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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 | |
---|---|---|---|---|---|---|---|---|
1.22 | 0.57% | 214.37 | 215.07 | 212.42 | 213.87 | 999,785 | 01:00:00 |
Return on Equity and Operating Return on Equity of 11.6% and 12.5%, Respectively
The Travelers Companies, Inc. today reported net income of $716 million, or $2.45 per diluted share, for the quarter ended September 30, 2016, compared to $928 million, or $2.97 per diluted share, in the prior year quarter. Operating income in the current quarter was $701 million, or $2.40 per diluted share, compared to $918 million, or $2.93 per diluted share, in the prior year quarter. These declines were primarily driven by lower net favorable prior year reserve development and higher non-catastrophe weather-related losses. Per diluted share amounts benefited from the impact of share repurchases.
Consolidated Highlights
($ in millions, except for per share amounts, and after-tax, Three Months Ended September 30, Nine Months Ended September 30, except for premiums & revenues) 2016 2015 Change 2016 2015 Change Net written premiums $ 6,389 $ 6,191 3 % $ 18,900 $ 18,257 4%
Total revenues $ 6,961 $ 6,798 2 $ 20,432 $ 20,137 1 Net income $ 716 $ 928 (23 ) $ 2,071 $ 2,573 (20 ) per diluted share $ 2.45 $ 2.97 (18 ) $ 7.00 $ 8.04 (13 ) Operating income $ 701 $ 918 (24 ) $ 2,048 $ 2,551 (20 ) per diluted share $ 2.40 $ 2.93 (18 ) $ 6.92 $ 7.97 (13 ) Diluted weighted average 289.8 311.0 (7 ) 293.6 317.7 (8 ) shares outstandingCombined ratio 92.9 % 86.9 % 6.0 pts 92.8 % 88.9 % 3.9 pts Underlying combined ratio 92.1 % 88.8 % 3.3 pts 91.5 % 89.9 % 1.6 pts Return on equity 11.6 % 15.4 % (3.8 ) pts 11.4 % 14.0 % (2.6 ) pts Operating return on equity 12.5 % 16.2 % (3.7 ) pts 12.2 % 14.9 % (2.7 ) pts Change from September 30, December 31, September 30, December 31, September 30, 2016 2015 2015 2015 2015 Book value per share $ 86.04 $ 79.75 $ 79.00 8
%
9
%
Adjusted book value per share 78.82 75.39 74.35 5 6 See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.
“We were pleased with our third quarter operating income of $701 million and operating return on equity of 12.5%, which brings our year-to-date operating return on equity to 12.2%,” commented Alan Schnitzer, Chief Executive Officer. “Underwriting results for the quarter reflected lower net favorable prior year reserve development, higher non-catastrophe weather-related losses and higher-than-expected losses associated with auto bodily injury but nonetheless remained strong as reflected in our 92.9% combined ratio. While returns from our high-quality fixed income portfolio declined in line with our expectations due to the continued low interest rate environment, returns from our non-fixed income portfolio improved from recent quarters and were comparable to the prior year quarter. In terms of capital management, we returned $755 million of excess capital to shareholders, including $562 million of share repurchases. Year to date, we have returned nearly $2.3 billion to shareholders, including over $1.7 billion in share repurchases.
“We are encouraged that the markets in which we operate continue to remain stable. In our commercial businesses, we are pleased with our historically high levels of retention and positive renewal premium change. Once again, these results were due to the successful execution of our strategy to retain those accounts that meet our return thresholds and to take appropriate measures to improve profitability on those accounts that do not, while also seeking attractive new business opportunities. In Personal Insurance, growth in auto, driven by the success of our Quantum Auto 2.0 product, and in homeowners, which benefited from our ability to offer a compelling account solution to our customers and agents, resulted in record net written premiums of over $2.2 billion for the quarter. While we experienced a somewhat higher-than-expected level of bodily injury claim severity across our auto product portfolio, we believe this was attributable to environmental factors and was not product-specific. Accordingly, we continue to believe that growth from Quantum Auto 2.0 is adding meaningful economic value, and the product remains positioned to generate appropriate returns over time.
“Our results this quarter and year to date reflect our continued focus on delivering superior returns. We are confident that our competitive advantages and ability to execute on our marketplace strategies, together with our balance sheet strength and active capital management strategy, will continue to enable us to invest in our businesses while delivering industry-leading returns over time.”
Consolidated Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 Change 2016 2015 Change Underwriting gain: $ 408 $ 759 $ (351 ) $ 1,224 $ 1,890 $ (666 )Underwriting gain includes:
Net favorable prior year reserve development 39 199 (160 ) 507 649 (142 ) Catastrophes, net of reinsurance (89 ) (85 ) (4 ) (740 ) (468 ) (272 ) Net investment income 582 614 (32 ) 1,675 1,838 (163 ) Other income/(expense), including interest expense (66 ) (81 ) 15 (181 ) (232 ) 51 Operating income before income taxes 924 1,292 (368 ) 2,718 3,496 (778 ) Income tax expense 223 374 (151 ) 670 945 (275 ) Operating income 701 918 (217 ) 2,048 2,551 (503 ) Net realized investment gains after income taxes 15 10 5 23 22 1 Net Income $ 716 $ 928 $ (212 ) $ 2,071 $ 2,573 $ (502 ) Combined ratio 92.9 % 86.9 % 6.0 pts 92.8 % 88.9 % 3.9 ptsImpact on combined ratio
Net favorable prior year reserve development (0.6 ) (3.3 ) 2.7 pts (2.8 ) (3.6 ) 0.8 pts Catastrophes, net of reinsurance 1.4 1.4 - pts 4.1 2.6 1.5 pts Underlying combined ratio 92.1 % 88.8 % 3.3 pts 91.5 % 89.9 % 1.6 pts Net written premiums Business and International Insurance $ 3,583 $ 3,590 - % $ 11,177 $ 11,066 1 % Bond & Specialty Insurance 566 565 - 1,594 1,577 1 Personal Insurance 2,240 2,036 10 6,129 5,614 9 Total $ 6,389 $ 6,191 3 % $ 18,900 $ 18,257 4 %Third Quarter 2016 Results(All comparisons vs. third quarter 2015, unless noted otherwise)
Net income of $716 million after-tax and operating income of $701 million after-tax decreased $212 million and $217 million, respectively, primarily due to lower net favorable prior year reserve development and higher non-catastrophe weather-related losses.
Underwriting results
Net investment income of $582 million pre-tax ($472 million after-tax) decreased due to lower returns in the fixed income portfolio, while returns in the non-fixed income portfolio were comparable to the prior year quarter and improved from recent periods. Fixed income returns declined in line with our expectations due to lower reinvestment rates available in the market.
Record net written premiums of $6.389 billion increased 3% driven by growth in Personal Insurance.
Year-to-Date 2016 Results(All comparisons vs. year-to-date 2015, unless noted otherwise)
Net income of $2.071 billion after-tax and operating income of $2.048 billion after-tax decreased $502 million and $503 million, respectively, primarily driven by higher catastrophe losses, a lower underlying underwriting gain (i.e., excluding net favorable prior year reserve development and catastrophe losses), lower net investment income and lower net favorable prior year reserve development in the Personal Insurance segment.
Underwriting results
Net investment income of $1.675 billion pre-tax ($1.353 billion after-tax) decreased due to lower returns in both the fixed income and non-fixed income portfolios. Fixed income returns declined due to the lower reinvestment rates available in the market. Non-fixed income returns, which remained positive, declined due to lower private equity and real estate partnership returns.
Other income/(expense) included proceeds from the favorable settlement of a claims-related legal matter in the first quarter of 2016.
Record net written premiums of $18.900 billion increased 4% driven by growth in Personal Insurance.
Shareholders’ Equity
Shareholders’ equity of $24.439 billion increased 4% from year-end 2015, primarily due to an increase in after-tax net unrealized investment gains. After-tax net unrealized investment gains were $2.049 billion ($3.135 billion pre-tax), compared to $1.289 billion after-tax ($1.974 billion pre-tax) at year-end 2015. Book value per share of $86.04 and adjusted book value per share of $78.82 increased 8% and 5%, respectively, from year-end 2015.
The Company repurchased 4.8 million shares during the third quarter at an average price of $117.28 per share for a total cost of $562 million. Capacity remaining under the existing share repurchase authorization was $1.684 billion at the end of the quarter. At the end of third quarter 2016, statutory capital and surplus was $20.609 billion and the ratio of debt-to-capital was 20.8%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains was 22.3%, well within the Company’s target range of 15% to 25%.
The Board of Directors today declared a quarterly dividend of $0.67 per share. This dividend is payable on December 30, 2016, to shareholders of record as of the close of business on December 9, 2016.
Business and International Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 Change 2016 2015 Change Underwriting gain: $ 128 $ 272 $ (144 ) $ 377 $ 730 $ (353 )Underwriting gain includes:
Net favorable prior year reserve development 19 49 (30 ) 250 229 21 Catastrophes, net of reinsurance (72 ) (39 ) (33 ) (432 ) (246 ) (186 ) Net investment income 445 471 (26 ) 1,280 1,412 (132 ) Other income 10 5 5 51 18 33 Operating income before income taxes 583 748 (165 ) 1,708 2,160 (452 ) Income tax expense 126 202 (76 ) 382 556 (174 ) Operating income $ 457 $ 546 $ (89 ) $ 1,326 $ 1,604 $ (278 ) Combined ratio 96.1 % 92.2 % 3.9 pts 96.2 % 92.9 % 3.3 ptsImpact on combined ratio
Net favorable prior year reserve development (0.5 ) (1.4 ) 0.9 pts (2.3 ) (2.1 ) (0.2 ) pts Catastrophes, net of reinsurance 1.9 1.1 0.8 pts 4.0 2.2 1.8 pts Underlying combined ratio 94.7 % 92.5 % 2.2 pts 94.5 % 92.8 % 1.7 pts Net written premiums by market Domestic Select Accounts $ 657 $ 654 - % $ 2,090 $ 2,085 - % Middle Market 1,616 1,597 1 4,939 4,774 3 National Accounts 245 254 (4 ) 799 781 2 First Party 399 411 (3 ) 1,223 1,203 2 Specialized Distribution 263 277 (5 ) 851 845 1 Total Domestic 3,180 3,193 - 9,902 9,688 2 International 403 397 2 1,275 1,378 (7 ) Total $ 3,583 $ 3,590 - % $ 11,177 $ 11,066 1 %Third Quarter 2016 Results(All comparisons vs. third quarter 2015, unless noted otherwise)
Operating income for Business and International Insurance was $457 million after-tax, a decrease of $89 million, primarily due to a lower underlying underwriting gain, higher catastrophe losses and lower net favorable prior year reserve development.
Underwriting results
Net written premiums of $3.583 billion were comparable with the prior year quarter.
Year-to-Date 2016 Results(All comparisons vs. year-to-date 2015, unless noted otherwise)
Operating income for Business and International Insurance was $1.326 billion after-tax, a decrease of $278 million, primarily driven by higher catastrophe losses, a lower underlying underwriting gain and lower net investment income, partially offset by higher other income and higher net favorable prior year reserve development. The prior year period also included a $12 million tax benefit.
Underwriting results
Other income included proceeds from the favorable settlement of a claims-related legal matter in the first quarter of 2016.
Net written premiums of $11.177 billion increased 1% driven by continued high retention rates, positive renewal premium changes and an increase in new business volume in domestic Business Insurance.
Bond & Specialty Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 Change 2016 2015 Change Underwriting gain: $ 156 $ 229 $ (73 ) $ 554 $ 483 $ 71Underwriting gain includes:
Net favorable prior year reserve development 41 103 (62 ) 251 178 73 Catastrophes, net of reinsurance (1 ) (1 ) - (5 ) (3 ) (2 ) Net investment income 53 56 (3 ) 156 169 (13 ) Other income 4 4 - 13 14 (1 ) Operating income before income taxes 213 289 (76 ) 723 666 57 Income tax expense 67 93 (26 ) 231 195 36 Operating income $ 146 $ 196 $ (50 ) $ 492 $ 471 $ 21 Combined ratio 70.1 % 57.1 % 13.0pts
64.0 % 68.8 % (4.8 )pts
Impact on combined ratio
Net favorable prior year reserve development (7.5 ) pts (19.1 ) pts 11.6 pts (16.1 ) pts (11.4 ) pts (4.7 ) pts Catastrophes, net of reinsurance 0.2 pts 0.1 pts 0.1 pts 0.3 pts 0.2 pts 0.1 pts Underlying combined ratio 77.4 % 76.1 % 1.3pts
79.8 % 80.0 % (0.2 )pts
Net written premiums Management Liability $ 354 $ 350 1 % $ 1,010 $ 993 2 % Surety 212 215 (1 ) 584 584 - Total $ 566 $ 565 - %$
1,594
$
1,577
1 %
Third Quarter 2016 Results(All comparisons vs. third quarter 2015, unless noted otherwise)
Operating income for Bond & Specialty Insurance was $146 million after-tax, a decrease of $50 million, primarily driven by lower net favorable prior year reserve development.
Underwriting results
Net written premiums of $566 million were comparable to the prior year quarter.
Year-to-Date 2016 Results(All comparisons vs. year-to-date 2015, unless noted otherwise)
Operating income for Bond & Specialty Insurance was $492 million after-tax, an increase of $21 million, primarily driven by higher net favorable prior year reserve development, partially offset by lower net investment income. The prior year period also included a $16 million tax benefit.
Underwriting results
Net written premiums of $1.594 billion increased 1%, primarily driven by continued high retention rates, positive renewal premium changes and an increase in new business volume in Management Liability.
Personal Insurance Segment Financial Results
($ in millions and pre-tax, unless noted otherwise) Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 Change 2016 2015 Change Underwriting gain: $ 124 $ 258 $ (134 ) $ 293 $ 677 $ (384 )Underwriting gain includes:
Net favorable/(unfavorable) prior year reservedevelopment
(21 ) 47 (68 ) 6 242 (236 ) Catastrophes, net of reinsurance (16 ) (45 ) 29 (303 ) (219 ) (84 ) Net investment income 84 87 (3 ) 239 257 (18 ) Other income14
9 5 42 33 9 Operating income before income taxes 222 354 (132 ) 574 967 (393 ) Income tax expense 64 113 (49 ) 161 300 (139 ) Operating income $ 158 $ 241 $ (83 ) $ 413 $ 667 $ (254 ) Combined ratio 92.9 % 85.1 % 7.8 pts 94.1 % 86.6 % 7.5 ptsImpact on combined ratio
Net (favorable)/unfavorable prior yearreserve development
1.1 pts (2.6 ) pts 3.7 pts (0.1 ) pts (4.5 ) pts 4.4 pts Catastrophes, net of reinsurance 0.8 pts 2.5 pts (1.7 ) pts 5.3 pts 4.1 pts 1.2 pts Underlying combined ratio 91.0 % 85.2 % 5.8 pts 88.9 % 87.0 % 1.9 pts Net written premiums Agency Automobile1 $ 1,095 $ 934 17 % $ 3,045 $ 2,646 15 % Agency Homeowners & Other1 1,058 1,035 2 2,854 2,793 2 Direct to Consumer 87 67 30 230 175 31 Total $ 2,240 $ 2,036 10 % $ 6,129 $ 5,614 9 % 1 Represents business sold through agents, brokers and other intermediaries, and excludes direct to consumer.Third Quarter 2016 Results(All comparisons vs. third quarter 2015, unless noted otherwise)
Operating income for Personal Insurance was $158 million after-tax, a decrease of $83 million, primarily driven by a lower underlying underwriting gain and net unfavorable prior year reserve development compared to net favorable prior year reserve development in the prior year quarter, partially offset by lower catastrophe losses.
Underwriting results
Record net written premiums of $2.240 billion increased 10%. Agency Automobile net written premiums grew 17% with an increase in policies in force of 12% from the prior year period, driven by the success of Quantum Auto 2.0. Agency Homeowners & Other net written premiums increased 2% with an increase in policies in force of 3% from the prior year period.
Year-to-Date 2016 Results(All comparisons vs. year-to-date 2015, unless noted otherwise)
Operating income for Personal Insurance was $413 million after-tax, a decrease of $254 million, primarily driven by lower net favorable prior year reserve development, higher catastrophe losses and a lower underlying underwriting gain. The prior year period included a $4 million tax benefit.
Underwriting results
Record net written premiums of $6.129 billion increased 9% due to the same factors as discussed above for third quarter 2016.
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, October 20, 2016. Investors can access the call via webcast at http://investor.travelers.com or by dialing 1-800-732-5617 within the U.S. and 1-212-231-2918 outside the U.S. (use passcode 14788 for both the U.S. and international calls). 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. An audio playback can also be accessed by phone at 1-800-633-8284 within the U.S. and 1-402-977-9140 outside the U.S. (use reservation 21817065 for both the U.S. and international calls).
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 $27 billion in 2015. 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 and International Insurance – The Business and International Insurance segment offers a broad array of property and casualty insurance and insurance related services to its clients, primarily in the United States and in Canada, as well as in 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 – The Bond & Specialty Insurance segment provides surety, crime, management and professional liability, and cyber risk coverages and related risk management services to a wide range of primarily domestic customers, utilizing various degrees of financially-based underwriting approaches.
Personal Insurance – The Personal Insurance segment writes a broad range of property and casualty insurance covering individuals’ personal risks. 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 11, 2016, as updated by our periodic filings with the SEC.
*****
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF NON-GAAP MEASURES TO 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 non-GAAP measures to their most directly 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, 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 OPERATING INCOME AND CERTAIN OTHER NON-GAAP MEASURES TO NET INCOME
Operating income is net income excluding the after-tax impact of net realized investment gains (losses) and discontinued operations. Management uses operating income to analyze each segment’s performance and as a tool in making business decisions. Financial statement users also consider operating income when analyzing the results and trends of insurance companies. Operating earnings per share is operating income on a per common share basis.
Reconciliation of Operating Income less Preferred Dividends to Net Income
Three Months Ended Nine Months Ended September 30, September 30, ($ in millions, pre-tax) 2016 2015 2016 2015 Operating income $ 924 $ 1,292 $ 2,718 $ 3,496 Net realized investment gains 23 15 33 35 Net income $ 947 $ 1,307 $ 2,751 $ 3,531 Three Months Ended Nine Months Ended September 30, September 30, ($ in millions, after-tax) 2016 2015 2016 2015 Operating income $ 701 $ 918 $ 2,048 $ 2,551 Net realized investment gains 15 10 23 22 Net income $ 716 $ 928 $ 2,071 $ 2,573 Twelve Months Ended December 31, ($ in millions, after-tax) 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Operating income, less preferred dividends $ 3,437 $ 3,641 $ 3,567 $ 2,441 $ 1,389 $ 3,040 $ 3,597 $ 3,191 $ 4,496 $ 4,195 $ 2,020 Preferred dividends - - - - 1 3 3 4 4 5 6 Operating income 3,437 3,641 3,567 2,441 1,390 3,043 3,600 3,195 4,500 4,200 2,026 Net realized investment gains/(losses) 2 51 106 32 36 173 22 (271 ) 101 8 35 Income from continuing operations 3,439 3,692 3,673 2,473 1,426 3,216 3,622 2,924 4,601 4,208 2,061 Discontinued operations - - - - - - - - - - (439 ) Net income $ 3,439 $ 3,692 $ 3,673 $ 2,473 $ 1,426 $ 3,216 $ 3,622 $ 2,924 $ 4,601 $ 4,208 $ 1,622Reconciliation of Operating Earnings per Share to Net Income per Share on a Basic and Diluted Basis
Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015Basic earnings per share
Operating income $ 2.43 $ 2.96 $ 7.01 $ 8.06Net realized investment gains
0.05 0.04 0.08 0.07 Net income $ 2.48 $ 3.00 $ 7.09 $ 8.13Diluted earnings per share
Operating income $ 2.40 $ 2.93 $ 6.92 $ 7.97 Net realized investment gains 0.05 0.04 0.08 0.07 Net income $ 2.45 $ 2.97 $ 7.00 $ 8.04Reconciliation of Operating Income by Segment to Total Operating Income
Three Months Ended Nine Months Ended September 30, September 30, ($ in millions, after-tax) 2016 2015 2016 2015 Business and International Insurance $ 457 $ 546 $ 1,326 $ 1,604 Bond & Specialty Insurance 146 196 492 471 Personal Insurance 158 241 413 667 Total segment operating income 761 983 2,231 2,742 Interest Expense and Other (60 ) (65 ) (183 ) (191 ) Total operating income $ 701 $ 918 $ 2,048 $ 2,551RECONCILIATION OF ADJUSTED SHAREHOLDERS’ EQUITY TO SHAREHOLDERS’ EQUITY AND OPERATING RETURN ON EQUITY TO RETURN ON EQUITY
Adjusted shareholders’ equity is shareholders’ equity excluding net unrealized investment gains (losses), net of tax, net realized investment gains (losses), net of tax, for the period presented, preferred stock and discontinued operations.
Reconciliation of Adjusted Shareholders’ Equity to Shareholders’ Equity
As of September 30, ($ in millions) 2016 2015 Adjusted shareholders' equity $ 22,367 $ 22,597 Net unrealized investment gains, net of tax 2,049 1,414 Net realized investment gains, net of tax 23 22 Shareholders' equity $ 24,439 $ 24,033 As of December 31, ($ in millions) 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Adjusted shareholders' equity $ 22,307 $ 22,819 $ 23,368 $ 22,270 $ 21,570 $ 23,375 $ 25,458 $ 25,647 $ 25,783 $ 24,545 $ 22,227 Net unrealized investment gains/(losses), net of tax 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 2 51 106 32 36 173 22 (271 ) 101 8 35 Preferred stock - - - - - 68 79 89 112 129 153 Discontinued operations - - - - - - - - - - (439 ) Shareholders' equity $ 23,598 $ 24,836 $ 24,796 $ 25,405 $ 24,477 $ 25,475 $ 27,415 $ 25,319 $ 26,616 $ 25,135 $ 22,303Return on equity is the ratio of annualized net income less preferred dividends to average shareholders’ equity for the periods presented. Operating return on equity is the ratio of annualized operating 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 Operating Return on Equity and Return on Equity
Three Months Ended Nine Months Ended September 30, September 30, ($ in millions, after-tax) 2016 2015 2016 2015 Annualized operating income $ 2,802 $ 3,671 $ 2,730 $ 3,401 Adjusted average shareholders' equity 22,373 22,676 22,373 22,750 Operating return on equity 12.5 % 16.2 % 12.2 % 14.9 % Annualized net income $ 2,863 $ 3,715 $ 2,761 $ 3,431 Average shareholders' equity 24,576 24,077 24,300 24,467 Return on equity 11.6 % 15.4 % 11.4 % 14.0 %Average annual operating return on equity over a period is the ratio of:a) the sum of operating 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 Operating Return on Equity from January 1, 2005 through September 30, 2016
Nine Months Ended September 30, Twelve Months Ended December 31, ($ in millions) 2016 2015 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Operating income, less preferred dividends $ 2,048 $ 2,551 $ 3,437 $ 3,641 $ 3,567 $ 2,441 $ 1,389 $ 3,040 $ 3,597 $ 3,191 $ 4,496 $ 4,195 $ 2,020 Annualized operating income 2,730 3,401 Adjusted average shareholders' equity 22,373 22,750 22,681 23,447 23,004 22,158 22,806 24,285 25,777 25,668 25,350 23,381 21,118 Operating return on equity 12.2 % 14.9 % 15.2 % 15.5 % 15.5 % 11.0 % 6.1 % 12.5 % 14.0 % 12.4 % 17.7 % 17.9 % 9.6 % Average annual operating return on equity 13.4 % for the period Jan. 1, 2005 through September 30, 2016RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN ITEMS TO NET INCOME
Underwriting gain 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, resulting from natural and man-made events, including risks such as fire, earthquake, windstorm, explosion, terrorism and other similar events. Each catastrophe has unique characteristics and catastrophes are not predictable as to timing or amount. Their effects are included in net and operating 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. In the opinion of the Company’s management, a discussion of the impact of catastrophes is meaningful to users of the financial statements to understand the Company’s periodic earnings and the variability in periodic earnings caused by the unpredictable nature of catastrophes.
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 operating income (loss), and changes in claims and claim adjustment expense reserve levels from period to period.
Reconciliation of Pre-tax Underwriting Gain (Excluding the Impact of Catastrophes and Net Favorable Prior Year Loss Reserve Development) to Net Income
Three Months Ended Nine Months Ended September 30,September 30, ($ in millions, after-tax except as noted) 2016 2015 2016 2015 Pre-tax underwriting gain excluding the impact of catastrophes and net favorable prior year loss reserve development $ 458
$ 645 $ 1,457 $ 1,709 Pre-tax impact of catastrophes (89 ) (85 ) (740 ) (468 ) Pre-tax impact of net favorable prior year loss reserve development 39 199 507 649 Pre-tax underwriting gain 408 759 1,224 1,890 Income tax expense on underwriting results 139 273 418 656 Underwriting gain 269 486 806 1,234 Net investment income 472 484 1,353 1,465 Other expense, including interest expense (40 ) (52 ) (111 ) (148 ) Operating income 701 918 2,048 2,551 Net realized investment gains 15 10 23 22 Net income $ 716 $ 928 $ 2,071 $ 2,573
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 premium 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.
Other companies’ method of computing similarly titled measures may not be comparable to the Company’s method of computing these ratios.
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.
Calculation of the Combined Ratio
Three Months Ended Nine Months Ended September 30, September 30, ($ in millions, pre-tax) 2016 2015 2016 2015Loss and loss adjustment expense ratio
Claims and claim adjustment expenses $ 3,856 $ 3,382 $ 11,330 $ 10,360 Less: Policyholder dividends 11 10 32 29 Allocated fee income 44 44 133 129 Loss ratio numerator $ 3,801 $ 3,328 $ 11,165 $ 10,202Underwriting expense ratio
Amortization of deferred acquisition costs $ 1,012 $ 987 $ 2,972 $ 2,913 General and administrative expenses (G&A) 1,057 1,028 3,106 3,055 Less: G&A included in Interest Expense and Other 8 8 23 22 Allocated fee income 72 72 219 216 Billing and policy fees and other 23 20 67 65 Expense ratio numerator $ 1,966 $ 1,915 $ 5,769 $ 5,665 Earned premium $ 6,209 $ 6,032 $ 18,257 $ 17,851 Combined ratio 1 Loss and loss adjustment expense ratio 61.2 % 55.2 % 61.2 % 57.2 % Underwriting expense ratio 31.7 % 31.7 % 31.6 % 31.7 % Combined ratio 92.9 % 86.9 % 92.8 % 88.9 %1For 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.
RECONCILIATION OF CERTAIN NON-GAAP MEASURES TO BOOK VALUE PER SHARE AND SHAREHOLDERS’ EQUITY
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 the after-tax impact of net unrealized investment gains and losses, 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 Tangible and Shareholders’ Equity, excluding net unrealized investment gains, net of tax, to Shareholders’ Equity
As of September 30, December 31, September 30, ($ in millions, except per share amounts) 2016 2015 2015 Tangible shareholders' equity $ 18,596 $ 18,517 $ 18,818 Goodwill 3,585 3,573 3,579 Other intangible assets 271 279 280 Less: Impact of deferred tax on other intangible assets (62 ) (60 ) (58 ) Shareholders' equity, excluding net unrealized investment gains, net of tax 22,390 22,309 22,619 Net unrealized investment gains, net of tax 2,049 1,289 1,414 Shareholders' equity $ 24,439 $ 23,598 $ 24,033 Common shares outstanding 284.1 295.9 304.2 Tangible book value per share $ 65.47 $ 62.58 $ 61.86 Adjusted book value per share 78.82 75.39 74.35 Book value per share 86.04 79.75 79.00RECONCILIATION OF CERTAIN NON-GAAP MEASURES TO TOTAL CAPITALIZATION
Total capitalization is the sum of total shareholders’ equity and debt. Debt-to-capital ratio excluding net unrealized gain on investments is the ratio of debt to total capitalization excluding the after-tax impact of net unrealized investment gains and losses. In the opinion of the Company’s management, the debt to capital ratio is useful in an analysis of the Company’s financial leverage.
Reconciliation of Total Debt and Equity Excluding Net Unrealized Investment Gain to Total Capitalization
As of September 30, December 31, September 30, ($ in millions) 2016 2015 2015 Debt $ 6,436 $ 6,344 $ 6,743 Shareholders' equity 24,439 23,598 24,033 Total capitalization 30,875 29,942 30,776 Net unrealized investment gains, net of tax 2,049 1,289 1,414 Total capitalization excluding net unrealized gain $ 28,826 $ 28,653 $ 29,362 on investments, net of tax Debt-to-capital ratio 20.8 % 21.2 % 21.9 % Debt-to-capital ratio excluding net unrealized investment gains, net of tax 22.3 % 22.1 % 23.0 %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 the Business and International Insurance and Bond & Specialty Insurance segments, retention is the amount of premium available for renewal that was retained, excluding rate and exposure changes. For the Personal Insurance segment, 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 the Business and International Insurance segment, retention, renewal premium change and new business exclude National Accounts and surety. For the Bond & Specialty Insurance segment, 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 (SAP).
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 11, 2016.
View source version on businesswire.com: http://www.businesswire.com/news/home/20161020005674/en/
The Travelers Companies, Inc.Media:Patrick Linehan, 917-778-6267orInstitutional Investors:Gabriella Nawi, 917-778-6844
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