TRAVELERS COMPANIES, INC. – 10-Q – MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS – InsuranceNewsNet

The following is a discussion and analysis of the financial condition of the Company
and the results of operations.

FINANCIAL HIGHLIGHTS

Second Quarter 2022 Consolidated Operating Results

•Net income of $551 million, or $2.29 per share basic and $2.27 per share
diluted
•Net earned premiums of $8.32 billion
•Catastrophe losses of $746 million ($587 million after-tax)
•Net favorable prior year reserve development of $291 million ($229 million
after-tax)
•Combined ratio of 98.3%
•Net investment income of $707 million ($595 million after-tax)
•Net realized investment losses of $95 million ($74 million after-tax)
•Operating cash flows of $1.38 billion

Consolidated financial position for the second quarter of 2022

•Total investments of $80.46 billion; fixed maturities and short-term securities
comprised 93% of total investments
•Total assets of $116.59 billion
•Total debt of $7.29 billion, resulting in a debt-to-total capital ratio of
24.2% (21.5% excluding net unrealized investment gains, net of tax)
•Total capital returned to shareholders of $725 million, comprising $500 million
of share repurchases and $225 million of dividends
•Shareholders' equity of $22.87 billion
•Net unrealized investment losses of $4.82 billion ($3.79 billion after-tax)
•Book value per common share of $96.39
•Holding company liquidity of $1.56 billion


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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

CONSOLIDATED OVERVIEW

Consolidated operating results

                                                                                                     Three Months Ended                   Six Months Ended
                                                                                                          June 30,                            June 30,
(in millions, except ratio and per share amounts)                                                  2022              2021              2022              2021

Revenues
Premiums                                                                                       $   8,317          $  7,616          $ 16,331          $ 15,002
Net investment income                                                                                707               818             1,344             1,519
Fee income                                                                                           100               104               203               205
Net realized investment gains (losses)                                                               (95)               61              (118)              105
Other revenues                                                                                       107                88               185               169
Total revenues                                                                                     9,136             8,687            17,945            17,000

Claims and expenses
Claims and claim adjustment expenses                                                               5,803             5,045            10,842            

10,015

Amortization of deferred acquisition costs                                                         1,365             1,254             2,675            

2,461

General and administrative expenses                                                                1,223             1,174             2,414             2,337
Interest expense                                                                                      88                83               175               165
Total claims and expenses                                                                          8,479             7,556            16,106            14,978
Income before income taxes                                                                           657             1,131             1,839             2,022
Income tax expense                                                                                   106               197               270               355
Net income                                                                                     $     551          $    934          $  1,569          $  1,667

Net income per share
Basic                                                                                          $    2.29          $   3.70          $   6.50          $   6.58
Diluted                                                                                        $    2.27          $   3.66          $   6.43          $   6.53

Combined ratio
Loss and loss adjustment expense ratio                                                              69.3  %           65.6  %           65.8  %           66.1  %
Underwriting expense ratio                                                                          29.0              29.7              29.0              29.8
Combined ratio                                                                                      98.3  %           95.3  %           94.8  %           95.9  %



The following discussions of the Company's net income and segment income (loss)
are presented on an after-tax basis.  Discussions of the components of net
income and segment income (loss) are presented on a pre-tax basis, unless
otherwise noted.  Discussions of net income per common share are presented on a
diluted basis.

Overview
Diluted net income per share of $2.27 in the second quarter of 2022 decreased by
38% from diluted net income per share of $3.66 in the same period of 2021.  Net
income of $551 million in the second quarter of 2022 decreased by 41% from net
income of $934 million in the same period of 2021.  The lower rate of decrease
in diluted net income per share reflected the impact of share repurchases in
recent periods. The decrease in income before income taxes in the second quarter
of 2022 primarily reflected the pre-tax impacts of (i) higher catastrophe
losses, (ii) net realized investment losses compared to net realized investment
gains in the same period of 2021, (iii) lower net investment income and (iv)
lower underwriting margins excluding catastrophe losses and prior year reserve
development ("underlying underwriting margins"), partially offset by (v) higher
net favorable prior year reserve development. Catastrophe losses in the second
quarters of 2022 and 2021 were $746 million and $475 million, respectively. Net
favorable prior year reserve development in the second quarters of 2022 and 2021
was $291 million and $182 million, respectively. The lower underlying
underwriting margins in the second quarter of 2022 were driven by Personal
Insurance, partially offset by Business Insurance and Bond & Specialty
Insurance. Underlying underwriting margins in the second quarter of 2021
included a net favorable impact from COVID-19 and related economic conditions.
Income tax expense in the second quarter of 2022 was lower than in the same
period of 2021, primarily reflecting the impact of the decrease in income before
income taxes.
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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Diluted net income per share of $6.43 in the first six months of 2022 decreased
by 2% from diluted net income per share of $6.53 in the same period of 2021.
Net income of $1.57 billion in the first six months of 2022 decreased by 6% from
net income of $1.67 billion in the same period of 2021.  The lower rate of
decrease in diluted net income per share reflected the impact of share
repurchases in recent periods. The decrease in income before income taxes
primarily reflected the pre-tax impacts of (i) net realized investment losses
compared to net realized investment gains in the same period of 2021, (ii) lower
net investment income, (iii) lower underlying underwriting margins and (iv)
lower net favorable prior year reserve development, partially offset by (v)
lower catastrophe losses. Net favorable prior year reserve development in the
first six months of 2022 and 2021 was $444 million and $499 million,
respectively. Catastrophe losses in the first six months of 2022 and 2021 were
$906 million and $1.31 billion, respectively. The lower underlying underwriting
margins in the first six months of 2022 were driven by Personal Insurance,
partially offset by Business Insurance and Bond & Specialty Insurance.
Underlying underwriting margins in the first six months of 2021 reflected a net
favorable impact from COVID-19 and related economic conditions. Income tax
expense in the first six months of 2022 was lower than in the same period of
2021, primarily reflecting a $47 million reduction in income tax expense in the
first quarter of 2022 as a result of the resolution of prior year tax matters
and the impact of the decrease in income before income taxes.

The Company has insurance operations in Canada, the United Kingdom, the Republic
of Ireland and throughout other parts of the world as a corporate member of
Lloyd's, as well as in Brazil and Colombia through joint ventures.  Because
these operations are conducted in local currencies other than the U.S. dollar,
the Company is subject to changes in foreign currency exchange rates. For the
three and six months ended June 30, 2022 and 2021, changes in foreign currency
exchange rates impacted reported line items in the statement of income by
insignificant amounts.  The impact of these changes was not material to the
Company's net income or segment income (loss) for the periods reported.

Revenue

Earned Premiums
Earned premiums in the second quarter of 2022 were $8.32 billion, $701 million
or 9% higher than in the same period of 2021.  Earned premiums in the first six
months of 2022 were $16.33 billion, $1.33 billion or 9% higher than in the same
period of 2021. In Business Insurance, earned premiums in the second quarter and
first six months of 2022 increased by 9% and 8%, respectively, over the same
periods of 2021.  Earned premiums in Business Insurance in both periods of 2021
were negatively impacted by lower net written premiums in the preceding twelve
months due to a modest reduction in exposures and a decrease in new business
volume, in each case impacted by COVID-19 and related economic conditions. In
Bond & Specialty Insurance, earned premiums in the second quarter and first six
months of 2022 both increased by 10% over the same periods of 2021.  In Personal
Insurance, earned premiums in the second quarter and first six months of 2022
both increased by 10% over the same periods of 2021.  Earned premiums in Bond &
Specialty Insurance and Personal Insurance in both the second quarter and first
six months of 2021 were not materially impacted by COVID-19 and related economic
conditions. Factors contributing to the changes in earned premiums in each
segment are discussed in more detail in the segment discussions that follow.

Net Investment Income
The following table sets forth information regarding the Company's investments.
                                         Three Months Ended             Six Months Ended
                                              June 30,                      June 30,
(dollars in millions)                   2022           2021           2022           2021
Average investments (1)              $ 86,660       $ 82,594       $ 86,519       $ 81,954
Pre-tax net investment income             707            818          1,344 

1,519

After-tax net investment income           595            682          1,134          1,272
Average pre-tax yield (2)                 3.3  %         4.0  %         3.1  %         3.7  %
Average after-tax yield (2)               2.7  %         3.3  %         2.6  %         3.1  %

_________________________________________________________

(1)Excludes net unrealized investment gains and losses and reflects cash,
receivables for investment sales, payables on investment purchases and accrued
investment income.
(2)Excludes net realized and net unrealized investment gains and losses.

Net investment income in the second quarter of 2022 was $707 million, $111
million or 14% lower than in the same period of 2021.  Net investment income in
the first six months of 2022 was $1.34 billion, $175 million or 12% lower than
in the same period of 2021. Net investment income from fixed maturity
investments in the second quarter and first six months of 2022 was $512 million
and $1.02 billion, respectively, $19 million and $33 million higher,
respectively, than in the same periods of 2021.
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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

The increases primarily resulted from a higher average level of fixed maturity
investments, partially offset by lower long-term average yields. Net investment
income from short-term securities in the second quarter and first six months of
2022 was $9 million and $11 million, respectively, $8 million and $7 million
higher, respectively, than in the same periods of 2021. The increases in both
periods of 2022 primarily resulted from higher short-term average yields,
partially offset by a lower level of short-term investments. The Company's
remaining investment portfolios had net investment income of $197 million and
$339 million in the second quarter and first six months of 2022, respectively,
$138 million and $214 million lower, respectively, than in the same periods of
2021. The decline in net investment income from these portfolios in the second
quarter and first six months of 2022 compared with the same periods of 2021
primarily reflected the impact of lower returns from private equity partnerships
as compared to strong returns in the same periods of 2021. Included in
other investments are private equity, hedge fund and real estate
partnerships that are accounted for under the equity method of accounting and
typically report their financial statement information to the Company one month
to three months following the end of the reporting period. Accordingly, net
investment income from these other investments is generally reflected in the
Company's financial statements on a quarter lag basis.

Fee Income
Fee income in the second quarter of 2022 was $100 million, $4 million lower than
in the same period of 2021. Fee income in the first six months of 2022 was $203
million, $2 million lower than in the same period of 2021. The National Accounts
market in Business Insurance is the primary source of the Company's fee-based
business and is discussed in the Business Insurance segment discussion that
follows.
Net Realized Investment Gains (Losses)
The following table sets forth information regarding the Company's net realized
investment gains (losses).
                                                           Three Months Ended                       Six Months Ended
                                                                June 30,                                June 30,
(in millions)                                            2022               2021                 2022                 2021
Impairment gains (losses):
Fixed maturities                                     $      (20)         $      -          $      (21)             $      -

Net realized investment gains (losses) on
equity securities still held                                (71)               28                 (85)                   51
Other net realized investment gains (losses),
including from sales                                         (4)               33                 (12)                   54
Total                                                $      (95)         $     61          $     (118)             $    105



Net realized investment losses on equity securities still held of $71 million
and $85 million in the second quarter and first six months of 2022,
respectively, were driven by the impact of changes in fair value attributable to
unfavorable equity markets. Net realized investment gains on equity securities
still held of $28 million and $51 million in the second quarter and first six
months of 2021, respectively, were driven by the impact of changes in fair value
attributable to favorable equity markets.

Other Revenues
Other revenues in the second quarter of 2022 were $107 million, $19 million
higher than in the same period of 2021. Other revenues in the first six months
of 2022 were $185 million, $16 million higher than in the same period of 2021.
The increases in both periods primarily reflected the receipt of a surplus
distribution from a state workers' compensation reinsurance fund. Other revenues
also included revenues from Simply Business, installment premium charges and
other policyholder service charges.

Claims and Expenses

Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the second quarter of 2022 were $5.80
billion, $758 million or 15% higher than in the same period of 2021, primarily
reflecting the impacts of (i) higher business volumes, (ii) higher catastrophe
losses, (iii) loss cost trends, including elevated severity in the current
quarter in both the automobile and homeowners and other product lines in
Personal Insurance, (iv) higher non-catastrophe property losses in Business
Insurance and (v) a comparison to a low level of loss activity in the prior year
quarter in the automobile product line in Personal Insurance, partially offset
by (vi) higher net favorable prior year reserve development. Catastrophe losses
in the second quarter of 2022 primarily resulted from severe wind and hail
storms in several regions of the United States. Catastrophe losses in the second
quarter of 2021 primarily resulted from severe storms in several regions of the
United States. The impacts of COVID-19 and related economic conditions on claims
and claim adjustment expenses in the second quarter of 2021 are discussed in
more detail in the segment discussions that follow.
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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Claims and claim adjustment expenses in the first six months of 2022 were $10.84
billion, $827 million or 8% higher than in the same period of 2021, primarily
reflecting the impacts of (i) higher business volumes, (ii) loss cost trends,
including elevated severity in the current year in both the automobile and
homeowners and other product lines in Personal Insurance, (iii) a comparison to
a low level of loss activity in the prior year period in the automobile product
line in Personal Insurance, (iv) higher non-catastrophe property losses in
Business Insurance and (v) lower net favorable prior year reserve development,
partially offset by (vi) lower catastrophe losses. Catastrophe losses in the
first six months of 2022 included the second quarter events described above, as
well as wind storms in multiple states in the first quarter of 2022. Catastrophe
losses in the first six months of 2021 included the second quarter events
described above, as well as winter storms and wind storms in several regions of
the United States in the first quarter of 2021. The impacts of COVID-19 and
related economic conditions on claims and claim adjustment expenses in the first
six months of 2021 are discussed in more detail in the segment discussions that
follow.

Factors Contributing to the Net Favorable Change in Prior Year Reserves in the Year
the second quarters and the first six months of 2022 and 2021 are discussed in more detail
detail in note 7 of the notes to the unaudited consolidated financial statements
statements.

Significant Catastrophe Losses
The following table presents the amount of losses recorded by the Company for
significant catastrophes that occurred in the three months and six months ended
June 30, 2022 and 2021, the amount of net unfavorable (favorable) prior year
reserve development recognized in the three months and six months ended June 30,
2022 and 2021 for significant catastrophes that occurred in 2021 and 2020, and
the estimate of ultimate losses for those catastrophes at June 30, 2022 and
December 31, 2021. For purposes of the table, a significant catastrophe is an
event for which the Company estimates its ultimate losses will be $100 million
or more after reinsurance and before taxes. The Company's threshold for
disclosing catastrophes is primarily determined at the reportable segment level
and for 2022 ranged from $20 million to $30 million of losses before reinsurance
and taxes. For the Company's definition of a catastrophe, refer to "Part II-Item
7-Management's Discussion and Analysis of Financial Condition and Results of
Operations- Consolidated Overview" in the Company's 2021 Annual Report.

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