Travelers Reports Record Fourth Quarter 2020 Net Income per Diluted Share of $5.10 and Return on Equity of 18.4%

Rhea-AI Summary

The Travelers Companies reported a strong fourth quarter and full-year 2020 performance. Net income for Q4 was $1.310 billion ($5.10 per diluted share), a 50% increase from Q4 2019, while core income rose to $1.262 billion ($4.91 per diluted share), a 46% jump. Full-year net income reached $2.697 billion, with core income at $2.686 billion, reflecting improved underwriting gains and net investment income. The combined ratio improved to 86.7%, driven by lower catastrophe losses and favorable reserve development. The company returned $1.5 billion to shareholders, including $672 million in share repurchases.

Positive

• Net income increased 50% year-over-year to $1.310 billion.
• Core income rose to $1.262 billion, up 46% from the previous year.
• Combined ratio improved to 86.7%, a 5.7 point improvement.
• Record net written premiums of $7.269 billion for the quarter, up 3%.
• Total revenues increased by 4% to $8.397 billion.
• Core return on equity reached 20.5%, up from 14.8%.

Negative

• Net written premiums in Business Insurance segment decreased by 2%.
• Lower net investment income year-over-year by $241 million.
• Catastrophe losses in 2020 impacted overall profitability despite recovery measures.

The Travelers Companies, Inc. today reported net income of $1.310 billion, or $5.10 per diluted share, for the quarter ended December 31, 2020, compared to $873 million, or $3.35 per diluted share, in the prior year quarter. Core income in the current quarter was $1.262 billion, or $4.91 per diluted share, compared to $867 million, or $3.32 per diluted share, in the prior year quarter. Core income increased primarily due to a higher underlying underwriting gain (i.e., excluding net prior year reserve development and catastrophe losses), higher net favorable prior year reserve development, higher net investment income and lower catastrophe losses. Net realized investment gains in the current quarter were $50 million pre-tax ($48 million after-tax), compared to $12 million pre-tax ($6 million after-tax) in the prior year quarter. Per diluted share amounts benefited from the impact of share repurchases.

Consolidated Highlights
($ in millions, except for per share amounts, and after-tax, except for premiums and revenues)		Three Months Ended December 31,												Twelve Months Ended December 31,
		2020				2019				Change				2020				2019				Change
Net written premiums		$	7,269			$	7,075			3		%		$	29,732			$	29,151			2		%
Total revenues		$	8,397			$	8,063			4				$	31,981			$	31,581			1
Net income		$	1,310			$	873			50				$	2,697			$	2,622			3
per diluted share		$	5.10			$	3.35			52				$	10.52			$	9.92			6
Core income		$	1,262			$	867			46				$	2,686			$	2,537			6
per diluted share		$	4.91			$	3.32			48				$	10.48			$	9.60			9
Diluted weighted average shares outstanding		254.8				259.0				(2	)			254.6				262.3				(3	)
Combined ratio		86.7		%		92.4		%		(5.7	)		pts	95.0		%		96.5		%		(1.5	)		pts
Underlying combined ratio		88.7		%		92.1		%		(3.4	)		pts	90.7		%		93.2		%		(2.5	)		pts
Return on equity		18.4		%		13.5		%		4.9			pts	10.0		%		10.5		%		(0.5	)		pts
Core return on equity		20.5		%		14.8		%		5.7			pts	11.3		%		10.9		%		0.4			pts

		As of
		December 31, 2020				December 31, 2019				Change
Book value per share		$	115.68			$	101.55			14	%
Adjusted book value per share		99.54				92.76				7	%
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.

“We are very pleased to report fourth quarter core income of $1.3 billion, or $4.91 per diluted share, and core return on equity of 21%,” said Alan Schnitzer, Chairman and Chief Executive Officer. “The results benefited from strong underlying underwriting income, driven by record net earned premiums of $7.5 billion and an underlying combined ratio which improved 3.4 points from the prior year quarter to an excellent 88.7%. That brings full year core income to $2.7 billion, or $10.48 per diluted share, and full year core return on equity exceeding 11%, a terrific result in a challenging economic and operating environment. Full year core income includes record underlying underwriting profit of $2 billion. Our high-quality investment portfolio also performed well, generating net investment income of $572 million after-tax. Our operating results, together with our strong balance sheet, enabled us to grow adjusted book value per share by 7% during the year, after returning $1.5 billion of excess capital to shareholders, including $672 million of share repurchases, which we resumed in the fourth quarter.

“Our top line remained remarkably resilient this quarter and throughout the year. For the quarter, net written premiums grew 3%, driven by continued strong renewal rate change and retention in each of our three segments. In Business Insurance, we achieved record renewal rate change of 8.4%, nearly 4 points higher than the prior year quarter, while retention remained strong. In Bond & Specialty Insurance, net written premiums increased by 12%, driven by record renewal premium change of 10.9% in our domestic management liability business, including record renewal rate change. In Personal Insurance, net written premiums increased by 7%, driven by strong renewal premium change of 8.2% in our Agency Homeowners business and strong retention and new business in both Agency Auto and Agency Homeowners.

“Our ability to deliver strong results over this past year in the face of an historic pandemic, a record number of PCS catastrophe events and historically low interest rates reflects the value of underwriting excellence, our leading data and analytics, the dedication of our highly engaged and talented workforce and the significant value we bring to our customers and distribution partners. Looking forward, we believe we are well positioned to capitalize on the opportunities ahead as the economy reopens and to continue to deliver meaningful shareholder value over time.”

Consolidated Results
		Three Months Ended December 31,															Twelve Months Ended December 31,
($ in millions and pre-tax, unless noted otherwise)		2020					2019					Change					2020					2019					Change
Underwriting gain:		$	955				$	513				$	442				$	1,302				$	833				$	469
Underwriting gain includes:
Net favorable (unfavorable) prior year reserve development		180					60					120					351					(60		)			411
Catastrophes, net of reinsurance		(29		)			(85		)			56					(1,613		)			(886		)			(727		)
Net investment income		677					616					61					2,227					2,468					(241		)
Other income (expense), including interest expense		(66		)			(67		)			1					(294		)			(276		)			(18		)
Core income before income taxes		1,566					1,062					504					3,235					3,025					210
Income tax expense		304					195					109					549					488					61
Core income		1,262					867					395					2,686					2,537					149
Net realized investment gains after income taxes		48					6					42					11					85					(74		)
Net income		$	1,310				$	873				$	437				$	2,697				$	2,622				$	75
Combined ratio		86.7			%		92.4			%		(5.7		)		pts	95.0			%		96.5			%		(1.5		)		pts
Impact on combined ratio
Net (favorable) unfavorable prior year reserve development		(2.4		)		pts	(0.8		)		pts	(1.6		)		pts	(1.2		)		pts	0.2				pts	(1.4		)		pts
Catastrophes, net of reinsurance		0.4				pts	1.1				pts	(0.7		)		pts	5.5				pts	3.1				pts	2.4				pts
Underlying combined ratio		88.7			%		92.1			%		(3.4		)		pts	90.7			%		93.2			%		(2.5		)		pts
Net written premiums
Business Insurance		$	3,631				$	3,703				(2		)	%		$	15,431				$	15,629				(1		)	%
Bond & Specialty Insurance		800					714					12					2,951					2,739					8
Personal Insurance		2,838					2,658					7					11,350					10,783					5
Total		$	7,269				$	7,075				3			%		$	29,732				$	29,151				2			%

Fourth Quarter 2020 Results
(All comparisons vs. fourth quarter 2019, unless noted otherwise)

Net income of $1.310 billion increased $437 million due to higher core income and higher net realized investment gains. Core income of $1.262 billion increased $395 million, primarily due to a higher underlying underwriting gain, higher net favorable prior year reserve development, higher net investment income and lower catastrophe losses. The underlying underwriting gain benefited from higher business volumes and a lower underlying combined ratio. Net realized investment gains were $50 million pre-tax ($48 million after-tax), compared to $12 million pre-tax ($6 million after-tax) in the prior year quarter.

Combined ratio:

• The combined ratio of 86.7% improved 5.7 points due to a lower underlying combined ratio (3.4 points), higher net favorable prior year reserve development (1.6 points) and lower catastrophe losses (0.7 points).
• The underlying combined ratio of 88.7% improved 3.4 points. See below for further details by segment.
• Net favorable prior year reserve development occurred in all segments. See below for further details by segment. Catastrophe losses primarily resulted from Hurricane Zeta.

Net investment income of $677 million pre-tax ($572 million after-tax) increased 10%. Income from the fixed income investment portfolio decreased from the prior year quarter, primarily due to lower interest rates, partially offset by a higher average level of fixed maturity investments. Income from the non-fixed income investment portfolio increased over the prior year quarter, primarily due to higher private equity partnership returns.

Net written premiums of $7.269 billion increased 3%. See below for further details by segment.

Full Year 2020 Results
(All comparisons vs. full year 2019, unless noted otherwise)

Net income of $2.697 billion increased $75 million due to higher core income, partially offset by lower net realized investment gains. Core income of $2.686 billion increased by $149 million, primarily due to a higher underlying underwriting gain and net favorable prior year reserve development in the current year compared to net unfavorable prior year reserve development in the prior year, partially offset by higher catastrophe losses and lower net investment income. The underlying underwriting gain benefited from higher business volumes and a lower underlying combined ratio. Catastrophe and non-catastrophe weather-related losses in 2020 were reduced by the full $280 million of recoveries available under the Company’s 2020 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty in the third quarter of 2020. Catastrophe and non-catastrophe weather-related losses in 2019 were reduced by $135 million of recoveries available under the Company’s 2019 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty in the fourth quarter of 2019. Net realized investment gains were $2 million pre-tax ($11 million after-tax), compared to $113 million pre-tax ($85 million after-tax) in the prior year.

Combined ratio:

• The combined ratio of 95.0% improved 1.5 points due to a lower underlying combined ratio (2.5 points) and net favorable prior year reserve development in the current year compared to net unfavorable prior year reserve development in the prior year (1.4 points), partially offset by higher catastrophe losses (2.4 points).
• The underlying combined ratio of 90.7% improved 2.5 points. See below for further details by segment.
• Net favorable prior year reserve development in Personal Insurance was partially offset by net unfavorable prior year reserve development in Business Insurance. Prior year reserve development in Personal Insurance and Business Insurance included an aggregate $403 million subrogation benefit in the third quarter of 2020 from Pacific Gas and Electric Company (PG&E) related to the 2017 and 2018 California wildfires. Net prior year reserve development in Bond & Specialty Insurance was not significant.
• Catastrophe losses included the fourth quarter event described above, as well as tornado activity in Tennessee and other wind storms and winter storms in several regions of the United States in the first quarter of 2020, severe storms in several regions of the United States and civil unrest in the second quarter of 2020 and the derecho windstorm in the midwestern region of the United States, the Glass wildfire in California, Tropical Storm Isaias, Hurricane Laura and additional wildfires in the United States in the third quarter of 2020.

Net investment income of $2.227 billion pre-tax ($1.908 billion after-tax) decreased 10%. Income from the fixed income investment portfolio decreased from the prior year, primarily due to lower interest rates, partially offset by a higher average level of fixed maturity investments. Income from the non-fixed income investment portfolio decreased from the prior year, primarily due to lower private equity partnership returns which reflected the impact of the disruption in global financial markets in the first quarter of 2020 associated with COVID-19.

Net written premiums of $29.732 billion increased 2%. See below for further details by segment.

Shareholders’ Equity

Shareholders’ equity of $29.201 billion increased 13% over year-end 2019, driven by net income of $2.697 billion and higher net unrealized investment gains resulting from lower interest rates, partially offset by dividends to shareholders and common share repurchases. Net unrealized investment gains included in shareholders’ equity were $5.175 billion pre-tax ($4.074 billion after-tax), compared to net unrealized investment gains of $2.853 billion pre-tax ($2.246 billion after-tax) at year-end 2019. Book value per share of $115.68 increased 14% from year-end 2019, driven by the increase in shareholders’ equity and lower common shares outstanding as a result of share repurchases. Adjusted book value per share of $99.54, which excludes net unrealized investment gains, increased 7% from year-end 2019.

The Company repurchased 1.4 million shares during the fourth quarter at an average price of $136.78 per share for a total of $201 million. Capacity remaining under the existing share repurchase authorization was $1.161 billion at the end of the quarter. Also at the end of the quarter, statutory capital and surplus was $22.180 billion, and the ratio of debt-to-capital was 18.3%. The ratio of debt-to-capital excluding after-tax net unrealized investment gains included in shareholders’ equity was 20.7%, within the Company’s target range of 15% to 25%.

The Board of Directors declared a regular quarterly dividend of $0.85 per share. The dividend is payable on March 31, 2021, to shareholders of record at the close of business on March 10, 2021.

Business Insurance Segment Financial Results
		Three Months Ended December 31,															Twelve Months Ended December 31,
($ in millions and pre-tax, unless noted otherwise)		2020					2019					Change					2020					2019					Change
Underwriting gain (loss):		$	382				$	87				$	295				$	(90	)			$	(195	)			$	105
Underwriting gain (loss) includes:
Net favorable (unfavorable) prior year reserve development		124					8					116					(91		)			(258		)			167
Catastrophes, net of reinsurance		24					(48		)			72					(645		)			(470		)			(175		)
Net investment income		502					451					51					1,633					1,816					(183		)
Other income (expense)		(5		)			—					(5		)			(21		)			(6		)			(15		)
Segment income before income taxes		879					538					341					1,522					1,615					(93		)
Income tax expense		166					90					76					213					223					(10		)
Segment income		$	713				$	448				$	265				$	1,309				$	1,392				$	(83	)
Combined ratio		89.8			%		97.5			%		(7.7		)		pts	100.3			%		100.9			%		(0.6		)		pts
Impact on combined ratio
Net (favorable) unfavorable prior year reserve development		(3.2		)		pts	(0.2		)		pts	(3.0		)		pts	0.6				pts	1.7				pts	(1.1		)		pts
Catastrophes, net of reinsurance		(0.6		)		pts	1.3				pts	(1.9		)		pts	4.2				pts	3.0				pts	1.2				pts
Underlying combined ratio		93.6			%		96.4			%		(2.8		)		pts	95.5			%		96.2			%		(0.7		)		pts
Net written premiums by market
Domestic
Select Accounts		$	630				$	675				(7		)	%		$	2,821				$	2,911				(3		)	%
Middle Market		2,012					2,061					(2		)			8,511					8,630					(1		)
National Accounts		241					251					(4		)			996					1,051					(5		)
National Property and Other		471					437					8					2,086					1,965					6
Total Domestic		3,354					3,424					(2		)			14,414					14,557					(1		)
International		277					279					(1		)			1,017					1,072					(5		)
Total		$	3,631				$	3,703				(2		)	%		$	15,431				$	15,629				(1		)	%

Fourth Quarter 2020 Results
(All comparisons vs. fourth quarter 2019, unless noted otherwise)

Segment income for Business Insurance was $713 million after-tax, an increase of $265 million. Segment income increased primarily due to higher net favorable prior year reserve development, a higher underlying underwriting gain, lower catastrophe losses and higher net investment income.

Combined ratio:

• The combined ratio of 89.8% improved 7.7 points due to higher net favorable prior year reserve development (3.0 points), a lower underlying combined ratio (2.8 points) and lower catastrophe losses (1.9 points).
• The underlying combined ratio of 93.6% improved by 2.8 points, impacted by earned pricing that exceeded loss cost trends and the favorable comparison as a result of the re-estimation of losses in the prior year quarter related to the first three quarters of 2019. COVID-19 and related economic conditions had a modest net favorable impact on the underlying combined ratio.
• Net favorable prior year reserve development was primarily driven by better than expected loss experience in the workers’ compensation product line for multiple accident years, partially offset by an increase to general liability reserves in our run-off book related to policies issued more than 20 years ago.

Net written premiums of $3.631 billion decreased 2%. The benefits of continued strong retention and higher renewal rate changes were more than offset by a modest reduction in exposures and a decrease in new business volume, both impacted by COVID-19 and related economic conditions.

Full Year 2020 Results
(All comparisons vs. full year 2019, unless noted otherwise)

Segment income for Business Insurance was $1.309 billion after-tax, a decrease of $83 million. Segment income decreased primarily due to lower net investment income and higher catastrophe losses, partially offset by lower net unfavorable prior year reserve development and a higher underlying underwriting gain.

Combined ratio:

• The combined ratio of 100.3% improved 0.6 points due to lower net unfavorable prior year reserve development (1.1 points) and a lower underlying combined ratio (0.7 points), partially offset by higher catastrophe losses (1.2 points).
• The underlying combined ratio of 95.5% improved 0.7 points, impacted by earned pricing that exceeded loss cost trends. COVID-19 and related economic conditions had a modest net unfavorable impact on the underlying combined ratio.
• Net unfavorable prior year reserve development was primarily driven by the following:

Asbestos reserves - an increase of $295 million;

General liability (excluding asbestos and environmental) - higher than expected loss experience in the segment’s domestic operations for primary and excess coverages for recent accident years, as well as an increase to general liability reserves in our run-off book related to policies issued more than 20 years ago;

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

Commercial multi-peril (excluding PG&E subrogation recoveries and asbestos and environmental) - higher than expected loss experience in the segment’s domestic operations for recent accident years.

Partially offset by:

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

Commercial property (excluding PG&E subrogation recoveries) - better than expected loss experience in the segment’s domestic operations for multiple accident years; and

PG&E subrogation recoveries - $81 million of recoveries as described above.

Net written premiums of $15.431 billion decreased 1%, driven by the same factors described above for the fourth quarter of 2020.

Bond & Specialty Insurance Segment Financial Results
	Three Months Ended December 31,															Twelve Months Ended December 31,
($ in millions and pre-tax, unless noted otherwise)	2020					2019					Change					2020					2019					Change
Underwriting gain:	$	138				$	142				$	(4	)			$	346				$	515				$	(169	)
Underwriting gain includes:
Net favorable (unfavorable) prior year reserve development	32					20					12					(1		)			65					(66		)
Catastrophes, net of reinsurance	(1		)			(1		)			—					(11		)			(5		)			(6		)
Net investment income	58					60					(2		)			213					233					(20		)
Other income	8					5					3					21					21					—
Segment income before income taxes	204					207					(3		)			580					769					(189		)
Income tax expense	40					40					—					107					151					(44		)
Segment income	$	164				$	167				$	(3	)			$	473				$	618				$	(145	)
Combined ratio	80.9			%		78.6			%		2.3				pts	87.4			%		79.5			%		7.9				pts
Impact on combined ratio
Net (favorable) unfavorable prior year reserve development	(4.2		)		pts	(2.9		)		pts	(1.3		)		pts	—				pts	(2.5		)		pts	2.5				pts
Catastrophes, net of reinsurance	0.1				pts	0.2				pts	(0.1		)		pts	0.4				pts	0.2				pts	0.2				pts
Underlying combined ratio	85.0			%		81.3			%		3.7				pts	87.0			%		81.8			%		5.2				pts
Net written premiums
Domestic
Management Liability	$	463				$	411				13			%		$	1,769				$	1,605				10			%
Surety	202					206					(2		)			845					866					(2		)
Total Domestic	665					617					8					2,614					2,471					6
International	135					97					39					337					268					26
Total	$	800				$	714				12			%		$	2,951				$	2,739				8			%

Fourth Quarter 2020 Results
(All comparisons vs. fourth quarter 2019, unless noted otherwise)

Segment income for Bond & Specialty Insurance was $164 million after-tax, a decrease of $3 million. Segment income decreased primarily due to a lower underlying underwriting gain, largely offset by higher net favorable prior year reserve development. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

• The combined ratio of 80.9% increased 2.3 points due to a higher underlying combined ratio (3.7 points), partially offset by higher net favorable prior year reserve development (1.3 points) and slightly lower catastrophe losses (0.1 points).
• The underlying combined ratio of 85.0% increased 3.7 points, driven by the impacts of higher loss estimates for management liability coverages, primarily due to the impact of COVID-19 and related economic conditions.
• Net favorable prior year reserve development was primarily driven by better than expected loss experience in the surety product line for multiple accident years.

Net written premiums of $800 million increased 12%, reflecting continued strong retention and increased levels of renewal premium change in management liability.

Full Year 2020 Results
(All comparisons vs. full year 2019, unless noted otherwise)

Segment income for Bond & Specialty Insurance was $473 million after-tax, a decrease of $145 million. Segment income decreased primarily due to a lower underlying underwriting gain, an insignificant amount of net unfavorable prior year reserve development in the current year compared to net favorable prior year reserve development in the prior year and lower net investment income. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

• The combined ratio of 87.4% increased 7.9 points due to a higher underlying combined ratio (5.2 points), the comparison to net favorable prior year reserve development in the prior year (2.5 points) and slightly higher catastrophe losses (0.2 points).
• The underlying combined ratio of 87.0% increased 5.2 points, driven by the impacts of higher loss estimates for management liability coverages, primarily due to the impact of COVID-19 and related economic conditions.
• Net prior year reserve development in the current year was not significant, as higher than expected loss experience in the domestic general liability product line for management liability coverages for recent accident years was offset by better than expected loss experience in the surety product line for multiple accident years.

Net written premiums of $2.951 billion increased 8%, driven by the same factors described above for the fourth quarter of 2020.

Personal Insurance Segment Financial Results
	Three Months Ended December 31,															Twelve Months Ended December 31,
($ in millions and pre-tax, unless noted otherwise)	2020					2019					Change					2020					2019					Change
Underwriting gain:	$	435				$	284				$	151				$	1,046				$	513				$	533
Underwriting gain includes:
Net favorable prior year reserve development	24					32					(8		)			443					133					310
Catastrophes, net of reinsurance	(52		)			(36		)			(16		)			(957		)			(411		)			(546		)
Net investment income	117					105					12					381					419					(38		)
Other income	23					22					1					76					87					(11		)
Segment income before income taxes	575					411					164					1,503					1,019					484
Income tax expense	118					84					34					308					195					113
Segment income	$	457				$	327				$	130				$	1,195				$	824				$	371
Combined ratio	84.1			%		88.5			%		(4.4		)		pts	89.7			%		94.2			%		(4.5		)		pts
Impact on combined ratio
Net favorable prior year reserve development	(0.8		)		pts	(1.2		)		pts	0.4				pts	(4.1		)		pts	(1.3		)		pts	(2.8		)		pts
Catastrophes, net of reinsurance	1.8				pts	1.3				pts	0.5				pts	8.8				pts	4.0				pts	4.8				pts
Underlying combined ratio	83.1			%		88.4			%		(5.3		)		pts	85.0			%		91.5			%		(6.5		)		pts
Net written premiums
Domestic
Agency (1)
Automobile	$	1,277				$	1,253				2			%		$	5,080				$	5,124				(1		)	%
Homeowners and Other	1,294					1,145					13					5,185					4,540					14
Total Agency	2,571					2,398					7					10,265					9,664					6
Direct-to-Consumer	107					99					8					433					412					5
Total Domestic	2,678					2,497					7					10,698					10,076					6
International	160					161					(1		)			652					707					(8		)
Total	$	2,838				$	2,658				7			%		$	11,350				$	10,783				5			%
(1) Represents business sold through agents, brokers and other intermediaries and excludes direct to consumer and international.

Fourth Quarter 2020 Results
(All comparisons vs. fourth quarter 2019, unless noted otherwise)

Segment income for Personal Insurance was $457 million after-tax, an increase of $130 million. Segment income increased primarily due to a higher underlying underwriting gain and higher net investment income, partially offset by higher catastrophe losses and lower net favorable prior year reserve development. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

• The combined ratio of 84.1% improved 4.4 points due to a lower underlying combined ratio (5.3 points), partially offset by higher catastrophe losses (0.5 points) and lower net favorable prior year reserve development (0.4 points).
• The underlying combined ratio of 83.1% improved 5.3 points, primarily driven by lower losses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions, partially offset by higher losses in the homeowners and other product line.
• Net favorable prior year reserve development was driven by better than expected loss experience in the segment’s domestic operations in the automobile product line for recent accident years.

Net written premiums of $2.838 billion increased 7%. Agency Automobile net written premiums increased 2%, driven by strong retention and higher levels of new business. Agency Homeowners and Other net written premiums increased 13%, driven by strong retention, renewal premium change of 8% and higher levels of new business.

Full Year 2020 Results
(All comparisons vs. full year 2019, unless noted otherwise)

Segment income for Personal Insurance was $1.195 billion after-tax, an increase of $371 million. Segment income increased primarily due to a higher underlying underwriting gain and higher net favorable prior year reserve development, partially offset by higher catastrophe losses and lower net investment income. The underlying underwriting gain benefited from higher business volumes.

Combined ratio:

• The combined ratio of 89.7% improved 4.5 points due to a lower underlying combined ratio (6.5 points) and higher net favorable prior year reserve development (2.8 points), partially offset by higher catastrophe losses (4.8 points).
• The underlying combined ratio of 85.0% improved 6.5 points, primarily driven by lower losses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions (net of premium refunds) and lower non-catastrophe weather-related losses in the homeowners and other product line.
• Net favorable prior year reserve development was driven by $322 million of PG&E subrogation recoveries described above and better than expected loss experience in the segment’s domestic operations in the automobile product line for recent accident years.

Net written premiums of $11.350 billion increased 5%. Agency Automobile net written premiums decreased 1%, driven by premium refunds provided to personal automobile customers, partially offset by strong retention and higher levels of new business. Agency Homeowners and Other net written premiums increased 14%, driven by strong retention, renewal premium change of 8% and higher levels of new business.

Financial Supplement and Conference Call

The information in this press release should be read in conjunction with the financial supplement that is available on our website at www.travelers.com. Travelers management will discuss the contents of this release and other relevant topics via webcast at 9 a.m. Eastern (8 a.m. Central) on Thursday, January 21, 2021. 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, replays will be available via webcast for one year at http://investor.travelers.com and by telephone for 30 days by dialing 800.585.8367 within the United States or 416.621.4642 outside the United States. All callers should use conference ID 9075479.

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 $32 billion in 2020. For more information, visit www.travelers.com.

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

Travelers is organized into the following reportable business segments:

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

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

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

* * * * *

Forward-Looking Statements

This press release contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “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’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);
• the impact of COVID-19 and related economic conditions, including the potential impact on the Company’s investments;
• the impact of legislative or regulatory actions or court decisions taken in response to COVID-19 or otherwise;
• 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, changes in tax law, 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 developments in the tort environment, such as increased attorney involvement in insurance claims and legislation 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:

• high levels of catastrophe losses, including as a result of factors such as increased concentrations of insured exposures in catastrophe-prone areas, 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/tort, regulatory and economic environments in which the Company operates or the impacts of COVID-19, the Company’s financial results could be materially and adversely affected;
• the impact of COVID-19 and related risks, including on the Company’s distribution or other key partners, could materially affect the Company’s results of operations, financial position and/or liquidity;
• during or following a period of financial market disruption or an economic downturn, such as the current environment, 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, particularly in the current environment;
• 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;
• the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
• 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, and court decisions or legislative or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as effectively expanding workers’ compensation coverage by instituting presumptions of compensability of claims for certain types of workers or requiring insurers to cover business interruption claims irrespective of terms, exclusions or other conditions included in the policies that would otherwise preclude coverage), can result in an unexpected increase in the number of claims and have a material adverse impact on the Company’s results of operations;
• 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 the Company is exposed to credit risk related to its structured settlements;
• the Company is exposed to credit risk in certain of its insurance operations and with respect to certain guarantee or indemnification arrangements that it has with third parties, which risk is heightened in the current environment;
• 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 or regulatory actions (including those taken in response to COVID-19) 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. This risk is heightened in the current environment where a majority of the Company’s employees have shifted to a work from home arrangement;
• 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 where 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, including the ongoing level of uncertainty related to COVID-19.

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 the quarterly report on Form 10-Q filed with the Securities and Exchange Commission (SEC) on October 20, 2020 and in our most recent annual report on Form 10-K filed with the SEC on February 13, 2020, 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 December 31,								Twelve Months Ended December 31,
($ in millions, after-tax)		2020				2019				2020				2019
Net income		$	1,310			$	873			$	2,697			$	2,622
Less: Net realized investment gains		(48		)		(6		)		(11		)		(85		)
Core income		$	1,262			$	867			$	2,686			$	2,537
		Three Months Ended December 31,								Twelve Months Ended December 31,
($ in millions, pre-tax)		2020				2019				2020				2019
Net income		$	1,616			$	1,074			$	3,237			$	3,138
Less: Net realized investment gains		(50		)		(12		)		(2		)		(113		)
Core income		$	1,566			$	1,062			$	3,235			$	3,025

		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 Ended December 31,								Twelve Months Ended December 31,
		2020				2019				2020				2019
Basic income per share
Net income		$	5.13			$	3.37			$	10.56			$	10.01
Adjustments:
Net realized investment gains, after-tax		(0.19		)		(0.02		)		(0.04		)		(0.32		)
Core income		$	4.94			$	3.35			$	10.52			$	9.69
Diluted income per share
Net income		$	5.10			$	3.35			$	10.52			$	9.92
Adjustments:
Net realized investment gains, after-tax		(0.19		)		(0.03		)		(0.04		)		(0.32		)
Core income		$	4.91			$	3.32			$	10.48			$	9.60

Reconciliation of Segment Income to Total Core Income
		Three Months Ended December 31,								Twelve Months Ended December 31,
($ in millions, after-tax)		2020				2019				2020				2019
Business Insurance		$	713			$	448			$	1,309			$	1,392
Bond & Specialty Insurance		164				167				473				618
Personal Insurance		457				327				1,195				824
Total segment income		1,334				942				2,977				2,834
Interest Expense and Other		(72		)		(75		)		(291		)		(297		)
Total core income		$	1,262			$	867			$	2,686			$	2,537

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

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

Reconciliation of Shareholders’ Equity to Adjusted Shareholders’ Equity
		As of December 31,
($ in millions)		2020		2019		2018		2017		2016		2015		2014		2013		2012		2011		2010		2009		2008		2007		2006		2005
Shareholders’ equity		$29,201		$25,943		$22,894		$23,731		$23,221		$23,598		$24,836		$24,796		$25,405		$24,477		$25,475		$27,415		$25,319		$26,616		$25,135		$22,303
Adjustments:
Net unrealized investment (gains) losses, net of tax, included in shareholders’ equity		(4,074)		(2,246)		113		(1,112)		(730)		(1,289)		(1,966)		(1,322)		(3,103)		(2,871)		(1,859)		(1,856)		146		(620)		(453)		(327)
Net realized investment (gains) losses, net of tax		(11)		(85)		(93)		(142)		(47)		(2)		(51)		(106)		(32)		(36)		(173)		(22)		271		(101)		(8)		(35)
Impact of TCJA at enactment		—		—		—		287		—		—		—		—		—		—		—		—		—		—		—		—
Preferred stock		—		—		—		—		—		—		—		—		—		—		(68)		(79)		(89)		(112)		(129)		(153)
Loss from discontinued operations		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		439
Adjusted shareholders’ equity		$25,116		$23,612		$22,914		$22,764		$22,444		$22,307		$22,819		$23,368		$22,270		$21,570		$23,375		$25,458		$25,647		$25,783		$24,545		$22,227

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

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

Calculation of Return on Equity and Core Return on Equity
		Three Months Ended December 31,								Twelve Months Ended December 31,
($ in millions, after-tax)		2020				2019				2020				2019
Annualized net income		$	5,236			$	3,490			$	2,697			$	2,622
Average shareholders’ equity		28,525				25,775				26,892				24,922
Return on equity		18.4		%		13.5		%		10.0		%		10.5		%
Annualized core income		$	5,044			$	3,468			$	2,686			$	2,537
Adjusted average shareholders’ equity		24,558				23,472				23,790				23,335
Core return on equity		20.5		%		14.8		%		11.3		%		10.9		%

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 Core Return on Equity
		Twelve Months Ended December 31,
($ in millions)		2020		2019		2018		2017		2016		2015		2014		2013		2012		2011		2010		2009		2008		2007		2006		2005
Core income, less preferred dividends		$2,686		$2,537		$2,430		$2,043		$2,967		$3,437		$3,641		$3,567		$2,441		$1,389		$3,040		$3,597		$3,191		$4,496		$4,195		$2,020
Adjusted average shareholders’ equity		23,790		23,335		22,814		22,743		22,386		22,681		23,447		23,004		22,158		22,806		24,285		25,777		25,668		25,350		23,381		21,118
Core return on equity		11.3%		10.9%		10.7%		9.0%		13.3%		15.2%		15.5%		15.5%		11.0%		6.1%		12.5%		14.0%		12.4%		17.7%		17.9%		9.6%

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 2020 ranges from approximately $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.

Components of Net Income
		Three Months Ended December 31,								Twelve Months Ended December 31,
($ in millions, after-tax except as noted)		2020				2019				2020				2019
Pre-tax underwriting gain excluding the impact of catastrophes and net prior year loss reserve development		$	804			$	538			$	2,564			$	1,779
Pre-tax impact of catastrophes		(29		)		(85		)		(1,613		)		(886		)
Pre-tax impact of net favorable (unfavorable) prior year loss reserve development		180				60				351				(60		)
Pre-tax underwriting gain		955				513				1,302				833
Income tax expense on underwriting results		214				117				292				179
Underwriting gain		741				396				1,010				654
Net investment income		572				525				1,908				2,097
Other income (expense), including interest expense		(51		)		(54		)		(232		)		(214		)
Core income		1,262				867				2,686				2,537
Net realized investment gains		48				6				11				85
Net income		$	1,310			$	873			$	2,697			$	2,622

COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED RATIO

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

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

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

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

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

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

Calculation of the Combined Ratio
		Three Months Ended December 31,								Twelve Months Ended December 31,
($ in millions, pre-tax)		2020				2019				2020				2019
Loss and loss adjustment expense ratio
Claims and claim adjustment expenses		$	4,341			$	4,640			$	19,123			$	19,133
Less:
Policyholder dividends		10				10				41				47
Allocated fee income		41				42				161				174
Loss ratio numerator		$	4,290			$	4,588			$	18,921			$	18,912
Underwriting expense ratio
Amortization of deferred acquisition costs		$	1,215			$	1,181			$	4,773			$	4,601
General and administrative expenses (G&A)		1,142				1,085				4,509				4,365
Less:
Non-insurance G&A		67				56				234				201
Allocated fee income		65				71				268				285
Billing and policy fees and other		28				27				97				108
Expense ratio numerator		$	2,197			$	2,112			$	8,683			$	8,372
Earned premium		$	7,480			$	7,250			$	29,044			$	28,272
Combined ratio (1)
Loss and loss adjustment expense ratio		57.3		%		63.3		%		65.1		%		66.9		%
Underwriting expense ratio		29.4		%		29.1		%		29.9		%		29.6		%
Combined ratio		86.7		%		92.4		%		95.0		%		96.5		%

(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, Net of Tax
		As of
($ in millions, except per share amounts)		December 31, 2020				December 31, 2019
Shareholders’ equity		$	29,201			$	25,943
Less: Net unrealized investment gains, net of tax, included in shareholders’ equity		4,074				2,246
Shareholders’ equity, excluding net unrealized investment gains, net of tax, included in shareholders’ equity		25,127				23,697
Less:
Goodwill		3,976				3,961
Other intangible assets		317				330
Impact of deferred tax on other intangible assets		(59		)		(51		)
Tangible shareholders’ equity		$	20,893			$	19,457
Common shares outstanding		252.4				255.5
Book value per share		$	115.68			$	101.55
Adjusted book value per share		99.54				92.76
Tangible book value per share		82.77				76.17

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

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

		As of
($ in millions)		December 31, 2020				December 31, 2019
Debt		$	6,550			$	6,558
Shareholders’ equity		29,201				25,943
Total capitalization		35,751				32,501
Less: Net unrealized investment gains, net of tax, included in shareholders’ equity		4,074				2,246
Total capitalization excluding net unrealized gain on investments, net of tax, included in shareholders’ equity		$	31,677			$	30,255
Debt-to-capital ratio		18.3		%		20.2		%
Debt-to-capital ratio excluding net unrealized investment gains, net of tax, included in shareholders’ equity		20.7		%		21.7		%

OTHER DEFINITIONS

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

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

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

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

For a glossary of other financial terms used in this press release, we refer you to the Company’s most recent annual report on Form 10-K filed with the SEC on February 13, 2020, and subsequent periodic filings with the SEC.

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FAQ

What was Travelers' net income for Q4 2020?

Travelers reported a net income of $1.310 billion for Q4 2020.

How much did Travelers' core income increase in Q4 2020?

Core income for Q4 2020 increased by 46% to $1.262 billion.

What is Travelers' combined ratio for Q4 2020?

The combined ratio for Q4 2020 improved to 86.7%.

How did Travelers' net written premiums perform in Q4 2020?

Net written premiums increased by 3% to $7.269 billion in Q4 2020.

What was Travelers' core return on equity for Q4 2020?

The core return on equity for Q4 2020 was 20.5%.