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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 | |
---|---|---|---|---|---|---|---|---|
0.99 | 0.47% | 213.15 | 215.24 | 212.16 | 212.16 | 1,143,902 | 21:25:05 |
Second Quarter 2022 Net Income per Diluted Share of $2.27 and Return on Equity of 9.1%
Second Quarter 2022 Core Income per Diluted Share of $2.57 and Core Return on Equity of 9.3%
The Travelers Companies, Inc. today reported net income of $551 million, or $2.27 per diluted share, for the quarter ended June 30, 2022, compared to $934 million, or $3.66 per diluted share, in the prior year quarter. Core income in the current quarter was $625 million, or $2.57 per diluted share, compared to $879 million, or $3.45 per diluted share, in the prior year quarter. Core income decreased primarily due to higher catastrophe losses, lower net investment income and a lower underlying underwriting gain (i.e., excluding net prior year reserve development and catastrophe losses), partially offset by higher net favorable prior year reserve development. Core income in the prior year quarter benefited from a low level of catastrophe losses and very strong net investment income driven by record returns in the alternative investment portfolio. Net realized investment losses in the current quarter were $95 million pre-tax ($74 million after-tax), compared to net realized investment gains of $61 million pre-tax ($47 million after-tax) in the prior year quarter. Net realized investment gains (losses) for both quarters were primarily driven by mark-to-market impacts on the Company’s equity investments. Per diluted share amounts benefited from the impact of share repurchases.
Consolidated Highlights
($ in millions, except for per share amounts, and after-tax, except for premiums and revenues)
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
Change
2022
2021
Change
Net written premiums
$
9,020
$
8,135
11
%
$
17,387
$
15,640
11
%
Total revenues
$
9,136
$
8,687
5
$
17,945
$
17,000
6
Net income
$
551
$
934
(41
)
$
1,569
$
1,667
(6
)
per diluted share
$
2.27
$
3.66
(38
)
$
6.43
$
6.53
(2
)
Core income
$
625
$
879
(29
)
$
1,662
$
1,578
5
per diluted share
$
2.57
$
3.45
(26
)
$
6.81
$
6.18
10
Diluted weighted average shares outstanding
241.1
253.1
(5
)
242.4
253.6
(4
)
Combined ratio
98.3
%
95.3
%
3.0
pts
94.8
%
95.9
%
(1.1
)
pts
Underlying combined ratio
92.8
%
91.4
%
1.4
pts
92.0
%
90.5
%
1.5
pts
Return on equity
9.1
%
13.0
%
(3.9
)
pts
12.2
%
11.6
%
0.6
pts
Core return on equity
9.3
%
13.7
%
(4.4
)
pts
12.4
%
12.4
%
—
pts
As of
Change From
June 30, 2022
December 31, 2021
June 30, 2021
December 31, 2021
June 30, 2021
Book value per share
$
96.39
$
119.77
$
116.86
(20
)%
(18
)%
Adjusted book value per share
112.37
109.76
103.88
2
%
8
%
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.
“We are pleased to report very strong second quarter 2022 results, with both underwriting and investment income contributing meaningfully to our performance,” said Alan Schnitzer, Chairman and Chief Executive Officer. “Core income for the quarter was $625 million, or $2.57 per diluted share, generating core return on equity of 9.3%. These results benefited from record net earned premiums of $8.3 billion, which were 9% higher than in the prior year period, and a solid underlying combined ratio of 92.8%. Underwriting income in our commercial business segments was particularly strong. Our high-quality investment portfolio generated after-tax net investment income of $595 million. These results, along with our strong balance sheet, enabled us to return $725 million of excess capital to our shareholders this quarter, including $500 million of share repurchases.
“Our best-in-class marketplace execution produced 11% growth in net written premiums this quarter to a record $9 billion, with each of our three segments growing double digits. In Business Insurance, net written premiums grew by 10%. Renewal premium change was historically high at 10.3% and included renewal rate change of 4.9%, both higher compared to the first quarter of 2022. Retention remained very strong at 86%. In Bond & Specialty Insurance, net written premiums increased by 13%, driven by excellent production results in both our surety and management liability businesses. In Personal Insurance, renewal premium change was meaningfully higher both year over year and sequentially in both Auto and Homeowners, driving net written premium growth of 12%.
“Building on our excellent results in the first half of the year, we are confident about our outlook. Benefiting from the investments we have made and continue to make as part of our Perform and Transform call to action, guided by our decades of experience successfully executing in a variety of macro-economic conditions and supported by an outlook for improving fixed income returns, we remain well positioned to deliver industry-leading returns and shareholder value over time.”
Consolidated Results
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain:
$
113
$
324
$
(211
)
$
772
$
541
$
231
Underwriting gain includes:
Net favorable prior year reserve development
291
182
109
444
499
(55
)
Catastrophes, net of reinsurance
(746
)
(475
)
(271
)
(906
)
(1,310
)
404
Net investment income
707
818
(111
)
1,344
1,519
(175
)
Other income (expense), including interest expense
(68
)
(72
)
4
(159
)
(143
)
(16
)
Core income before income taxes
752
1,070
(318
)
1,957
1,917
40
Income tax expense
127
191
(64
)
295
339
(44
)
Core income
625
879
(254
)
1,662
1,578
84
Net realized investment gains (losses) after income taxes
(74
)
47
(121
)
(93
)
81
(174
)
Impact of changes in tax laws and/or tax rates (1)
—
8
(8
)
—
8
(8
)
Net income
$
551
$
934
$
(383
)
$
1,569
$
1,667
$
(98
)
Combined ratio
98.3
%
95.3
%
3.0
pts
94.8
%
95.9
%
(1.1
)
pts
Impact on combined ratio
Net favorable prior year reserve development
(3.5
)
pts
(2.4
)
pts
(1.1
)
pts
(2.7
)
pts
(3.3
)
pts
0.6
pts
Catastrophes, net of reinsurance
9.0
pts
6.3
pts
2.7
pts
5.5
pts
8.7
pts
(3.2
)
pts
Underlying combined ratio
92.8
%
91.4
%
1.4
pts
92.0
%
90.5
%
1.5
pts
Net written premiums
Business Insurance
$
4,373
$
3,980
10
%
$
8,875
$
8,105
10
%
Bond & Specialty Insurance
962
854
13
1,844
1,577
17
Personal Insurance
3,685
3,301
12
6,668
5,958
12
Total
$
9,020
$
8,135
11
%
$
17,387
$
15,640
11
%
(1) Impact is recognized in the accounting period in which the change is enacted
Second Quarter 2022 Results (All comparisons vs. second quarter 2021, unless noted otherwise)
Net income of $551 million decreased $383 million, due to lower core income and net realized investment losses compared to net realized investment gains in the prior year quarter. Core income of $625 million decreased $254 million, primarily due to higher catastrophe losses, lower net investment income and a lower underlying underwriting gain, partially offset by higher net favorable prior year reserve development. The underlying underwriting gain benefited from higher business volumes. Net realized investment losses were $95 million pre-tax ($74 million after-tax), compared to net realized investment gains of $61 million pre-tax ($47 million after-tax) in the prior year quarter.
Combined ratio:
Net investment income of $707 million pre-tax ($595 million after-tax) decreased 14%. Income from the non-fixed income investment portfolio decreased from the prior year quarter, primarily due to lower private equity partnership returns as compared to record returns in the prior year quarter. Non-fixed income returns are generally reported on a one-quarter lagged basis and directionally follow the broader equity markets. Income from the fixed income investment portfolio increased over the prior year quarter, primarily due to growth in fixed maturity investments, partially offset by a lower average yield.
Net written premiums of $9.020 billion increased 11%. See below for further details by segment.
Year-to-Date 2022 Results (All comparisons vs. year-to-date 2021, unless noted otherwise)
Net income of $1.569 billion decreased $98 million, primarily due to net realized investment losses compared to net realized investment gains in the prior year period, partially offset by higher core income. Core income of $1.662 billion increased $84 million, primarily due to lower catastrophe losses, partially offset by lower net investment income, lower net favorable prior year reserve development and a lower underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes and a $47 million benefit relating to the resolution of prior year income tax matters. Net realized investment losses were $118 million pre-tax ($93 million after-tax), compared to net realized investment gains of $105 million pre-tax ($81 million after-tax) in the prior year period.
Combined ratio:
Net investment income of $1.344 billion pre-tax ($1.134 billion after-tax) decreased 12% driven by the same factors described above for second quarter 2022.
Net written premiums of $17.387 billion increased 11%. See below for further details by segment.
Shareholders’ Equity
Shareholders’ equity of $22.874 billion decreased 21% from year-end 2021, primarily due to net unrealized investment losses compared to net unrealized investment gains at year-end 2021, common share repurchases and dividends to shareholders, partially offset by net income of $1.569 billion. Net unrealized investment losses included in shareholders’ equity were $4.817 billion pre-tax ($3.792 billion after-tax) compared to net unrealized investment gains of $3.060 billion pre-tax ($2.415 billion after-tax) at year-end 2021, resulting from higher interest rates. Book value per share of $96.39 decreased 18% from June 30, 2021 and 20% from year-end 2021. Adjusted book value per share of $112.37, which excludes net unrealized investment gains (losses), increased 8% over June 30, 2021 and 2% over year-end 2021.
The Company repurchased 2.9 million shares during the second quarter at an average price of $172.57 per share for a total of $500 million. At June 30, 2022, the Company had $3.005 billion of capacity remaining under its share repurchase authorization approved by the Board of Directors. At the end of the quarter, statutory capital and surplus was $23.776 billion, and the ratio of debt-to-capital was 24.2%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains (losses) included in shareholders’ equity was 21.5%, within the Company’s target range of 15% to 25%.
The Board of Directors declared a regular quarterly dividend of $0.93 per share. The dividend is payable September 30, 2022 to shareholders of record at the close of business on September 9, 2022.
Business Insurance Segment Financial Results
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain:
$
281
$
173
$
108
$
639
$
29
$
610
Underwriting gain includes:
Net favorable prior year reserve development
202
73
129
315
207
108
Catastrophes, net of reinsurance
(234
)
(149
)
(85
)
(313
)
(655
)
342
Net investment income
521
615
(94
)
989
1,138
(149
)
Other income (expense)
12
(8
)
20
(5
)
(15
)
10
Segment income before income taxes
814
780
34
1,623
1,152
471
Income tax expense
148
137
11
288
192
96
Segment income
$
666
$
643
$
23
$
1,335
$
960
$
375
Combined ratio
93.2
%
95.3
%
(2.1
)
pts
92.1
%
99.3
%
(7.2
)
pts
Impact on combined ratio
Net favorable prior year reserve development
(4.8
)
pts
(1.9
)
pts
(2.9
)
pts
(3.8
)
pts
(2.7
)
pts
(1.1
)
pts
Catastrophes, net of reinsurance
5.6
pts
3.9
pts
1.7
pts
3.8
pts
8.5
pts
(4.7
)
pts
Underlying combined ratio
92.4
%
93.3
%
(0.9
)
pts
92.1
%
93.5
%
(1.4
)
pts
Net written premiums by market
Domestic
Select Accounts
$
807
$
726
11
%
$
1,626
$
1,455
12
%
Middle Market
2,329
2,087
12
4,945
4,471
11
National Accounts
240
213
13
543
503
8
National Property and Other
690
647
7
1,187
1,092
9
Total Domestic
4,066
3,673
11
8,301
7,521
10
International
307
307
—
574
584
(2
)
Total
$
4,373
$
3,980
10
%
$
8,875
$
8,105
10
%
Second Quarter 2022 Results (All comparisons vs. second quarter 2021, unless noted otherwise)
Segment income for Business Insurance was $666 million after-tax, an increase of $23 million. Segment income increased primarily due to higher net favorable prior year reserve development and a higher underlying underwriting gain, partially offset by lower net investment income and higher catastrophe losses. The underlying underwriting gain benefited from higher business volumes.
Combined ratio:
Net written premiums of $4.373 billion increased 10%, reflecting strong renewal premium change and retention.
Year-to-Date 2022 Results (All comparisons vs. year-to-date 2021, unless noted otherwise)
Segment income for Business Insurance was $1.335 billion after-tax, an increase of $375 million. Segment income increased primarily due to lower catastrophe losses, a higher underlying underwriting gain and higher net favorable prior year reserve development, partially offset by lower net investment income. The underlying underwriting gain benefited from higher business volumes.
Combined ratio:
Net written premiums of $8.875 billion increased 10%, reflecting strong renewal premium change and retention, as well as higher levels of new business.
Bond & Specialty Insurance Segment Financial Results
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain:
$
218
$
165
$
53
$
395
$
272
$
123
Underwriting gain includes:
Net favorable prior year reserve development
73
44
29
108
59
49
Catastrophes, net of reinsurance
(4
)
(3
)
(1
)
(5
)
(27
)
22
Net investment income
64
64
—
123
123
—
Other income
3
6
(3
)
6
9
(3
)
Segment income before income taxes
285
235
50
524
404
120
Income tax expense
57
48
9
79
80
(1
)
Segment income
$
228
$
187
$
41
$
445
$
324
$
121
Combined ratio
74.0
%
78.1
%
(4.1
)
pts
76.0
%
81.6
%
(5.6
)
pts
Impact on combined ratio
Net favorable prior year reserve development
(8.6
)
pts
(5.7
)
pts
(2.9
)
pts
(6.5
)
pts
(3.9
)
pts
(2.6
)
pts
Catastrophes, net of reinsurance
0.4
pts
0.4
pts
—
pts
0.3
pts
1.7
pts
(1.4
)
pts
Underlying combined ratio
82.2
%
83.4
%
(1.2
)
pts
82.2
%
83.8
%
(1.6
)
pts
Net written premiums
Domestic
Management Liability
$
533
$
497
7
%
$
1,038
$
941
10
%
Surety
287
232
24
544
432
26
Total Domestic
820
729
12
1,582
1,373
15
International
142
125
14
262
204
28
Total
$
962
$
854
13
%
$
1,844
$
1,577
17
%
Second Quarter 2022 Results (All comparisons vs. second quarter 2021, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $228 million after-tax, an increase of $41 million. Segment income increased primarily due to higher net favorable prior year reserve development and a higher underlying underwriting gain. The underlying underwriting gain benefited from higher business volumes.
Combined ratio:
Net written premiums of $962 million increased 13%, reflecting strong production in surety and strong renewal premium change, retention and new business in management liability.
Year-to-Date 2022 Results (All comparisons vs. year-to-date 2021, unless noted otherwise)
Segment income for Bond & Specialty Insurance was $445 million after-tax, an increase of $121 million. Segment income increased primarily due to a higher underlying underwriting gain, higher net favorable prior year reserve development and lower catastrophe losses. The underlying underwriting gain benefited from higher business volumes. The current year also benefited by $24 million relating to the resolution of prior year income tax matters.
Combined ratio:
Net written premiums of $1.844 billion increased 17%, reflecting the same factors described above for the second quarter of 2022.
Personal Insurance Segment Financial Results
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions and pre-tax, unless noted otherwise)
2022
2021
Change
2022
2021
Change
Underwriting gain (loss):
$
(386
)
$
(14
)
$
(372
)
$
(262
)
$
240
$
(502
)
Underwriting gain (loss) includes:
Net favorable prior year reserve development
16
65
(49
)
21
233
(212
)
Catastrophes, net of reinsurance
(508
)
(323
)
(185
)
(588
)
(628
)
40
Net investment income
122
139
(17
)
232
258
(26
)
Other income
14
21
(7
)
32
42
(10
)
Segment income (loss) before income taxes
(250
)
146
(396
)
2
540
(538
)
Income tax expense (benefit)
(57
)
25
(82
)
(30
)
105
(135
)
Segment income (loss)
$
(193
)
$
121
$
(314
)
$
32
$
435
$
(403
)
Combined ratio
111.2
%
99.7
%
11.5
pts
103.4
%
95.1
%
8.3
pts
Impact on combined ratio
Net favorable prior year reserve development
(0.5
)
pts
(2.2
)
pts
1.7
pts
(0.3
)
pts
(4.0
)
pts
3.7
pts
Catastrophes, net of reinsurance
15.6
pts
10.9
pts
4.7
pts
9.2
pts
10.8
pts
(1.6
)
pts
Underlying combined ratio
96.1
%
91.0
%
5.1
pts
94.5
%
88.3
%
6.2
pts
Net written premiums
Domestic
Automobile
$
1,629
$
1,467
11
%
$
3,125
$
2,842
10
%
Homeowners and Other
1,868
1,634
14
3,212
2,778
16
Total Domestic
3,497
3,101
13
6,337
5,620
13
International
188
200
(6
)
331
338
(2
)
Total
$
3,685
$
3,301
12
%
$
6,668
$
5,958
12
%
Second Quarter 2022 Results (All comparisons vs. second quarter 2021, unless noted otherwise)
Segment loss for Personal Insurance was $193 million after-tax, compared with segment income of $121 million after-tax in the prior year quarter. The difference was primarily due to higher catastrophe losses, a lower underlying underwriting gain and lower net favorable prior year reserve development. The underlying underwriting gain benefited from higher business volumes.
Combined ratio:
Net written premiums of $3.685 billion increased 12%. Domestic Automobile net written premiums increased 11%, reflecting renewal premium change of 6.3% and strong retention. Domestic Homeowners and Other net written premiums increased 14%, reflecting renewal premium change of 13.5% and strong retention.
Year-to-Date 2022 Results (All comparisons vs. year-to-date 2021, unless noted otherwise)
Segment income for Personal Insurance was $32 million after-tax, a decrease of $403 million. Segment income decreased primarily due to a lower underlying underwriting gain and lower net favorable prior year reserve development, partially offset by lower catastrophe losses. The underlying underwriting gain benefited from higher business volumes. The current year also benefited by $20 million relating to the resolution of prior year income tax matters.
Combined ratio:
Net written premiums of $6.668 billion increased 12%. Domestic Automobile net written premiums increased 10%, reflecting renewal premium change of 4.9% and strong retention. Domestic Homeowners and Other net written premiums increased 16%, reflecting renewal premium change of 12.9% and strong retention.
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, July 21, 2022. Investors can access the call via webcast at http://investor.travelers.com or by dialing 1.888.440.6281 within the United States and 1.646.960.0218 outside the United States. Prior to the webcast, a slide presentation pertaining to the quarterly earnings will be available on the Company’s website.
Following the live event, replays will be available via webcast for one year at http://investor.travelers.com and by telephone for 30 days by dialing 1.800.770.2030 within the United States or 1.647.362.9199 outside the United States. All callers should use conference ID 5449478.
About Travelers
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of property casualty insurance for auto, home and business. A component of the Dow Jones Industrial Average, Travelers has approximately 30,000 employees and generated revenues of approximately $35 billion in 2021. For more information, visit www.travelers.com.
Travelers may use its website and/or social media outlets, such as Facebook and Twitter, as distribution channels of material Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website at http://investor.travelers.com, our Facebook page at https://www.facebook.com/travelers and our Twitter account (@Travelers) at https://twitter.com/travelers. In addition, you may automatically receive email alerts and other information about Travelers when you enroll your email address by visiting the Email Notifications section at http://investor.travelers.com.
Travelers is organized into the following reportable business segments:
Business Insurance - Business Insurance offers a broad array of property and casualty insurance products and services to its customers, primarily in the United States, as well as in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world as a corporate member of Lloyd’s.
Bond & Specialty Insurance - Bond & Specialty Insurance offers surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services to its customers, primarily in the United States, and certain surety and specialty insurance products in Canada, the United Kingdom and the Republic of Ireland, as well as Brazil through a joint venture, in each case utilizing various degrees of financially-based underwriting approaches.
Personal Insurance - Personal Insurance offers a broad range of property and casualty insurance products and services covering individuals’ personal risks, primarily in the United States, as well as in Canada. The primary products of automobile and homeowners insurance are complemented by a broad suite of related coverages.
* * * * *
Forward-Looking Statements
This press release contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “views,” “estimates” and similar expressions are used to identify these forward-looking statements. These statements include, among other things, the Company’s statements about:
The Company cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the Company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.
Some of the factors that could cause actual results to differ include, but are not limited to, the following:
Insurance-Related Risks
Financial, Economic and Credit Risks
Business and Operational Risks
Technology and Intellectual Property Risks
Regulatory and Compliance Risks
In addition, the Company’s share repurchase plans depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels appropriate for the Company’s business operations, changes in levels of written premiums, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions, changes in tax laws and other factors.
Our forward-looking statements speak only as of the date of this press release or as of the date they are made, and we undertake no obligation to update forward-looking statements. For a more detailed discussion of these factors, see the information under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Forward Looking Statements” in the quarterly report on Form 10-Q filed with the Securities and Exchange Commission (SEC) on July 21, 2022, and in our most recent annual report on Form 10-K filed with the SEC on February 17, 2022, in each case as updated by our periodic filings with the SEC.
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
The following measures are used by the Company’s management to evaluate financial performance against historical results, to establish performance targets on a consolidated basis and for other reasons as discussed below. In some cases, these measures are considered non-GAAP financial measures under applicable SEC rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. Reconciliations of these measures to the most comparable GAAP measures also follow.
In the opinion of the Company’s management, a discussion of these measures provides investors, financial analysts, rating agencies and other financial statement users with a better understanding of the significant factors that comprise the Company’s periodic results of operations and how management evaluates the Company’s financial performance.
Some of these measures exclude net realized investment gains (losses), net of tax, and/or net unrealized investment gains (losses), net of tax, included in shareholders’ equity, which can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends.
Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by the Company’s management.
RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER NON-GAAP MEASURES
Core income (loss) is consolidated net income (loss) excluding the after-tax impact of net realized investment gains (losses), discontinued operations, the effect of a change in tax laws and tax rates at enactment, and cumulative effect of changes in accounting principles when applicable. Segment income (loss) is determined in the same manner as core income (loss) on a segment basis. Management uses segment income (loss) to analyze each segment’s performance and as a tool in making business decisions. Financial statement users also consider core income (loss) when analyzing the results and trends of insurance companies. Core income (loss) per share is core income (loss) on a per common share basis.
Reconciliation of Net Income to Core Income less Preferred Dividends
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions, after-tax)
2022
2021
2022
2021
Net income
$
551
$
934
$
1,569
$
1,667
Adjustments:
Net realized investment (gains) losses
74
(47
)
93
(81
)
Impact of changes in tax laws and/or tax rates (1)
—
(8
)
—
(8
)
Core income
$
625
$
879
$
1,662
$
1,578
(1) Impact is recognized in the accounting period in which the change is enacted
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions, pre-tax)
2022
2021
2022
2021
Net income
$
657
$
1,131
$
1,839
$
2,022
Adjustments:
Net realized investment (gains) losses
95
(61
)
118
(105
)
Core income
$
752
$
1,070
$
1,957
$
1,917
Twelve Months Ended December 31,
Average Annual
($ in millions, after-tax)
2021
2020
2019
2018
2017
2005 - 2016
Net income
$
3,662
$
2,697
$
2,622
$
2,523
$
2,056
$
3,159
Less: Loss from discontinued operations
—
—
—
—
—
(37
)
Income from continuing operations
3,662
2,697
2,622
2,523
2,056
3,196
Adjustments:
Net realized investment (gains) losses
(132
)
(11
)
(85
)
(93
)
(142
)
(29
)
Impact of changes in tax laws and/or tax rates (1) (2)
(8
)
—
—
—
129
—
Core income
3,522
2,686
2,537
2,430
2,043
3,167
Less: Preferred dividends
—
—
—
—
—
2
Core income, less preferred dividends
$
3,522
$
2,686
$
2,537
$
2,430
$
2,043
$
3,165
(1) Impact is recognized in the accounting period in which the change is enacted
(2) 2017 reflects impact of Tax Cuts and Jobs Act of 2017 (TCJA)
Reconciliation of Net Income per Share to Core Income per Share on a Basic and Diluted Basis
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Basic income per share
Net income
$
2.29
$
3.70
$
6.50
$
6.58
Adjustments:
Net realized investment (gains) losses, after-tax
0.31
(0.19
)
0.38
(0.32
)
Impact of changes in tax laws and/or tax rates (1)
—
(0.03
)
—
(0.03
)
Core income
$
2.60
$
3.48
$
6.88
$
6.23
Diluted income per share
Net income
$
2.27
$
3.66
$
6.43
$
6.53
Adjustments:
Net realized investment (gains) losses, after-tax
0.30
(0.18
)
0.38
(0.32
)
Impact of changes in tax laws and/or tax rates (1)
—
(0.03
)
—
(0.03
)
Core income
$
2.57
$
3.45
$
6.81
$
6.18
(1) Impact is recognized in the accounting period in which the change is enacted
Reconciliation of Segment Income (Loss) to Total Core Income
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions, after-tax)
2022
2021
2022
2021
Business Insurance
$
666
$
643
$
1,335
$
960
Bond & Specialty Insurance
228
187
445
324
Personal Insurance
(193
)
121
32
435
Total segment income
701
951
1,812
1,719
Interest Expense and Other
(76
)
(72
)
(150
)
(141
)
Total core income
$
625
$
879
$
1,662
$
1,578
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 June 30,
($ in millions)
2022
2021
Shareholders’ equity
$
22,874
$
29,156
Adjustments:
Net unrealized investment (gains) losses, net of tax, included in shareholders’ equity
3,792
(3,239
)
Net realized investment (gains) losses, net of tax
93
(81
)
Impact of changes in tax laws and/or tax rates (1)
—
(8
)
Adjusted shareholders’ equity
$
26,759
$
25,828
(1) Impact is recognized in the accounting period in which the change is enacted
As of December 31,
Average Annual
($ in millions)
2021
2020
2019
2018
2017
2005 - 2016
Shareholders’ equity
$
28,887
$
29,201
$
25,943
$
22,894
$
23,731
$
24,883
Adjustments:
Net unrealized investment (gains) losses, net of tax, included in shareholders’ equity
(2,415
)
(4,074
)
(2,246
)
113
(1,112
)
(1,354
)
Net realized investment (gains) losses, net of tax
(132
)
(11
)
(85
)
(93
)
(142
)
(29
)
Impact of changes in tax laws and/or tax rates (1) (2)
(8
)
—
—
—
287
—
Preferred stock
—
—
—
—
—
(53
)
Loss from discontinued operations
—
—
—
—
—
37
Adjusted shareholders’ equity
$
26,332
$
25,116
$
23,612
$
22,914
$
22,764
$
23,484
(1) Impact is recognized in the accounting period in which the change is enacted
(2) 2017 reflects impact of Tax Cuts and Jobs Act of 2017 (TCJA)
Return on equity is the ratio of annualized net income (loss) less preferred dividends to average shareholders’ equity for the periods presented. Core return on equity is the ratio of annualized core income (loss) less preferred dividends to adjusted average shareholders’ equity for the periods presented. In the opinion of the Company’s management, these are important indicators of how well management creates value for its shareholders through its operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total shareholders’ equity excluding preferred stock at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two. Adjusted average shareholders’ equity is (a) the sum of total adjusted shareholders’ equity at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two.
Calculation of Return on Equity and Core Return on Equity
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions, after-tax)
2022
2021
2022
2021
Annualized net income
$
2,203
$
3,736
$
3,138
$
3,335
Average shareholders’ equity
24,203
28,712
25,706
28,723
Return on equity
9.1
%
13.0
%
12.2
%
11.6
%
Annualized core income
$
2,499
$
3,514
$
3,323
$
3,155
Adjusted average shareholders’ equity
26,831
25,656
26,768
25,464
Core return on equity
9.3
%
13.7
%
12.4
%
12.4
%
Twelve Months Ended December 31,
Average Annual
($ in millions, after-tax)
2021
2020
2019
2018
2017
2005 - 2016
Net income, less preferred dividends
$
3,662
$
2,697
$
2,622
$
2,523
$
2,056
$
3,157
Average shareholders’ equity
28,735
26,892
24,922
22,843
23,671
24,913
Return on equity
12.7
%
10.0
%
10.5
%
11.0
%
8.7
%
12.7
%
Core income, less preferred dividends
$
3,522
$
2,686
$
2,537
$
2,430
$
2,043
$
3,165
Adjusted average shareholders’ equity
25,718
23,790
23,335
22,814
22,743
23,505
Core return on equity
13.7
%
11.3
%
10.9
%
10.7
%
9.0
%
13.5
%
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN ITEMS TO NET INCOME
Underwriting gain (loss) is net earned premiums and fee income less claims and claim adjustment expenses and insurance-related expenses. In the opinion of the Company’s management, it is important to measure the profitability of each segment excluding the results of investing activities, which are managed separately from the insurance business. This measure is used to assess each segment’s business performance and as a tool in making business decisions. Pre-tax underwriting gain, excluding the impact of catastrophes and net favorable (unfavorable) prior year loss reserve development, is the underwriting gain adjusted to exclude claims and claim adjustment expenses, reinstatement premiums and assessments related to catastrophes and loss reserve development related to time periods prior to the current year. In the opinion of the Company’s management, this measure is meaningful to users of the financial statements to understand the Company’s periodic earnings and the variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophes and loss reserve development. This measure is also referred to as underlying underwriting gain, underlying underwriting margin or underlying underwriting income.
A catastrophe is a severe loss designated a catastrophe by internationally recognized organizations that track and report on insured losses resulting from catastrophic events, such as Property Claim Services (PCS) for events in the United States and Canada. Catastrophes can be caused by various natural events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions and other naturally-occurring events, such as solar flares. Catastrophes can also be man-made, such as terrorist attacks and other intentionally destructive acts including those involving nuclear, biological, chemical and radiological events, cyber events, explosions and destruction of infrastructure. Each catastrophe has unique characteristics and catastrophes are not predictable as to timing or amount. Their effects are included in net and core income and claims and claim adjustment expense reserves upon occurrence. A catastrophe may result in the payment of reinsurance reinstatement premiums and assessments from various pools.
The Company’s threshold for disclosing catastrophes is primarily determined at the reportable segment level. If a threshold for one segment or a combination thereof is exceeded and the other segments have losses from the same event, losses from the event are identified as catastrophe losses in the segment results and for the consolidated results of the Company. Additionally, an aggregate threshold is applied for international business across all reportable segments. The threshold for 2022 ranges from $20 million to $30 million of losses before reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve development is the increase or decrease in incurred claims and claim adjustment expenses as a result of the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given group of claims, which may be related to one or more prior years. In the opinion of the Company’s management, a discussion of loss reserve development is meaningful to users of the financial statements as it allows them to assess the impact between prior and current year development on incurred claims and claim adjustment expenses, net and core income (loss), and changes in claims and claim adjustment expense reserve levels from period to period.
Reconciliation of Net Income to Pre-Tax Underlying Underwriting Income (also known as Underlying Underwriting Gain)
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions, after-tax, except as noted)
2022
2021
2022
2021
Net income
$
551
$
934
$
1,569
$
1,667
Net realized investment (gains) losses
74
(47
)
93
(81
)
Impact of changes in tax laws and/or tax rates (1)
—
(8
)
—
(8
)
Core income
625
879
1,662
1,578
Net investment income
(595
)
(682
)
(1,134
)
(1,272
)
Other (income) expense, including interest expense
56
56
133
113
Underwriting income
86
253
661
419
Income tax expense on underwriting results
27
71
111
122
Pre-tax underwriting income
113
324
772
541
Pre-tax impact of net favorable prior year loss reserve development
(291
)
(182
)
(444
)
(499
)
Pre-tax impact of catastrophes
746
475
906
1,310
Pre-tax underlying underwriting income
$
568
$
617
$
1,234
$
1,352
(1) Impact is recognized in the accounting period in which the change is enacted
Reconciliation of Net Income to After-Tax Underlying Underwriting Income (also known as Underlying Underwriting Gain)
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions, after-tax)
2022
2021
2022
2021
Net income
$
551
$
934
$
1,569
$
1,667
Net realized investment (gains) losses
74
(47
)
93
(81
)
Impact of changes in tax laws and/or tax rates (1)
—
(8
)
—
(8
)
Core income
625
879
1,662
1,578
Net investment income
(595
)
(682
)
(1,134
)
(1,272
)
Other (income) expense, including interest expense
56
56
133
113
Underwriting income
86
253
661
419
Impact of net favorable prior year reserve development
(229
)
(144
)
(351
)
(393
)
Impact of catastrophes
587
376
714
1,035
Underlying underwriting income
$
444
$
485
$
1,024
$
1,061
(1) Impact is recognized in the accounting period in which the change is enacted
Twelve Months Ended December 31,
($ in millions, after-tax)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Net income
$
3,662
$
2,697
$
2,622
$
2,523
$
2,056
$
3,014
$
3,439
$
3,692
$
3,673
$
2,473
$
1,426
Net realized investment gains
(132
)
(11
)
(85
)
(93
)
(142
)
(47
)
(2
)
(51
)
(106
)
(32
)
(36
)
Impact of changes in tax laws and/or tax rates (1) (2)
(8
)
—
—
—
129
—
—
—
—
—
—
Core income
3,522
2,686
2,537
2,430
2,043
2,967
3,437
3,641
3,567
2,441
1,390
Net investment income
(2,541
)
(1,908
)
(2,097
)
(2,102
)
(1,872
)
(1,846
)
(1,905
)
(2,216
)
(2,186
)
(2,316
)
(2,330
)
Other (income) expense, including interest expense
235
232
214
248
179
78
193
159
61
171
195
Underwriting income (loss)
1,216
1,010
654
576
350
1,199
1,725
1,584
1,442
296
(745
)
Impact of net (favorable) unfavorable prior year reserve development
(424
)
(276
)
47
(409
)
(378
)
(510
)
(617
)
(616
)
(552
)
(622
)
(473
)
Impact of catastrophes
1,459
1,274
699
1,355
1,267
576
338
462
387
1,214
1,669
Underlying underwriting income
$
2,251
$
2,008
$
1,400
$
1,522
$
1,239
$
1,265
$
1,446
$
1,430
$
1,277
$
888
$
451
(1) Impact is recognized in the accounting period in which the change is enacted
(2) 2017 reflects impact of Tax Cuts and Jobs Act of 2017 (TCJA)
COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED RATIO
Combined ratio: For Statutory Accounting Practices (SAP), the combined ratio is the sum of the SAP loss and LAE ratio and the SAP underwriting expense ratio as defined in the statutory financial statements required by insurance regulators. The combined ratio, as used in this earnings release, is the equivalent of, and is calculated in the same manner as, the SAP combined ratio except that the SAP underwriting expense ratio is based on net written premiums and the underwriting expense ratio as used in this earnings release is based on net earned premiums.
For SAP, the loss and LAE ratio is the ratio of incurred losses and loss adjustment expenses less certain administrative services fee income to net earned premiums as defined in the statutory financial statements required by insurance regulators. The loss and LAE ratio as used in this earnings release is calculated in the same manner as the SAP ratio.
For SAP, the underwriting expense ratio is the ratio of underwriting expenses incurred (including commissions paid), less certain administrative services fee income and billing and policy fees and other, to net written premiums as defined in the statutory financial statements required by insurance regulators. The underwriting expense ratio as used in this earnings release, is the ratio of underwriting expenses (including the amortization of deferred acquisition costs), less certain administrative services fee income, billing and policy fees and other, to net earned premiums.
The combined ratio, loss and LAE ratio, and underwriting expense ratio are used as indicators of the Company’s underwriting discipline, efficiency in acquiring and servicing its business and overall underwriting profitability. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
Underlying combined ratio represents the combined ratio excluding the impact of net prior year reserve development and catastrophes. The underlying combined ratio is an indicator of the Company’s underwriting discipline and underwriting profitability for the current accident year.
Other companies’ method of computing similarly titled measures may not be comparable to the Company’s method of computing these ratios.
Calculation of the Combined Ratio
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions, pre-tax)
2022
2021
2022
2021
Loss and loss adjustment expense ratio
Claims and claim adjustment expenses
$
5,803
$
5,045
$
10,842
$
10,015
Less:
Policyholder dividends
6
10
17
21
Allocated fee income
39
39
74
77
Loss ratio numerator
$
5,758
$
4,996
$
10,751
$
9,917
Underwriting expense ratio
Amortization of deferred acquisition costs
$
1,365
$
1,254
$
2,675
$
2,461
General and administrative expenses (G&A)
1,223
1,174
2,414
2,337
Less:
Non-insurance G&A
87
77
169
147
Allocated fee income
61
65
129
128
Billing and policy fees and other
27
27
54
54
Expense ratio numerator
$
2,413
$
2,259
$
4,737
$
4,469
Earned premium
$
8,317
$
7,616
$
16,331
$
15,002
Combined ratio (1)
Loss and loss adjustment expense ratio
69.3
%
65.6
%
65.8
%
66.1
%
Underwriting expense ratio
29.0
%
29.7
%
29.0
%
29.8
%
Combined ratio
98.3
%
95.3
%
94.8
%
95.9
%
Impact on combined ratio:
Net favorable prior year reserve development
(3.5
) %
(2.4
) %
(2.7
) %
(3.3
) %
Catastrophes, net of reinsurance
9.0
%
6.3
%
5.5
%
8.7
%
Underlying combined ratio
92.8
%
91.4
%
92.0
%
90.5
%
(1) For purposes of computing ratios, billing and policy fees and other (which are a component of other revenues) are allocated as a reduction of underwriting expenses. In addition, fee income is allocated as a reduction of losses and loss adjustment expenses and underwriting expenses. These allocations are to conform the calculation of the combined ratio with statutory accounting. Additionally, general and administrative expenses include non-insurance expenses that are excluded from underwriting expenses, and accordingly are excluded in calculating the combined ratio.
RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS’ EQUITY TO CERTAIN NON-GAAP MEASURES
Book value per share is total common shareholders’ equity divided by the number of common shares outstanding. Adjusted book value per share is total common shareholders’ equity excluding net unrealized investment gains and losses, net of tax, included in shareholders’ equity, divided by the number of common shares outstanding. In the opinion of the Company’s management, adjusted book value per share is useful in an analysis of a property casualty company’s book value per share as it removes the effect of changing prices on invested assets (i.e., net unrealized investment gains (losses), net of tax), which do not have an equivalent impact on unpaid claims and claim adjustment expense reserves. Tangible book value per share is adjusted book value per share excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding. In the opinion of the Company’s management, tangible book value per share is useful in an analysis of a property casualty company’s book value on a nominal basis as it removes certain effects of purchase accounting (i.e., goodwill and other intangible assets), in addition to the effect of changing prices on invested assets.
Reconciliation of Shareholders’ Equity to Tangible Shareholders’ Equity, Excluding Net Unrealized Investment Gains (Losses), Net of Tax
As of
($ in millions, except per share amounts)
June 30, 2022
December 31, 2021
June 30, 2021
Shareholders’ equity
$
22,874
$
28,887
$
29,156
Less: Net unrealized investment gains (losses), net of tax, included in shareholders’ equity
(3,792
)
2,415
3,239
Shareholders’ equity, excluding net unrealized investment gains (losses), net of tax, included in shareholders’ equity
26,666
26,472
25,917
Less:
Goodwill
3,967
4,008
4,020
Other intangible assets
294
306
314
Impact of deferred tax on other intangible assets
(59
)
(66
)
(63
)
Tangible shareholders’ equity
$
22,464
$
22,224
$
21,646
Common shares outstanding
237.3
241.2
249.5
Book value per share
$
96.39
$
119.77
$
116.86
Adjusted book value per share
112.37
109.76
103.88
Tangible book value per share
94.66
92.15
86.76
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)
June 30, 2022
December 31, 2021
Debt
$
7,291
$
7,290
Shareholders’ equity
22,874
28,887
Total capitalization
30,165
36,177
Less: Net unrealized investment gains (losses), net of tax, included in shareholders’ equity
(3,792
)
2,415
Total capitalization excluding net unrealized gain (loss) on investments, net of tax, included in shareholders’ equity
$
33,957
$
33,762
Debt-to-capital ratio
24.2
%
20.2
%
Debt-to-capital ratio excluding net unrealized investment gains (losses), net of tax, included in shareholders’ equity
21.5
%
21.6
%
RECONCILIATION OF INVESTED ASSETS TO INVESTED ASSETS EXCLUDING NET UNREALIZED INVESTMENT GAINS (LOSSES)
As of June 30,
($ in millions, pre-tax)
2022
2021
Invested assets
$
80,459
$
86,545
Less: Net unrealized investment gains (losses), pre-tax
(4,817
)
4,112
Invested assets excluding net unrealized investment gains (losses)
$
85,276
$
82,433
As of December 31,
($ in millions, pre-tax)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Invested assets
$
87,375
$
84,423
$
77,884
$
72,278
$
72,502
$
70,488
$
70,470
$
73,261
$
73,160
$
73,838
$
72,701
Less: Net unrealized investment gains (losses), pre-tax
3,060
5,175
2,853
(137
)
1,414
1,112
1,974
3,008
2,030
4,761
4,399
Invested assets excluding net unrealized investment gains (losses)
$
84,315
$
79,248
$
75,031
$
72,415
$
71,088
$
69,376
$
68,496
$
70,253
$
71,130
$
69,077
$
68,302
OTHER DEFINITIONS
Gross written premiums reflect the direct and assumed contractually determined amounts charged to policyholders for the effective period of the contract based on the terms and conditions of the insurance contract. Net written premiums reflect gross written premiums less premiums ceded to reinsurers.
For Business Insurance and Bond & Specialty Insurance, retention is the amount of premium available for renewal that was retained, excluding rate and exposure changes. For Personal Insurance, retention is the ratio of the expected number of renewal policies that will be retained throughout the annual policy period to the number of available renewal base policies. For all of the segments, renewal rate change represents the estimated change in average premium on policies that renew, excluding exposure changes. Exposure is the measure of risk used in the pricing of an insurance product. The change in exposure is the amount of change in premium on policies that renew attributable to the change in portfolio risk. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. New business is the amount of written premium related to new policyholders and additional products sold to existing policyholders. These are operating statistics, which are in part dependent on the use of estimates and are therefore subject to change. For Business Insurance, retention, renewal premium change and new business exclude National Accounts. For Bond & Specialty Insurance, retention, renewal premium change and new business exclude surety and other products that are generally sold on a non-recurring, project specific basis. For each of the segments, production statistics referred to herein are domestic only unless otherwise indicated.
Statutory capital and surplus represents the excess of an insurance company’s admitted assets over its liabilities, including loss reserves, as determined in accordance with statutory accounting practices.
Holding company liquidity is the total funds available at the holding company level to fund general corporate purposes, primarily the payment of shareholder dividends and debt service. These funds consist of total cash, short-term invested assets and other readily marketable securities held by the holding company.
For a glossary of other financial terms used in this press release, we refer you to the Company’s most recent annual report on Form 10-K filed with the SEC on February 17, 2022, and subsequent periodic filings with the SEC.
View source version on businesswire.com: https://www.businesswire.com/news/home/20220719006075/en/
Media: Patrick Linehan 917.778.6267
Institutional Investors: Abbe Goldstein 917.778.6825
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