First Quarter 2019 Core Income per
Diluted Share of $2.83, up 15%, and Core Return on Equity of
13.0%
Board of Directors Declares 6.5% Increase in
Regular Quarterly Cash Dividend to $0.82 per Share
- First quarter net income of $796
million and core income of $755 million, up 19% and 11%,
respectively.
- Consolidated combined ratio of 93.7%;
underlying combined ratio of 91.6%.
- Record gross written premiums of $7.839
billion up 6%, with growth in all segments; net written premiums of
$7.057 billion up 3%; growth in net written premiums reflects a new
catastrophe reinsurance treaty.
- Total capital returned to shareholders
of $625 million, including $421 million of share repurchases.
- Book value per share of $92.94, up 7%
from year-end 2018; adjusted book value per share of $89.09, up 2%
from year-end 2018.
The Travelers Companies, Inc. today reported net income of $796
million, or $2.99 per diluted share, for the quarter ended
March 31, 2019, compared to $669 million, or $2.42 per diluted
share, in the prior year quarter. Core income in the current
quarter was $755 million, or $2.83 per diluted share, compared to
$678 million, or $2.46 per diluted share, in the prior year
quarter. Core income increased primarily due to lower catastrophe
losses and a higher underlying underwriting gain (i.e., excluding
net favorable prior year reserve development and catastrophe
losses), partially offset by lower net favorable prior year reserve
development. The decrease in net favorable prior year reserve
development primarily reflects the recent enactment of legislation
by New York State, as discussed below. Net realized investment
gains were $53 million pre-tax ($41 million after-tax), compared to
net realized investment losses of $11 million pre-tax ($9 million
after-tax) in the prior year quarter. Per diluted share amounts
benefited from the impact of share repurchases.
Consolidated
Highlights
($ in millions, except for per share amounts, and
after-tax, except for premiums and revenues) Three
Months Ended March 31, 2019 2018
Change Net written premiums $ 7,057
$ 6,824 3 % Total
revenues $ 7,671 $ 7,286 5
Net income $ 796 $ 669 19
per diluted share $ 2.99 $ 2.42 24
Core income $
755 $ 678 11 per diluted share $ 2.83 $
2.46 15
Diluted weighted average shares outstanding
264.8 273.9 (3 ) Combined ratio
93.7 % 95.5 % (1.8 )
pts Underlying combined ratio 91.6 %
92.4 % (0.8 ) pts Return on
equity 13.5 % 11.5 % 2.0
pts Core return on equity 13.0 %
11.9 % 1.1 pts As
of
March 31,2019
December 31,2018
Change Book value per share $ 92.94
$ 86.84 7 % Adjusted book
value per share 89.09 87.27 2 %
See Glossary of Financial Measures for
definitions and the statistical supplement for additional financial
data.
“We are very pleased to report first quarter core income of $755
million, up 11% over the prior year quarter, and core return on
equity of 13%,” said Alan Schnitzer, Chairman and Chief Executive
Officer. “We delivered strong underwriting results as reflected in
our combined ratio of 93.7%. We produced a strong underlying
underwriting result thanks to continued underwriting excellence and
also through top-line growth and thoughtful expense management,
both benefiting from the successful execution of our strategic
initiatives. Our high-quality investment portfolio performed well,
generating net investment income of $496 million after-tax. While
slightly below the result in the prior year quarter due to lower
private equity returns, net investment income benefited from higher
fixed income returns. These results, along with our strong balance
sheet, enabled us to return $625 million of excess capital to our
shareholders this quarter, including $421 million of share
repurchases. In recognition of our strong financial position and
confidence in our business, I am pleased to share that our Board of
Directors declared a 6.5% increase in our quarterly cash dividend
to $0.82 per share, marking 15 consecutive years of dividend
increases with a compound annual growth rate of more than 9% over
that period.
“We are also pleased with our continued successful marketplace
execution. We generated record gross written premiums of $7.8
billion, a 6% increase over the prior year quarter. Net written
premiums, which reflect a new catastrophe reinsurance treaty, grew
3%. In Business Insurance, gross written premiums increased by 6%
as we achieved renewal premium change of 6%, including renewal rate
change of more than 2%, in both cases the highest levels in almost
five years. At the same time, we maintained historically high
retention and generated a higher level of new business. In Bond
& Specialty Insurance, gross written premiums increased by 4%,
driven by continued historically high retention and new business in
Domestic Management Liability. In Personal Insurance, gross written
premiums increased by 6%, reflecting growth in both our Agency
Automobile and Agency Homeowners businesses.
“Our strong first quarter performance in terms of both
profitability and production is a terrific start to the year, and
we continued to make significant progress on our ambitious
innovation agenda. As we discussed in our annual letter to
shareholders, our formidable competitive advantages remain the
foundation of our success, and by innovating and investing for
tomorrow, we will be well positioned to continue delivering
industry-leading returns over time.”
Consolidated
Results
Three Months Ended March 31, ($ in millions
and pre-tax, unless noted otherwise) 2019
2018 Change Underwriting gain: $
395 $ 258 $ 137
Underwriting gain
includes:
Net favorable prior year reserve development 51 150 (99 )
Catastrophes, net of reinsurance (193 ) (354 ) 161
Net
investment income 582 603 (21 )
Other income (expense), including interest expense
(63 ) (72 ) 9 Core
income before income taxes 914 789 125
Income tax expense 159 111
48 Core income 755 678 77
Net realized investment gains (losses) after income taxes
41 (9 ) 50 Net
income $ 796 $ 669
$ 127 Combined ratio 93.7
% 95.5 % (1.8 ) pts
Impact on combined
ratio
Net favorable prior year reserve development (0.7 ) pts (2.3 ) pts
1.6 pts Catastrophes, net of reinsurance 2.8 pts 5.4 pts (2.6 ) pts
Underlying combined ratio 91.6 % 92.4
% (0.8 ) pts Net written
premiums Business Insurance $ 4,163 $ 3,994 4 % Bond &
Specialty Insurance 587 574 2 Personal Insurance 2,307 2,256
2
Total $ 7,057 $
6,824 3 %
First Quarter 2019
Results(All comparisons vs. first quarter 2018, unless
noted otherwise)
Net income of $796 million increased $127 million due to higher
core income, as well as net realized investment gains in the
current quarter as compared with net realized investment losses in
the prior year quarter. Core income of $755 million increased $77
million. Core income increased primarily due to lower catastrophe
losses and a higher underlying underwriting gain, partially offset
by lower net favorable prior year reserve development.
Underwriting results:
- The combined ratio of 93.7% decreased
1.8 points due to lower catastrophe losses (2.6 points) and a lower
underlying combined ratio (0.8 points), partially offset by lower
net favorable prior year reserve development (1.6 points).The
decrease in net favorable prior year reserve development primarily
reflects the recent enactment of legislation by New York State, as
discussed below.
- The underlying combined ratio of 91.6%
decreased 0.8 points, net of a 0.6 point increase related to a new
Underlying Property Aggregate Catastrophe Excess-of-Loss
Reinsurance Treaty entered into effective January 1, 2019. See
below for further details by segment.
- Catastrophe losses primarily resulted
from winter storms and wind storms in several regions of the
U.S.
Net investment income of $582 million pre-tax ($496 million
after-tax) decreased 3%. Income from the fixed income investment
portfolio increased due to higher long-term and short-term interest
rates, as well as a higher average level of fixed maturity
investments. Private equity partnership returns were lower than in
the prior year quarter.
Record gross written premiums of $7.839 billion grew 6%,
reflecting growth in all segments. Retention remained high and new
business increased across all segments. Net written premiums of
$7.057 billion increased 3%. Growth in net written premiums
reflects the new catastrophe reinsurance treaty. The entire cost of
this treaty is reflected in net written premiums in the current
quarter. Accordingly, the treaty will not impact net written
premiums in the remaining quarters of the year.
Shareholders’ Equity
Shareholders’ equity of $24.340 billion increased 6% from
year-end 2018, primarily due to the impact of lower interest rates
on net unrealized investment gains (losses). Net unrealized
investment gains included in shareholders’ equity were $1.284
billion pre-tax ($1.007 billion after-tax), compared to net
unrealized investment losses of $137 million pre-tax ($113 million
after-tax) at year-end 2018. Book value per share of $92.94
increased 7% from year-end 2018, also primarily due to the impact
of lower interest rates on net unrealized investment gains
(losses). Adjusted book value per share of $89.09 increased 2% from
year-end 2018.
The Company repurchased 3.3 million shares during the first
quarter at an average price of $129.20 per share for a total cost
of $421 million. Capacity remaining under the existing share
repurchase authorization was $2.911 billion at the end of the
quarter. Also at the end of the quarter, statutory capital and
surplus was $21.074 billion, and the ratio of debt-to-capital was
22.5%. The ratio of debt-to-capital excluding after-tax net
unrealized investment gains included in shareholders’ equity was
23.2%, within the Company’s target range of 15% to 25%.
The Board of Directors declared a quarterly dividend of $0.82
per share, an increase of 6.5%. The dividend is payable on June 28,
2019, to shareholders of record at the close of business on June
10, 2019.
Business
Insurance Segment Financial Results
Three Months Ended March 31, ($ in millions
and pre-tax, unless noted otherwise) 2019
2018 Change Underwriting gain: $
57 $ 73 $ (16 )
Underwriting gain
includes:
Net favorable (unfavorable) prior year reserve development (21 ) 66
(87 ) Catastrophes, net of reinsurance (95 ) (138 ) 43
Net
investment income 427 446 (19 )
Other income 5 3 2
Segment income before income taxes 489 522
(33 ) Income tax expense 75
70 5 Segment income $
414 $ 452 $ (38
) Combined ratio 98.1 %
97.5 % 0.6 pts
Impact on combined
ratio
Net unfavorable (favorable) prior year reserve development 0.6 pts
(1.9 ) pts 2.5 pts Catastrophes, net of reinsurance 2.5 pts 3.9 pts
(1.4 ) pts
Underlying combined ratio 95.0 %
95.5 % (0.5 ) pts Net
written premiums by market Domestic Select Accounts $ 785 $ 773
2 % Middle Market 2,410 2,262 7 National Accounts 304 309 (2 )
National Property and Other 387 380 2 Total Domestic
3,886 3,724 4 International 277 270 3
Total
$ 4,163 $ 3,994 4
%
First Quarter 2019
Results(All comparisons vs. first quarter 2018, unless
noted otherwise)
Segment income for Business Insurance was $414 million
after-tax, a decrease of $38 million. Segment income decreased
primarily due to net unfavorable prior year reserve development in
the current quarter as compared to net favorable prior year reserve
development in the prior year quarter and lower net investment
income, partially offset by lower catastrophe losses and a higher
underlying underwriting gain. The higher underlying underwriting
gain primarily resulted from the impacts of higher business volumes
and a lower underlying combined ratio.
Underwriting results:
- The combined ratio of 98.1% increased
0.6 points due to net unfavorable prior year reserve development in
the current quarter as compared to net favorable prior year reserve
development in the prior year quarter (2.5 points), partially
offset by lower catastrophe losses (1.4 points) and a lower
underlying combined ratio (0.5 points).
- The underlying combined ratio of 95.0%
decreased 0.5 points driven by a lower expense ratio, partially
offset by a higher underlying loss ratio. The decrease in the
expense ratio was primarily due to a higher level of earned
premiums as well as a benefit this quarter related to a state
assessment, partially offset by the impact of the new catastrophe
reinsurance treaty. The increase in the underlying loss ratio was
driven primarily by (1) a small number of large losses in the
International business, (2) the impact in the quarter of higher
loss estimates in commercial automobile consistent with the
re-estimates recorded in the fourth quarter of 2018 and (3) the
impact of the new catastrophe reinsurance treaty, partially offset
by (4) lower non-catastrophe weather-related losses. The new
catastrophe reinsurance treaty resulted in a 0.5 point increase in
the underlying combined ratio.
- Net unfavorable prior year reserve
development resulted from an increase in general liability
reserves, for years prior to 2009, due to the enactment by New York
State of the Child Victims Act (“CVA”) on February 14, 2019. The
CVA extends the statute of limitations for claimants asserting
childhood sexual molestation. In addition, prior year reserve
development benefited from better than expected loss experience in
the workers’ compensation product line for multiple accident years,
partially offset by modestly higher than expected loss experience
in the commercial multi-peril product line for recent accident
years.
Gross written premiums of $4.730 billion grew 6%, benefiting
from continued strong retention, higher renewal premium change and
higher levels of new business. Net written premiums of $4.163
billion increased 4%. Growth in net written premiums reflects the
new catastrophe reinsurance treaty.
Bond &
Specialty Insurance Segment Financial Results
Three Months Ended March 31, ($ in millions
and pre-tax, unless noted otherwise) 2019
2018 Change Underwriting gain: $
112 $ 144 $ (32 )
Underwriting gain
includes:
Net favorable prior year reserve development 3 35 (32 )
Catastrophes, net of reinsurance (3 ) — (3 )
Net investment
income 56 58 (2 ) Other
income 5 6 (1 )
Segment income before income taxes 173 208
(35 ) Income tax expense 35
35 — Segment income $
138 $ 173 $ (35
) Combined ratio 81.1 %
74.7 % 6.4 pts
Impact on combined
ratio
Net favorable prior year reserve development (0.5 ) pts (6.0 ) pts
5.5 pts Catastrophes, net of reinsurance 0.5 pts — pts 0.5 pts
Underlying combined ratio 81.1 % 80.7
% 0.4 pts Net written premiums
Domestic Management Liability $ 367 $ 348 5 % Surety 184 185
(1 ) Total Domestic 551 533 3 International 36 41
(12 )
Total $ 587 $
574 2 %
First Quarter 2019
Results(All comparisons vs. first quarter 2018, unless
noted otherwise)
Segment income for Bond & Specialty Insurance was $138
million after-tax, a decrease of $35 million. Segment income
decreased primarily due to lower net favorable prior year reserve
development.
Underwriting results:
- The combined ratio of 81.1% increased
6.4 points due to lower net favorable prior year reserve
development (5.5 points), higher catastrophe losses (0.5 points)
and a higher underlying combined ratio (0.4 points).
- The underlying combined ratio remained
very strong at 81.1%.
- Net favorable prior year reserve
development was not significant in the quarter.
Net written premiums of $587 million increased 2%, primarily
reflecting continued strong retention and new business in
management liability.
Personal
Insurance Segment Financial Results
Three Months Ended March 31, ($ in millions
and pre-tax, unless noted otherwise) 2019
2018 Change Underwriting gain: $
226 $ 41 $ 185
Underwriting gain
includes:
Net favorable prior year reserve development 69 49 20 Catastrophes,
net of reinsurance (95 ) (216 ) 121
Net investment income
99 99 — Other income 22
17 5 Segment income before income
taxes 347 157 190 Income tax
expense 69 28 41
Segment income $ 278 $
129 $ 149 Combined
ratio 90.1 % 97.5 % (7.4
) pts
Impact on combined
ratio
Net favorable prior year reserve development (2.8 ) pts (2.0 ) pts
(0.8 ) pts Catastrophes, net of reinsurance 3.8 pts 9.0 pts (5.2 )
pts
Underlying combined ratio 89.1 %
90.5 % (1.4 ) pts Net
written premiums Domestic Agency (1) Automobile $ 1,224 $ 1,183
3 % Homeowners & Other 837 832 1 Total Agency
2,061 2,015 2 Direct to Consumer 95 92 3 Total
Domestic 2,156 2,107 2 International 151 149 1
Total $ 2,307 $ 2,256
2 %
(1) Represents business sold through agents, brokers and
other intermediaries, and excludes direct to consumer.
First Quarter 2019
Results(All comparisons vs. first quarter 2018, unless
noted otherwise)
Segment income for Personal Insurance was $278 million
after-tax, an increase of $149 million. Segment income benefited
from lower catastrophe losses, a higher underlying underwriting
gain and higher net favorable prior year reserve development. The
higher underlying underwriting gain primarily resulted from the
impacts of higher business volumes and a lower underlying combined
ratio.
Underwriting results:
- The combined ratio of 90.1% improved
7.4 points due to lower catastrophe losses (5.2 points), a lower
underlying combined ratio (1.4 points) and higher net favorable
prior year reserve development (0.8 points).
- The underlying combined ratio of 89.1%
improved 1.4 points, primarily driven by earned pricing that
exceeded loss cost trends in Agency Automobile, partially offset by
a 0.8 point increase related to the new catastrophe reinsurance
treaty, mostly impacting Agency Homeowners & Other.
- Net favorable prior year reserve
development primarily resulted from better than expected loss
experience in Agency Automobile for recent accident years.
Gross written premiums of $2.447 billion grew 6%. Net written
premiums of $2.307 billion increased 2%. Growth in net written
premiums reflects the new catastrophe reinsurance treaty.
Agency Automobile gross written premiums of $1.240 billion grew
4%, driven by renewal premium change of 5%. Net written premiums
increased 3%. Growth in net written premiums reflects the new
catastrophe reinsurance treaty.
Agency Homeowners & Other gross written premiums of $954
million grew 9% driven by renewal premium change of 5% and higher
levels of new business. Net written premiums increased 1%. Growth
in net written premiums reflects the new catastrophe reinsurance
treaty.
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, April 18, 2019.
Investors can access the call via webcast at
http://investor.travelers.com or by dialing 1.844.895.1976 within
the United States and 1.647.689.5389 outside the United States.
Prior to the webcast, a slide presentation pertaining to the
quarterly earnings will be available on the Company’s website.
Following the live event, an audio playback of the webcast and
the slide presentation will be available on the same website.
About Travelers
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider
of property casualty insurance for auto, home and business. A
component of the Dow Jones Industrial Average, Travelers has
approximately 30,000 employees and generated revenues of
approximately $30 billion in 2018. For more information, visit
www.travelers.com.
Travelers may use its website and/or social media outlets, such
as Facebook and Twitter, as distribution channels of material
Company information. Financial and other important information
regarding the Company is routinely accessible through and posted on
our website at http://investor.travelers.com, our Facebook page at
https://www.facebook.com/travelers and our Twitter account
(@Travelers) at https://twitter.com/travelers. In addition, you may
automatically receive email alerts and other information about
Travelers when you enroll your email address by visiting the Email
Notifications section at http://investor.travelers.com.
Travelers is organized into the following reportable business
segments:
Business Insurance - Business Insurance offers a broad
array of property and casualty insurance and insurance-related
services to its customers, primarily in the United States, as well
as in Canada, the United Kingdom, the Republic of Ireland, Brazil
and throughout other parts of the world as a corporate member of
Lloyd’s.
Bond & Specialty Insurance - Bond & Specialty
Insurance provides surety, fidelity, management liability,
professional liability, and other property and casualty coverages
and related risk management services to its customers in the United
States and certain specialty insurance products in Canada, the
United Kingdom, the Republic of Ireland and Brazil, utilizing
various degrees of financially-based underwriting approaches.
Personal Insurance - Personal Insurance writes a broad
range of property and casualty insurance covering individuals’
personal risks, primarily in the United States, as well as in
Canada. The primary products of automobile and homeowners insurance
are complemented by a broad suite of related coverages.
* * * * *
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’s outlook and its future
results of operations and financial condition (including, among
other things, anticipated premium volume, premium rates, renewal
premium changes, underwriting margins and underlying underwriting
margins, net and core income, investment income and performance,
loss costs, return on equity, core return on equity and expected
current returns, and combined ratios and underlying combined
ratios);
- share repurchase plans;
- future pension plan contributions;
- the sufficiency of the Company’s
asbestos and other reserves;
- the impact of emerging claims issues as
well as other insurance and non-insurance litigation;
- the cost and availability of
reinsurance coverage;
- catastrophe losses;
- the impact of investment (including
changes in interest rates), economic (including inflation, recent
changes in tax law, rapid changes in commodity prices and
fluctuations in foreign currency exchange rates) and underwriting
market conditions;
- strategic and operational initiatives
to improve profitability and competitiveness;
- the Company’s competitive
advantages;
- new product offerings;
- the impact of new or potential
regulations imposed or to be imposed by the United States or other
nations, including tariffs or other barriers to international
trade; and
- the impact of legislation enacted or to
be enacted by states allowing victims of sexual abuse to file or
proceed with claims that otherwise would have been
time-barred.
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:
- catastrophe losses could materially and
adversely affect the Company’s results of operations, its financial
position and/or liquidity, and could adversely impact the Company’s
ratings, the Company’s ability to raise capital and the
availability and cost of reinsurance;
- if actual claims exceed the Company’s
claims and claim adjustment expense reserves, or if changes in the
estimated level of claims and claim adjustment expense reserves are
necessary, including as a result of, among other things, changes in
the legal, regulatory and economic environments in which the
Company operates, the Company’s financial results could be
materially and adversely affected;
- during or following a period of
financial market disruption or an economic downturn, the Company’s
business could be materially and adversely affected;
- the Company’s investment portfolio is
subject to credit and interest rate risk, and may suffer reduced or
low returns or material realized or unrealized losses;
- the Company’s business could be harmed
because of its potential exposure to asbestos and environmental
claims and related litigation;
- the intense competition that the
Company faces, and the impact of innovation, technological change
and changing customer preferences on the insurance industry and the
markets in which it operates, could harm its ability to maintain or
increase its business volumes and its profitability;
- disruptions to the Company’s
relationships with its independent agents and brokers or the
Company’s inability to manage effectively a changing distribution
landscape could adversely affect the Company;
- the Company is exposed to, and may face
adverse developments involving, mass tort claims such as those
relating to exposure to potentially harmful products or
substances;
- the effects of emerging claim and
coverage issues on the Company’s business are uncertain;
- the Company may not be able to collect
all amounts due to it from reinsurers, reinsurance coverage may not
be available to the Company in the future at commercially
reasonable rates or at all and we are exposed to credit risk
related to our structured settlements;
- the Company is also exposed to credit
risk in certain of its insurance operations and with respect to
certain guarantee or indemnification arrangements that we have with
third parties;
- within the United States, the Company’s
businesses are heavily regulated by the states in which it conducts
business, including licensing, market conduct and financial
supervision, and changes in regulation may reduce the Company’s
profitability and limit its growth;
- a downgrade in the Company’s
claims-paying and financial strength ratings could adversely impact
the Company’s business volumes, adversely impact the Company’s
ability to access the capital markets and increase the Company’s
borrowing costs;
- the inability of the Company’s
insurance subsidiaries to pay dividends to the Company’s holding
company in sufficient amounts would harm the Company’s ability to
meet its obligations, pay future shareholder dividends and/or make
future share repurchases;
- the Company’s efforts to develop new
products, expand in targeted markets or improve business processes
and workflows may not be successful and may create enhanced
risks;
- the Company may be adversely affected
if its pricing and capital models provide materially different
indications than actual results;
- the Company’s business success and
profitability depend, in part, on effective information technology
systems and on continuing to develop and implement improvements in
technology, particularly as its business processes become more
digital;
- if the Company experiences difficulties
with technology, data and network security (including as a result
of cyber attacks), outsourcing relationships or cloud-based
technology, the Company’s ability to conduct its business could be
negatively impacted;
- the Company is also subject to a number
of additional risks associated with its business outside the United
States, such as foreign currency exchange fluctuations (including
with respect to the valuation of the Company’s foreign investments
and interests in joint ventures) and restrictive regulations as
well as the risks and uncertainties associated with the United
Kingdom’s withdrawal from the European Union;
- regulatory changes outside of the
United States, including in Canada, the United Kingdom, the
Republic of Ireland and the European Union, could adversely impact
the Company’s results of operations and limit its growth;
- loss of or significant restrictions on
the use of particular types of underwriting criteria, such as
credit scoring, or other data or methodologies, in the pricing and
underwriting of the Company’s products could reduce the Company’s
future profitability;
- acquisitions and integration of
acquired businesses may result in operating difficulties and other
unintended consequences;
- the Company could be adversely affected
if its controls designed to ensure compliance with guidelines,
policies and legal and regulatory standards are not effective;
- the Company’s businesses may be
adversely affected if it is unable to hire and retain qualified
employees;
- intellectual property is important to
the Company’s business, and the Company may be unable to protect
and enforce its own intellectual property or the Company may be
subject to claims for infringing the intellectual property of
others;
- changes in federal regulation could
impose significant burdens on the Company and otherwise adversely
impact the Company’s results;
- changes in U.S. tax laws or in the tax
laws of other jurisdictions in which the Company operates could
adversely impact the Company; and
- 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 commensurate with the Company’s desired ratings from
independent rating agencies, 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 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” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in our most
recent annual report on Form 10-K filed with the Securities and
Exchange Commission (SEC) on February 14, 2019, as updated by our
periodic filings with the SEC.
*****
GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP
MEASURES TO NON-GAAP MEASURES
The following measures are used by the Company’s management to
evaluate financial performance against historical results, to
establish performance targets on a consolidated basis, and for
other reasons as discussed below. In some cases, these measures are
considered non-GAAP financial measures under applicable SEC rules
because they are not displayed as separate line items in the
consolidated financial statements or are not required to be
disclosed in the notes to financial statements or, in some cases,
include or exclude certain items not ordinarily included or
excluded in the most comparable GAAP financial measure.
Reconciliations of these measures to the most comparable GAAP
measures also follow.
In the opinion of the Company’s management, a discussion of
these measures provides investors, financial analysts, rating
agencies and other financial statement users with a better
understanding of the significant factors that comprise the
Company’s periodic results of operations and how management
evaluates the Company’s financial performance.
Some of these measures exclude net realized investment gains
(losses), net of tax, and/or net unrealized investment gains
(losses), net of tax, included in shareholders’ equity, which can
be significantly impacted by both discretionary and other economic
factors and are not necessarily indicative of operating trends.
Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by
the Company’s management.
RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER
NON-GAAP MEASURES
Core income (loss) is consolidated net income (loss)
excluding the after-tax impact of net realized investment gains
(losses), discontinued operations, the effect of a change in tax
laws and tax rates at enactment, and cumulative effect of changes
in accounting principles when applicable. Segment income
(loss) is determined in the same manner as core income (loss)
on a segment basis. Management uses segment income (loss) to
analyze each segment’s performance and as a tool in making business
decisions. Financial statement users also consider core income
(loss) when analyzing the results and trends of insurance
companies. Core income (loss) per share is core income
(loss) on a per common share basis.
Reconciliation of Net Income to Core Income less Preferred
Dividends
Three Months EndedMarch
31,
($ in millions, after-tax) 2019 2018
Net income $ 796 $ 669 Less: Net
realized investment (gains) losses (41 ) 9
Core income
$ 755 $ 678
Three Months EndedMarch
31,
($ in millions, pre-tax) 2019 2018 Net
income $ 967 $ 778 Less: Net
realized investment (gains) losses (53 ) 11
Core income
$ 914 $ 789
Twelve Months Ended December 31, ($ in millions,
after-tax) 2018 2017 2016
2015 2014 2013
2012 2011 2010
2009 2008 2007
2006 2005 Net income $2,523
$2,056 $3,014 $3,439 $3,692
$3,673 $2,473 $1,426 $3,216
$3,622 $2,924 $4,601 $4,208
$1,622 Less: Loss from discontinued operations — — — — — — —
— — — — — — (439)
Income from continuing operations
2,523 2,056 3,014 3,439 3,692
3,673 2,473 1,426 3,216 3,622
2,924 4,601 4,208 2,061 Adjustments:
Net realized investment (gains) losses (93) (142) (47) (2) (51)
(106) (32) (36) (173) (22) 271 (101) (8) (35) Impact of TCJA at
enactment (1) — 129 — — — — — — — — — — — —
Core income
2,430 2,043 2,967 3,437 3,641
3,567 2,441 1,390 3,043 3,600
3,195 4,500 4,200 2,026 Less: Preferred
dividends — — — — — — — 1 3 3 4 4 5 6
Core income, less
preferred dividends $2,430 $2,043 $2,967
$3,437 $3,641 $3,567 $2,441
$1,389 $3,040 $3,597 $3,191
$4,496 $4,195 $2,020
(1) Tax Cuts and Jobs Act of 2017 (TCJA)
Reconciliation of Net Income per Share to Core Income per
Share on a Basic and Diluted Basis
Three Months EndedMarch
31,
2019 2018
Basic income per
share
Net income $ 3.01 $ 2.45
Adjustments: Net realized investment (gains) losses, after-tax
(0.16 ) 0.03
Core income $ 2.85
$ 2.48
Diluted income
per share
Net income $ 2.99 $ 2.42
Adjustments: Net realized investment (gains) losses, after-tax
(0.16 ) 0.04
Core income $ 2.83
$ 2.46
Reconciliation of Segment Income to Total Core Income
Three Months EndedMarch
31,
($ in millions, after-tax) 2019 2018
Business Insurance $ 414 $ 452 Bond & Specialty Insurance 138
173 Personal Insurance 278 129 Total segment income
830 754 Interest Expense and Other (75 ) (76 )
Total core
income $ 755 $ 678
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 March 31, ($ in millions) 2019
2018 Shareholders’ equity $
24,340 $ 22,979 Adjustments: Net unrealized
investment gains, net of tax, included in shareholders’ equity
(1,007 ) (133 ) Net realized investment (gains) losses, net of tax
(41 ) 9
Adjusted shareholders’ equity $
23,292 $ 22,855
As of December 31, ($ in millions) 2018
2017 2016 2015
2014 2013 2012
2011 2010 2009
2008 2007 2006
2005 Shareholders’ equity $22,894
$23,731 $23,221 $23,598 $24,836
$24,796 $25,405 $24,477 $25,475
$27,415 $25,319 $26,616 $25,135
$22,303 Adjustments: Net unrealized investment (gains)
losses, net of tax, included in shareholders’ equity 113 (1,112)
(730) (1,289) (1,966) (1,322) (3,103) (2,871) (1,859) (1,856) 146
(620) (453) (327) Net realized investment (gains) losses, net of
tax (93) (142) (47) (2) (51) (106) (32) (36) (173) (22) 271 (101)
(8) (35) Impact of TCJA at enactment — 287 — — — — — — — — — — — —
Preferred stock — — — — — — — — (68) (79) (89) (112) (129) (153)
Loss from discontinued operations — — — — — — — — — — — — — 439
Adjusted shareholders’ equity $22,914 $22,764
$22,444 $22,307 $22,819 $23,368
$22,270 $21,570 $23,375 $25,458
$25,647 $25,783 $24,545 $22,227
Return on equity is the ratio of annualized net income
(loss) less preferred dividends to average shareholders’ equity for
the periods presented. Core return on equity is the ratio of
annualized core income (loss) less preferred dividends to adjusted
average shareholders’ equity for the periods presented. In the
opinion of the Company’s management, these are important indicators
of how well management creates value for its shareholders through
its operating activities and its capital management.
Average shareholders’ equity is (a) the sum of total
shareholders’ equity excluding preferred stock at the beginning and
end of each of the quarters for the period presented divided by (b)
the number of quarters in the period presented times two.
Adjusted average shareholders’ equity is (a) the sum of
total adjusted shareholders’ equity at the beginning and end of
each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two.
Calculation of Return on Equity and Core Return on
Equity
Three Months EndedMarch
31,
($ in millions, after-tax) 2019 2018
Annualized net income $ 3,186 $ 2,676 Average shareholders’ equity
23,617 23,355
Return on equity 13.5
% 11.5 % Annualized core income $ 3,020 $
2,711 Adjusted average shareholders’ equity 23,150 22,737
Core return on equity 13.0 %
11.9 %
Average annual core return on equity over a period is the
ratio of:a) the sum of core income less preferred dividends for the
periods presented to b) the sum of: 1) the sum of the adjusted
average shareholders’ equity for all full years in the period
presented, and 2) for partial years in the period presented, the
number of quarters in that partial year divided by four, multiplied
by the adjusted average shareholders’ equity of the partial
year.
Calculation of Average Annual Core Return on Equity from
January 1, 2005 through March 31, 2019
Three MonthsEnded March
31,
Twelve Months Ended December 31, ($ in millions)
2019 2018 2018 2017
2016 2015 2014
2013 2012 2011
2010 2009 2008
2007 2006 2005 Core income, less
preferred dividends $755 $678 $2,430 $2,043 $2,967 $3,437 $3,641
$3,567 $2,441 $1,389 $3,040 $3,597 $3,191 $4,496 $4,195
$2,020 Annualized core income 3,020 2,711 Adjusted average
shareholders’ equity 23,150 22,737 22,814 22,743 22,386 22,681
23,447 23,004 22,158 22,806 24,285 25,777 25,668 25,350 23,381
21,118 Core return on equity 13.0% 11.9% 10.7%
9.0% 13.3% 15.2% 15.5% 15.5%
11.0% 6.1% 12.5% 14.0% 12.4%
17.7% 17.9% 9.6%
Average annual core return
on equity for the period Jan. 1, 2005 through Mar. 31, 2019
13.0%
RECONCILIATION OF PRE-TAX UNDERWRITING GAIN EXCLUDING CERTAIN
ITEMS TO NET INCOME
Underwriting gain (loss) is net earned premiums and fee
income less claims and claim adjustment expenses and
insurance-related expenses. In the opinion of the Company’s
management, it is important to measure the profitability of each
segment excluding the results of investing activities, which are
managed separately from the insurance business. This measure is
used to assess each segment’s business performance and as a tool in
making business decisions. Pre-tax underwriting gain,
excluding the impact of catastrophes and net favorable
(unfavorable) prior year loss reserve development, is the
underwriting gain adjusted to exclude claims and claim adjustment
expenses, reinstatement premiums and assessments related to
catastrophes and loss reserve development related to time periods
prior to the current year. In the opinion of the Company’s
management, this measure is meaningful to users of the financial
statements to understand the Company’s periodic earnings and the
variability of earnings caused by the unpredictable nature (i.e.,
the timing and amount) of catastrophes and loss reserve
development. This measure is also referred to as underlying
underwriting margin or underlying underwriting gain.
A catastrophe is a severe loss designated a catastrophe
by internationally recognized organizations that track and report
on insured losses resulting from catastrophic events, such as
Property Claim Services (PCS) for events in the United States and
Canada. Catastrophes can be caused by various natural events,
including, among others, hurricanes, tornadoes and other
windstorms, earthquakes, hail, wildfires, severe winter weather,
floods, tsunamis, volcanic eruptions and other naturally occurring
events, such as solar flares. Catastrophes can also be man-made,
such as terrorist attacks and other intentionally destructive acts
including those involving nuclear, biological, chemical and
radiological events, cyber events, explosions and destruction of
infrastructure. Each catastrophe has unique characteristics and
catastrophes are not predictable as to timing or amount. Their
effects are included in net and core income and claims and claim
adjustment expense reserves upon occurrence. A catastrophe may
result in the payment of reinsurance reinstatement premiums and
assessments from various pools.
The Company’s threshold for disclosing catastrophes is primarily
determined at the reportable segment level. If a threshold for one
segment or a combination thereof is exceeded and the other segments
have losses from the same event, losses from the event are
identified as catastrophe losses in the segment results and for the
consolidated results of the Company. Additionally, an aggregate
threshold is applied for international business across all
reportable segments. The threshold for 2019 ranges from
approximately $19 million to $30 million of losses before
reinsurance and taxes.
Net favorable (unfavorable) prior year loss reserve
development is the increase or decrease in incurred claims and
claim adjustment expenses as a result of the re-estimation of
claims and claim adjustment expense reserves at successive
valuation dates for a given group of claims, which may be related
to one or more prior years. In the opinion of the Company’s
management, a discussion of loss reserve development is meaningful
to users of the financial statements as it allows them to assess
the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss),
and changes in claims and claim adjustment expense reserve levels
from period to period.
Components of Net Income
Three Months EndedMarch
31,
($ in millions, after-tax except as noted) 2019
2018 Pre-tax underwriting gain excluding the impact
of catastrophes and net favorable prior year loss reserve
development $ 537 $ 462 Pre-tax impact of catastrophes (193 ) (354
) Pre-tax impact of net favorable prior year loss reserve
development 51 150 Pre-tax underwriting gain 395 258
Income tax expense on underwriting results 88 36
Underwriting gain 307 222 Net investment income 496 513 Other
income (expense), including interest expense (48 ) (57 )
Core
income 755 678 Net realized investment gains
(losses) 41 (9 )
Net income $ 796
$ 669
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 EndedMarch
31,
($ in millions, pre-tax) 2019 2018
Loss and loss
adjustment expense ratio
Claims and claim adjustment expenses $ 4,442 $ 4,296 Less:
Policyholder dividends 13 13 Allocated fee income 40 37
Loss ratio numerator
$ 4,389 $ 4,246
Underwriting
expense ratio
Amortization of deferred acquisition costs $ 1,117 $ 1,061 General
and administrative expenses (G&A) 1,057 1,062 Less:
Non-insurance G&A 47 37 Allocated fee income 69 66 Billing and
policy fees and other 27 23
Expense ratio
numerator $ 2,031 $ 1,997
Earned premium $ 6,855 $
6,537 Combined ratio (1) Loss and loss
adjustment expense ratio 64.0 % 64.9 % Underwriting expense ratio
29.7 % 30.6 %
Combined ratio 93.7 %
95.5 %
(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. In addition, G&A include non-insurance
expenses that are excluded from underwriting expenses, and
accordingly are excluded in calculating the combined ratio.
RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS’
EQUITY TO CERTAIN NON-GAAP MEASURES
Book value per share is total common shareholders’ equity
divided by the number of common shares outstanding. Adjusted
book value per share is total common shareholders’ equity
excluding net unrealized investment gains and losses, net of tax,
included in shareholders’ equity, divided by the number of common
shares outstanding. In the opinion of the Company’s management,
adjusted book value per share is useful in an analysis of a
property casualty company’s book value per share as it removes the
effect of changing prices on invested assets (i.e., net unrealized
investment gains (losses), net of tax), which do not have an
equivalent impact on unpaid claims and claim adjustment expense
reserves. Tangible book value per share is adjusted book
value per share excluding the after-tax value of goodwill and other
intangible assets divided by the number of common shares
outstanding. In the opinion of the Company’s management, tangible
book value per share is useful in an analysis of a property
casualty company’s book value on a nominal basis as it removes
certain effects of purchase accounting (i.e., goodwill and other
intangible assets), in addition to the effect of changing prices on
invested assets.
Reconciliation of Shareholders’ Equity to Tangible
Shareholders’ Equity, Excluding Net Unrealized Investment Gains
(Losses), Net of Tax
As of ($ in millions, except per share
amounts)
March 31,2019
December 31,2018
Shareholders’ equity $ 24,340 $
22,894 Less: Net unrealized investment gains (losses), net
of tax, included in shareholders’ equity 1,007 (113 )
Shareholders’ equity, excluding net unrealized investment gains
(losses), net of tax, included in shareholders’ equity
23,333 23,007 Less: Goodwill 3,949 3,937 Other
intangible assets 341 345 Impact of deferred tax on other
intangible assets (47 ) (44 )
Tangible shareholders’ equity
$ 19,090 $ 18,769 Common
shares outstanding 261.9 263.6 Book value per share $ 92.94 $ 86.84
Adjusted book value per share 89.09 87.27 Tangible book value per
share 72.89 71.20
RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL
CAPITALIZATION EXCLUDING NET UNREALIZED INVESTMENT GAINS (LOSSES),
NET OF TAX
Total capitalization is the sum of total shareholders’
equity and debt. Debt-to-capital ratio excluding net unrealized
gain (loss) on investments, net of tax, included in shareholders’
equity, is the ratio of debt to total
capitalization excluding the after-tax impact of net unrealized
investment gains and losses included in shareholders’
equity. In the opinion of the Company’s management, the
debt-to-capital ratio is useful in an analysis of the Company’s
financial leverage.
As of ($ in millions)
March 31,2019
December 31,2018
Debt $ 7,057 $ 6,564 Shareholders’ equity 24,340 22,894
Total capitalization 31,397
29,458 Less: Net unrealized investment gains
(losses), net of tax, included in shareholders’ equity 1,007
(113 )
Total capitalization excluding net unrealized gain (loss)
on investments, net of tax, included in shareholders’ equity
$ 30,390 $ 29,571
Debt-to-capital ratio 22.5 % 22.3 % Debt-to-capital ratio excluding
net unrealized investment gains (losses), net of tax, included in
shareholders’ equity 23.2 % 22.2 %
OTHER DEFINITIONS
Gross written premiums reflect the direct and assumed
contractually determined amounts charged to policyholders for the
effective period of the contract based on the terms and conditions
of the insurance contract. Net written premiums reflect
gross written premiums less premiums ceded to reinsurers.
For Business Insurance and Bond & Specialty Insurance,
retention is the amount of premium available for renewal
that was retained, excluding rate and exposure changes. For
Personal Insurance, retention is the ratio of the expected
number of renewal policies that will be retained throughout the
annual policy period to the number of available renewal base
policies. For all of the segments, renewal rate change
represents the estimated change in average premium on policies that
renew, excluding exposure changes. Exposure is the measure
of risk used in the pricing of an insurance product. The change in
exposure is the amount of change in premium on policies that renew
attributable to the change in portfolio risk. Renewal premium
change represents the estimated change in average premium on
policies that renew, including rate and exposure changes. New
business is the amount of written premium related to new
policyholders and additional products sold to existing
policyholders. These are operating statistics, which are in part
dependent on the use of estimates and are therefore subject to
change. For Business Insurance, retention, renewal premium
change and new business exclude National Accounts. For Bond &
Specialty Insurance, retention, renewal premium change and new
business exclude surety.
Statutory capital and surplus represents the excess of an
insurance company’s admitted assets over its liabilities, including
loss reserves, as determined in accordance with statutory
accounting practices.
Holding company liquidity is the total funds available at
the holding company level to fund general corporate purposes,
primarily the payment of shareholder dividends and debt service.
These funds consist of total cash, short-term invested assets and
other readily marketable securities held by the holding
company.
For a glossary of other financial terms used in this press
release, we refer you to the Company’s most recent annual report on
Form 10-K filed with the SEC on February 14, 2019, and subsequent
periodic filings with the SEC.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190418005323/en/
Media:Patrick
Linehan917.778.6267
Institutional Investors:Abbe
Goldstein917.778.6825
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