232 $ 12,534 Combined ratio 1 Loss and loss adjustment expense ratio 67.4 % 65.6 % 66.2 % 65.5 % Underwriting expense ratio 30.7 % 31.1 % 30.6 % 30.9 % Combined ratio 98.1 % 96.7 % 96.8 % 96.4 %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 oflosses and loss adjustment expenses and underwriting expenses. In addition, G&A include non-insurance expensesthat 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 June 30, December 31, June 30, ($ in millions, except per share amounts) 2018 2017 2017 Shareholders' equity $ 22,623 $ 23,731 $ 23,858 Less: Net unrealized investment gains/(losses), net of tax, included in shareholders' equity (112 ) 1,112 1,035 Shareholders' equity, excluding net unrealized investment gains/(losses), net of tax, included in shareholders' equity 22,735 22,619 22,823 Less: Goodwill 3,931 3,951 3,589 Other intangible assets 356 342 264 Impact of deferred tax on other intangible assets (43 ) (44 ) (66 ) Tangible shareholders' equity $ 18,491 $ 18,370 $ 19,036 Common shares outstanding 267.7 271.4 275.9 Book value per share $ 84.51 $ 87.46 $ 86.46 Adjusted book value per share 84.93 83.36 82.71 Tangible book value per share 69.08 67.70 68.99RECONCILIATION 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 June 30, December 31, June 30, ($ in millions) 2018 2017 2017 Debt $ 6,464 $ 6,571 $ 6,920 Shareholders' equity 22,623 23,731 23,858 Total capitalization 29,087 30,302 30,778 Less: Net unrealized investment gains/(losses), net of tax, included in shareholders' equity (112 ) 1,112 1,035 Total capitalization excluding net unrealized gain/(loss) $ 29,199 $ 29,190 $ 29,743 on investments, net of tax, included in shareholders' equity Debt-to-capital ratio 22.2 % 21.7 % 22.5 % Debt-to-capital ratio excluding net unrealized investment gains/(losses), net of tax, included in shareholders' equity 22.1 % 22.5 % 23.3 %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 and surety. For Bond & Specialty Insurance, retention, renewal premium change and new business exclude surety.
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 15, 2018 and subsequent periodic filings with the SEC.
View source version on businesswire.com: https://www.businesswire.com/news/home/20180719005363/en/
The Travelers Companies, Inc.Media:Patrick Linehan, 917.778.6267orInstitutional Investors:Abbe Goldstein, 917.778.6825orSeth Rosenberg, 917.778.6877
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