The Travelers Companies, Inc.
2021 Annual Report
Forward Together
Financial Highlights
• $3.5 Billion Core Income
• 13.7% Core Return on Equity
• $32.0 Billion Record Net Written Premiums
• $3.1 Billion Capital Returned to Shareholders
At and for the year ended December 31. Dollar amounts in millions, except per share amounts.
Earned Premiums
Total Revenues
Core Income
Net Income
2021
2020
2019
2018
2017
$ 30,855
$ 29,044
$ 28,272
$ 27,059
$ 25,683
$ 34,816
$ 31,981
$ 31,581
$ 30,282
$ 28,902
$ 3,522
$ 2,686
$ 2,537
$ 2,430
$ 2,043
$ 3,662
$ 2,697
$ 2,622
$ 2,523
$ 2,056
Net Income Per Diluted Share
$ 14.49
$ 10.52
$
9.92
$
9.28
$
7.33
Total Investments
Total Assets
$ 87,375
$ 84,423
$ 77,884
$ 72,278
$ 72,502
$ 120,466
$ 116,764
$ 110,122
$ 104,233
$ 103,483
Shareholders’ Equity
$ 28,887
$ 29,201
$ 25,943
$ 22,894
$ 23,731
Return On Equity
12.7%
10.0%
10.5%
11.0%
Core Return On Equity
13.7%
11.3%
10.9%
10.7%
8.7%
9.0%
Book Value Per Share
$ 119.77
$ 115.68
$ 101.55
$ 86.84
$ 87.46
Dividends Per Share
$
3.49
$
3.37
$
3.23
$
3.03
$
2.83
The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of property casualty insurance for auto, home and business.
A component of the Dow Jones Industrial Average, Travelers has approximately 30,000 employees and generated revenues of
approximately $35 billion in 2021. For more information, visit Travelers.com.
Our outstanding financial performance
this year reflects both our relentless
execution – day in and day out – across our
businesses, and the impact of the significant
investments and strategic initiatives we have
undertaken in recent years.
Alan D. Schnitzer
Chairman and Chief Executive Officer
To My Fellow Shareholders
At Travelers, we are driven to perform today and transform
for tomorrow. Our 2021 results demonstrate what that
commitment looks like in action. Our outstanding financial
performance this year reflects both our relentless execution
– day in and day out – across our businesses, and the impact
of the significant investments and strategic initiatives we
have undertaken in recent years.
Our 2021 Results
Travelers generated very strong core income of
$3.5 billion and $13.94 of core income per diluted share,
up 33% compared to the prior year. Core return on equity
increased by more than 200 basis points to an excellent
13.7%, a meaningful spread above both the 10-year Treasury
and our cost of equity.
In 2021, we earned full year core income of $3.5 billion* –
an increase of 31% year over year – generating an industry-
leading core return on equity of 13.7%. On top of that,
thanks to our best-in-class marketplace execution, we grew
net written premiums to a record $32 billion. Our strong
earnings and balance sheet enabled us to continue to invest
in our ambitious innovation agenda, while also returning
more than $3.0 billion of excess capital to our shareholders
and growing adjusted book value per share by 10%.
These results speak to the soundness of our long-term
strategy and excellent execution by our talented workforce.
With that, together with our scale, resources and deep
domain expertise, we enter 2022 well positioned to continue
delivering industry-leading results over time.
Now, let me turn to how we performed in 2021 and how we
are positioning Travelers for the future.
We delivered record underlying underwriting income
for the year of $2.3 billion after-tax, and a very strong
underlying combined ratio of 90.3%. Our average underlying
underwriting income for the past five years was 34% greater
than the average underlying underwriting income for the
five years prior to that. Significantly, underlying underwriting
income as a percentage of core income in 2021 remained at
a historically high level, an indication of the high quality of
our earnings. In other words, when you adjust for the things
over which we have less control, such as catastrophes,
prior year reserve development and the interest rate
environment, we delivered operating performance that was
very strong compared to our historical average. Our 2021
results demonstrate that our strategy of innovating to grow
the top line at attractive returns and improving productivity
and efficiency continues to pay off.
* See “Additional information” for a discussion and calculation of non-GAAP financial measures.
1
During the year, we improved our expense ratio to a
We believe that return on equity is the right way to
historically low 29.4%, a 50-basis-point improvement
measure our success and that any commitment to deliver
over the prior year and a 7% improvement over the past
an industry-leading return on equity over time requires a
five years. We achieved this by leveraging cutting-edge
strategy to grow over time. Across all our businesses, our
technology and workflow enhancements, and not by
strategic focus continues to include creating opportunities
depriving our business of important investments. Improving
to write more business through retaining and growing our
operating leverage continues to be a strategic priority
relationships with our high-quality in-force accounts and
for us. It gives us the flexibility to invest the gains in our
bringing our franchise value to new customers. To that end,
strategic priorities or let the benefit fall to the bottom line.
several years ago, we laid out a plan to achieve profitable
Our cash flow from operations reached an all-time
previously identified as impacting the industry – namely,
record of $7.3 billion in 2021. This reflects the benefit of
changing consumer expectations, emerging technology
continued increases in premium volume, strong profitability
trends, more sophisticated data and analytics, and evolving
growth in the context of the forces of change that we had
and lower-than-normal overall claim payouts, as courtroom
distribution models.
and other settlement activity remained below historic
levels throughout the year. We assume that the lower-
In light of these trends, we have established key innovation
than-normal payout pattern is ultimately a timing issue,
priorities and are investing in capabilities consistent with
and, as a result, when establishing our reserves and pricing
those priorities. Notwithstanding a challenging environment
our products, we are continuing to assume that elevated
for the industry, including the second year of a global
severity related to social inflation has not abated.
pandemic, we have faithfully and consistently executed on
Our cash flow from operations has increased significantly
2016, we have grown net written premiums at a compound
over the last five years, with the average annual cash flow
annual growth rate of 5.1%, substantially outpacing both
from operations for that period nearly 50% higher than
the growth in gross domestic product over the same period
the average for the five years prior to that. Strong cash
and our compound annual growth rate of 2.7% for the
this strategy. This relentless execution has paid off. Since
flow enables us to make significant investments in our
prior years in the decade.
business, return excess capital to shareholders and grow
our investment portfolio. Over the past five years, our
At the same time as we have grown net written premiums,
investment portfolio grew an impressive $16.9 billion, or
we have also improved our underlying margins – our
24%, to $87.4 billion at year-end.
underlying combined ratio over the last two years has
been meaningfully below the 10-year average. That tells
Turning to the top line, today’s production generates
us that we have not grown by either underpricing the
tomorrow’s earned premiums. In 2021, we delivered
product or taking on too much risk.
record net written premiums of $32 billion for the year,
up 7% compared to the prior year. This represents the
Investment Expertise
12th consecutive year of net written premium growth. All
three of our business segments contributed to the strong
top-line performance, with Business Insurance up 4%, Bond
& Specialty Insurance up 14% and Personal Insurance up
10%. This premium growth has been driven by high levels
The performance of our investment portfolio – a key
source of stability and strength for Travelers – continues
to be exceptional. Our investment portfolio is managed
first and foremost to support our insurance operations
and, accordingly, is positioned to meet our obligations to
of retention, higher pricing and the addition of high-quality
policyholders under almost every foreseeable circumstance
new business. Significantly, we have strong confidence in
the profitability of the business that we are putting on the
books, as it comes from products, geographies, classes of
business and distribution partners that we know well.
– anything from a global pandemic to a significant natural
disaster to a financial crisis. With this in mind, we are
focused on risk-adjusted returns and credit quality rather
than reaching for yield that is not commensurate with the
underlying risk.
2
2021 Financial Results in the Context
of Our Innovation Strategy
Over the past five years, we have grown our business and, at the same time, improved our underlying profitability. We have
also successfully executed on our strategic initiative to improve productivity and efficiency. These achievements have resulted
in significantly higher underlying underwriting income, meaningfully higher cash flow from operations and growth in our
investment portfolio. The following charts illustrate this strategy at work and its compounding, multiyear benefit:
Accelerating Net Written Premium Growth
Improving Underlying Combined Ratio3
$32.0B
93.0%
5 . 1 % C A G R 2
AVG = 91.5%
90.3%
$22.4B
2 . 7 % C A G R 1
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Improving Expense Ratio
AVG = 31.7%
Increasing Underlying Underwriting Income3
(after-tax)
Improved 2.3 pts
29.4%
$1.3B
$2.3B
+ 7 7 %
2012 2013 2014 2015 2016 2017 2018
2019 2020 2021
Avg.
2012-2016
2017
2018
2019
2020
2021
Increasing Cash Flow from Operations
Growing Invested Assets4
$7.3B
$84.3B
+ 2 1 %
+ 9 7 %
$3.7B
Avg.
2012-2016
2017
2018
2019
2020
2021
1 Represents growth from 2012 through 2016.
2 Represents growth from 2016 through 2021.
3 Excludes the impact of catastrophes and prior year reserve development.
4 Invested assets excludes net unrealized investment gains (losses).
$69.7B
Avg.
2012-2016
2017
2018
2019
2020
2021
3
Our asset allocation is designed so that the predictable
that and our advanced data and analytics, we thoughtfully
stream of investment income from our fixed income
select the risks we write and price our products deliberately
portfolio will provide a firm and reliable foundation for our
with our target return in mind.
business. In addition, the allocation between fixed income
and alternative investments is designed such that when
Given the elevated frequency and severity of catastrophes
the market is challenging for our alternative investment
in recent years, including once again in 2021, I will take a
portfolio, we still have a shot at reaching our target returns,
moment to highlight the work we have done over the last
and when the alternative portfolio has a strong year, we will
several years in terms of the strategic management of our
benefit from the upside.
catastrophe exposure.
Our performance over the past two years is a perfect
illustration of how effective this disciplined investment
strategy is in managing through very different and volatile
market conditions. In 2020, we saw record low interest rates
(the 10-year Treasury hit a stunning low of 0.318%), and
we experienced significant volatility in the equity markets
that negatively impacted the returns from our alternative
investment portfolio. Nonetheless, we delivered strong 2020
net investment income of $1.9 billion after-tax, contributing
to a strong core return on equity of 11.3%. In 2021, the
alternative investment portfolio benefited from the recovery
in the equity markets, and the same disciplined strategy and
well-constructed portfolio delivered net investment income
of $2.5 billion after-tax, contributing to an industry-leading
core return on equity of 13.7%.
Strategy, not serendipity, drove these strong results
throughout two very different economic and market
environments – that is the value of our thoughtful and
disciplined approach.
Underwriting Expertise
Underwriting excellence is of course key to our success,
and there is nothing more critical to underwriting
excellence than a culture that values strong performance
over time and understands how to balance the art and
science of decision making based on data and analytics.
This culture alone is a significant competitive advantage,
and one that we believe is very hard to replicate.
A critical component of our culture is our granular
approach to underwriting. In our commercial businesses,
that means execution on an account-by-account or class-
by-class basis. In personal lines, it means a very high degree
of segmentation by account, product and geography. With
Underwriting excellence is of course key to
our success, and there’s nothing more critical
to underwriting excellence than a culture that values
strong performance over time and understands how
to balance the art and science of decision making
based on data and analytics.
Consistent with our general approach of recognizing,
assessing and addressing trends rapidly, we have taken
decisive action in anticipation of continued elevated
weather frequency and severity. Our efforts started
with talent. We have added experts in data science,
meteorology, geophysics and environmental engineering,
among others, to our catastrophe management
organization. We have also established dedicated teams
for each catastrophe peril, with the goal of developing
industry-leading scientific and underwriting expertise.
We have incorporated the learnings into our product
development, risk selection, pricing, capital allocation
and claim response. The insights we have developed have
enabled us to supplement standard vendor catastrophe
models with our own sophisticated, peril-by-peril view.
This gives us a refined, granular view of catastrophe risk,
incorporating proprietary variables, such as complex
roof characteristics, tree and brush density and location
intelligence down to the parcel level. These variables are
incorporated into our product development, enhancing
our segmentation. They are also integrated into proprietary
algorithms that we use at the point of sale to inform risk
selection and decisions about terms and conditions.
Taken together, these efforts have enabled us to manage
our exposure to catastrophes more effectively, and,
while there is always the potential for us to have outsized
exposure to an event, the positive impact on our results
4
this year and in recent years is evident. In 2021, our share
good: pre-pandemic we anticipated a higher rate of digital
of both wildfire and hurricane peril losses was several
adoption, and when the pandemic accelerated the trend,
percentage points lower than our market share in the
we were prepared to meet the need. We are now using
affected areas. Over the past five years, our share of
virtual claim handling capabilities on a significant majority
property casualty losses relative to total domestic P&C
of both auto appraisals and wind/hail claims, all without the
industry losses has declined significantly compared to the
need for inspection by a Travelers claim professional. We
five years prior to that and has been meaningfully lower
are also handling significantly more water claims virtually as
than our corresponding market share.
compared to pre-pandemic levels. In other words, we are
Investing in Technology Drives Value – Today and
in the Future
The innovation and technology investments we have made
in recent years are not only transforming Travelers into
the insurance company of the future, they are driving our
financial results today. Our scale, profitability and cash flow
all support our ability to invest well over $1 billion annually
on technology, and we are confident that these ongoing
strategic investments will continue to drive successful top-
and bottom-line results going forward.
These efforts touch every aspect of our work by digitizing
the value chain, leveraging cloud technology, leaning into
artificial intelligence for everything from simple automation
to deep machine learning, tapping into new data sources
and building increasingly accurate predictive models.
Technology affords meaningful opportunities to transform
the way the business of insurance is done, and scale will be
an increasingly important differentiator in our industry.
Through our focus on optimizing productivity and
efficiency, we have been able to meaningfully increase our
overall technology spend over the last five years, while at
the same time significantly reducing our expense ratio.
Importantly, over that period, we have improved the mix
delivering great experiences for our customers and a more
efficient outcome for our shareholders.
Throughout Travelers, we see a lot of benefit and
opportunity from artificial intelligence. As one example,
we have successfully deployed high-resolution aerial
imagery, coupled with proprietary deep machine learning,
to accelerate damage assessments and claim resolutions
in the wake of catastrophes. After the recent wildfires
in Colorado, we were able to serve some customers
before they even had a chance to return to their homes.
In severe wind events, our latest models can identify the
extent of exterior property damage with a high degree
of accuracy. These are some of the capabilities we use to
meet our objective of closing 90% of all claims arising out
of catastrophe events within 30 days, and exclusively with
a Travelers claim professional instead of also relying on an
independent adjuster.
The innovation and technology investments we have
made in recent years are not only transforming
Travelers into the insurance company of the future,
they are driving our financial results today.
Other initiatives across the company leverage technology,
data and models to support decision making. We have
more than 60 million data records related to businesses,
of our technology spend. We have increased our spending
individuals and distributors, including virtually every
on strategic technology initiatives by 50%, while reducing
routine but necessary expenditures. In 2021, our leading
Claim organization completed a strategic, three-year plan
business in the U.S. These records are curated into well-
designed, proprietary data products. We leverage this
with more than 2,000 external data sets, including high-
that we call “right touch.” That effort resulted in more than
resolution aerial imagery covering substantially all property
$125 million of annual run rate savings, which is reflected in
exposures in the U.S. All of this data fuels our more than
our results.
In addition to creating efficiencies for us, investments in
digital capabilities over the past few years have enabled
us to improve the customer experience. Our timing was
1,000 advanced analytical models. Our models support
risk selection and segmentation, pricing, reserving, claim
response and more. Our data and analytics advantage,
augmented by the latest technology, is significant and
difficult to replicate.
5
Powering all of these efforts is our exceptional workforce.
We start with world-class expertise in traditional insurance-
related disciplines and enhance that with leading computer
data and industrial engineers, design professionals,
behavioral scientists, AI experts, roboticists, specialized
health care professionals and more.
Investing in Our Employees
Just as we bring a long-term perspective to managing
other aspects of our business, we view our human capital
management through a long-term lens. At Travelers, our
people are our greatest asset. Our employees collectively
drive our performance and fuel our ambitious innovation
agenda. Their talent and expertise are critical to maintaining
meaningful and differentiating competitive advantages in a
rapidly evolving business landscape.
focus on our customers. That is why we have deliberate
recruiting, retention and development practices tailored
to deepen diverse talent pools and broaden advancement
opportunities. We are steadily making progress, as
evidenced by the fact that we once again increased the
number of women and people of color in management
positions this year, progress that we have achieved each
year since we began tracking this data in 2006.
We also have a number of longer-term initiatives underway
that are designed to raise awareness about insurance as
an attractive career opportunity, such as Travelers EDGE®,
our signature college-to-career pipeline program. These
initiatives are already working to create a more diverse
pipeline of talent for Travelers and attract a broader group
of individuals to the P&C insurance industry.
Powering all of these efforts is our exceptional
workforce. We start with world-class expertise
in traditional insurance-related disciplines and
enhance that with leading computer data and
industrial engineers, design professionals,
behavioral scientists, AI experts, roboticists,
specialized health care professionals and more.
Our average tenure and voluntary turnover rates
demonstrate the power of our culture and the attachment
our employees have to the organization. We are proud
that the average tenure at Travelers is an impressive 12
years. For our approximately 600 most senior leaders, the
average tenure is more than 20 years. In a competitive labor
market, our two-year average global voluntary turnover rate
is consistent with our turnover rate prior to the pandemic.
While, like many businesses, we experienced elevated
attrition during 2021, our recruiting efforts have been very
successful – we hired more people than we lost. In other
words, more people chose to join Travelers than to leave for
another job elsewhere. We take seriously our responsibility
to make sure that Travelers is an employer of choice for the
best talent in our industry.
Diversity and inclusion have long been business imperatives
for us and are a critical part of our human capital
management strategy. We continue to refine our efforts
and focus on ensuring an equitable and inclusive work
environment for all our employees. Diverse experiences
and viewpoints yield greater insights and better outcomes,
enable new ideas and spark innovation, raise the bar on
both individual and team performance, and sharpen our
Consistent and Successful Long-Term Financial Strategy
Delivers Shareholder Value
It is important to consider our financial results and our
strategic initiatives in the context of what we are ultimately
trying to achieve. At Travelers, our simple and unwavering
mission for creating shareholder value is to:
• Deliver superior returns on equity by leveraging our
competitive advantages;
• Generate earnings and capital substantially in excess of
our growth needs; and
• Thoughtfully rightsize capital and grow book value per
share over time.
The results we deliver are due to our deliberate and
consistent approach to creating shareholder value. We
have been clear for many years that one of our crucial
responsibilities is to produce an appropriate return on
equity for our shareholders. This has meant developing and
executing financial and operational plans consistent with
our goal of achieving superior returns, which we defined
many years ago as a mid-teens core return on equity over
time. We emphasize that the objective is measured over
time because we recognize that the macroeconomic
environment, loss cost trends, weather, and geopolitical and
other factors impact our results from year to year, and that
there are years – or longer periods – and environments in
which a mid-teens return is not attainable. In that regard,
we established the mid-teens goal at a time when the 10-
year Treasury was yielding around 5%, and mid-teens was
simply the quantification of what qualified as an industry-
leading return in that environment. As we have said before,
6
our ability to achieve a mid-teens return over time going
forward will depend on interest rates returning to more
normal levels by historical standards. In any event, we
always seek to deliver industry-leading returns over time.
Adjusted Book Value Per Share1
$75.39 $80.44 $83.36 $87.27
$92.76
$66.41
$70.98
$59.09
$109.76
$99.54
Our 2021 return on equity of 12.7% and core return on
equity of 13.7% again meaningfully exceeded the average
return on equity for the domestic P&C industry of 4.6%,
according to estimates from Conning, a global investment
management firm and insurance research provider.
As shown in the chart below, our return on equity has
significantly outperformed the average return on equity for
the industry in each of the past 10 years.
Importantly, these industry-leading returns on an absolute
basis are even more impressive on a risk-adjusted basis
when you take into account our industry-leading (low)
volatility. The level and consistency of our return on equity
over time reflect the value of our competitive advantages
and the discipline with which we run our business.
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
1 Excludes net unrealized investment gains (losses), net of tax, included
1 Excludes net unrealized investment gains (losses), net of tax, included in
shareholders’ equity.
in shareholders' equity.
During this period, we have also returned a significant
amount of excess capital to our shareholders through
dividends and share repurchases. Over the last decade,
we increased our dividend each year and grew dividends
per share at an average annual rate of approximately 8%.
Dividends Per Share
$2.83
$3.03
$2.38
$2.62
$3.23
$3.37
$3.49
A Balanced Approach to Rightsizing Capital
$2.15
$1.96
$1.79
Our strong and consistent returns over time, together with
our fortress balance sheet, have enabled us to grow both
book value per share and adjusted book value per share at a
compound annual growth rate of 7% over the last 10 years.
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
1 2021 Forecast: © 2022 Conning, Inc. Used with permission. S&P historical data used with permission.
7
s1Return on Equity The Power of Our Diversified Businesses
We engage broadly across nine major lines of insurance through our three business segments. Our portfolio is
balanced across these lines of business and further diversified by geography and customer size and type. Each of our
businesses is high performing and contributed meaningfully to our 2021 performance.
7%
International
15%
Commercial
Property
BUSINESS INSURANCE
20%
Workers Compensation
23%
Commercial
Multi-Peril
$16.1 Billion
17%
General Liability
18%
Commercial
Auto
BOND & SPECIALTY INSURANCE
15%
International
26%
Surety Bond
$3.4 Billion
59%
Management Liability
PERSONAL INSURANCE
5%
International
$12.5 Billion
47%
Automobile
48%
Homeowners
& Other
8
2021 Net Written Premiums
Business Insurance generated segment income of $2.4 billion, its
best result since 2009, and produced an underlying combined ratio
of 91.7%, a more than 3.5-point improvement from 2020 and its
best result since 2007. These results were driven by the successful
execution of our thoughtful and deliberate strategies. Net written
premiums were up 4% to an all-time high of $16.1 billion, led by our
domestic businesses, which delivered record high renewal premium
change of 9.6%, while maintaining historically high retentions and
delivering nearly $2 billion in new business.
Bond & Specialty’s exceptional results continue to be an important
and reliable contributor to the overall performance of our diversified
businesses. Bond & Specialty had another excellent year, posting an
underlying combined ratio of 83.5%. The segment grew net written
premiums by 14% to a record $3.4 billion, including growth in
its international businesses of an impressive 50% and solid growth
in its market-leading domestic surety business. Bond & Specialty’s
strong profitability through the pandemic speaks to our underwriting
excellence and culture of managing for the long term.
Personal Insurance’s strong marketplace execution continued
in 2021, with net written premiums growing 10% to a record
$12.5 billion and policies-in-force achieving record levels in both the
Automobile and Homeowners & Other product lines. Underwriting
results were also solid, particularly in light of difficult and changing
market conditions, as evidenced by a combined ratio of 96.5%. The
second half of the year was challenging, as claim frequency returned
to more normal levels in Automobile, and economic inflation impacted
Automobile and Homeowners. We are confident that we will manage
through these environmental challenges and continue to grow our
book of business at target returns over time.
Notably, since we began our share repurchase program in
2006, we have returned nearly $50 billion of excess capital
to our shareholders, including through nearly $38 billion
of share repurchases, which is well in excess of the market
capitalization of the company at that time. Just by virtue of
our share repurchase program, your percentage ownership
of Travelers increased 5% during 2021 alone. If you owned
Travelers stock when we began our share repurchase program
in 2006, your percentage ownership has increased by nearly
300%. These percentage increases were even higher if you
participated in our dividend reinvestment program.
that we cannot reinvest consistent with our objective of
generating industry-leading returns over time, we will manage
it the same way we have for more than a decade – by
returning it to our shareholders through dividends and share
repurchases. By returning excess capital to our investors, we
give them the ability to allocate their investment dollars as
they see fit, including by investing in companies with different
growth profiles or capital needs, thereby efficiently allocating
capital across the economy. Over time, that efficient
allocation of capital in the marketplace contributes to a
stronger economy.
Our capital management strategy has been an important
driver of shareholder value creation over time. Our first
objective for the capital we generate is to reinvest it in
our business – organically and inorganically – to create
shareholder value. For example, as we continue to grow our
top line, as we have for the past few years, we will retain more
capital to support that growth. Also, we continue to invest in
everything from talent to technology to further our ambitious
innovation agenda and advance our strategic objectives.
Having said that, we are disciplined stewards of our
shareholders’ capital. To the extent that we generate capital
Total Shareholder Return
Ultimately, it is the success of our strategy – with all its
component parts – that drives our total return to shareholders
over time. These unprecedented times are an important
reminder that we have a well-established track record of
managing the company to create value over the long term,
through periods of weather volatility; through anticipated
and unanticipated developments impacting loss trends; and
through both foreseeable and unforeseeable economic cycles
and more extreme economic, geopolitical and other conditions.
With that in mind, the graph below compares our returns since
the 2008 financial crisis to the returns for the Dow 30, the S&P
500 and the S&P 500 Financials.
Total Return to Shareholders
350%
300%
250%
200%
150%
100%
50%
0%
-50%
-100%
Jan. 1,
2008
Dec. 31,
2008
Dec. 31,
2009
Dec. 31,
2010
Dec. 31,
2011
Dec. 31,
2012
Dec. 31,
2013
Dec. 31,
2014
Dec. 31,
2015
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2018
Dec. 31,
2019
Dec. 31,
2020
Dec. 31,
2021
Travelers
Dow 30
S&P 500
S&P 500 Financials
1 Represents the change in stock price plus the cumulative amount of dividends, assuming dividend reinvestment. For each year on the chart, total return
is calculated with January 1, 2008, as the starting point and December 31 of the relevant year as the ending point. © Bloomberg Finance L.P. Used with
permission of Bloomberg.
9
Viewing our performance through this long-term lens, we
a great place to work for our diverse workforce and an
are as confident as ever that executing on our long-term
indispensable partner for our agents and brokers.
financial strategy, managing Travelers with an over-time
discipline and continuing to invest in our competitive
The Travelers Promise is rooted in the same long-term
advantages through our ambitious and focused innovation
thinking that motivates everything we do, and it drives
agenda is the right approach for building on Travelers’
a virtuous cycle in our mission to create long-term
outstanding record.
The Travelers Promise in Action
Travelers’ sustainability – our ability to maintain our
industry-leading position and maximize shareholder value
over the long term – depends on the successful execution
of our financial strategy as I described above. That is the
shareholder value. Only by faithfully keeping the Travelers
Promise will we earn the support of key stakeholders
essential to creating shareholder value. And only by
successfully creating shareholder value will we earn the
resources we need to keep the Travelers Promise. I invite
you to read about the ways in which we are fulfilling the
Travelers Promise on our comprehensive sustainability site:
flywheel that sets everything we do in motion. But it is only
sustainability.travelers.com.
one component of our comprehensive approach to value
creation over time.
Citizen Travelers
Travelers has decided to make civic engagement a
focus across the company. In addition to being a
good corporate citizen, we seek to be a corporation
of good citizens.
The other is our commitment to taking care of the people
we are privileged to serve: our customers, our communities
and our employees. Or, as we refer to it, the Travelers
Promise. We keep this promise in many ways, including
by being there to help our customers recover after a
disaster strikes; by giving them the security they need
to invest in their families and businesses; and by caring
for the communities in which we live and work where we
focus on promoting academic and career success, thriving
neighborhoods and cultural enrichment. All of these
efforts depend on ensuring that Travelers remains both
As a 160-year-old company, the Travelers story is only
possible because freedom, the rule of law and economic
opportunity are foundational to our way of life. We
are conscious of our role in preserving our democratic
tradition, and we take seriously our responsibility to pass it
on to future generations.
That is why, as I previewed in my letter to you last
year, Travelers has decided to make civic engagement
a focus across the company. In addition to being a
good corporate citizen, we seek to be a corporation
of good citizens.
This year, we launched Citizen Travelers, a new, nonpartisan
initiative to empower our employees to take part in the
civic life of their communities. Through Citizen Travelers,
we are supporting and encouraging our employees’
10
participation in local civic institutions and working with
The last couple of years have offered no shortage of
organizations that support an informed electorate. The
challenges within our industry, throughout our country
effort includes everything from personalized reminders to
and around the world. As I write this, Russia’s invasion of
our employees to register to vote for upcoming national
Ukraine has unleashed an unfolding geopolitical crisis and a
and local elections to supporting our colleagues running
humanitarian nightmare. Our thoughts and prayers are with
for, or serving in, elected positions.
Citizen Travelers is about empowering each
person to take up the democratic tools that are
afforded to them as citizens, to step up as leaders
in their communities and to engage in ways that
are constructive and neighborly on the topics that
matter to them.
We are undertaking this initiative because Travelers’ future
depends on a strong, stable, representative democracy,
with predictable and fair outcomes governed by the rule of
law. An informed, invested and involved citizenry makes for
strong communities, a strong economy, a strong workforce
and a strong country. It drives confidence in the market,
lays the foundation for companies to grow and enables
people from all walks of life to invest with confidence in
their own lives and livelihoods.
For these reasons, we seek to encourage our Travelers
colleagues to engage in the essential democratic
institutions that make up the public square. After all, if we
do not actively engage with our democracy, we risk losing
it. Citizen Travelers is about empowering each person to
take up the democratic tools that are afforded to them as
citizens, to step up as leaders in their communities and to
engage in ways that are constructive and neighborly on the
topics that matter to them.
*
*
*
those under siege in Ukraine’s cities, towns and villages, the
millions of refugees seeking life’s most basic necessities and
the loved ones of those who have lost their lives. As always
but especially in times like these, we reflect with gratitude
on our own servicemen and servicewomen in this country
and deployed abroad who sacrifice every day to defend our
freedoms and protect our democratic way of life. We stand
with all those calling for peace and fighting for democracy.
In the face of these serious and evolving challenges, we will
manage our business the same way we have managed for
more than a century and a half: with resolve, commitment
and dedicated service to our customers, distribution
partners, colleagues and communities. Thanks to our 30,000
Travelers employees, I know that we will continue to navigate
with excellence every twist and turn that comes our way.
And as we put another great year of performance in the
books, challenges notwithstanding, I am as confident as ever
about our path forward.
For all this and more, I am enormously grateful – to
my colleagues for their unwavering commitment to all
that we stand for; to our agents and brokers for their
tremendous partnership and friendship; to our customers
and shareholders for their trust and confidence; and to our
Board of Directors for their wisdom and support. It is a
privilege to lead this great company.
Alan D. Schnitzer
Chairman and Chief Executive Officer
11
Deepening Our Community Commitment
The “Taking Care of Our Communities” mural by Connecticut artist Jillian Goeler portrays the many ways we fulfill this key component of the Travelers
Promise – from supporting financial literacy programs for students to building playgrounds with KABOOM! to investing in arts and education initiatives.
In a year during which the pandemic continued to impact our neighbors and partner organizations, Travelers deepened its
commitment to take care of the communities we’re privileged to serve.
In 2021, we dedicated our time, talent and dollars to improve academic and career success, promote economic opportunity,
support culturally enriched communities and more – all through a lens of equity and inclusion.
Championing Innovation
• In 2021, Travelers took our support for entrepreneurs a step
further, partnering with Village Capital, Black Innovation
Alliance and other corporate funders to form Resource, an
initiative to equip founders of color with the training and
networking opportunities they need to get their great ideas
off the ground.
• Through our partnership with the Institute for Veterans and
Military Families, we also harnessed our employees’ financial
and strategic expertise to support more than 500 veteran-
owned small businesses.
12
Deepening our Community Commitment
Educating Tomorrow’s Workforce
• In 2021, we funded $5.4 million in educational initiatives, and Travelers
employees logged thousands of volunteer hours supporting and mentoring
students as they faced remote learning challenges.
• We partnered with Junior Achievement to support financial literacy
programs for young people and participated in career fairs to promote
student awareness of the insurance industry.
• We continued to invest in Travelers EDGE® (Empowering Dreams for
Graduation and Employment), our talent pipeline, which has empowered
hundreds of students from historically underrepresented backgrounds to
pursue higher education and careers in financial services.
Filling the Gap
• With our Hartford, Connecticut, offices still quiet for much of
the year, we continued using our kitchens to provide meals for
neighbors in need. We also helped local nonprofits feed vulnerable
families and shelter residents, preparing and delivering more than
85,000 meals in 2021.
• While theaters and stages in our area went dark during the
pandemic, we stepped up to support artists and performers,
providing $3.4 million in critical financial support to arts
organizations to make sure their curtains rose again.
Rebuilding with Resilience
• Since we began our title sponsorship of the Travelers Championship
in 2007, we have raised nearly $23 million for more than 800 worthy
nonprofit organizations, including our primary beneficiary, The Hole
in the Wall Gang Camp.
• The Hole in the Wall Gang Camp, which was founded by actor
Paul Newman, offers a respite for families of children with serious
illnesses. Its summer camp and year-round outreach programs
provide a place where kids just get to be kids – all with the best care
and free of charge. After a fire destroyed the camp’s main complex
in 2021, Travelers and the Travelers Championship announced an
ambitious match program that raised $2 million in a single week to
rebuild this community.
13
Our Climate Strategy in Action
Climate is core to our business. As an insurance company with property casualty operations, we’ve cultivated a deep
understanding of climate trends and their impact on our operations, customers and communities. Our comprehensive
climate strategy is rooted in the same long-term thinking that drives all aspects of our business. This encompasses everything
from considering climate risks in our underwriting, pricing and investment decisions, to offering products and services
that incentivize environmentally responsible behavior, to educating customers about disaster resiliency and mitigation, to
shrinking our own carbon footprint. It’s one more way we work to support our customers, our communities and our planet,
while creating long-term value for our shareholders.
To learn more about our climate strategy, we invite you to visit sustainability.travelers.com, which includes our robust annual
reports consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
This year, we’re shining a spotlight on how we approach climate risks in our underwriting and investment processes.
Mitigating Climate Risk in Our Underwriting Decisions
Understanding climate-related effects on weather perils is
central to our underwriting process. At Travelers, we combine
cutting-edge technology with more than a century of expertise
in catastrophe underwriting to inform a thoughtful approach
to evolving climate threats.
We continue to invest in technology and climate research,
constantly improving our understanding and developing
additional climate-related evaluation tools. Looking to the
future, our efforts leave us well positioned to continue
delivering industry-leading returns in the face of changing
climate conditions.
Our teams of data scientists, meteorologists, geophysicists
and environmental engineers give us industry-leading
insights into severe weather events and the longer-
term effects of a changing climate. In addition, we
use proprietary, industry-specific questionnaires and
sophisticated climate models to help us identify and
incorporate environmental risks into our underwriting,
pricing and reinsurance decisions.
While we take a long-term view when it comes to climate,
we’re also able to mitigate our exposure to climate
trends through short-term tactical adjustments to our
underwriting strategy, product pricing, and policy terms
and conditions. Importantly, because we generally write
one-year insurance policies, we are able to make such
adjustments on a regular basis.
Our approach to managing changing climate conditions
has proven effective; over the past five years, our share
of property casualty losses relative to total domestic P&C
industry losses has declined significantly compared with the
five years prior to that and has been meaningfully lower than
our corresponding market share.
Incorporating Climate Considerations into
Our Investment Processes
The primary purpose of our investment portfolio is to enable
us to fulfill our promise to our customers and fund the
payment of future claims; accordingly, we employ a thoughtful
investment philosophy that is focused on appropriate risk-
adjusted returns and credit quality. We approach the impact
of climate on our portfolio with the same critical eye and long-
term focus that we bring to all investment risks.
At Travelers, as of December 31, 2021, 93% of our investment
portfolio is in highly rated, fixed income securities, with a
weighted average effective duration of 4.2. The credit ratings
and price of those investments reflect the risk associated with
climate trends, which manifest over many decades. Further,
the relatively short average maturity and liquidity of our fixed
income investment portfolio allow the portfolio to be adjusted
as trends evolve over time.
In addition, our Investment Policy requires that Travelers
consider environmental, social and governance (ESG) factors
in our investment process to the extent relevant. We have
assigned internally developed ESG scores to all issuers in our
14
14
fixed income portfolio, and, based on our analysis of these
scores and other factors, we exclude potential investments that
we believe would not appropriately compensate us for the risks
we would be assuming.
To the extent that we have existing underwriting relationships
that exceed these thresholds, we have committed to phasing
them out by 2030.
Similarly, we will not make new investments in:
• Companies that receive more than 30% of their revenues
from thermal coal mining;
• Electric utilities that generate more than 30% of their
electricity from coal; or
• Companies holding more than 30% of their reserves
in tar sands.
We will also phase out publicly traded investments that exceed
these thresholds as such investments mature.
*
*
*
Through careful underwriting and conscientious investing,
we will continue to anticipate the challenges posed by a
changing climate, to help our customers and communities
build resilience, and to do our part as the economy transitions
toward a lower carbon future.
Our responsible investing strategy enables us to do well while
also doing good, supporting financially sound projects with
environmental and societal benefits. As of December 31, 2021,
over 45% of our fixed income portfolio is invested in municipal
bonds, which enables us to provide significant funding for
projects that mitigate pollution, provide safe drinking water,
promote conservation, respond to changing climate conditions
and more. Additionally, at December 31, 2021, we owned
almost $2.4 billion of “green bonds” and an additional
$0.2 billion of “sustainability bonds” and “sustainability-linked
bonds” (as classified by Bloomberg).
Our New Coal/Tar Sands Policy
We have recently published a policy pursuant to which we will
not provide insurance for the construction and operation of
any new coal-fired plants. Neither will we underwrite new risks
for companies that:
• Generate more than 30% of their revenues from thermal
coal mining;
• Generate more than 30% of their energy production from
coal; or
• Hold more than 30% of their reserves in tar sands.
15
15
Taking Care of Our Employees
F I N A N C I A L S E C U R I T Y
$116,000*
median pay
for full-time U.S.
employees, who
comprise over 90% of
our U.S. workforce, putting us in the top
quartile for employee pay in the S&P 500
$599 million spent in 2021 to provide
our employees with security in
their retirement through an active
defined benefit pension plan and
401(k) savings plan
$18/hr**
minimum wage in
the United States
$1.9 million spent in 2021
to match student loan payments with
401(k) contributions for 750+ employees
through The Travelers Paying It Forward
Savings Program
D I V E R S I T Y & I N C L U S I O N
54% women and
25% people of
color in our U.S. workforce
12,000+
employees – nearly 40%
of our employee population
– are members of one or
more of our eight Diversity
Networks
In each of the last 10 years, in
our U.S. operations, we have
increased the percentage
of people of color in our
workforce and have increased
the percentage of women and people
of color in management-level positions
24,000
views
of our Diversity Speaks
events in 2021
* Based on the median of the annual total compensation of full-time employees (other than the CEO) in the United States
as reported in our 2022 Proxy Statement.
16
** As of April 1, 2022.
H E A LT H & W E L L N E S S
51,000
individuals covered
by our medical plans
$220 million paid in
2021 in medical-related costs on
behalf of our employees, retirees
and dependents
24/7 access to Life Balance,
our employee assistance program, which
includes professional counseling services,
life coaching, personalized mentoring and
support resources
12,000+
employees enrolled
in our myWellness platform
We use a tiered cost-sharing model
to subsidize health benefits: Higher-paid
employees pay ~50% of their health care costs,
while our lowest-paid employees pay ~20%
T E N U R E & T U R N O V E R
12 years
average tenure
20+ years
average tenure for our
approximately
600 most senior
leaders
8% average voluntary employee
turnover rate over the past
three years
Our average tenure and voluntary turnover rates demonstrate the power
of our culture and the attachment our employees have to the organization.
17
Management
Alan D. Schnitzer*+
Chairman and
Chief Executive Officer
Scott C. Belden+
Senior Vice President,
Reinsurance
D. Keith Bell
Senior Vice President,
Accounting Standards
Andy F. Bessette*+
Executive Vice President and
Chief Administrative Officer
Lisa M. Caputo*+
Executive Vice President,
Marketing, Communications
and Customer Experience
Claudiu L. Coltea+
Senior Vice President,
Enterprise Customer
Experience
Susanne M. Figueredo+
Senior Vice President,
Enterprise Operations
James L. Forshey+
Senior Vice President,
Field Management, Bond &
Specialty Insurance
Daniel S. Frey*+
Executive Vice President and
Chief Financial Officer
Patrick C. Gee+
Senior Vice President, Claim
Personal Insurance
Myles P. Gibbons+
Senior Vice President and
President, Commercial
Accounts Group, and
Chief Underwriting Officer,
Middle Market
Abbe F. Goldstein+
Senior Vice President,
Investor Relations
18
Pete Heard*+
Executive Vice President,
Enterprise Distribution
Patrick L. Linehan+
Senior Vice President,
Corporate Communications
Scott W. Rynda
Senior Vice President,
Corporate Tax
William H. Heyman*+
Vice Chairman and Chairman
of the Investment Policy
Committee
Scott F. Higgins*+
Executive Vice President and
President, Middle Market,
National Property and Business
Insurance Field
Bruce R. Jones*+
Executive Vice President,
Enterprise Risk Management
and Chief Risk Officer
Julie M. Joyce+
Senior Vice President and
Chief Corporate Actuary
Christine K. Kalla*+
Executive Vice President and
General Counsel
Patrick F. Keegan Jr.*+
Executive Vice President and
Enterprise Chief Underwriting
Officer
Avrohom J. Kess*+
Vice Chairman and
Chief Legal Officer
William C. Malugen Jr.*+
Executive Vice President and
President, National Accounts
Mano Mannoochahr+
Senior Vice President and
Chief Data and Analytics
Officer
Lisa Morgan+
Senior Vice President and
President, Construction,
Energy and Marine
Peter Schwartz
Senior Vice President and
Group General Counsel,
Corporate Litigation
Nicholas Seminara*+
Executive Vice President and
Chief Claim Officer
Wendy C. Skjerven
Vice President, Corporate
Secretary and Group
General Counsel
Eric M. Nelson+
Senior Vice President,
Catastrophe Risk Management
Kevin C. Smith*+
Executive Vice President and
Chief Innovation Officer
Eric Nordquist*+
Executive Vice President and
President, Small Commercial
& Business Insurance
Business Centers
Maria Olivo*+
Executive Vice President,
Strategic Development, and
President, International
Sean A. Ramalho+
Senior Vice President,
Strategic Execution
Michael F. Klein*+
Executive Vice President and
President, Personal Insurance
Brian P. Reilly
Senior Vice President and
Chief Auditor
Jeffrey P. Klenk*+
Executive Vice President and
President, Bond & Specialty
Insurance
Diane Kurtzman*+
Executive Vice President and
Chief Human Resources Officer
Mojgan M. Lefebvre*+
Executive Vice President and
Chief Technology & Operations
Officer
Timothy D. Rogers+
Senior Vice President,
Chief Financial Officer and
Chief Operating Officer,
Business Insurance
David D. Rowland*+
Executive Vice President and
Co-Chief Investment Officer
Douglas K. Russell+
Senior Vice President,
Corporate Controller and
Treasurer
Gregory C. Toczydlowski*+
Executive Vice President and
President, Business Insurance
Glenn E. Westrick
Senior Vice President,
Government Relations
Mary O. Woods+
Senior Vice President and
Chief Underwriting Officer,
Business Insurance
Joan K. Woodward*+
Executive Vice President,
Public Policy, and President,
The Travelers Institute
Daniel T. H. Yin*+
Executive Vice President and
Co-Chief Investment Officer
William J. Zielinski+
Senior Vice President,
Product Management,
Personal Insurance
* Management Committee Member
+ Operating Committee Member
Board of Directors
Alan L. Beller
Senior Counsel
Cleary Gottlieb Steen &
Hamilton LLP
Director since 2007
Janet M. Dolan
President
Act 3 Enterprises, LLC
Retired President and CEO
Tennant Company
Director since 2001
Patricia L. Higgins
Retired President and CEO
Switch and Data Facilities, Inc.
Director since 2007
William J. Kane
Retired Audit Partner
Ernst & Young
Director since 2012
Thomas B. Leonardi
Retired Executive Vice President
American International Group,
Inc. and Vice Chairman of
AIG Life Holdings, Inc.
Director since 2021
Clarence Otis Jr.
Retired Chairman and CEO
Darden Restaurants, Inc.
Director since 2017
Elizabeth E. Robinson
Retired Global Treasurer
The Goldman Sachs Group, Inc.
Director since 2020
Philip T. Ruegger III
Retired Chairman
Simpson Thacher &
Bartlett LLP
Director since 2014
Rafael Santana
President and CEO
Westinghouse Air Brake
Technologies Corporation
Director since 2022
Todd C. Schermerhorn*
Retired Senior Vice President
and CFO
C. R. Bard, Inc.
Director since 2016
Alan D. Schnitzer
Chairman and CEO
Travelers
Director since 2015
*Independent Lead Director
Laurie J. Thomsen
Retired Partner and
Co-Founder
Prism Venture Partners
Director since 2004
Bridget A. van Kralingen
Retired Senior Vice President
IBM
Director since 2022
Board Committees
Audit
Compensation
Executive
Investment and
Capital Markets
Nominating and
Governance
Risk
Kane (Chair)
Beller
Higgins
Schermerhorn
Thomsen
van Kralingen
Otis (Chair)
Dolan
Leonardi
Robinson
Ruegger
Santana
Schnitzer (Chair)
Dolan
Kane
Otis
Ruegger
Schermerhorn
Dolan (Chair)
Leonardi
Otis
Robinson
Ruegger
Santana
Ruegger (Chair)
Dolan
Leonardi
Otis
Robinson
Santana
Schermerhorn (Chair)
Beller
Higgins
Kane
Thomsen
van Kralingen
19
Form 10-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________________
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
________________________________________________
Commission file number 001-10898
________________________________________________
The Travelers Companies, Inc.
(Exact name of registrant as specified in its charter)
_________________________________________________________________
Minnesota
(State or other jurisdiction of
incorporation or organization)
41-0518860
(I.R.S. Employer
Identification No.)
______________________________________________________________________________
485 Lexington Avenue
New York, NY 10017
(Address of principal executive offices) (Zip code)
(917) 778-6000
(Registrant’s telephone number, including area code)
______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, without par value
Trading Symbol(s)
TRV
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes x No
¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Act:
Large accelerated filer
Accelerated filer
x
¨
Non-accelerated filer
¨
Smaller reporting company
Emerging growth company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
As of June 30, 2021, the aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates was
$37,239,472,474.
As of February 14, 2022, 241,500,732 shares of the registrant's common stock (without par value) were outstanding.
Portions of the Registrant's Proxy Statement relating to the 2022 Annual Meeting of Shareholders are incorporated by reference into
Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
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The Travelers Companies, Inc.
Annual Report on Form 10-K
For Fiscal Year Ended December 31, 2021
TABLE OF CONTENTS
Item Number
Part I
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
13.
14.
15.
16.
Business ........................................................................................................................................................
Risk Factors ..................................................................................................................................................
Unresolved Staff Comments.........................................................................................................................
Properties ......................................................................................................................................................
Legal Proceedings.........................................................................................................................................
Mine Safety Disclosures ...............................................................................................................................
Part II
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities ...................................................................................................................................................
Reserved .......................................................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations .......................
Quantitative and Qualitative Disclosures About Market Risk......................................................................
Financial Statements and Supplementary Data ............................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................
Controls and Procedures ...............................................................................................................................
Other Information .........................................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections..........................................................
Part III
Directors, Executive Officers and Corporate Governance ...........................................................................
Executive Compensation ..............................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ....
Certain Relationships and Related Transactions, and Director Independence .............................................
Principal Accountant Fees and Services.......................................................................................................
Part IV
Exhibits and Financial Statement Schedules ................................................................................................
Form 10-K Summary....................................................................................................................................
Signatures .....................................................................................................................................................
Page
3
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PART I
Item 1. BUSINESS
The Travelers Companies, Inc. (together with its consolidated subsidiaries, the Company) is a holding company principally
engaged, through its subsidiaries, in providing a wide range of commercial and personal property and casualty insurance
products and services to businesses, government units, associations and individuals. The Company is incorporated as a general
business corporation under the laws of the State of Minnesota and is one of the oldest insurance organizations in the United
States, dating back to 1853. The principal executive offices of the Company are located at 485 Lexington Avenue, New York,
New York 10017, and its telephone number is (917) 778-6000. The Company also maintains executive offices in Hartford,
Connecticut, and St. Paul, Minnesota. The term “TRV” in this document refers to The Travelers Companies, Inc., the parent
holding company excluding subsidiaries.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
The property and casualty insurance industry is highly competitive in the areas of price, service, product offerings, agent and
broker relationships and other methods of distribution. Distribution methods include the use of local and national independent
agents and brokers, agency aggregators and carrier-based agencies, as well as direct to consumer, affinity and other partner
According to A.M. Best, there are approximately 1,100 property and casualty groups in the United States,
platforms.
comprising approximately 2,600 property and casualty companies. Of those groups, the top 150 accounted for approximately
94% of the consolidated industry’s total net written premiums in 2020. The Company competes with both foreign and domestic
insurers. In addition, some property and casualty insurers writing commercial lines of business, including the Company, offer
products for alternative forms of risk protection in addition to traditional insurance products. These products include large
deductible programs and various forms of self-insurance, some of which utilize captive insurance companies and risk retention
groups. The Company’s competitive position in the marketplace is based on many factors, including the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ability to profitably price business, retain existing customers and obtain new business;
premiums charged, contract terms and conditions, products and services offered (including the ability to design
customized programs);
agent, broker and policyholder relationships;
ability to keep pace relative to competitors with changes in technology and information systems;
ability to use data and analytics to make decisions;
speed of claims payment;
ability to provide a positive customer experience;
ability to provide products and services in a cost effective manner;
ability to provide new products and services to meet changing customer needs;
ability to adapt to changes in business models, technology, customer preferences or regulation impacting the markets
in which the Company operates;
perceived overall financial strength and corresponding ratings assigned by independent rating agencies;
ability to recruit and retain qualified employees;
geographic scope of business; and
local presence.
In addition, the marketplace is affected by the available capacity of the insurance industry, as measured by statutory capital and
surplus, and the availability of reinsurance from both traditional sources, such as reinsurance companies and capital markets
(through catastrophe bonds), and non-traditional sources, such as hedge funds and pension plans.
Industry capacity as
measured by statutory capital and surplus expands and contracts primarily in conjunction with profit levels generated by the
industry, less amounts returned to shareholders through dividends and share repurchases. Capital raised by debt and equity
offerings may also increase statutory capital and surplus.
Pricing and Underwriting
Pricing of the Company’s property and casualty insurance products is generally developed based upon an estimation of
expected losses, the expenses associated with producing, issuing and servicing business and managing claims, the time value of
money related to the expected loss and expense cash flows, and a reasonable profit margin that considers the capital needed to
support the Company’s business. The Company has a disciplined approach to underwriting and risk management that
returns and profitable growth over the long-term rather than premium volume or market share. The
emphasizes product
Company’s insurance subsidiaries are subject to state laws and regulations regarding rate and policy form approvals. The
applicable state laws and regulations establish standards in certain lines of business to ensure that rates are not excessive,
inadequate, unfairly discriminatory, or used to engage in unfair price competition. The Company’s ability to increase rates and
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the relative timing of the process are dependent upon each respective state’s requirements, as well as the competitive market
environment.
Geographic Distribution
The following table shows the geographic distribution of the Company’s consolidated direct written premiums for the year
ended December 31, 2021:
Location
Domestic:
California............................................................................................................................................................
New York ...........................................................................................................................................................
Texas ..................................................................................................................................................................
Pennsylvania.......................................................................................................................................................
Florida ................................................................................................................................................................
Illinois.................................................................................................................................................................
New Jersey .........................................................................................................................................................
Georgia ...............................................................................................................................................................
Massachusetts.....................................................................................................................................................
All other domestic (1) ..........................................................................................................................................
Total Domestic...............................................................................................................................................
International:
Canada ................................................................................................................................................................
All other international ........................................................................................................................................
Total International..........................................................................................................................................
Consolidated total ..........................................................................................................................................
% of
Total
10.5 %
8.8
8.0
4.2
4.1
3.8
3.8
3.7
3.0
43.6
93.5
3.8
2.7
6.5
100.0 %
___________________________________________
(1)
No other single state accounted for 3.0% or more of the Company’s consolidated direct written premiums written in 2021.
Catastrophe Exposure
The Company’s property and casualty insurance operations expose it to claims arising out of catastrophes. The Company uses
various analyses and methods, including proprietary and third-party modeling processes, to monitor and analyze underwriting
risks of business in natural catastrophe-prone areas and target risk areas for conventional terrorist attacks (defined as attacks
other than nuclear, biological, chemical or radiological events). The Company relies, in part, upon these analyses to make
underwriting decisions designed to manage its exposure on catastrophe-exposed business. For example, as a result of these
analyses, the Company has at various times limited the writing of new property and homeowners business in some markets and
has selectively taken underwriting actions on new and existing business. These underwriting actions on new and existing
business include tightening underwriting standards, selective price increases and changes to policy terms specific to hurricane-,
tornado-, wind-, wildfire- and hail-prone areas. See “Item 7—Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Catastrophe Modeling” and “—Changing Climate Conditions.” The Company also utilizes
reinsurance to manage its aggregate exposures to catastrophes. See “—Reinsurance.”
BUSINESS INSURANCE
Business Insurance offers a broad array of property and casualty insurance products and services to its customers, primarily in
the United States, as well as in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world as
a corporate member of Lloyd’s. Business Insurance is organized as follows:
Domestic
•
Select Accounts provides small businesses with property and casualty insurance products and services, including
commercial multi-peril, workers’ compensation, commercial automobile, general liability and commercial property.
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• Middle Market provides mid-sized businesses with property and casualty insurance products and services, including
workers’ compensation, general liability, commercial multi-peril, commercial automobile and commercial property, as
well as risk management, claims handling and other services. Middle Market generally provides these products to
mid-sized businesses through Commercial Accounts, as well as to targeted industries through Construction,
Technology, Public Sector Services and Oil & Gas, and additionally, provides mono-line umbrella and excess
coverage insurance through Excess Casualty. Middle Market also provides insurance for goods in transit and movable
objects, as well as builders’ risk insurance, through Inland Marine; insurance for the marine transportation industry
and related services, as well as other businesses involved in international
through Ocean Marine; and
comprehensive breakdown for equipment, including property and business interruption, through Boiler & Machinery.
trade,
•
•
National Accounts provides large companies with casualty insurance products and services, including workers’
compensation, commercial automobile and general liability, generally utilizing loss-sensitive products, on both a
bundled and unbundled basis, as well as risk management, claims administration and other insurance-related services.
National Accounts also includes the Company’s commercial residual market business, which primarily offers workers’
compensation claims, policy management and other administrative services related to the involuntary market.
National Property and Other provides traditional and customized commercial property insurance programs to large
and mid-sized customers through National Property. National Property and Other also provides insurance coverage
for the commercial
trucking industry through Northland Transportation and serves small- to medium-sized
agricultural businesses, including farms, ranches and other agricultural-related operations through Agribusiness.
National Property and Other also includes commercial property and general liability policies for small, difficult-to-
place specialty classes of commercial business, primarily on an excess and surplus lines basis through Northfield, and
also offers tailored property and casualty insurance programs on an admitted basis for customers with common risk
characteristics or coverage requirements through National Programs.
International
•
International, through operations in Canada, the United Kingdom and the Republic of Ireland, provides property and
casualty insurance products and services to several customer groups, including, among others, those in the technology,
manufacturing and public services industry sectors. International also provides insurance for both the foreign
exposures of United States organizations and the United States exposures of foreign organizations, in each case
through Global Services. At its Lloyd’s syndicate (Syndicate 5000), for which the Company provides 100% of the
capital, International underwrites six principal businesses—international marine, retail marine, global property,
construction & special risks, energy and aviation.
Business Insurance also includes Simply Business, a leading provider of small business insurance policies primarily in the
United Kingdom, and Business Insurance Other, which primarily comprises the Company’s asbestos and environmental
liabilities, and the assumed reinsurance and certain other runoff operations.
Selected Market and Product Information
The following table sets forth Business Insurance’s net written premiums by market and product line for the periods indicated.
For a description of the markets and product lines referred to in the table, see “—Principal Markets and Methods of
Distribution” and “—Product Lines,” respectively.
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(for the year ended December 31, in millions)
By market:
Domestic:
Select Accounts............................................................... $
Middle Market.................................................................
National Accounts...........................................................
National Property and Other ...........................................
Total Domestic ...........................................................
International.........................................................................
Total Business Insurance by market....................... $
By product line:
Domestic:
Workers’ compensation .................................................. $
Commercial automobile..................................................
Commercial property ......................................................
General liability...............................................................
Commercial multi-peril...................................................
Other ...............................................................................
Total Domestic ...........................................................
International.........................................................................
Total Business Insurance by product line .............. $
Principal Markets and Methods of Distribution
2021
2020
2019
% of Total
2021
2,833
8,933
987
2,265
15,018
1,074
16,092
3,175
2,898
2,408
2,699
3,768
70
15,018
1,074
16,092
$
$
$
$
2,821
8,511
996
2,086
14,414
1,017
15,431
3,349
2,790
2,163
2,447
3,608
57
14,414
1,017
15,431
$
$
$
$
2,911
8,630
1,051
1,965
14,557
1,072
15,629
3,806
2,736
2,014
2,416
3,542
43
14,557
1,072
15,629
17.6 %
55.5
6.1
14.1
93.3
6.7
100.0 %
19.7 %
18.0
15.0
16.8
23.4
0.4
93.3
6.7
100.0 %
Business Insurance markets and distributes products through thousands of independent agencies and brokers. Agencies and
brokers are serviced by 89 field offices and supported by customer service centers where the Company performs services for
agents for a fee and centralized business centers where the Company processes new and renewal business that meet certain
underwriting criteria.
In selecting new
Business Insurance builds relationships with well-established, independent insurance agencies and brokers.
independent agencies and brokers to distribute its products, Business Insurance considers, among other attributes, each agency’s
or broker’s financial strength, staff experience and strategic fit with the Company’s operating and marketing plans. Once an
agency or broker is appointed, Business Insurance regularly monitors its performance. The majority of products offered in the
United States are distributed through independent agents and brokers, many of whom also sell the Company’s Personal
Insurance and Bond & Specialty Insurance products. Business Insurance continues to make significant investments to enable
real-time interface capabilities with its independent agencies and brokers.
Domestic
•
Select Accounts markets and distributes products and services to small businesses, generally with fewer than 50
employees, through a large network of independent agents and brokers. Products offered by Select Accounts are
guaranteed-cost policies, including packaged products covering property and liability exposures. Each small business risk
is independently evaluated via an automated underwriting platform which in turn enables agents to quote, bind and issue a
substantial amount of new small business risks in an efficient manner. Risks with more complex characteristics are
underwritten with the assistance of Company personnel.
• Middle Market markets and distributes products and services primarily to mid-sized businesses with 50 to 1,000
employees through a large network of independent agents and brokers. The Company offers a full line of products to its
Middle Market customers with an emphasis on guaranteed-cost programs. Each account is underwritten based on the
unique risk characteristics, loss history and coverage needs of the account. The ability to underwrite at this detailed level
allows Middle Market to have a broad risk appetite and a diversified customer base. Within Middle Market, products and
services are tailored to certain targeted industry segments of significant size and complexity that require unique
underwriting, claims handling services, risk management or other insurance-related products and services.
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•
•
National Accounts markets and distributes products and services to large companies through a network of national and
regional brokers. Products offered by National Accounts are primarily casualty programs that utilize loss-sensitive
products, such as large deductible, and to a lesser extent, retrospectively rated insurance and self-insured retention plans.
National Accounts also offers insurance-related services, such as claims administration, risk management, loss control and
risk management information services through Constitution State Services LLC, a wholly-owned subsidiary of the
Company.
The commercial residual market business of National Accounts services approximately 38% of the total
workers’ compensation assigned risk market, making the Company one of the largest servicing carriers in the industry.
National Property and Other markets and distributes products and services to a wide customer base, providing
traditional and customized insurance programs to a broad range of customer sizes through a large network of agents and
brokers. National Property and Other also provides insurance coverage to the excess and surplus lines market, which is
characterized by the absence of regulation related to rate and form, and allows for more pricing and coverage flexibility to
write certain classes of business. In working with agents or program managers on a brokerage basis, National Property
and Other underwrites the business internally and sets the premium level. In working with agents or program managers
with delegated underwriting authority, the agents produce and underwrite business subject to pricing and underwriting
guidelines that have been specifically designed for each facility or program.
International markets and distributes products and services principally through brokers in each of the countries in which it
operates. International also writes business at Lloyd’s, where its products are distributed through Lloyd’s wholesale and retail
brokers. By virtue of Lloyd’s worldwide licenses, Business Insurance has access to international markets across the world.
Pricing and Underwriting
Business Insurance utilizes underwriting, claims, engineering, actuarial and product development disciplines for particular
industries, together with extensive amounts of proprietary data gathered and analyzed over many years, as well as third-party
data, to facilitate its risk selection process and develop pricing parameters. Business Insurance utilizes both proprietary forms
and standard industry forms for the insurance policies it issues.
A portion of business in this segment, particularly in National Accounts and Construction, is written with large deductible
insurance policies. Under workers’ compensation insurance contracts with large deductible features, the Company is obligated
to pay the claimant the full amount of the claim. The Company is subsequently reimbursed by the contractholder for the
deductible amount and, as a result, is subject to credit risk until such reimbursement is made. At December 31, 2021,
contractholder payables on unpaid losses within the deductible layer of large deductible policies were approximately $3.91
billion, and the associated receivables (net of allowance for expected credit losses) were approximately $3.89 billion. Business
Insurance also utilizes retrospectively rated policies for a portion of its business, primarily for workers’ compensation
coverage. Although the retrospectively rated feature of the policy substantially reduces insurance risk for the Company, it
introduces additional credit risk to the Company. Premiums receivable from holders of retrospectively rated policies totaled
approximately $66 million at December 31, 2021. Significant collateral, primarily letters of credit and, to a lesser extent, cash
collateral, trusts or surety bonds, is generally obtained for large deductible plans and/or retrospectively rated policies that
provide for deferred collection of deductible recoveries and/or ultimate premiums. The amount of collateral requested is based
upon the creditworthiness of the customer and the nature of the insured risks. Business Insurance regularly monitors the credit
exposure on individual accounts and the adequacy of collateral. For additional information concerning credit risk in certain of
the Company’s businesses, see “Item 1A—Risk Factors—We are exposed to credit risk in certain of our insurance operations
and with respect to certain guarantee or indemnification arrangements that we have with third parties.”
Product Lines
Business Insurance provides the following types of products and services:
Domestic
• Workers’ Compensation. Provides coverage for employers for specified benefits payable under state or federal law for
workplace injuries to employees. There are typically four types of benefits payable under workers’ compensation policies:
medical benefits, disability benefits, death benefits and vocational rehabilitation benefits. The Company emphasizes
managed care cost containment strategies, which involve employers, employees and care providers in a collaborative
effort that focuses on the injured employee’s early return to work and cost-effective quality care. The Company offers the
following types of workers’ compensation products:
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•
•
•
guaranteed-cost insurance products, where the premiums charged are not adjusted for actual loss experience during
the covered period;
loss-sensitive insurance products, including large deductible and retrospectively rated policies, where fees or
premiums are adjusted based on actual loss experience of the insured during the policy period; and
service programs, which are generally sold to the Company’s National Accounts customers, where the Company
receives fees rather than premiums for providing insurance-related services, such as risk management, claims
administration, loss control and risk management information services.
The Company also participates in state assigned risk pools as a servicing carrier and pool participant.
•
•
Commercial Automobile. Provides coverage for businesses against losses incurred from personal bodily injury, bodily
injury to third parties, property damage to an insured’s vehicle and property damage to other vehicles and other property
resulting from the ownership, maintenance or use of automobiles and trucks in a business.
Commercial Property. Provides coverage for loss of or damage to buildings, inventory and equipment resulting from a
variety of events, including, among others, hurricanes and other windstorms, tornadoes, earthquakes, hail, wildfires,
severe winter weather, floods, volcanic eruptions, tsunamis, theft, vandalism, fires, explosions, terrorism and financial
loss due to business interruption resulting from covered property damage. Commercial property also includes specialized
equipment insurance, which provides coverage for loss or damage resulting from the mechanical breakdown of boilers
and machinery, and ocean and inland marine insurance, which provides coverage for goods in transit and unique, one-of-
a-kind exposures.
• General Liability. Provides coverages for businesses against third-party claims arising from accidents occurring on their
premises or arising out of their operations, including as a result of injuries sustained from products sold. Coverages may
also include directors’ and officers’ liability arising in their official capacities, employment practices liability insurance,
fiduciary liability for trustees and sponsors of pension, health and welfare, and other employee benefit plans, errors and
omissions insurance for employees, agents, professionals and others arising from acts or failures to act under specified
circumstances, cyber liability, as well as umbrella and excess insurance.
•
Commercial Multi-Peril. Provides a combination of the property and liability coverages described in the foregoing
product line descriptions.
International
•
Provides coverage for employers’ liability (similar to workers’ compensation coverage in the United States), public and
product liability (the equivalent of general liability), professional indemnity (similar to professional liability coverage),
commercial property, commercial automobile, marine, aviation, onshore and offshore energy, construction, terrorism,
personal accident and kidnap & ransom. Marine provides coverage for ship hulls, cargoes carried, private yachts, marine-
related liability, ports and terminals, and fine art. Aviation provides coverage for worldwide aviation risks, including
physical damage and liabilities for airline, aerospace, general aviation, aviation war and space risks. Personal accident
provides financial protection in the event of death or disablement due to accidental bodily injury, while kidnap & ransom
provides financial protection against kidnap, hijack, illegal detention and extortion. While the covered hazards may be
similar to those in the U.S. market, the different legal environments can make the product risks and coverage terms very
different from those the Company faces in the United States.
Net Retention Policy Per Risk
The following discussion reflects the Company’s retention policy with respect to Business Insurance as of January 1, 2022. For
third-party liability, Business Insurance generally limits its net retention, through the use of reinsurance, to a maximum of $14.0
million per insured, per occurrence, subject further to a significant aggregate annual deductible. For property exposures,
Business Insurance generally limits its net retention, through the use of reinsurance, to a maximum amount per risk of $20.0
million per occurrence. Business Insurance generally retains its workers' compensation exposures. Reinsurance treaties often
have aggregate limits or caps which may result in larger net per-risk retentions if the aggregate limits or caps are reached.
Business Insurance utilizes facultative reinsurance to provide additional limits capacity or to reduce retentions on an individual
risk basis. Business Insurance may also retain amounts greater than those described herein based upon the individual
characteristics of the risk.
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Geographic Distribution
The following table shows the geographic distribution of Business Insurance’s direct written premiums for the year ended
December 31, 2021:
Location
Domestic:
California............................................................................................................................................................
New York ...........................................................................................................................................................
Texas ..................................................................................................................................................................
Illinois.................................................................................................................................................................
Florida ................................................................................................................................................................
Pennsylvania.......................................................................................................................................................
New Jersey .........................................................................................................................................................
All other domestic (1) ..........................................................................................................................................
Total Domestic...............................................................................................................................................
International:
Canada.................................................................................................................................................................
All other international (1) ....................................................................................................................................
Total International..........................................................................................................................................
Total Business Insurance ...............................................................................................................................
% of Total
12.8 %
8.8
6.9
4.5
4.1
3.8
3.8
49.7
94.4
2.6
3.0
5.6
100.0 %
___________________________________________
(1)
No other single state or country accounted for 3.0% or more of Business Insurance’s direct written premiums in 2021.
Competition
The insurance industry is represented in the commercial marketplace by many insurance companies of varying size as well as
other entities offering risk alternatives, such as self-insured retentions or captive programs. Market competition operates within
the insurance regulatory framework to set the price charged for insurance products and the levels of coverage and service
provided. A company’s success in the competitive commercial insurance landscape is largely measured by its ability to
profitably provide insurance and services, including claims handling and risk management, at prices and terms that retain
existing customers and attract new customers, as well as its financial strength. See “Item 1A—Risk Factors—The intense
competition that we face, and the impact of innovation, technological change and changing customer preferences on the
insurance industry and the markets in which we operate, could harm our ability to maintain or increase our business volumes
and our profitability.”
Domestic
Competitors typically write Select Accounts business through independent agents and brokers and, to a lesser extent, as direct
writers, including through affinity and other partner platforms. Both national (including international companies doing business
in the U.S.) and regional property and casualty insurance companies compete in the Select Accounts market which generally
comprises lower-hazard, “Main Street” business customers. Risks are underwritten and priced using standard industry practices
and a combination of proprietary and standard industry product offerings. Competition in this market is focused on ease and
speed of doing business and price.
Competitors typically write Middle Market business through independent agents and brokers. Several of Middle Market’s
operations require unique combinations of industry knowledge, customized coverage, specialized risk control and loss handling
services, along with partnerships with agents and brokers that also focus on these markets. Competitors in this market are
primarily national property and casualty insurance companies (including international companies doing business in the U.S.)
that write most classes of business using traditional products and pricing, and regional insurance companies. Companies
compete based on product offerings, service levels, price, claim and loss prevention services and ease and speed of doing
business. Efficiency through automation and response time to agent, broker and customer needs is one key to success in this
market.
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In the National Accounts market, competition is based on price, product offerings, claim and loss prevention services, managed
care cost containment, risk management information systems and collateral requirements. National Accounts primarily
competes with national property and casualty insurance companies (including international companies doing business in the
U.S.), as well as with other underwriters of property and casualty insurance in the alternative risk transfer market, such as self-
insurance plans, captives managed by others, third-party administrators and a variety of other risk-financing vehicles and
mechanisms. The residual market division competes for state contracts to provide claims and policy management services.
National Property and Other competes in focused target markets. Each of these markets is different and requires unique
combinations of industry knowledge, customized coverage, specialized risk management and claims handling services, along
with partnerships with agents and brokers that also focus on these markets. Some of these businesses compete with national
carriers (including international companies doing business in the U.S.) with similarly dedicated underwriting and marketing
groups, whereas others compete with smaller regional companies. Specialized agents and brokers, including wholesale agents
and program managers, supplement this focused target market approach. National Property and Other’s competitive strategy
typically is based on the application of focused industry knowledge to insurance and risk needs.
International
International competes with numerous international and domestic insurers in Canada, the United Kingdom and the Republic of
Ireland. Companies compete on the basis of price, product offerings, distribution partnerships, the level of claim and risk
management services provided and the ease and speed of doing business. The Company has developed expertise in various
markets in these countries similar to those served in the United States and provides both property and casualty coverage for
these markets.
At Lloyd’s, International competes with other syndicates operating in the Lloyd’s market as well as international and domestic
insurers in the various markets where the Lloyd’s operation writes business worldwide, with an emphasis on short-tail insurance
lines. Competition is based on price, product and service.
BOND & SPECIALTY INSURANCE
Bond & Specialty Insurance offers surety, fidelity, management liability, professional liability, and other property and casualty
coverages and related risk management services to its customers, primarily in the United States, and certain surety and specialty
insurance products in Canada, the United Kingdom, the Republic of Ireland and Brazil (through a joint venture as described
below), in each case utilizing various degrees of financially-based underwriting approaches. The range of coverages includes
performance, payment and commercial surety bonds for construction and general commercial enterprises; management liability
coverages including directors’ and officers’ liability, employment practices liability, fidelity liability, fiduciary liability and
cyber risk for public corporations, private companies, not-for-profit organizations and financial institutions; professional
liability coverage for a variety of professionals including, among others, lawyers and design professionals; in the United States
only, property, workers’ compensation, auto and general liability for financial institutions; and transactional liability coverages
to public and private companies.
Bond & Specialty Insurance's surety business in Brazil and Colombia is conducted through Junto Holding Brasil S.A. (Junto)
and Junto Holding Latam S.A. in Brazil. The Company owns 49.5% of both Junto, a market leader in surety coverages in
Brazil, and Junto Holding Latam S.A., which owns a majority interest in JMalucelli Travelers Seguros S.A., a Colombian
surety provider. These joint venture investments are accounted for using the equity method and are included in “other
investments” on the consolidated balance sheet.
Selected Product Information
The following table sets forth Bond & Specialty Insurance’s net written premiums by product line for the periods indicated. For
a description of the product lines referred to in the table, see “—Product Lines.” In addition, see “—Principal Markets and
Methods of Distribution” for a discussion of distribution channels for Bond & Specialty Insurance’s product lines.
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(for the year ended December 31, in millions)
Domestic:
2021
2020
2019
Fidelity and surety ............................................................... $
General liability ...................................................................
Other ....................................................................................
Total Domestic................................................................
International ...........................................................................
Total Bond & Specialty Insurance .............................. $
1,123
1,530
218
2,871
505
3,376
$
$
1,072
1,311
231
2,614
337
2,951
$
$
1,089
1,148
234
2,471
268
2,739
% of Total
2021
33.3 %
45.3
6.4
85.0
15.0
100.0 %
Principal Markets and Methods of Distribution
Bond & Specialty Insurance markets and distributes the vast majority of its products in the United States through many of the
same independent agencies and brokers that distribute Business Insurance’s products in the United States. Bond & Specialty
Insurance builds relationships with well-established, independent insurance agencies and brokers. In selecting new independent
agencies and brokers to distribute its products, Bond & Specialty Insurance considers, among other attributes, each agency’s or
broker’s profitability, financial stability, staff experience and strategic fit with its operating and marketing plans. Once an
agency or broker is appointed, its ongoing performance is regularly monitored. Bond & Specialty Insurance continues to make
investments to enable real-time interface capabilities with its independent agencies and brokers.
Pricing and Underwriting
Bond & Specialty Insurance utilizes underwriting, claims, engineering, actuarial and product development disciplines for
specific accounts and industries, together with extensive amounts of proprietary data gathered and analyzed over many years, as
well as third-party data, to facilitate its risk selection process and develop pricing parameters. Bond & Specialty Insurance
utilizes both proprietary forms and standard industry forms for the insurance policies and bonds it issues.
Product Lines
Bond & Specialty Insurance writes the following types of coverages:
Domestic
•
Fidelity and Surety. Provides fidelity insurance coverage, which protects an insured for loss due to embezzlement or
misappropriation of funds by an employee, and surety, which is a three-party agreement whereby the surety company
agrees to pay a third party or complete an obligation in response to the default, acts or omissions of a bonded party.
Surety bonds are generally provided for construction performance; legal matters, such as appeals; trustees in bankruptcy
and probate; and other performance obligations.
• General Liability. Provides coverage for specialized liability exposures as described above in more detail in the
“Business Insurance” section of this report, as well as transactional liability coverages.
• Other. Coverages include Commercial Property, Workers’ Compensation, Commercial Automobile and Commercial
Multi-Peril, which are described above in more detail in the “Business Insurance” section of this report.
International
•
Fidelity and Surety and certain General Liability products are provided internationally to various customer groups.
Net Retention Policy Per Risk
The following discussion reflects the Company’s retention policy with respect to Bond & Specialty Insurance as of January 1,
2022. For management liability coverages, including but not limited to directors’ and officers’ liability, professional liability,
employment practices liability, fidelity liability, fiduciary liability and cyber risk liability, Bond & Specialty Insurance
generally limits net retentions to $25.0 million per policy. For surety, where limits are often significant, Bond & Specialty
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Insurance generally retains up to $122.5 million probable maximum loss (PML) per principal, after reinsurance, but may retain
higher amounts based on the type of obligation, credit quality and other credit risk factors. Reinsurance treaties often have
aggregate limits or caps which may result in larger net per risk retentions if the aggregate limits or caps are reached. Bond &
Specialty Insurance utilizes facultative reinsurance to provide additional limits capacity or to reduce retentions on an individual
risk basis. Bond & Specialty Insurance may also retain amounts greater than those described herein based upon the individual
characteristics of the risk.
Geographic Distribution
The following table shows the geographic distribution of Bond & Specialty Insurance’s direct written premiums for the year
ended December 31, 2021:
Location
Domestic:
% of
Total
California............................................................................................................................................................
10.4 %
New York ...........................................................................................................................................................
Texas ..................................................................................................................................................................
Florida ................................................................................................................................................................
Illinois.................................................................................................................................................................
Pennsylvania.......................................................................................................................................................
Massachusetts.....................................................................................................................................................
All other domestic (1) ..........................................................................................................................................
Total Domestic...............................................................................................................................................
International:
United Kingdom .................................................................................................................................................
Canada ................................................................................................................................................................
All other international (1) ....................................................................................................................................
Total International..........................................................................................................................................
6.6
6.3
4.4
3.7
3.4
3.0
47.6
85.4
7.3
4.3
3.0
14.6
Total Bond & Specialty Insurance.................................................................................................................
100.0 %
___________________________________________
(1)
No other single state or country accounted for 3.0% or more of Bond & Specialty Insurance’s direct written premiums in 2021.
Competition
The competitive landscape in which Bond & Specialty Insurance operates is affected by many of the same factors described
above for Business Insurance. Competitors in this market are primarily national property and casualty insurance companies
(including international companies doing business in the U.S.) that write most classes of business and, to a lesser extent,
regional insurance companies and companies that have developed niche programs for specific industry segments.
Domestic
Bond & Specialty Insurance underwrites and markets its products to all sizes of businesses and other organizations, as well as
individuals. The Company believes that its reputation for timely and consistent decision making and financial stability, a
nationwide network of local underwriting, claims and industry experts and strong producer and customer relationships, as well
as its ability to offer its customers a full range of products and services, provides Bond & Specialty Insurance an advantage over
many of its competitors and enables it to compete effectively in a complex, dynamic marketplace. The Company believes that
the ability of Bond & Specialty Insurance to cross-sell its products to customers of Business Insurance and Personal Insurance
also provides the Company with a competitive advantage. See “Item 1A—Risk Factors—The intense competition that we face,
and the impact of innovation, technological change and changing customer preferences on the insurance industry and the
markets in which we operate, could harm our ability to maintain or increase our business volumes and our profitability.”
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International
International competes with numerous international and domestic insurers in Canada, the United Kingdom, the Republic of
Ireland, and in Brazil and Colombia through joint ventures. Companies compete on the basis of price, product offerings, the
level of claim and risk management services provided, the ease and speed of doing business and stability of the insurer. The
Company has developed expertise in various markets in these countries similar to those served in the United States and
provides certain specialty coverages for these markets.
PERSONAL INSURANCE
Personal Insurance offers a broad range of property and casualty insurance products and services covering individuals’ personal
risks, primarily in the United States, as well as in Canada. The primary products of automobile and homeowners insurance are
complemented by a broad suite of related coverages.
Selected Product and Distribution Channel Information
The following table sets forth net written premiums for Personal Insurance’s business by product line for the periods indicated.
For a description of the product lines referred to in the following table, see “—Product Lines.” In addition, see “—Principal
Markets and Methods of Distribution” for a discussion of distribution channels for Personal Insurance’s product lines.
(for the year ended December 31, in millions)
Domestic:
2021
2020
2019
Automobile................................................................. $
Homeowners and Other..............................................
Total Domestic.......................................................
International ........................................................................
Total Personal Insurance........................................ $
5,827
5,980
11,807
684
12,491
$
$
5,369
5,329
10,698
652
11,350
$
$
5,412
4,664
10,076
707
10,783
% of Total
2021
46.6 %
47.9
94.5
5.5
100.0 %
Principal Markets and Methods of Distribution
Domestic
Personal Insurance products are marketed and distributed primarily through thousands of independent agents and brokers
located throughout the United States, supported by personnel in eight sales regions. In addition, sales and service are provided
to customers through five contact centers. Principal markets for Personal Insurance products are spread throughout the
contiguous United States.
In selecting new independent agencies to distribute its products, Personal Insurance considers, among other attributes, each
agency’s profitability, financial stability, staff experience and strategic fit with its operating and marketing plans. Once an
agency is appointed, Personal Insurance regularly monitors its performance.
Agents can access the Company’s agency service portal for a number of resources including customer service, marketing and
claims management.
In addition, agencies can choose to shift the ongoing service responsibility for Personal Insurance’s
customers to one of the Company’s Customer Care Centers, where the Company provides, on behalf of an agency, a
comprehensive array of customer service needs, including billing inquiries, coverage discussions and account changes.
Approximately two thousand agents take advantage of this service alternative, for which they generally pay a fee.
Personal Insurance also markets and distributes its products directly to consumers, largely through digital marketing, and
additional channels, including corporations that make the Company’s product offerings available to their employees primarily
through payroll deductions, consumer associations and affinity groups. Personal Insurance handles the sales and service for
these programs either through a sponsoring independent agent or through the Company’s contact center locations. Personal
Insurance also markets and distributes its products on other distribution platforms, including carrier partnerships. Since 1995,
the Company has had a distribution agreement with the agency affiliate of GEICO to underwrite a portion of their homeowners
business.
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International
In Canada, the Company markets and distributes its personal insurance products principally through hundreds of brokers
located throughout the country.
Pricing and Underwriting
Personal Insurance has developed a product management methodology that integrates the disciplines of underwriting, claims,
actuarial and product development. This approach is designed to maintain high-quality underwriting discipline and pricing
segmentation. Proprietary and third-party data accumulated over many years is analyzed, and Personal Insurance uses a variety
of risk differentiation models to facilitate its pricing segmentation and underwriting. The Company’s product management area
establishes underwriting guidelines integrated with its filed pricing and rating plans, which enable Personal Insurance to
effectively execute its risk selection and pricing processes.
Domestic
Pricing for personal automobile insurance is driven in large part by changes in the frequency of claims and changes in severity,
including inflation in the cost of automobile replacements and repairs (including parts and labor), medical care and resolution of
liability claims. Pricing in the homeowners business is driven in large part by changes in the frequency of claims and changes
in severity, including inflation in the cost of building supplies, labor and household possessions. In addition to the normal risks
associated with any multiple peril coverage, the profitability and pricing of both homeowners and automobile insurance are
affected by the incidence of catastrophes and other weather-related events, as well as other unusual circumstances, such as the
impact of COVID-19 and related economic conditions. Insurers writing personal lines property and casualty policies may be
unable to change prices until some time after the costs associated with coverage have changed, primarily because of state
insurance rate regulation. The pace at which an insurer can change rates in response to changing costs depends, in part, on
whether the applicable state law requires prior approval of rate changes or notification to the regulator either before or after a
rate change is imposed. In states with prior approval laws, rates must be approved by the regulator before being used by the
insurer. In states having “file-and-use” laws, the insurer must file rate changes with the regulator, but does not need to wait for
approval before using the new rates. A “use-and-file” law requires an insurer to file rates within a period of time after the
insurer begins using the new rate. Approximately one-half of the states require prior approval of most rate changes. In addition,
changes to methods of marketing and underwriting in some jurisdictions are subject to state-imposed restrictions, which can
make it more difficult for an insurer to significantly manage catastrophe exposures.
The Company’s ability or willingness to change prices, modify underwriting terms or reduce exposure to certain geographies
may be limited due to considerations of public policy, the competitive environment, the evolving political and legislative
environment and/or changes in the general economic climate. The Company also may choose to write business it might not
otherwise write in some states for strategic purposes, such as improving access to other commercial or personal underwriting
opportunities. In choosing to write business in some states, the Company also considers the costs and benefits of those states’
residual markets and guaranty funds, as well as other property and casualty business the Company writes in those states.
International
Pricing and underwriting for personal automobile and homeowners insurance in Canada is driven in large part by the same
factors as in the United States. For personal automobile insurance, all provinces in Canada require prior approval before rates
are implemented.
Product Lines
Domestic
The primary coverages in Personal Insurance are personal automobile and homeowners and other insurance sold to individuals.
Personal Insurance had approximately 8.9 million active policies (i.e., policies-in-force) in the United States at December 31,
2021.
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Personal Insurance writes the following types of coverages:
•
Automobile provides coverage for liability to others for both bodily injury and property damage, uninsured motorist
protection, and for physical damage to an insured’s own vehicle from collision, fire, flood, hail and theft.
In addition,
many states require policies to provide first-party personal injury protection, frequently referred to as no-fault coverage.
• Homeowners and Other provides protection against losses to dwellings and contents from a variety of perils (excluding
flooding) as well as coverage for personal
liability. The Company writes homeowners insurance for dwellings,
condominiums and tenants, and rental properties. The Company also writes coverage for boats and yachts, valuable
personal items such as jewelry, umbrella liability, and weddings and special events.
International
•
International provides automobile and homeowners and other coverages in Canada (similar to coverages in the United
States). Personal Insurance had approximately 477,000 active policies in Canada at December 31, 2021.
Net Retention Policy Per Risk
The following discussion reflects the Company’s retention policy with respect to Personal Insurance as of January 1, 2022.
Personal Insurance generally retains its primary personal auto exposures in their entirety. For personal property insurance,
there is an $8.0 million maximum retention per risk, net of reinsurance. Personal Insurance uses facultative reinsurance to
provide additional limits capacity or to reduce retentions on an individual risk basis. Personal Insurance issues umbrella
policies up to a maximum limit of $10.0 million per risk. Personal Insurance may also retain amounts greater than those
described herein based upon the individual characteristics of the risk.
Geographic Distribution
The following table shows the geographic distribution of Personal Insurance’s direct written premiums for the year ended
December 31, 2021:
Location
Domestic:
Texas (1) ..............................................................................................................................................................
New York ...........................................................................................................................................................
California............................................................................................................................................................
Georgia ...............................................................................................................................................................
Pennsylvania.......................................................................................................................................................
New Jersey .........................................................................................................................................................
Florida ................................................................................................................................................................
Virginia...............................................................................................................................................................
Colorado .............................................................................................................................................................
Maryland ............................................................................................................................................................
Massachusetts.....................................................................................................................................................
South Carolina....................................................................................................................................................
All other domestic (2) ..........................................................................................................................................
Total Domestic...............................................................................................................................................
International:
Canada ................................................................................................................................................................
Total International..........................................................................................................................................
% of Total
9.9 %
9.3
7.4
5.4
4.9
4.2
3.9
3.6
3.2
3.2
3.1
3.1
33.4
94.6
5.4
5.4
Total Personal Insurance ...............................................................................................................................
100.0 %
___________________________________________
(1)
The percentage for Texas includes business written by the Company through a fronting agreement with another insurer.
(2)
No other single state accounted for 3.0% or more of Personal Insurance’s direct written premiums in 2021.
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Although national companies (including international companies doing business in the U.S.) write the majority of this business,
Personal Insurance also faces competition from many regional and local companies. Competitors write business in both
traditional and alternative distribution platforms through independent agents and as direct writers, either through the use of
exclusive agents, salaried employees or direct marketing strategies. Personal Insurance primarily competes based on breadth of
product offerings, price, service (including claims handling), ease and speed of doing business, stability of the insurer and name
recognition. Personal Insurance competes for business within each independent agency since these agencies also offer policies
of competing companies. Most independent personal insurance agents utilize price comparison rating technology, sometimes
referred to as “comparative raters,” as a cost-efficient means of obtaining quotes from multiple companies. Because the use of
this technology facilitates the process of generating multiple quotes, the technology has increased price comparison on new and
renewal business.
International
Personal Insurance competes with numerous international and domestic insurers in Canada. Companies compete based on
similar factors to those described above for domestic operations. The Company has developed expertise in various markets in
Canada similar to those served in the United States and provides both automobile and homeowners and other coverages for this
market.
See “Item 1A—Risk Factors—The intense competition that we face, and the impact of innovation, technological change and
changing customer preferences on the insurance industry and the markets in which we operate, could harm our ability to
maintain or increase our business volumes and our profitability.”
CLAIMS MANAGEMENT
The Company’s claim functions are managed through its Claims Services organization, with locations in the United States and
in the other countries where it does business. With approximately 12,000 employees, Claims Services employs a group of
professionals with diverse skills, including claim adjusters, appraisers, attorneys, investigators, engineers, accountants, nurses,
data and analytics professionals, system specialists and training, management and support personnel. Approved external
service providers, such as investigators, attorneys and, when necessary, independent adjusters and appraisers, are available for
use as appropriate.
United States field claim management teams located in 16 claim centers and 55 satellite and specialty-only offices in 41 states
are organized to maintain focus on the specific claim characteristics unique to the businesses within the Company’s business
segments. Claim teams with specialized skills, required licenses, resources and workflows are matched to the unique exposures
of those businesses, with local claims management dedicated to achieving optimal results within each segment, including acting
as a third party administrator for large customers who self-insure and retain the Company to handle their claims process on a
fee-for-service basis. The Company’s home office operations provide additional support in the form of workflow design,
quality management, information technology, advanced management information and data analysis, training, financial reporting
and control, and human resources strategy. This structure permits the Company to maintain the economies of scale of a large,
established company while retaining the agility to respond promptly to the needs of customers, brokers, agents and
underwriters. Claims management for International, while generally provided locally by staff in the respective international
locations due to local knowledge of applicable laws and regulations, is also managed by the Company’s Claims Services
organization in the United States to leverage that knowledge base and to share best practices.
An integral part of the Company’s strategy to benefit customers and shareholders is its continuing industry leadership in the
fight against insurance fraud through its Investigative Services unit. The Company has a nationwide staff of experts who
investigate a wide array of insurance fraud schemes using in-house forensic resources and other technological tools. This staff
also has specialized expertise in fire scene examinations, medical provider fraud schemes, law firm fraud schemes and data
mining. The Company also dedicates investigative resources to ensure that violations of law are reported to and prosecuted by
law enforcement agencies.
Claims Services uses technology, management information and data analysis to assist the Company in reviewing its claim
practices and results in order to evaluate and improve its claims management performance. The Company’s claims-management
strategy is focused on segmentation of claims and appropriate technical specialization to drive effective claim resolution. The
Company regularly monitors its investment in claim resources to maintain an effective focus on claim outcomes and a
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disciplined approach to continual improvement. The Company operates a state-of-the-art claims-training facility which offers
hands-on experiential learning to help ensure that its claim professionals are properly trained. In recent years, the Company has
invested significant additional resources in many of its claims handling operations, including digital, analytics, artificial
intelligence and automation capabilities, and regularly monitors the effect of those investments to ensure a consistent
optimization among outcomes, cost and service.
Claims Services’ catastrophe response strategy is to respond to a significant catastrophic event using its own personnel,
enabling it to minimize reliance on independent adjusters and appraisers. The Company has developed a large dedicated
catastrophe response team and trained a large Enterprise Response Team of existing employees who can be deployed on short
notice in the event of a catastrophe that generates claim volume exceeding the capacity of the dedicated catastrophe response
team.
In recent years, these internal resources were successfully deployed to respond to a significant level of catastrophe
claims.
REINSURANCE
The Company reinsures a portion of the risks it underwrites in order to manage its exposure to losses and to protect its capital.
The Company cedes to reinsurers a portion of these risks and pays premiums based upon the risk and exposure of the policies
subject to such reinsurance. The Company utilizes a variety of reinsurance agreements to manage its exposure to large property
and casualty losses, including facultative as well as catastrophe and individual risk treaties. Ceded reinsurance involves credit
risk, except with regard to mandatory pools and associations, and is predominantly subject to aggregate loss limits. Although
the reinsurer is liable to the Company to the extent of the reinsurance ceded, the Company remains liable as the direct insurer on
all risks reinsured. Reinsurance recoverables are reported after reductions for known insolvencies and after allowances for
uncollectible amounts. The Company also holds collateral, including trust agreements, escrow funds and letters of credit, under
certain reinsurance agreements. The Company monitors the financial condition of reinsurers on a regular basis and reviews its
reinsurance arrangements periodically. Reinsurers are selected based on their financial condition, business practices, the price
of their product offerings and the value of collateral provided. After reinsurance is purchased, the Company has limited ability
to manage the credit risk of a reinsurer.
In addition, in a number of jurisdictions, particularly the European Union and the
United Kingdom and a small number of U.S. states, a reinsurer is permitted to transfer a reinsurance arrangement to another
reinsurer, which may be less creditworthy, without a counterparty’s consent, provided that the transfer has been approved by
the applicable regulatory and/or court authority.
For additional information regarding reinsurance, see note 6 of notes to the consolidated financial statements and “Item 1A—
Risk Factors—We may not be able to collect all amounts due to us from reinsurers, reinsurance coverage may not be available
to us in the future at commercially reasonable rates or at all and we are exposed to credit risk related to our structured
settlements.” For a description of reinsurance-related litigation, see note 17 of notes to the consolidated financial statements.
Catastrophe Reinsurance
Catastrophes include hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods,
tsunamis, volcanic eruptions, solar flares and other naturally-occurring events. Catastrophes can also result from terrorist
attacks and other intentionally destructive acts including those involving cyber events, nuclear, biological, chemical and
radiological events, civil unrest, explosions and destruction of infrastructure. The incidence and severity of catastrophes are
inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure
affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however,
hurricanes, earthquakes, wildfires, cyber attacks and other events may produce significant damage or loss in larger areas,
especially those areas that are heavily populated. For additional information regarding catastrophes, see “Item 1A—Risk
Factors—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 our results of operations, our financial position and/
or liquidity, and could adversely impact our ratings, our ability to raise capital and the availability and cost of reinsurance." The
Company generally seeks to manage its exposure to catastrophes through individual risk selection and the purchase of
catastrophe reinsurance. In addition to the Company’s catastrophe reinsurance coverages, the Company is also party to other
reinsurance treaties that can provide additional coverage for losses arising from catastrophes, as described in the “Net Retention
Policy Per Risk” sections of the respective segment discussions above. The Company conducts reviews of its risk and
catastrophe coverages on a regular basis and makes changes as it deems appropriate. The following discussion summarizes the
Company’s catastrophe reinsurance coverage at January 1, 2022.
Corporate Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty covers the accumulation of certain property losses
arising from one or multiple occurrences for the period January 1, 2022 through and including December 31, 2022. The treaty
provides for recovery of 90% of the dollar amount of each qualifying loss in excess of a $3.0 billion retention, up to a
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maximum amount of qualifying losses of $5.0 billion (i.e. for every dollar of loss between $3.0 billion and $5.0 billion this
treaty provides for 90 cents of coverage). Therefore, the maximum recovery under the treaty would be $1.8 billion. Qualifying
losses for each occurrence are after a $100 million deductible. The treaty covers all of the Company’s exposures in North
America and all waters contiguous thereto. The treaty only provides coverage for terrorism events in limited circumstances and
excludes entirely losses arising from nuclear, biological, chemical or radiological attacks. The treaty only provides coverage
for cyber events in limited circumstances and excludes losses arising from communicable disease. The Company's underlying
insurance coverages generally exclude coverage for communicable disease.
Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty covers the accumulation of
certain property losses arising from one or multiple occurrences for the period January 1, 2022 through and including December
31, 2022. The treaty provides for up to $225 million part of $500 million of coverage, subject to a $2.0 billion retention (i.e.,
for every dollar of loss between $2.0 billion and $2.5 billion this treaty provides for 45 cents of coverage), of aggregate
qualifying losses. Qualifying losses are subject to a $10 million event deductible per occurrence. Coverage for, and
contributions to the $2.0 billion retention from, hurricanes and/or tropical storms, earthquakes and wildfires are limited to $250
million per event. The treaty covers property perils for PCS events in North America and all waters contiguous thereto. The
treaty excludes losses arising from communicable disease and most losses arising from cyber and terrorism, including nuclear,
biological, chemical or radiological.
Catastrophe Bonds. The Company has catastrophe protection through an indemnity reinsurance agreement with Long Point Re
III Ltd. (Long Point Re III), an independent Cayman Islands company licensed as a Class C insurer in the Cayman Islands. The
reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for
reinsurance contracts. In connection with the reinsurance agreement, Long Point Re III issued notes (generally referred to as
“catastrophe bonds”) to investors in amounts equal to the full coverage provided under the reinsurance agreement as described
below. The proceeds were deposited in a reinsurance trust account. The businesses covered by this reinsurance agreement are
subsets of the Company’s overall insurance portfolio, comprising specified property coverages spread across the following
geographic locations: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island, Virginia and Vermont.
The reinsurance agreement provides coverage of up to $500 million to the Company through May 24, 2022 for certain losses
from tropical cyclones, earthquakes, severe thunderstorms or winter storms in the locations listed above. The attachment point
and maximum limit under this agreement are reset annually to adjust the expected loss of the layer within a predetermined
range. For events up to and including May 24, 2022, the Company is entitled to begin recovering amounts under this
reinsurance agreement if the covered losses in the covered area for a single occurrence reach an initial attachment amount of
$1.980 billion. The full $500 million coverage amount is available until such covered losses reach a maximum $2.480 billion.
The coverage under the reinsurance agreement is limited to specified property coverage written in Personal Insurance; Select
Accounts, Middle Market (excluding Excess Casualty and Boiler & Machinery) and National Property and Other in Business
Insurance; and Bond & Specialty Insurance Other in Bond & Specialty Insurance.
Under the terms of the reinsurance agreement, the Company is obligated to pay annual reinsurance premiums to Long Point Re
III for the reinsurance coverage. Amounts payable to the Company under the reinsurance agreement with respect to any
covered event cannot exceed the Company's actual losses from such event. The principal amount of the catastrophe bonds will
be reduced by any amounts paid to the Company under the reinsurance agreement.
As with any reinsurance agreement, there is credit risk associated with collecting amounts due from reinsurers. With regard to
Long Point Re III, the credit risk is mitigated by a reinsurance trust account that has been funded by Long Point Re III with
money market funds that invest solely in direct government obligations and obligations backed by the U.S. government with
maturities of no more than 13 months. The money market funds must have a principal stability rating of at least AAAm by
Standard & Poor’s or AAAmmf by Fitch Ratings on the issuance date of the bonds and thereafter must be rated by Standard &
Poor’s or Fitch Ratings, as applicable. Other permissible investments include money market funds which invest in repurchase
and reverse repurchase agreements collateralized by direct government obligations and obligations of any agency backed by the
U.S. government with terms of no more than 397 calendar days, and cash.
At the time the agreement was entered into with Long Point Re III, the Company evaluated the applicability of the accounting
guidance that addresses variable interest entities or VIEs. Under this guidance, an entity that is formed for business purposes is
considered a VIE if: (a) the equity investors lack the direct or indirect ability through voting rights or similar rights to make
decisions about an entity's activities that have a significant effect on the entity’s operations or (b) the equity investors do not
provide sufficient financial resources for the entity to support its activities. Additionally, a company that absorbs a majority of
the expected losses from a VIE’s activities or is entitled to receive a majority of the entity’s expected residual returns, or both,
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is considered to be the primary beneficiary of the VIE and is required to consolidate the VIE in the company’s financial
statements.
As a result of the evaluation of the reinsurance agreement with Long Point Re III, the Company concluded that it was a VIE
because the conditions described in items (a) and (b) above were present. However, while Long Point Re III was determined to
be a VIE, the Company concluded that it did not have a variable interest in the entity, as the variability in its results, caused by
the reinsurance agreement, is expected to be absorbed entirely by the investors in the catastrophe bonds issued by Long Point
Re III and residual amounts earned by it, if any, are expected to be absorbed by the equity investors (the Company has neither
an equity nor a residual interest in Long Point Re III).
Accordingly, the Company is not the primary beneficiary of Long Point Re III and does not consolidate that entity in the
Company’s consolidated financial statements. Additionally, because the Company has no intention to pursue any transaction
that would result in it acquiring interest in and becoming the primary beneficiary of Long Point Re III, the consolidation of that
entity in the Company’s consolidated financial statements in future periods is unlikely.
The Company has not incurred any losses that have resulted or are expected to result in a recovery under the Long Point Re III
agreement since its inception.
Northeast Property Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides up to $600 million part of $850
million of coverage, subject to a $2.25 billion retention (i.e., for every dollar of loss between $2.25 billion and $3.10 billion this
treaty provides 71 cents of coverage), for losses arising from a single occurrence and allows for one reinstatement. Coverage is
provided on an all perils basis, including but not limited to hurricanes, tornadoes, hail storms, earthquakes, winter storms and/or
freeze losses (coverage is included for terrorism events in limited circumstances). Coverage for cyber events applies only in
limited circumstances, and coverage for communicable disease and nuclear, biological and radiological terrorism attacks is
excluded from this treaty. The treaty covers territory from Virginia to Maine for the period July 1, 2021 through and including
June 30, 2022. Losses from a covered event anywhere in North America and waters contiguous thereto may be used to satisfy
the retention. Recoveries under the catastrophe bonds (if any) would be first applied to reduce losses subject to this treaty.
Middle Market Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides for up to $253 million part of
$275 million of coverage, subject to a $110 million retention (i.e., for every dollar of loss between $110 million and $385
million this treaty provides 92 cents of coverage), for losses arising from an earthquake, including other ensuing causes of loss
such as fire following and sprinkler leakage, incurred under policies written by Technology, Public Sector Services and
Commercial Accounts in Business Insurance for the period July 1, 2021 through and including June 30, 2022. The treaty covers
the United States and Canada, their territories, possessions and waters contiguous thereto.
Personal Insurance Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides for up to $180 million
part of $200 million of coverage, subject to a $170 million retention, for losses occurring from an earthquake, including fire
following and sprinkler leakage, incurred by Personal Insurance from January 1, 2022 through and including December 31,
2022. The treaty covers the United States, its territories, possessions and waters contiguous thereto.
Canadian Property Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides coverage for 50% of losses in excess
of C$100 million (US$79 million at December 31, 2021) up to C$200 million (US$158 million at December 31, 2021) and for
100% of losses in excess of C$200 million (US$158 million at December 31, 2021) up to C$600 million (US$474 million at
December 31, 2021), in each case with respect to the accumulation of net property losses arising out of one occurrence on
business written by the Company’s Canadian businesses for the period July 1, 2021 through and including June 30, 2022. The
treaty covers all property written by the Company’s Canadian businesses, including, but not limited to, habitational property,
commercial property, inland marine, ocean marine and auto physical damages exposures. Coverage for cyber events applies
only in limited circumstances, and coverage for communicable disease and nuclear, biological and radiological terrorism attacks
is excluded from this treaty.
Other International Reinsurance Treaties. For other business underwritten in Canada, as well as for business written in the
United Kingdom and the Republic of Ireland and in the Company’s operations at Lloyd’s, separate reinsurance protections are
purchased locally that have lower net retentions more commensurate with the size of the respective local balance sheet.
Terrorism Risk Insurance Program. The Terrorism Risk Insurance Program is a Federal program administered by the
Department of the Treasury authorized through December 31, 2027 that provides for a system of shared public and private
compensation for certain insured losses resulting from certified acts of terrorism. For a further description of the program,
including the Company’s estimated deductible under the program in 2022, see note 6 of notes to the consolidated financial
statements and “Item 1A—Risk Factors—High levels of catastrophe losses, including as a result of factors such as increased
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concentrations of insured exposures in catastrophe-prone areas, could materially and adversely affect our results of operations,
our financial position and/or liquidity, and could adversely impact our ratings, our ability to raise capital and the availability and
cost of reinsurance.”
CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES
Claims and claim adjustment expense reserves represent management’s estimate of the ultimate liability for unpaid losses and
loss adjustment expenses for claims that have been reported and claims that have been incurred but not yet reported as of the
balance sheet date.
The Company refines its reserve estimates as part of its regular ongoing process that includes reviews of key assumptions,
underlying variables and historical loss experience. The Company reflects adjustments to reserves in the results of operations
in the periods in which the estimates are changed. In establishing reserves, the Company takes into account estimated recoveries
for reinsurance, salvage and subrogation. The reserves are reviewed regularly by qualified actuaries employed by the Company.
For additional information on the process of estimating reserves and a discussion of underlying variables and risk factors, see
“Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting
Estimates.”
The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables. These
variables (discussed by product line in the “Critical Accounting Estimates” section of “Item 7—Management’s Discussion and
Analysis of Financial Condition and Results of Operations”) are affected by both internal and external events, such as changes
in claims handling procedures, inflation, judicial trends, the tort environment and the legislative landscape, among others. The
impact of many of these items on ultimate costs for claims and claim adjustment expenses is difficult to estimate. Reserve
estimation difficulties also differ significantly by product line due to differences in the underlying insurance contract (e.g.,
claims-made versus occurrence), claim complexity, the volume of claims, the potential severity of individual claims, the
determination of the occurrence date for a claim, and reporting lags (the time between the occurrence of the insured event and
when it is actually reported to the insurer). Informed judgment is applied throughout the process.
The Company derives estimates for unreported claims and development with respect to reported claims principally from
actuarial analyses of historical patterns of loss development by accident year for each business unit, product line and type of
exposure. Similarly, the Company derives estimates of unpaid loss adjustment expenses principally from actuarial analyses of
historical development patterns and the relationship of loss adjustment expenses to losses for each product line and type of
exposure. For a description of the Company’s reserving methods for asbestos and environmental claims, see “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asbestos Claims and Litigation,”
and “—Environmental Claims and Litigation.”
Certain of the Company’s claims and claim adjustment expense reserves are discounted to present value. See note 8 of notes to
the consolidated financial statements for further discussion.
Reserves on Statutory Accounting Basis
At December 31, 2021, 2020 and 2019, claims and claim adjustment expense reserves (net of reinsurance) prepared in
accordance with U.S. generally accepted accounting principles (GAAP reserves) were $99 million higher, $110 million higher
and $58 million higher, respectively, than those reported in the Company’s respective annual financial reports filed with
insurance regulators, which are prepared in accordance with statutory accounting practices (statutory reserves).
The differences between the amount of reserves reported for GAAP and statutory reporting are primarily due to the differences
in accounting for: (i) fee reimbursements associated with large deductible business, (ii) the impact of updated accounting
guidance for credit losses adopted January 1, 2020 applicable to structured settlements and (iii) the accounting for reinsurance.
For large deductible business, the Company pays the deductible portion of a casualty insurance claim and then seeks
reimbursement from the insured, plus a fee. The associated reserves for claim adjustment expenses are reported gross of the
expected fee income (i.e., the reserves are not net of the expected fees) for GAAP reporting.
For statutory reporting, the
associated reserves are reported net of the expected fee income.
For GAAP reporting, amounts payable under structured settlements for which the Company did not receive a release of its
obligation from the claimant are reported in loss reserves and reinsurance recoverables, net of an allowance for estimated
uncollectible amounts. The allowance was impacted by the updated accounting guidance for credit losses adopted January 1,
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2020 that requires the allowance to be based on expected credit losses. For statutory reporting, structured settlements for which
the Company has not obtained a release are disclosed as a contingent liability and not recorded as part of loss reserves.
Reserves for claims and claim adjustment expenses are reported gross of reinsurance recoverables (i.e., without reduction for
amounts recoverable for reinsurance) for GAAP reporting. For statutory reporting, the reserves are reported net of reinsurance
recoverables. Additionally, reinsurance balances resulting from reinsurance placed to cover losses on insured events occurring
prior to the inception of a reinsurance contract (retroactive reinsurance) are included in reinsurance recoverables for GAAP
reporting. Statutory accounting practices require retroactive reinsurance balances to be recorded in other liabilities as contra-
liabilities rather than in loss reserves.
Asbestos and Environmental Claims
Asbestos and environmental claims are segregated from other claims and are handled separately within the Company’s
Strategic Resolution Group, a separate unit staffed by dedicated legal, claim, finance and engineering professionals which also
has responsibility for enterprise-wide major case activity. For additional information on asbestos and environmental claims, see
“Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asbestos Claims and
Litigation” and “—Environmental Claims and Litigation.”
INTERCOMPANY REINSURANCE POOLING ARRANGEMENTS
Most of the Company’s domestic insurance subsidiaries are members of an intercompany property and casualty reinsurance
pooling arrangement. Pooling arrangements permit the participating companies to rely on the capacity of the entire pool’s
statutory capital and surplus rather than just on its own statutory capital and surplus. Under such arrangements, the members
share substantially all insurance business that is written and allocate the combined premiums, losses and expenses.
RATINGS
Ratings are an important factor in assessing the Company’s competitive position in the insurance industry. The Company
receives ratings from the following major rating agencies: A.M. Best Company (A.M. Best), Fitch Ratings (Fitch), Moody’s
Investors Service (Moody’s) and Standard & Poor’s (S&P). Rating agencies typically issue two types of ratings for insurance
companies: claims-paying (or financial strength) ratings, which reflect the rating agency’s assessment of an insurer’s ability to
meet its financial obligations to policyholders, and debt ratings, which reflect the rating agency’s assessment of a company’s
prospects for repaying its debts and are considered by lenders in connection with the setting of interest rates and terms for a
company’s short- and long-term borrowings. Agency ratings are not a recommendation to buy, sell or hold any security, and
they may be revised or withdrawn at any time by the rating agency. Each agency’s rating should be evaluated independently of
any other agency’s rating. The system and the number of rating categories can vary widely from rating agency to rating
agency. Customers usually focus on claims-paying ratings, while creditors focus on debt ratings. Investors use both to evaluate
a company’s overall financial strength. The ratings issued on the Company or its subsidiaries by any of these agencies are
announced publicly and are available on the Company’s website and from the agencies.
A downgrade in one or more of the Company’s claims-paying ratings could negatively impact the Company’s business volumes
and competitive position because demand for certain of its products may be reduced, particularly because some customers
require that the Company maintain minimum ratings to enter into, maintain or renew business with it.
Additionally, a downgrade in one or more of the Company’s debt ratings could adversely impact the Company’s ability to
access the capital markets and other sources of funds, including in the syndicated bank loan market, and/or result in higher
financing costs. For example, downgrades in the Company’s debt ratings could result in higher interest expense under the
Company’s revolving credit agreement (under which the cost of borrowing could range from LIBOR plus 75 basis points to
LIBOR plus 137.5 basis points, depending on the Company’s debt ratings), the Company’s commercial paper program, or in
the event that the Company were to access the capital markets by issuing debt or similar types of securities. See note 9 of notes
to the consolidated financial statements for a discussion of the Company’s revolving credit agreement and commercial paper
program. The Company considers the level of increased cash funding requirements in the event of a ratings downgrade as part
of the evaluation of the Company’s liquidity requirements. The Company currently believes that a one- to two-notch
downgrade in its debt ratings would not result in a material increase in interest expense under its existing credit agreement and
commercial paper programs. In addition, the Company considers the impact of a ratings downgrade as part of the evaluation of
its common share repurchases.
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Claims — Paying Ratings
The following table summarizes the current claims-paying (or financial strength) ratings for each of the Company’s rated
entities as of February 17, 2022, including the position of each rating in the applicable agency’s rating scale.
A.M. Best
Moody’s
S&P
Fitch
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Travelers Reinsurance Pool (a)(b)............
Travelers C&S Co. of America ................
First Floridian Auto and Home Ins. Co. ...
Travelers Insurance Company of Canada.
The Dominion of Canada General
Insurance Company ..............................
Travelers Insurance Company Limited ....
Travelers Insurance Designated Activity
Company ...............................................
A++ (1st of 16)
A++ (1st of 16)
A-
(4th of 16)
A++ (1st of 16)
A (3rd of 16)
A++ (1st of 16)
Aa2 (3rd of 21)
AA (3rd of 21)
Aa2 (3rd of 21)
AA (3rd of 21)
AA (3rd of 21)
AA (3rd of 21)
—
—
AA (3rd of 21)
— AA-
(4th of 21)
—
—
— AA (3rd of 21)
—
—
—
—
A++ (1st of 16)
— AA-
(4th of 21)
___________________________________________
(a)
The Travelers Reinsurance Pool consists of: The Travelers Indemnity Company, The Charter Oak Fire Insurance
Company, The Phoenix Insurance Company, The Travelers Indemnity Company of Connecticut, The Travelers
Indemnity Company of America, Travelers Property Casualty Company of America, Travelers Commercial Casualty
Company, TravCo Insurance Company, The Travelers Home and Marine Insurance Company, Travelers Casualty and
Surety Company, Northland Insurance Company, Northland Casualty Company, The Standard Fire Insurance
Company, The Automobile Insurance Company of Hartford, Connecticut, Travelers Casualty Insurance Company of
America, Farmington Casualty Company, Travelers Commercial Insurance Company, Travelers Casualty Company of
Connecticut, Travelers Property Casualty Insurance Company, Travelers Personal Security Insurance Company,
Travelers Personal Insurance Company, St. Paul Fire and Marine Insurance Company, The Travelers Casualty
Company, St. Paul Protective Insurance Company, Travelers Constitution State Insurance Company, St. Paul Guardian
Insurance Company, St. Paul Mercury Insurance Company, Fidelity and Guaranty Insurance Underwriters, Inc.,
Discover Property & Casualty Insurance Company and United States Fidelity and Guaranty Company. In addition,
the following entities are also members of the Travelers Reinsurance Pool but have a 0% share of the pool: Northfield
Insurance Company, American Equity Specialty Insurance Company, Travelers Excess and Surplus Lines Company,
St. Paul Surplus Lines Insurance Company and Discover Specialty Insurance Company.
(b)
The following affiliated companies are 100% reinsured by one of the pool participants noted in (a) above: Fidelity and
Guaranty Insurance Company, Gulf Underwriters Insurance Company, American Equity Insurance Company, Select
Insurance Company, The Travelers Lloyds Insurance Company and Travelers Lloyds of Texas Insurance Company.
Debt Ratings
The following table summarizes the current debt, trust preferred securities and commercial paper ratings of the Company and its
subsidiaries as of February 17, 2022. The table also presents the position of each rating in the applicable agency’s rating scale.
A.M. Best
Moody’s
S&P
Fitch
Senior debt..................................................
Junior subordinated debentures ..................
a+ (5th of 22) A2 (6th of 21)
a- (7th of 22) A3 (7th of 21) BBB+ (8th of 22)
A (6th of 22)
A (6th of 22)
BBB+ (8th of 22)
Commercial paper ......................................
AMB-1+ (1st of 5) P-1
(1st of 4)
A-1 (2nd of 10)
F1
(2nd of 8)
Rating Agency Actions
The following rating agency actions were taken with respect to the Company from February 11, 2021, the date on which the
Company filed its Annual Report on Form 10-K for the year ended December 31, 2020, through February 17, 2022:
•
•
On May 5, 2021, Fitch affirmed all ratings of the Company. The outlook for all ratings is stable.
On November 4, 2021, A.M. Best affirmed all ratings of the Company. The outlook for all ratings is stable.
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INVESTMENT OPERATIONS
The majority of funds available for investment are deployed in a widely diversified portfolio of high quality, liquid, taxable
U.S. government, tax-exempt and taxable U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds. The
Company regularly monitors the effective duration of its fixed maturity investments, and the Company’s investment purchases
and sales are executed with the objective of having adequate funds available to satisfy its insurance and debt obligations.
Generally, the expected principal and interest payments produced by the Company’s fixed maturity portfolio adequately fund
the estimated runoff of the Company’s insurance reserves. The Company’s management of the effective duration of the fixed
maturity investment portfolio, including its use of Treasury futures at times, has produced an effective duration that is less than
the estimated effective duration of the Company’s net insurance liabilities. The substantial amount by which the fair value of
the fixed maturity portfolio exceeds the value of the net insurance liabilities, as well as the positive cash flow from newly sold
policies and the large amount of high-quality liquid bonds, contributes to the Company’s ability to fund claim payments without
having to sell illiquid assets or access its credit facilities.
The Company also invests much smaller amounts in equity securities, real estate, private equity limited partnerships, hedge
funds, and real estate partnerships and joint ventures. These investment classes have the potential for higher returns but also
involve varying degrees of risk, including less stable rates of return and less liquidity.
See note 3 of notes to the consolidated financial statements for additional information regarding the Company’s investment
portfolio.
REGULATION
U.S. State and Federal Regulation
The Company's domestic insurance subsidiaries are collectively licensed to transact insurance business in all U.S. states, the
District of Columbia, Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands and are subject to
regulation in the various states and jurisdictions in which the subsidiaries transact business. The extent of regulation varies, but
generally derives from statutes that delegate regulatory, supervisory and administrative authority to a department of insurance
or finance in each state and jurisdiction. The regulation, supervision and administration relate, among other things, to standards
of solvency that must be met and maintained, the nature of and limitations on investments, premium rates, restrictions on the
type and size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and
other obligations, deposits of securities for the benefit of policyholders, the licensing of insurers and their agents, approval of
policy forms and the regulation of market conduct, including the use of credit and other information in underwriting as well as
other underwriting and claims practices. State insurance departments also conduct periodic examinations of the financial
condition and market conduct of insurance companies and require the filing of financial and other reports on a quarterly and
annual basis.
State insurance regulation continues to evolve in response to the changing economic and business environment as well as
efforts by regulators internationally to develop a consistent approach to regulation. While the U.S. federal government has not
historically regulated the insurance business, the Federal Insurance Office (or FIO) was established within the U.S. Treasury
Department with limited authority as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. FIO
has been active in the efforts to develop international regulatory standards for the insurance industry.
In response to these
international efforts, the state insurance regulators, through the National Association of Insurance Commissioners (NAIC),
along with the Federal Reserve and the FIO, are working to consider and develop changes to the U.S. regulatory framework,
including the development of regulatory tools to evaluate risks and the availability of capital on a groupwide basis in addition to
the current requirements imposed on a legal-entity basis.
These changes are evidenced by the incorporation of supervisory colleges into the U.S. regulatory framework. A supervisory
college is a forum of the regulators having jurisdictional authority over a holding company’s various insurance subsidiaries,
including foreign insurance subsidiaries, convened to meet with the insurer’s executive management, to evaluate the insurer's
business strategies, approach to enterprise risk management and corporate governance from both a groupwide and legal-entity
perspective.
While insurance in the United States is regulated on a legal-entity basis, the NAIC has adopted changes to its Model Holding
Company Act that some states, including the State of Connecticut, have enacted to allow the insurance commissioner to be
designated as the groupwide supervisor (i.e., lead regulator) for the insurance holding company system based upon certain
criteria, including the jurisdiction of domicile of the insurance subsidiaries holding the majority of the insurance group’s
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premiums, assets, or liabilities. Based upon these criteria, the State of Connecticut Insurance Department is designated as the
Company's lead regulator and conducts supervisory colleges for the Company. Additionally, the NAIC has recently adopted
changes to its Model Holding Company Act to require certain insurance groups to file a Group Capital Calculation to allow the
groupwide supervisor (lead state) to evaluate the risks and available capital on a groupwide basis in addition to the risk-based
capital requirements currently imposed on a legal-entity basis. The Company will be required to file a Group Capital
Calculation once the State of Connecticut amends its holding company act to incorporate the recent changes to the NAIC Model
Holding Company Act. These changes could result in an increase in the amount of capital the Company's insurance subsidiaries
are required to have and could subject the Company to increased regulation.
Insurance Regulation Concerning Dividends from Insurance Subsidiaries. The Company's principal domestic insurance
subsidiaries are domiciled in the State of Connecticut. The Connecticut insurance holding company laws require notice to, and
approval by, the state insurance commissioner for the declaration or payment of any dividend from an insurance subsidiary that,
together with other distributions made within the preceding twelve months, exceeds the greater of 10% of the insurance
subsidiary’s statutory capital and surplus as of the preceding December 31, or the insurance subsidiary’s net income for the
twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting
practices and by state regulation. This declaration or payment is further limited by the amount of adjusted unassigned surplus
held by the insurance subsidiaries, as determined in accordance with statutory accounting practices.
The insurance holding company laws of states in which the Company's other domestic insurance subsidiaries are domiciled
generally contain similar, although in some instances somewhat more restrictive, limitations on the payment of dividends.
These insurance subsidiaries, as well as the insurance subsidiaries domiciled in Connecticut, may also be subject to similar
dividends limitations imposed by states in which those subsidiaries are considered commercially domiciled as a result of the
amount of business written in those states.
Rate and Rule Approvals. TRV’s domestic insurance subsidiaries are subject to each state’s laws and regulations regarding rate
and rule approvals. The applicable laws and regulations generally establish standards to ensure that rates are not excessive,
inadequate, unfairly discriminatory or used to engage in unfair price competition. An insurer’s ability to adjust rates and the
relative timing of the process are dependent upon each state’s requirements. Many states have enacted variations of competitive
ratemaking laws, which allow insurers to set certain premium rates for certain classes of insurance without having to obtain the
prior approval of the state insurance department.
Requirements for Exiting Geographic Markets and/or Canceling or Nonrenewing Policies. Many states have laws and
regulations which may impact the timing and/or the ability of an insurer to either discontinue or substantially reduce its writings
in that state. These laws and regulations typically require prior notice and in some instances insurance department approval
In addition, all states impose limitations on
prior to discontinuing a line of business or withdrawing from that state.
cancellations or non-renewals of certain policies, including in particular, limitations on the reasons for cancellations and on the
timing of non-renewals.
Regulatory and Legislative Responses to Catastrophes. States have from time to time passed legislation, and regulators have
taken action, that have the effect of limiting the ability of insurers to manage catastrophe risk, such as legislation restricting
insurers from reducing exposures or withdrawing from catastrophe-prone areas or mandating that insurers participate in residual
markets involving catastrophe-prone areas. Participation in residual market mechanisms has resulted in, and may in the future
result in, significant losses or assessments to insurers, including the Company, and, in certain states, those losses or assessments
may not be commensurate with the Company's direct catastrophe exposure in those states. If the Company's competitors leave
states that have residual market mechanisms, the remaining insurers, including the Company, may be subject to significant
increases in losses or assessments following a catastrophe. In addition, following catastrophes, there have been, and may in the
future be, legislative and administrative initiatives and court decisions that seek to expand insurance coverage for catastrophe
claims beyond the original intent of the policies, seek to prevent the application of deductibles included in the policies or seek
to limit the exercise of certain rights available to insurers under the policies. Also, the Company's ability to adjust policy
language or terms, including deductible levels, or to increase pricing to the extent necessary to offset rising claim costs related
to catastrophes requires approval of insurance regulatory authorities in certain states. The Company's ability or its willingness to
manage its catastrophe exposure by raising prices, modifying policy terms or reducing exposure to certain geographies may be
limited due to considerations of public policy, an evolving political environment and/or changes in general economic
conditions. Furthermore, reduction or elimination of the National Flood Insurance Program could result in an increase in the
Company's exposure to flood risk if insurers become required to cover flood risk under certain types of policies.
Assessments for Guaranty Funds and Second-Injury Funds and Other Mandatory Assigned Risk and Reinsurance
Arrangements. As a condition of their authority to transact insurance in virtually all states, property and casualty insurers,
including the Company’s domestic insurance subsidiaries, are required to be a member of each state’s guaranty association and
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to bear a portion of the losses covered by the guaranty association (subject to a statutory maximum covered loss amount which
varies by state) suffered by claimants of insurers that become insolvent. Additionally, many states also have laws that establish
second-injury funds to provide compensation to injured employees for the aggravation of a prior injury or disability.
The Company's domestic insurance subsidiaries are also required to participate in various involuntary assigned risk pools,
principally involving workers’ compensation, automobile insurance, property damage due to wind (windpools) in states prone
to property damage from hurricanes and Fair Access to Insurance Requirements (FAIR) plans, as well as automobile assigned
risk plans the results of which are not pooled with other carriers, which provide various insurance coverages to individuals or
other entities that otherwise are unable to purchase that coverage in the voluntary market.
Other assessments include charges mandated by statute or regulatory authority that are related directly or indirectly to
underwriting activities. Examples of such mechanisms include, but are not limited to, the Florida Hurricane Catastrophe Fund,
Florida Citizens Property Insurance Corporation, National Workers’ Compensation Reinsurance Pool, various workers’
compensation related funds (e.g., the Florida Special Disability Trust), North Carolina Beach Plan, Louisiana Citizens Property
Insurance Corporation, and the Texas Windstorm Insurance Association. Amounts payable or paid as a result of arrangements
that are in substance reinsurance, including certain involuntary pools where insurers are required to assume premiums and
losses from those pools, are accounted for as reinsurance (e.g., National Workers’ Compensation Reinsurance Pool, North
Carolina Beach Plan). Amounts related to assessments from arrangements that are not reinsurance are reported as part of
“General and Administrative Expenses,” such as the Florida Special Disability Trust. For additional information concerning
assessments for guaranty funds and second-injury funds and other mandatory assigned risk and reinsurance agreements
including state-funding mechanisms, see “Item 1A—Risk Factors.”
Insurance Regulatory Information System (IRIS). The NAIC developed the IRIS to help state regulators identify companies that
may require regulatory attention. Financial examiners review annual financial statements and the results of key financial ratios
based on year-end data with the goal of identifying insurers that appear to require immediate regulatory attention. Each ratio
has an established “usual range” of results. A ratio result falling outside the usual range, however, is not necessarily considered
adverse; rather, unusual values are used as part of the regulatory early monitoring system. Furthermore, in some years, it may
not be unusual for financially sound companies to have several ratios with results outside the usual ranges. Generally, an
insurance company may become subject to regulatory scrutiny or, depending on the company’s financial condition, regulatory
action if certain of its key IRIS ratios fall outside the usual ranges and the insurer’s financial condition is trending downward.
Based on preliminary 2021 IRIS ratios calculated by the Company for its lead domestic insurance subsidiaries, The Travelers
Indemnity Company had results outside the normal range for one IRIS ratio due to the size of its investments in certain non-
fixed maturity securities, while Travelers Casualty and Surety Company had results outside the normal range for one IRIS ratio
due to the amount of dividends received from its subsidiaries. In 2020, The Travelers Indemnity Company had results outside
the normal range for the same ratio as 2021.
Management does not anticipate regulatory action as a result of the 2021 IRIS ratio results for the lead insurance subsidiaries or
In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory
their insurance subsidiaries.
action was required.
Risk-Based Capital (RBC) Requirements. The NAIC has an RBC requirement which sets forth minimum capital standards for
most U.S.-based property and casualty insurance companies that is intended to raise the level of protection for policyholder
obligations. The Company’s U.S. insurance subsidiaries are subject to these NAIC RBC requirements based on laws that have
been adopted by individual states. These requirements subject insurers having policyholders’ surplus less than that required by
the RBC calculation to varying degrees of regulatory action, depending on the level of capital inadequacy. Each of the
Company’s U.S. insurance subsidiaries had policyholders’ surplus at December 31, 2021 and 2020 significantly above the level
at which any RBC regulatory action would occur.
While there is currently no group regulatory capital requirement in place for insurers in the United States, a comparison of an
insurer’s policyholders’ surplus on a combined basis to the legal entity NAIC RBC requirements on a combined basis can
provide useful information regarding an insurance group’s overall capital adequacy in the U.S. The amount of policyholders’
surplus held by the Company’s U.S.
insurance subsidiaries at December 31, 2021, determined on a combined basis,
significantly exceeded the level at which the subsidiaries would be subject to RBC regulatory action (company action level) on
a combined basis at that date.
The RBC formulas have not been designed to differentiate among adequately capitalized companies that operate with levels of
capital above the RBC requirement. Therefore, it is inappropriate and ineffective to use the formulas to rate or to rank these
companies.
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Investment Regulation. Insurance company investments must comply with applicable laws and regulations which prescribe the
kind, quality and concentration of investments. In general, these laws and regulations permit investments in federal, state and
municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate and certain other
investments, subject to specified limits and certain other qualifications, depending on the type of investment. At December 31,
2021 and 2020, the Company was in compliance with these laws and regulations.
Federal Regulation. As mentioned above, the Dodd-Frank Act established a Federal Insurance Office (FIO) within the U.S.
Department of the Treasury. The FIO has limited regulatory authority and is empowered to gather data and information
regarding the insurance industry and insurers, but it has in the past recommended an expanded federal role in some
circumstances. The Dodd-Frank Act also gives the Federal Reserve supervisory authority over a number of non-bank financial
services holding companies, including holding companies with insurance company subsidiaries, if they are designated by a two-
thirds vote of a Financial Stability Oversight Council (the FSOC) as “systemically important financial institutions” (SIFI) or
own a bank or thrift. The Company, based upon the FSOC’s rules and interpretive guidance, has not been designated as a SIFI
and is not subject to regulation by the Federal Reserve. Nonetheless, it is possible that FSOC may change its rules or
interpretations in the future and conclude that the Company is a SIFI. If the Company were designated as a SIFI, the Federal
Reserve’s supervisory authority could include the ability to impose heightened financial regulation and could impact
requirements regarding the Company's capital, liquidity and leverage as well as its business and investment conduct. The
Dodd-Frank Act also authorizes assessments to pay for the resolution of SIFIs that have become insolvent. The Company (as a
financial company with more than $50 billion in assets) could be assessed, and although any such assessment is required to be
risk weighted (i.e., riskier firms pay more), such costs could be material and are not currently estimable. As a result of the
foregoing, the Dodd-Frank Act, including any changes thereto, or other additional federal regulation that is adopted in the
future, could impose additional burdens on the Company, including impacting the ways in which the Company conducts its
business, increasing compliance costs and duplicating state regulation, and could result in a competitive disadvantage,
particularly relative to other competitors that may not be subject to the same level of regulation.
International Regulation
The Company's insurance subsidiaries based in Canada, and the Canadian branch of one of the Company’s U.S. insurance
subsidiaries, are regulated for solvency purposes by the Office of the Superintendent of Financial Institutions (OSFI) under the
provisions of the Insurance Companies Act (Canada). These Canadian subsidiaries and the Canadian branch are also subject to
Canadian provincial and territorial
including pricing,
underwriting, coverage and claim conduct, in varying degrees by province/territory and by product line.
insurance legislation and regulation, governing market conduct,
The Company's insurance subsidiaries based in the United Kingdom (U.K.) are regulated by two regulatory bodies, The
Prudential Regulation Authority (PRA) and The Financial Conduct Authority (FCA). The PRA’s primary objective is to
promote the safety and soundness of insurers for the protection of policyholders, while the FCA has three operational
objectives: (i) to secure an appropriate degree of protection for consumers, (ii) to protect and enhance the integrity of the U.K.
financial system, and (iii) to promote effective competition in the interests of consumers. One of the Company's U.K. insurance
subsidiaries is also authorized in the U.S. as a surplus lines insurer subject to U.S. state regulation applicable to such insurers.
The Company's managing agency (Travelers Syndicate Management Limited) (TSML) of its Lloyd’s syndicate (Syndicate 5000
at Lloyd's) is also regulated by the PRA and the FCA, which have delegated certain regulatory responsibilities to the Council of
Lloyd's. Travelers Syndicate 5000 is able to write business in over 200 countries and territories throughout the world by virtue
of Lloyd's international licenses. In each such jurisdiction, the policies written by TSML, as part of Lloyd’s, are subject to the
laws and insurance regulations of that
jurisdiction. Travelers Underwriting Agency Limited, which as an insurance
intermediary is regulated by the FCA, produces insurance business for Travelers Syndicate 5000. Xbridge Limited, operating
under the trade name Simply Business, is an insurance broker that provides products for small commercial customers in the
U.K. via a panel of insurance companies and is also regulated by the FCA.
Travelers is conducting its insurance operations in the Republic of Ireland and across the EU through an insurance subsidiary
that is incorporated in the Republic of Ireland and authorized and regulated by the Central Bank of Ireland. Certain operations
are conducted in the U.K. through a U.K. branch of the Irish subsidiary, which is supervised by the PRA and FCA as well as the
Central Bank of Ireland. Since January 1, 2019, the Company has used a Lloyd's insurance subsidiary in Brussels, Belgium
(Lloyd's Brussels) to cover its Lloyd's customers' risks in the EU. Lloyd’s Brussels is regulated by the National Bank of
Belgium.
During 2021, the Company's operations in the Republic of Ireland were also subject to regulation by the European Union (EU).
Generally, EU requirements are adopted by the EU and then implemented by enabling legislation in the member countries.
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Significant areas of oversight and influence from the EU include capital and solvency requirements (Solvency II), competition
law and antitrust regulation, intermediary and distribution regulation, gender discrimination and data security and privacy.
Under Solvency II, it is possible that the U.S. parent of a European Union subsidiary could be subject to certain Solvency II
requirements if the regulator determines that the subsidiary’s capital position is dependent on the parent company and the U.S.
Parent is not already subject to regulations deemed “equivalent” to Solvency II. Currently, as a result of the Covered
Agreements described below, the state regulatory system governing U.S. insurers is deemed “equivalent” for purposes of
Solvency II.
Beginning December 31, 2020, the Company's operations in the U.K. were no longer subject to EU regulations. The
applicability of the EU requirements to the Company's businesses in the U.K. may change in ways yet to be determined as a
result of the U.K.’s exit from the EU.
It is expected that the U.K. will continue to apply the requirements of Solvency II to
insurers operating in the U.K.
Each of the Company’s foreign insurance subsidiaries had capital significantly above their respective regulatory requirements at
December 31, 2021.
Regulators in countries where the Company has operations are working with the International Association of Insurance
Supervisors (IAIS) (and with the NAIC, the Federal Reserve and FIO in the U.S.) to consider changes to insurance company
supervision, including group supervision and group capital requirements.
The IAIS has developed a methodology for identifying “global systemically important insurers” (G-SIIs) and high-level policy
measures that will apply to the G-SIIs. The methodology and measures were endorsed by the Financial Stability Board (FSB)
which was created by the Group of Twenty (or G-20); however, identification of G-SIIs was suspended effective with the
beginning of 2020. The Company has not previously been designated as a G-SII by the FSB; however, it is possible that the
designation of G-SIIs could be reinstituted, the methodologies could be amended or interpreted differently in the future and the
Company could be named as a G-SII.
The IAIS completed its Common Framework for the Supervision of Internationally Active Insurance Groups (known as
ComFrame). ComFrame is intended to apply heightened regulatory requirements similar to those being developed for G-SIIs to
internationally active insurance groups (or “IAIGs”), including group supervision, group capital requirements, and resolution
planning, i.e., a written plan developed by a financial group detailing how it would be wound down in the event of an
insolvency. While the Company would not be considered an IAIG under the current criteria in ComFrame, it is possible that
the criteria could be changed. If the Company is designated as an IAIG or the NAIC and individual states adopt ComFrame or
similar provisions for large insurers, the Company could be subject to increased supervision and higher capital standards.
Covered Agreements
The U.S. Department of the Treasury and the Office of the U.S. Trade Representative have signed covered agreements (the
Covered Agreements) regarding prudential (solvency) insurance and reinsurance measures with both the EU and the U.K. The
Covered Agreements include three areas of prudential insurance supervision: reinsurance contracts, group supervision, and the
exchange of information between U.S. and U.K. regulators and between U.S. and EU regulators on insurers and reinsurers that
operate in the U.S., U.K. and EU markets. The Covered Agreement with the EU went into effect in April 2018, while the
Covered Agreement with the U.K. took full effect upon the U.K.'s exit from the EU on January 31, 2020. The Covered
Agreements are intended to promote cooperation between U.S. insurance regulators and EU and U.K. insurance regulators and
to limit the ability of the EU and the U.K. to apply solvency and group capital requirements to the worldwide operations of any
U.S. insurer operating in the EU or the U.K. It is possible that individual members of the EU could differ in how they adopt or
implement the Covered Agreement, resulting in greater regulation and higher capital standards as well as inconsistent
regulatory requirements among the jurisdictions in which the Company does business. While it is not yet known how or if
these actions will impact the Company, such regulation could result in increased costs of compliance, increased disclosure and
less flexibility in capital management, and could adversely impact the Company's results of operations and limit its growth.
The Covered Agreements eliminate the collateral and local presence requirements for EU and U.K. reinsurers operating in the
U.S., and for U.S. reinsurers operating in the EU and U.K., as a condition for credit for reinsurance in regulatory reporting and
capital requirements. The prospective elimination of the collateral requirements is conditioned on the reinsurer meeting capital
and solvency standards and maintaining a record of prompt payments to ceding insurers. While the collateral requirement is
removed for reinsurers meeting these standards, insurers and reinsurers are not prohibited from negotiating and putting into
place collateral as part of reinsurance agreements. The Covered Agreements include a five-year transition period to full
compliance in the impacted jurisdictions.
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Insurance Holding Company Statutes
As a holding company, TRV is not regulated as an insurance company. However, since TRV owns capital stock in insurance
subsidiaries, it is subject to state insurance holding company statutes, as well as certain other laws, of each of its insurance
subsidiaries’ states of domicile. All holding company statutes, as well as other laws, require disclosure and, in some instances,
prior approval of certain transactions between an insurance company and an affiliate. The holding company statutes and other
laws also require, among other things, prior approval for acquiring control of a domestic insurer and the payment of
extraordinary dividends or distributions.
Insurance Regulations Concerning Change of Control. Many state insurance regulatory laws contain provisions that require
advance approval by state agencies of any change in control of an insurance company that is domiciled, or, in some cases,
having substantial business in a state such that the insurance company is deemed to be commercially domiciled in that state.
The laws of many states also contain provisions requiring pre-notification to state agencies prior to any change in control of a
non-domestic insurance company admitted to transact business in that state. While these pre-notification statutes do not
authorize the state agency to disapprove the change of control, they do authorize issuance of cease-and-desist orders with
respect to the non-domestic insurer if it is determined that some conditions, such as undue market concentration, would result
from the acquisition.
Any transactions that would constitute a change in control of any of TRV’s insurance subsidiaries would generally require prior
approval by the insurance departments of the states in which the insurance subsidiaries are domiciled or commercially
domiciled. Pre-acquisition notification may also be required in those states that have adopted pre-acquisition notification
provisions and in which such insurance subsidiaries are admitted to transact business.
One of TRV’s insurance subsidiaries and its operations at Lloyd’s are domiciled in the United Kingdom and one of its
insurance subsidiaries is domiciled in the Republic of Ireland. Insurers in the United Kingdom and the Republic of Ireland are
subject to change of control restrictions, including approval of the PRA and FCA and of the Central Bank of Ireland,
respectively. TRV’s insurance subsidiaries domiciled in, or authorized to conduct insurance business in, Canada are also
subject to regulatory change of control restrictions, including approval of OSFI. TRV’s Brazilian joint venture is subject to
regulatory change of control and other share transfer restrictions, including approval of the Superintendência de Seguros
Privados (SUSEP).
These requirements may deter, delay or prevent transactions affecting the control of or the ownership of common stock,
including transactions that could be advantageous to TRV’s shareholders.
Regulatory Developments
The state insurance regulatory framework has been under continuing scrutiny, and some state legislatures have considered or
enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies.
Further, the NAIC and state insurance regulators continually re-examine existing laws and regulations, specifically focusing on
modifications to holding company statutes, regulations, interpretations of existing laws and the development of new laws and
regulations.
As part of these changes, insurance holding company regulations were amended to require insurers who are part of a holding
company system to file an enterprise risk report to provide the lead insurance regulator with a summary of the company’s
Enterprise Risk Management (ERM) framework, including the material risks within the insurance holding company system that
could pose risk to the insurance entities within the holding company system. Insurers having premium volume above certain
thresholds, including the Company, are also required to perform at least annually a self-assessment of their current and future
risks, including their likely future solvency position (known as an own risk and solvency assessment or ORSA) and file a
confidential report with the insurer’s lead insurance regulator. The requirement for an insurer to conduct an ORSA is intended
to foster an effective level of ERM for all insurers within a holding company system, and to provide a group-wide perspective
on risks and capital as a supplement to the legal entity view. ORSA is now included in the International Association of
Insurance Supervisors (IAIS) standards and is in various stages of implementation in the United States, the U.K., Europe,
Canada, and other jurisdictions. It is possible that, as a result of ORSA and the manner in which it may be used by insurance
regulators, the Company's states of domicile or other regulatory bodies may require changes in its ERM process (e.g., prescribe
the use of specific models or the application of certain assumptions or scenarios in the Company’s models) that have the effect
of limiting the Company's ability to write certain risks, limit its risk appetite or reduce its capital management flexibility. See
“Item 1—Business—Enterprise Risk Management” for further discussion of the Company’s ERM.
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ENTERPRISE RISK MANAGEMENT
The Company's (cid:32)nterprise Risk Management ((cid:32)RM) activities involve both the identification and assessment of a broad range
of risks and the execution of coordinated strategies to effectively manage these risks. Since certain risks can be correlated with
other risks, an event or a series of events can impact multiple areas of the Company simultaneously and have a material effect
on the Company’s results of operations, financial position and(cid:14)or liquidity. This requires an entity-wide view of risk and an
understanding of the potential impact on all aspects of the Company’s operations. It also requires the Company to manage its
risk-taking to be within its risk appetite in a prudent and balanced effort to create and preserve value for all of the Company’s
stakeholders. (cid:32)RM also includes an evaluation of the Company’s risk capital needs, which takes into account regulatory
requirements and credit rating considerations, in addition to economic and other factors. (cid:32)RM at the Company is an integral
part of its business operations. All risk owners across all functions, all corporate leaders and the Board of Directors are
engaged in (cid:32)RM. (cid:32)RM involves risk-based analytics, as well as reporting and feedback throughout the enterprise in support of
the Company’s long-term financial strategies and objectives.
to make
The Company uses various analyses and methods,
underwriting and reinsurance decisions designed to manage its exposure to catastrophic events.
In addition to catastrophe
modeling and analysis, the Company also models and analy(cid:80)es its exposure to other extreme events. The Company also utili(cid:80)es
proprietary and third-party modeling processes to evaluate capital adequacy. These analytical techniques are an integral
component of the Company’s (cid:32)RM process and further support the Company’s long-term financial strategies and objectives.
including proprietary and third-party modeling processes,
In addition to the day-to-day (cid:32)RM activities within the Company’s operations, key internal risk management functions include,
among others, the Management and Operating Committees (comprised of the Company’s Chief (cid:32)xecutive Officer and the other
most senior members of management)(cid:26) the (cid:32)nterprise, Segment and Function (including Catastrophe, Cyber, etc.) Risk
Committees of management(cid:26) the (cid:32)xecutive Crisis Management Team(cid:26) the Committee on Climate, (cid:32)nergy and the (cid:32)nvironment(cid:26)
and the Credit Committee. A senior executive team comprised of the Chief Risk Officer and the (cid:32)nterprise Chief Underwriting
Officer oversees the (cid:32)RM process. The mission of this team is to facilitate risk assessment and to collaborate in implementing
effective risk management strategies throughout the Company. Another strategic (cid:32)RM objective of this team includes working
across the Company to enhance effective and realistic risk modeling capabilities as part of the Company’s overall effort to
understand and manage its portfolio of risks to be within its risk appetite. Board oversight of (cid:32)RM is provided by the Risk
Committee of the Board of Directors, which reviews the strategies, processes and controls pertaining to the Company’s
insurance operations and oversees the implementation, execution and performance of the Company’s (cid:32)RM program. The Risk
Committee of the Board of Directors meets with senior management at least four times a year to discuss (cid:32)RM activities and
provides a report to the full Board of Directors after each such meeting.
The Company’s (cid:32)RM efforts build upon the foundation of an effective internal control environment. (cid:32)RM expands the internal
control objectives of effective and efficient operations, reliable financial reporting and compliance with applicable laws and
regulations, to foster, lead and support an integrated, risk-based culture within the Company that focuses on value creation and
preservation. (cid:35)owever, the Company can provide only reasonable, not absolute, assurance that these objectives will be met.
Further, the design of any risk management or control system must reflect the fact that there are resource constraints, and the
benefits must be considered relative to their costs. As a result, the possibility of material financial loss remains in spite of the
Company’s significant and comprehensive (cid:32)RM efforts. An investor should carefully consider the risks and all of the other
information set forth in this annual report, including the discussions included in “Item 1A—Risk Factors,” “Item 7A—
(cid:44)uantitative and (cid:44)ualitative Disclosures About Market Risk,” and “Item 8—Financial Statements and Supplementary Data.”
OTHER INFORMATION
Seasonality
A discussion of the extent to which the Company’s business may be seasonal can be found under “Outlook” within “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated by reference into
this Item 1.
Human Capital Management
At December 31, 2021, the Company had approximately 30,800 employees, 98% of whom are full-time employees. Over 90%
of the Company’s employees are located in the United States. The following table shows the geographic distribution of the
Company’s employees as of December 31, 2021:
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Location
Domestic:
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% of Total
Connecticut.........................................................................................................................................................
Minnesota ...........................................................................................................................................................
New York ...........................................................................................................................................................
Texas ..................................................................................................................................................................
California............................................................................................................................................................
Florida ................................................................................................................................................................
Georgia ...............................................................................................................................................................
Massachusetts.....................................................................................................................................................
Illinois.................................................................................................................................................................
All other domestic (1) ..........................................................................................................................................
Total Domestic...............................................................................................................................................
International:
Canada.................................................................................................................................................................
United Kingdom..................................................................................................................................................
All other international .........................................................................................................................................
Total International..........................................................................................................................................
Consolidated total .........................................................................................................................................
23.4 %
7.0
7.0
6.5
5.2
3.9
3.4
3.0
3.0
28.0
90.4
5.1
4.3
0.2
9.6
100.0 %
___________________________________________
(1)
No other single state accounted for 3.0% or more of the Company’s employees as of December 31, 2021.
The average employee tenure at the Company is 12 years, and over 20 years for the Company’s approximately 600 most senior
leaders. The Company’s average global voluntary turnover rate over the past three years was approximately 8%. The Company
believes that these employee tenure and voluntary turnover rates are due, in part, to the resources and support the Company
provides to employees throughout their careers, as discussed below.
Maintaining an Ethical Culture
The Company’s culture of honesty, integrity and accountability is critical to its long-term success. To support this culture, the
Company promotes ethics and compliance awareness across its operations. On an annual basis, all employees of the Company’s
wholly owned subsidiaries are required to complete the Company’s ethics training and certify that they have reviewed,
understand and agree to comply with the Company’s Code of Business Conduct and Ethics and other applicable Company
policies.
The Company provides employees with multiple channels to raise concerns, including the Human Resources, Employee
Relations and Compliance functions, as well as the Travelers Ethics Helpline. The Company’s independently administered
Ethics Helpline is available to employees and others 24 hours a day, seven days a week to report issues or seek guidance
confidentially and anonymously. Trained professionals investigate each concern and, where appropriate, escalate it internally.
In addition, the Company maintains a formal Whistleblowing and Non-Retaliation Policy that prohibits retaliation against, or
discipline of, an employee who raises concerns in good faith.
Employee Engagement
The Company strives to deliver an employee experience that engages its workforce and strengthens the organization. The
Company maintains an Employee Experience function that is responsible for, among other things, an employee experience
program that is designed to help drive superior business performance. This function helps the Company create and enhance
programs designed to improve employee engagement, reduce attrition and support the retention, growth and satisfaction of the
Company’s employees.
The Company uses various methods to evaluate the employee experience and the success of its employee engagement efforts,
as well as to inform the strategies the Company uses to enhance those efforts. In addition, the Company’s Chief Human
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Resources Officer meets regularly with the Chief Executive Officer and other senior leaders to discuss employee engagement
strategies and the Company’s progress.
Based on the Company’s employee tenure and voluntary turnover rates, as discussed above, as well as other means the
Company uses to evaluate the employee experience and the success of its engagement efforts, the Company believes that its
engagement efforts are effective.
Learning and Development
The Company offers various learning and development opportunities to provide its employees with the skills and capabilities
they need to be successful. For example, managers participate in the Company’s leadership workshop, Leadership Challenge©,
which provides an overview of key leadership practices at the Company. These practices are designed to enable leaders to
increase engagement and inclusion, lead change, drive innovation, tie business goals to a greater purpose and coach people to
higher levels of performance. The Company also offers three additional foundational workshops centered on leadership:
Leadership Principles, Coaching for Performance Excellence, and Leading World Class Teams.
In addition,
the Company offers career mentorship and development programs for both entry-level and experienced
professionals. For example, the Company’s Development Programs provide employees with an opportunity to progress through
a steady career path in a specific discipline such as Actuarial, Business Insights & Analytics, Data Science, Finance, Human
Resources, Technology, Operations, Underwriting, Investments or Product Management. Participants complete assignments
and rotations designed to help them build upon their strategic thinking skills and business acumen, provide the foundational
knowledge and technical skills necessary for success and include on-the-job training, classroom instruction, self-study materials
and independent work in an assigned business area. These programs have been a part of the Company’s talent strategy for many
years and have remained robust through the pandemic.
The Company also maintains a senior-level position responsible for monitoring the development of talented employees to
support them in developing the skills necessary to advance their career and expanding their relationships to ensure their success.
Diversity and Inclusion
The Company believes that its diversity and inclusion efforts are important to its success. The Vice President of Diversity and
Inclusion leads the Company’s diversity and inclusion efforts. The Company also has a Diversity Council that is chaired by the
Chairman and Chief Executive Officer, comprising the 40 members of the Company’s Operating Committee.
The Company provides training, development and cultural events to encourage an inclusive culture among its employees,
including the Company’s leadership. Among others,
to conscious inclusion,
unconscious bias, and harassment awareness, as ways to ensure a respectful work environment and adherence to applicable
legal requirements.
the Company offers training with respect
The Company also has eight Diversity Networks – voluntary groups led by employees, dedicated to fostering a diverse and
inclusive work environment. The networks help foster the retention, development and success of the Company’s employees
through networking, mentorship and community volunteer opportunities. In addition, these groups are a resource for the
Company’s business leaders, providing them with important insights and perspectives. More than 12,000 employees – nearly
40% of the Company's employee population – are members of one or more of the Company's Diversity Networks.
The Company also continues to improve its diverse talent pipeline. The Company has established deliberate recruiting,
retention and development practices that are tailored to deepen diverse talent pools and broaden advancement opportunities.
These practices include matching upcoming leaders with mentors within the organization and offering workshops to advance
their careers within the Company. The Company also uses various talent acquisition strategies, including sourcing strategies
and initiatives and partnerships with college diversity groups and other organizations, to help create a pipeline of diverse
candidates.
The Company has made significant progress over the past decade in increasing its diverse talent. In each of the last 10 years, the
Company has increased the percentage of people of color (as defined by the U.S. Equal Employment Opportunity
Commission's EEO-1 race and ethnicity categories for the U.S.) in its U.S. workforce. As of December 31, 2021, women and
people of color represented approximately 54% and 25% of its U.S. workforce, respectively. The Company continues to make
progress in promoting women and people of color. In each of the last 10 years, the Company has increased the percentage of
women and people of color in U.S. management-level positions.
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Performance and Succession
The Company’s performance management strategy is designed to develop the Company’s talent and equip employees with the
skills and resources necessary to ensure the Company’s continued success. To that end, managers assist with setting and
monitoring goals, planning, development and discussing opportunities for improvement throughout the year.
The Company also conducts a comprehensive annual talent review, which includes succession planning, to identify and prepare
talented employees for future leadership positions. Each line of business identifies talented employees and succession
candidates for targeted development and advancement opportunities. This talent review process culminates with the Chief
Executive Officer and those reporting directly to him meeting to review succession plans for key positions.
In addition, the
Chief Executive Officer regularly meets with the Nominating and Governance Committee of the Board of Directors and the full
Board of Directors to discuss succession-related matters.
Compensation and Benefits
The Company’s compensation and benefits programs are designed to attract, motivate and retain high performing employees
and to help employees be healthy and productive in all aspects of their lives.
Paying employees equitably is the foundation of the Company’s performance-based culture. The Company has comprehensive
processes and controls in place and reviews its compensation practices annually with independent, outside experts, in each case
to help ensure equitable pay across the Company. Based in part on these measures, the Company believes that it pays its
employees equitably, regardless of gender, race or any other protected classification.
The Company’s minimum hourly wage in the United States is $15. As calculated and reported in the Company’s most recent
Proxy Statement filed in April 2021, excluding the Company's Chairman and Chief Executive Officer, (i) the median of the
annual total compensation of all the Company’s employees was more than $112,500, and (ii) the median of the annual total
compensation of the Company’s full-time U.S. employees who worked for the Company for the entire year, who comprised
over 90% of its U.S. workforce, was nearly $120,000.
The Company takes a holistic approach with respect to the physical, emotional, mental and financial well-being of its
employees. The Company offers comprehensive, flexible benefit options for its employees. In the United States, these include,
among others:
Health and Wellness
• Medical, dental, vision and prescription drug coverage;
•
•
Health savings and flexible spending accounts;
The myWellness platform, a virtual application containing tools and resources to help employees achieve their
physical, mental and wellness goals;
Round-the-clock access to Life Balance, the Company’s employee assistance program, which provides employees
access to professional counseling services, life coaching and support resources;
Grand Rounds, a free service for employees and dependents enrolled in the Company’s medical plan that matches
members to top-ranked doctors, provides expert second opinions and assists in navigating the health care system; and
Caregiving support by Wellthy, a benefit that helps employees navigate the challenges of caring for children, aging
family members or loved ones who are chronically ill.
•
•
•
Savings and Retirement
•
•
•
•
•
A 401(k) Savings Plan, through which the Company matches employee contributions dollar-for-dollar up to 5% of
eligible pay, with a maximum annual Company match of $7,000;
The Paying It Forward Savings Program, through which the Company supports employees with student loans by
making an annual contribution in the employee’s 401(k) account equal to the annual student loan payments. The
combined maximum of the 401(k) match and the Paying It Forward savings contribution is 5% of eligible pay, up to a
maximum of $7,000;
A pension plan that provides annual pay credits from 2% to 6% of eligible pay based on age and years of service, plus
quarterly interest credits;
Financial wellness assessments; and
Retirement planning services.
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Other
•
•
•
•
•
•
•
•
Life insurance;
Short- and long-term disability coverages;
Paid time-off, starting at 20 days per year, up to a maximum of 30 days per year based on years of service, plus the
ability to purchase up to 6 additional days per year;
Paid parental and adoption leave;
Childcare discounts;
Legal Services Plan;
A corporate discount program; and
Paid time off for volunteering.
Board Oversight of Human Capital Management
The Company’s Board of Directors takes an active role in overseeing the Company’s human capital management strategy,
including its diversity and inclusion efforts. The Chief Human Resources Officer and other senior executives present to the
Board regularly on human capital management matters, including the progress the Company has made over time. Additionally,
pursuant to its charter, the Nominating and Governance Committee of the Board meets regularly with senior management,
including the Chief Executive Officer and the Chief Human Resources Officer, to review and discuss the Company’s strategies
to encourage diversity and inclusion within the Company. Pursuant to its charter, the Compensation Committee of the Board,
which is advised by an independent compensation consultant, reviews and approves the Company’s general compensation
philosophy and objectives. In addition, the Compensation Committee meets with senior management on a regular basis to
discuss the Company’s practices designed to help ensure equitable pay across the organization.
Taxation
For a discussion of tax matters affecting the Company and its operations, see “Item 7—Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and note 13 of notes to the consolidated financial statements.
Intellectual Property
The Company relies on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish
and protect its intellectual property. With respect to trademarks specifically, the Company has registrations in many countries,
including the United States, for its material trademarks, including the “Travelers” name and the Company’s iconic umbrella
logo. The Company has the right to retain its material trademark rights in perpetuity, so long as it satisfies the use and
registration requirements of all applicable countries. The Company regards its trademarks as highly valuable assets in
marketing its products and services and vigorously seeks to protect its trademarks against infringement. See “Item 1A—Risk
Factors—Intellectual property is important to our business, and we may be unable to protect and enforce our own intellectual
property or we may be subject to claims for infringing the intellectual property of others.”
Company Website, Social Media and Availability of SEC Filings
The Company’s internet website is www.travelers.com. Information on the Company’s website is not incorporated by reference
herein and is not a part of this Form 10-K. The Company makes available free of charge on its website or provides a link on its
website to the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K,
and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC. To access
these filings, go to the Company’s website and under the “Investors” heading, click on “Financial Information” then “SEC
Filings.”
The Company 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 posted on and
accessible through the Company’s website at http://investor.travelers.com, its Facebook page at https://www.facebook.com/
travelers and its Twitter account (@Travelers) at https://www.twitter.com/Travelers.
In addition, you may automatically
receive email alerts and other information about the Company when you enroll your email address by visiting “Email
Notifications” under the "Investor Toolkit" section at http://investor.travelers.com.
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Accident year ...................................
The annual calendar accounting period in which loss events occurred,
regardless of when the losses are actually reported, booked or paid.
Glossary of Selected Insurance Terms
Adjusted unassigned surplus............
Unassigned surplus as of the most recent statutory annual report reduced by
twenty-five percent of
that year’s unrealized appreciation in value or
revaluation of assets or unrealized profits on investments, as defined in that
report.
Admitted insurer ..............................
A company licensed to transact insurance business within a state.
Agent................................................
A licensed individual who sells and services insurance policies, receiving a
commission from the insurer for selling the business and a fee for servicing it.
An independent agent represents multiple insurance companies and searches
the market for the best product for its client.
Annuity ............................................
A contract that pays a periodic benefit over the remaining life of a person (the
annuitant), the lives of two or more persons or for a specified period of time.
Assigned risk pools..........................
Reinsurance pools which cover risks for those unable to purchase insurance in
the voluntary market. Possible reasons for this inability include the risk being
too great or the profit being too small under the required insurance rate
structure. The costs of the risks associated with these pools are charged back to
insurance carriers in proportion to their direct writings.
Assumed reinsurance .......................
Insurance risks acquired from a ceding company.
Book value per share........................
Total common shareholders’ equity divided by the number of common shares
outstanding.
Broker ..............................................
One who negotiates contracts of insurance or reinsurance on behalf of an
insured party, receiving a commission from the insurer or reinsurer for
placement and other services rendered.
Capacity ...........................................
The percentage of statutory capital and surplus, or the dollar amount of
exposure, that an insurer or reinsurer is willing or able to place at risk. Capacity
may apply to a single risk, a program, a line of business or an entire book of
business. Capacity may be constrained by legal
restrictions, corporate
restrictions or indirect restrictions.
Captive .............................................
A closely-held insurance company whose primary purpose is to provide
insurance coverage to the company’s owners or their affiliates.
Case reserves....................................
Claim department estimates of anticipated future payments to be made on each
specific individual reported claim.
Casualty insurance ...........................
Insurance which is primarily concerned with the losses caused by injuries to
third persons, i.e., not the insured, and the legal liability imposed on the insured
resulting therefrom. It includes, but is not limited to, employers’ liability,
workers’ compensation, public liability, automobile liability, personal liability
and aviation liability insurance. It excludes certain types of losses that by law
or custom are considered as being exclusively within the scope of other types
of insurance, such as fire or marine.
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Catastrophe ......................................
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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 include hurricanes, tornadoes and other windstorms,
earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic
eruptions, solar flares and other naturally-occurring events. 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, civil unrest, 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
reinsurance reinstatement premiums and
may result
in the payment of
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 2021 ranged from
approximately $20 million to $30 million of losses before reinsurance and
taxes.
Catastrophe loss ...............................
Loss and directly identified loss adjustment expenses from catastrophes, as
well as related reinsurance reinstatement premiums and assessments from
various pools.
Catastrophe reinsurance...................
A form of excess-of-loss reinsurance which, subject
to a specified limit,
indemnifies the ceding company for the amount of loss in excess of a specified
retention with respect to an accumulation of losses and related reinsurance
reinstatement premiums resulting from a catastrophic event. The actual
reinsurance document
is called a “catastrophe cover.” These reinsurance
contracts are typically designed to cover property insurance losses but can be
written to cover casualty insurance losses such as from workers’ compensation
policies.
Cede; ceding company.....................
When an insurer reinsures its liability with another insurer or a “cession,” it
“cedes” business and is referred to as the “ceding company.”
Ceded reinsurance............................
Insurance
“Reinsurance.”
risks
transferred to another
company as
reinsurance. See
Claim................................................
Request by an insured for indemnification by an insurance company for loss
incurred from an insured peril.
Claim adjustment expenses..............
See “Loss adjustment expenses (LAE).”
Claims and claim adjustment
expenses .......................................
See “Loss” and “Loss adjustment expenses (LAE).”
Claims and claim adjustment
expense reserves...........................
See “Loss reserves.”
Cohort ..............................................
A group of
individuals that share a particular statistical or
demographic characteristic. For example, all claims for a given product in a
given market for a given accident year would represent a cohort of claims.
items or
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Combined ratio ................................
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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 report is the equivalent of, and is calculated in
the same manner as, the SAP combined ratio except that the SAP underwriting
expense ratio is based on net written premium and the underwriting expense
ratio as used in this report is based on net earned premiums.
The combined ratio is an indicator of the Company’s underwriting discipline,
efficiency in acquiring and servicing its business and overall underwriting
profitability. A combined ratio under 100% generally indicates an underwriting
profit. A combined ratio over 100% generally indicates an underwriting loss.
Other companies’ method of computing a similarly titled measure may not be
comparable to the Company’s method of computing this ratio.
Commercial multi-peril policies ......
Refers to policies which cover both property and third-party liability
exposures.
Commutation agreement..................
An agreement between a reinsurer and a ceding company whereby the
reinsurer pays an agreed-upon amount in exchange for a complete discharge of
all obligations, including future obligations, between the parties for reinsurance
losses incurred.
Core income (loss) ...........................
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 date, and cumulative effect of changes in
accounting principles when applicable. Financial statement users consider core
income when analyzing the results and trends of insurance companies.
Debt-to-total capital ratio.................
The ratio of debt to total capitalization.
Debt-to-total capital ratio excluding
net unrealized gain (loss) on
investments...................................
The ratio of debt to total capitalization excluding the after-tax impact of net
unrealized investment gains and losses included in shareholders' equity.
Deductible........................................
The amount of loss that an insured retains.
Deferred acquisition costs (DAC)....
Deficiency........................................
Incremental direct costs of acquired and renewal
insurance contracts,
consisting of commissions (other than contingent commissions) and premium-
related taxes that are deferred and amortized to achieve a matching of revenues
and expenses when reported in financial statements prepared in accordance
with U.S. Generally Accepted Accounting Principles (GAAP).
With regard to reserves for a given liability, a deficiency exists when it is
estimated or determined that the reserves are insufficient to pay the ultimate
settlement value of the related liabilities. Where the deficiency is the result of
an estimate, the estimated amount of deficiency (or even the finding of whether
or not a deficiency exists) may change as new information becomes available.
Demand surge ..................................
Significant short-term increases in building material and labor costs due to a
sharp increase in demand for those materials and services, commonly as a
result of a large catastrophe resulting in significant widespread property
damage.
Direct written premiums ..................
The amounts charged by an insurer to insureds in exchange for coverages
provided in accordance with the terms of an insurance contract. The amounts
exclude the impact of all reinsurance premiums, either assumed or ceded.
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Earned premiums or premiums
earned ...........................................
That portion of property casualty premiums written that applies to the expired
portion of the policy term. Earned premiums are recognized as revenues under
both SAP and GAAP.
Excess and surplus lines insurance.........................
Insurance for risks not covered by standard insurance due to the unique nature
of the risk. Risks could be placed in excess and surplus lines markets due to
any number of characteristics, such as loss experience, unique or unusual
exposures, or insufficient experience in business. Excess and surplus lines are
less regulated by the states, allowing greater flexibility to design specific
insurance coverage and negotiate pricing based on the risks to be secured.
Excess liability.................................
Additional casualty coverage above a layer of insurance exposures.
Excess-of-loss reinsurance...............
Reinsurance that indemnifies the reinsured against all or a specified portion of
losses over a specified dollar amount or “retention.”
Exposure ..........................................
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.
Facultative reinsurance ....................
The reinsurance of all or a portion of the insurance provided by a single policy.
Each policy reinsured is separately negotiated.
Fair Access to Insurance
Requirements (FAIR) Plan...........
A residual market mechanism which provides property insurance to those
unable to obtain such insurance through the regular (voluntary) market. FAIR
plans are set up on a state-by-state basis to cover only those risks in that state.
For more information, see “residual market (involuntary business).”
Fidelity and surety programs ...........
Fidelity insurance coverage protects an insured for loss due to embezzlement
or misappropriation of funds by an employee. Surety is a three-party agreement
in which the insurer agrees to pay a third party or make complete an obligation
in response to the default, acts or omissions of an insured.
Gross written premiums...................
The direct and assumed contractually determined amounts charged to the
policyholders for the effective period of the contract based on the terms and
conditions of the insurance contract.
Ground-up analysis ..........................
A method to estimate ultimate claim costs for a given cohort of claims such as
an accident year/product line component. It involves analyzing the exposure
and claim activity at an individual insured level and then through the use of
deterministic or stochastic scenarios and/or simulations, estimating the ultimate
losses for those insureds. The total losses for the cohort are then the sum of the
losses for each individual insured.
In practice, the method is sometimes simplified by performing the individual
insured analysis only for the larger insureds, with the costs for the smaller
insureds estimated via sampling approaches (extrapolated to the rest of the
smaller
insured population) or aggregate approaches (using assumptions
consistent with the ground-up larger insured analysis).
Guaranteed-cost products ................
An insurance policy where the premiums charged will not be adjusted for
actual loss experience during the covered period.
Guaranty fund ..................................
A state-regulated mechanism that is financed by assessing insurers doing
business in those states. Should insolvencies occur, these funds are available to
meet some or all of the insolvent insurer’s obligations to policyholders.
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Holding company liquidity ..............
Total cash, short-term invested assets and other readily marketable securities
held by the holding company.
Incurred but not reported (IBNR)
reserves.........................................
Reserves for estimated losses and LAE that have been incurred but not yet
reported to the insurer. This includes amounts for unreported claims,
development on known cases and re-opened claims.
Inland marine ...................................
A broad type of insurance generally covering articles that may be transported
from one place to another, as well as bridges,
tunnels and other
instrumentalities of transportation. It includes goods in transit, generally other
than transoceanic, and may include policies for movable objects such as
personal effects, personal property, jewelry, furs, fine art and others.
Insurance Regulatory Information
System (IRIS) ratios .....................
Financial ratios calculated by the NAIC to assist state insurance departments in
monitoring the financial condition of insurance companies.
Large deductible policy ...................
An insurance policy where the customer assumes at least $25,000 or more of
each loss. Typically, the insurer is responsible for paying the entire loss under
those policies and then seeks reimbursement
the
deductible amount.
from the insured for
Lloyd’s .............................................
An insurance marketplace based in London, England, where brokers,
representing clients with insurable risks, deal with Lloyd’s underwriters, who
represent investors. The investors are grouped together into syndicates that
provide capital to insure the risks.
Loss..................................................
An occurrence that is the basis for submission and/or payment of a claim.
Losses may be covered, limited or excluded from coverage, depending on the
terms of the policy.
Loss adjustment expenses (LAE) ....
The expenses of settling claims, including legal and other fees and the portion
of general expenses allocated to claim settlement costs.
Loss and LAE ratio ..........................
Loss reserves....................................
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 report is calculated
in the same manner as the SAP ratio.
The loss and LAE ratio is an indicator of the Company’s underwriting
discipline and underwriting profitability.
Other companies’ method of computing a similarly titled measure may not be
comparable to the Company’s method of computing this ratio.
Liabilities established by insurers and reinsurers to reflect the estimated cost of
claims incurred that the insurer or reinsurer will ultimately be required to pay
in respect of insurance or reinsurance it has written. Reserves are established
for losses and for LAE, and consist of case reserves and IBNR reserves. As the
term is used in this document, “loss reserves” is meant to include reserves for
both losses and LAE.
Loss reserve development................
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. Loss reserve
development may be related to prior year or current year development.
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Losses incurred ................................
The total losses sustained by an insurance company under a policy or policies,
whether paid or unpaid. Incurred losses include a provision for IBNR.
National Association of Insurance
Commissioners (NAIC) ...............
An organization of the insurance commissioners or directors of all (cid:20)0 states,
the District of Columbia and the five U.S. territories organized to promote
consistency of
regulatory practice and statutory accounting standards
throughout the United States.
Net written premiums ......................
Direct written premiums plus assumed reinsurance premiums less premiums
ceded to reinsurers.
New business volume ......................
The amount of written premiums related to new policyholders and additional
products sold to existing policyholders.
Pool ..................................................
An organization of insurers or reinsurers through which particular types of
risks are underwritten with premiums, losses and expenses being shared in
agreed-upon percentages.
Premiums .........................................
The amount charged during the year on policies and contracts issued, renewed
or reinsured by an insurance company.
Probable maximum loss (P(cid:40)L).......
The maximum amount of loss that the Company would be expected to incur on
a policy if a loss were to occur, giving effect to collateral, reinsurance and
other factors.
Property insurance ...........................
Insurance that provides coverage to a person or business with an insurable
interest in tangible property for that person’s or business’s property loss,
damage or loss of use.
(cid:44)uota share reinsurance...................
Reinsurance wherein the insurer cedes an agreed-upon fixed percentage of
liabilities, premiums and losses for each policy covered on a pro rata basis.
Rates.................................................
Amounts charged per unit of insurance.
Redundancy .....................................
(cid:50)ith regard to reserves for a given liability, a redundancy exists when it is
estimated or determined that the reserves are greater than what will be needed
to pay the ultimate settlement value of the related liabilities. (cid:50)here the
redundancy is the result of an estimate, the estimated amount of redundancy (or
even the finding of whether or not a redundancy exists) may change as new
information becomes available.
Reinstatement premiums..................
Additional premiums payable to reinsurers to restore coverage limits that have
been exhausted as a result of reinsured losses under certain excess-of-loss
reinsurance treaties.
Reinsurance......................................
The practice whereby one insurer, called the reinsurer, in consideration of a
premium paid to that insurer, agrees to indemnify another insurer, called the
ceding company, for part or all of the liability of the ceding company under
one or more policies or contracts of insurance which it has issued.
Reinsurance agreement ....................
A contract specifying the terms of a reinsurance transaction.
Renewal premium change................
The estimated change in average premium on policies that renew, including
rate and exposure changes. Such statistics are subject to change based on a
number of factors, including changes in estimates.
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Renewal rate change ........................
The estimated change in average premium on policies that renew, excluding
exposure changes. Such statistics are subject to change based on a number of
factors, including changes in estimates.
Residual market (involuntary
business).......................................
Insurance market which provides coverage for risks for those unable to
purchase insurance in the voluntary market. Possible reasons for this inability
include the risks being too great or the profit potential too small under the
required insurance rate structure. Residual markets are frequently created by
state legislation either because of lack of available coverage such as: property
coverage in a windstorm prone area or protection of the accident victim as in
the case of workers’ compensation. The costs of the residual market are usually
charged back to the direct insurance carriers in proportion to the carriers’
voluntary market shares for the type of coverage involved.
Retention..........................................
The amount of exposure a policyholder company retains on any one risk or
group of risks. The term may apply to an insurance policy, where the
policyholder is an individual, family or business, or a reinsurance policy, where
the policyholder is an insurance company.
Retention rate...................................
The percentage of prior period premiums (excluding renewal premium
changes), accounts or policies available for renewal in the current period that
were renewed. Such statistics are subject to change based on a number of
factors, including changes in estimates.
Retrospective premiums ..................
Premiums related to retrospectively rated policies.
Retrospective rating .........................
A plan or method which permits adjustment of
the final premium or
commission on the basis of actual loss experience, subject to certain minimum
and maximum limits.
Return on equity...............................
The ratio of net income (loss) less preferred dividends to average shareholders’
equity.
Risk-based capital (RBC) ................
A measure adopted by the NAIC and enacted by states for determining the
minimum statutory policyholders’ surplus requirements of insurers. Insurers
having total adjusted capital less than that required by the RBC calculation will
be subject to varying degrees of regulatory action depending on the level of
capital inadequacy.
Risk retention group.........................
An alternative form of insurance in which members of a similar profession or
business band together to self insure their risks.
Runoff business................................
An operation which has been determined to be nonstrategic; includes non-
renewals of in-force policies and a cessation of writing new business, where
allowed by law.
Salvage.............................................
The amount of money an insurer recovers through the sale of property
transferred to the insurer as a result of a loss payment.
Second-injury fund ..........................
The employer of an injured, impaired worker is responsible only for the
workers’ compensation benefit for the most recent injury; the second-injury
fund would cover the cost of any additional benefits for aggravation of a prior
condition. The cost is shared by the insurance industry and self-insureds,
funded through assessments to insurance companies and self-insureds based on
either premiums or losses.
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Segment income (loss).....................
Determined in the same manner as core income (loss) on a segment basis.
Management uses
to analyze each segment’s
income (loss)
performance and as a tool in making business decisions. Financial statement
users also consider segment income when analyzing the results and trends of
insurance companies.
segment
Self-insured retentions .....................
That portion of the risk retained by an insured for its own account.
Servicing carrier...............................
An insurance company that provides, for a fee, various services including
policy issuance, claims adjusting and customer service for insureds in a
reinsurance pool.
Statutory accounting practices
(SAP)............................................
The practices and procedures prescribed or permitted by domiciliary state
insurance regulatory authorities in the United States for recording transactions
and preparing financial statements. SAP generally reflect a modified going
concern basis of accounting.
Statutory capital and surplus............
The excess of an insurance company’s admitted assets over its liabilities,
including loss reserves, as determined in accordance with SAP. Admitted
assets are assets of an insurer prescribed or permitted by a state to be
recognized on the statutory balance sheet. Statutory capital and surplus is also
referred to as “statutory surplus” or “policyholders’ surplus.”
Statutory net income ........................
As determined under SAP, total revenues less total expenses and income taxes.
Structured settlement .......................
Periodic payments to an injured person or survivor for a determined number of
years or for life, typically in settlement of a claim under a liability policy,
usually funded through the purchase of an annuity.
Subrogation......................................
A principle of law incorporated in insurance policies, which enables an
insurance company, after paying a claim under a policy, to recover the amount
of the loss from another person or entity who is legally liable for it.
Tenure impact ..................................
As new business volume increases and accounts for a greater percentage of
earned premiums, the loss and LAE ratio generally worsens initially, as the loss
and LAE ratio for new business is generally higher than the ratio for business
that has been retained for longer periods. As poorer performing business leaves
and pricing segmentation improves on renewal of the business that is retained,
the loss and LAE ratio is expected to improve in future years.
Third-party liability..........................
A liability owed to a claimant (third party) who is not one of the two parties to
the insurance contract. Insured liability claims are referred to as third-party
claims.
Total capitalization ..........................
The sum of total shareholders’ equity and debt.
Treaty reinsurance............................
The reinsurance of a specified type or category of risks defined in a reinsurance
agreement (a “treaty”) between a primary insurer or other reinsured and a
reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is
obligated to offer and the reinsurer is obligated to accept a specified portion of
all that type or category of risks originally written by the primary insurer or
reinsured.
Umbrella coverage...........................
A form of insurance protection against losses in excess of amounts covered by
other liability insurance policies or amounts not covered by the usual liability
policies.
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Unassigned surplus ..........................
The undistributed and unappropriated amount of statutory capital and surplus.
Underlying combined ratio ..............
The underlying combined ratio is the sum of the underlying loss and LAE ratio
and the underlying underwriting expense ratio. The underlying combined ratio
is an indicator of the Company’s underwriting discipline and underwriting
profitability for the current accident year.
Underlying loss and LAE ratio ........
The underlying loss and LAE ratio is the loss and LAE ratio, adjusted to
exclude the impact of catastrophes and prior year reserve development. The
underlying loss and LAE ratio is an indicator of the Company’s underwriting
discipline and underwriting profitability for the current accident year.
Underlying underwriting expense
ratio ..............................................
The underlying underwriting expense ratio is the underwriting expense ratio
adjusted to exclude the impact of catastrophes.
Underlying underwriting margin .....
Net earned premiums and fee income less claims and claim adjustment
expenses (excluding catastrophe losses and prior year reserve development)
and insurance-related expenses.
Underwriter......................................
An employee of an insurance company who examines, accepts or rejects risks
and classifies accepted risks in order to charge an appropriate premium for
each accepted risk. The underwriter is expected to select business that will
produce an average risk of loss no greater than that anticipated for the class of
business.
Underwriting....................................
The insurer’s or reinsurer’s process of reviewing applications for insurance
coverage, and the decision as to whether to accept all or part of the coverage
and determination of the applicable premiums; also refers to the acceptance of
that coverage.
Underwriting expense ratio..............
For SAP, the underwriting expense ratio is the ratio of underwriting expenses
incurred (including commissions paid), less certain administrative services fee
income and billing and policy fees, to net written premiums as defined in the
regulators. The
statutory financial
underwriting expense ratio as used in this report 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.
required by insurance
statements
The underwriting expense ratio is an indicator of the Company’s efficiency in
acquiring and servicing its business.
Other companies’ method of computing a similarly titled measure may not be
comparable to the Company’s method of computing this ratio.
Underwriting gain or loss ................
Net earned premiums and fee income less claims and claim adjustment
expenses and insurance-related expenses.
Unearned premium ..........................
The portion of premiums written that is allocable to the unexpired portion of
the policy term.
Voluntary market .............................
The market in which a person seeking insurance obtains coverage without the
assistance of residual market mechanisms.
Wholesale broker .............................
An independent or exclusive agent that represents both admitted and non-
admitted insurers in market areas, which include standard, non-standard,
specialty and excess and surplus lines of insurance. The wholesaler does not
deal directly with the insurance consumer. The wholesaler deals with the retail
agent or broker.
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Workers’ compensation ...................
A system (established under state and federal laws) under which employers
provide insurance for benefit payments to their employees for work-related
injuries, deaths and diseases, regardless of fault.
Item 1A. RISK FACTORS
You should carefully consider the following risks and all of the other information set forth in this report, including without
limitation our consolidated financial statements and the notes thereto and "Item 7—Management's Discussion and Analysis of
Financial Condition and Results of Operations—Critical Accounting Estimates." The following risk factors have been
organized by category for ease of use; however, many of the risks may have impacts in more than one category.
Insurance-Related Risks
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 our results of operations, our financial position and/or
liquidity, and could adversely impact our ratings, our ability to raise capital and the availability and cost of reinsurance.
Our property and casualty insurance operations expose us to claims arising out of catastrophes in each of the geographies where
we write business and to varying peak catastrophe perils in different countries and regions. 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, solar flares and other naturally-occurring events. Catastrophes can also be
man-made, such as terrorist attacks and other intentionally destructive acts including those involving cyber events, nuclear,
biological, chemical and radiological events, civil unrest, explosions and destruction of infrastructure.
The incidence and severity of catastrophes are inherently unpredictable, and it is possible that both the frequency and severity
of natural and man-made catastrophic events could increase. Severe weather events over the last two decades have underscored
the unpredictability of climate trends, and changing climate conditions have added to the frequency and severity of natural
disasters and created additional uncertainty as to future trends and exposures. The insurance industry has experienced increased
in addition to weather/climate variability, aging
catastrophe losses due to a number of potential factors,
infrastructure, more people living in, and moving to, high-risk areas, population growth in areas with weaker enforcement of
building codes, urban expansion, an increase in the number of amenities included in, and the average size of, a home and higher
inflation, including as a result of post-event demand surge. For example, both the frequency and severity of tornado and hail
storms in the United States have been subject to more volatility during this time period. In addition, climate studies by
government agencies, academic institutions, catastrophe modeling organizations and other groups indicate that we are
experiencing, and are expected to continue to experience over time, an increase in the frequency and/or intensity of hurricanes,
heavy precipitation events, flash flooding, sea level rise, droughts, heat waves and wildfires. See "Item 7—Management's
Discussion and Analysis of Financial Condition and Results of Operations—Catastrophe Modeling" and "—Changing Climate
Conditions."
including,
All of the catastrophe modeling tools that we use or rely on to evaluate our catastrophe exposures are based on significant
assumptions and judgments and are subject to error and mis-estimation. As a result, our estimated exposures could be
materially different than our actual results. See "Item 7—Management's Discussion and Analysis of Financial Condition and
Results of Operations—Catastrophe Modeling" and "—Changing Climate Conditions."
The extent of losses from a catastrophe is a function of the total amount of insured exposure affected by the event, the severity
of the event and the coverage provided. For example, the specific location impacted by tornadoes is inherently random and
unpredictable, and the specific location impacted by a tornado may or may not be highly populated and may or may not have a
high concentration of our insured exposures. Similarly, the potential for losses from a cyber event can be magnified to the
extent that the event impacts platforms, systems or vulnerabilities shared by a large number of policyholders.
In addition,
increases in the value and geographic concentration of insured property, the number of policyholders exposed to certain events
and the effects of inflation could increase the severity of claims resulting from a catastrophe. For example, in recent periods,
the effects of inflation, including as a result of post-event demand surge, have increased catastrophe losses, and this could
continue in the future.
States have from time to time passed legislation, and regulators have taken action, that have the effect of limiting the ability of
insurers to manage catastrophe risk, such as by restricting insurers from reducing exposures or withdrawing from catastrophe-
prone areas or mandating that insurers participate in residual markets. Residual markets have resulted in, and may in the future
result in, significant losses or assessments to insurers, including us. In addition, legislative, regulatory and legal actions have
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sought to expand insurance coverage for catastrophe claims beyond the original intent of the policies, prevent the application of
deductibles or limit other rights of insurers. We may not be able to adjust terms or adequately raise prices to offset the costs of
catastrophes.
See "Item 1—Business—U.S. State and Federal Regulation – Regulatory and Legislative Responses to
Catastrophes.”
The estimation of claims and claim adjustment expense reserves related to catastrophe losses can be affected by, among other
things, the nature of the information available at the time of estimation, coverage issues, and legal, regulatory and economic
uncertainties. The estimates related to catastrophe losses are adjusted in subsequent periods as actual claims emerge and
additional information becomes available, and these adjustments could be material.
Exposure to catastrophe losses could adversely affect our financial strength and claims-paying ratings and could impair our
ability to raise capital on acceptable terms or at all. Also, as a result of our exposure to catastrophe losses, rating agencies may
further increase capital requirements, which may require us to raise capital to maintain our ratings. A ratings downgrade could
hurt our ability to compete effectively or attract new business. In addition, catastrophic events could cause us to exhaust our
available reinsurance limits and could adversely impact the cost and availability of reinsurance on a going-forward basis. Such
events can also impact the credit of our reinsurers. For a discussion of our catastrophe reinsurance coverage, see "Item 1—
Business—Reinsurance—Catastrophe Reinsurance." Catastrophic events could also adversely impact the credit of the issuers of
securities held in our investment portfolio, such as states or municipalities.
In addition, coverage in our reinsurance program for terrorism is limited. Although the Terrorism Risk Insurance Program
provides benefits in the event of certain acts of terrorism, those benefits are subject to a deductible and other limitations, and the
program is scheduled to expire on December 31, 2027. Under current provisions of this program, once our losses exceed 20%
of our eligible direct commercial earned premiums for the preceding calendar year, the federal government will reimburse us
for 80% of our losses attributable to certain acts of terrorism which exceed this deductible up to a total industry program cap of
$100 billion. Our estimated deductible under the program is $2.71 billion for 2022. For a further description of the Terrorism
Risk Insurance Program, see note 6 of notes to the consolidated financial statements.
Because of the risks set forth above, catastrophes could materially and adversely affect our results of operations, financial
position and/or liquidity. Further, we may not have sufficient resources to respond to claims arising from a high frequency of
high-severity natural catastrophes and/or of man-made catastrophic events involving conventional means or claims arising out
of one or more man-made catastrophic events involving “unconventional” means, such as nuclear, biological, chemical or
radiological events.
If actual claims exceed our 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, our financial results could be materially
and adversely affected. Claims and claim adjustment expense reserves (“loss reserves”) represent management estimates of
what the ultimate settlement and administration of claims will cost, generally utilizing actuarial expertise and projection
techniques, at a given accounting date. The process of estimating loss reserves involves a high degree of judgment and is
subject to a number of variables. These variables can be affected by both internal and external events, such as: changes in
claims handling procedures, including automation; adverse changes in loss cost trends, including inflationary pressures,
technology or other changes that may impact medical, auto and home repair costs (e.g., more costly technology in vehicles
resulting in increased severity of claims); economic conditions, including general and wage inflation; legal trends, including
adverse changes in the tort environment that have continued to persist for a number of years (e.g., increased and more
aggressive attorney involvement in insurance claims, increased litigation, expanded theories of liability, higher jury awards,
lawsuit abuse and third-party litigation finance, among others); labor shortages, which can result in companies hiring less
experienced workers; and legislative changes, among others. The impact of many of these items on ultimate costs for loss
reserves could be material and is difficult to estimate, particularly in light of the recent disruptions to the judicial system, supply
chain and labor market. Loss reserve estimation difficulties also differ significantly by product line due to differences in claim
complexity, the volume of claims, the potential severity of individual claims, the determination of occurrence date for a claim
and lags in reporting of events to insurers, among other factors.
The increase in inflation in recent periods has increased our loss costs in our auto and property businesses. It is possible that,
among other things, past or future steps taken by the federal government and the Federal Reserve to stimulate or support the
U.S. economy, including actions taken in response to COVID-19, supply chain issues and labor shortages, could lead to higher
and/or prolonged inflation, which could in turn lead to further increases in our loss costs. The impact of inflation on loss costs
could be more pronounced for those lines of business that are considered “long tail,” such as general liability and workers'
compensation, as they require a relatively long period of time to finalize and settle claims for a given accident year or require
payouts over a long period of time. In addition, a significant portion of claims costs, including those in “long tail” lines of
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business, consists of medical costs. Changes in healthcare legislation or other market dynamics could significantly impact the
availability, cost and allocation of payments for medical services, and it is possible that, as a result, inflationary pressures in
medical costs may increase or claim frequency and/or severity may otherwise be adversely impacted. In addition to the impact
of inflation on reserves, on a going forward basis, we may not be able to offset the impact of inflation on our loss costs with
sufficient price increases. The estimation of loss reserves may also be more difficult during extreme events, such as a pandemic,
or during volatile or uncertain economic conditions, due to unexpected changes in behavior of claimants and policyholders,
including an increase in fraudulent reporting of exposures and/or losses, reduced maintenance of insured properties, increased
frequency of small claims or delays in the reporting or adjudication of claims.
We refine our loss reserve estimates as part of a regular, ongoing process as historical loss experience develops, additional
claims are reported and settled, and the legal, regulatory and economic environment evolves. Business judgment is applied
throughout the process, including the application of various individual experiences and expertise to multiple sets of data and
analyses. Different experts may apply different assumptions when faced with material uncertainty, based on their individual
backgrounds, professional experiences and areas of focus. As a result, these experts may at times produce estimates materially
different from each other. This risk may be exacerbated in the context of an extreme event or an acquisition. Experts providing
input to the various estimates and underlying assumptions include actuaries, underwriters, claim personnel and lawyers, as well
as other members of management. Therefore, management often considers varying individual viewpoints as part of its
estimation of loss reserves.
Due to the inherent uncertainty underlying loss reserve estimates, the final resolution of the estimated liability for claims and
claim adjustment expenses will likely be higher or lower than the related loss reserves at the reporting date. In addition, our
estimate of claims and claim adjustment expenses may change. These additional liabilities or increases in estimates, or a range
of either, could vary significantly from period to period and could materially and adversely affect our results of operations and/
or our financial position. For a discussion of loss reserves by product line, including examples of common factors that can
affect reserves, see "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—
Critical Accounting Estimates—Claims and Claim Adjustment Expense Reserves."
Our business could be harmed because of our potential exposure to asbestos and environmental claims and related
litigation. We continue to receive a significant number of asbestos claims. Factors underlying these claim filings include
continued intensive advertising by lawyers seeking asbestos claimants and the continued focus by plaintiffs on defendants, such
as manufacturers of talcum powder, who were not traditionally primary targets of asbestos litigation. We also continue to be
involved in coverage litigation concerning a number of policyholders, some of whom have filed for bankruptcy, who in some
instances have asserted that all or a portion of their asbestos-related claims are not subject to aggregate limits on coverage and/
or that each individual bodily injury claim should be treated as a separate occurrence under the policy. To the extent both issues
are resolved in a policyholder’s favor and our other defenses are not successful, our coverage obligations under the policies at
issue would be materially increased and bounded only by the applicable per-occurrence limits and the number of asbestos
bodily injury claims against the policyholders. Although we have seen a moderation in the overall risk associated with these
lawsuits, it remains difficult to predict the ultimate cost of these claims. Further, in addition to claims against policyholders,
proceedings have been launched directly against insurers, including us, by individuals challenging insurers’ conduct with
respect to the handling of past asbestos claims and by individuals seeking damages arising from alleged asbestos-related bodily
injuries. It is possible that the filing of other direct actions against insurers, including us, could be made in the future.
We also continue to receive claims from policyholders who allege that they are liable for injury or damage arising out of their
alleged disposition of toxic substances. Liability for investigation and cleanup of environmental contamination and for some
related losses under federal laws, such as the Comprehensive Environmental Response, Compensation and Liability Act, and
under similar state laws, may be imposed on certain parties even if they did not cause the release or threatened release of
hazardous substances and may be joint and several with other responsible parties.
The Company has been, and continues to be, involved in litigation involving insurance coverage issues pertaining to asbestos
and environmental claims. The Company believes that some court decisions have interpreted the insurance coverage to be
broader than the original intent of the insurers and policyholders. These decisions continue to be inconsistent and vary from
jurisdiction to jurisdiction. Uncertainties surrounding the final resolution of these asbestos and environmental claims continue,
and it is difficult to estimate our ultimate liability for such claims and related litigation. As a result, these reserves are subject to
revision as new information becomes available and as claims develop. It is also not possible to predict changes in the legal,
regulatory and legislative environment and their impact on the future development of asbestos and environmental claims. This
environment could be affected by changes in applicable legislation and future court and regulatory decisions and interpretations,
including the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for the pursuit of
asbestos claims. It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement negotiations
near completion and significant legal questions are resolved or, failing settlement, until the dispute is adjudicated. This is
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particularly the case with policyholders in bankruptcy where negotiations often involve a large number of claimants and other
parties and require court approval to be effective.
It is possible that the outcome of the continued uncertainties regarding these claims could result in liability in future periods that
differs from current reserves by an amount that could materially and adversely affect our results of operations. See the
"Asbestos Claims and Litigation," "Environmental Claims and Litigation" and “Uncertainty Regarding Adequacy of Asbestos
and Environmental Reserves” sections of "Item 7—Management's Discussion and Analysis of Financial Condition and Results
of Operations." Also see "Item 3—Legal Proceedings."
We are exposed to, and may face adverse developments involving, mass tort claims such as those relating to exposure to
potentially harmful products or substances. We face potential exposure to mass tort claims, including claims related to
exposure to potentially harmful products or substances, such as lead paint, polyfluoroalkyl substances, talc and opioids.
Establishing loss reserves for mass tort claims is subject to uncertainties because of many factors, including adverse changes to
the tort environment (e.g., increased and more aggressive attorney involvement in insurance claims, increased litigation,
expanded theories of liability, higher jury awards, lawsuit abuse and third-party litigation finance, among others); evolving
judicial interpretations, including application of various theories of joint and several liabilities; disputes concerning medical
causation with respect to certain diseases; geographical concentration of the lawsuits asserting the claims; and the potential for a
large rise in the total number of claims without underlying epidemiological developments suggesting an increase in disease
rates. Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the current loss
reserves. In addition, our estimate of loss reserves may change. These additional liabilities or increases in estimates, or a range
of either, could vary significantly from period to period and could materially and adversely affect our results of operations and/
or our financial position.
The effects of emerging claim and coverage issues on our business are uncertain, and court decisions or legislative
changes that take place after we issue our policies can result in an unexpected increase in the number of claims and have
a material adverse impact on our results of operations. As industry practices and legal, judicial, social and other
environmental conditions change, unexpected and unintended issues related to claim and coverage may emerge. These issues
may adversely affect our business, including by extending coverage beyond our underwriting intent, by increasing the number,
size or types of claims or by mandating changes to our underwriting practices. Examples of such claims and coverage issues
include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
judicial expansion of policy coverage and the impact of new or expanded theories of liability;
plaintiffs targeting insurers in purported class action litigation relating to claims handling and other practices;
claims relating to construction defects, which often present complex coverage and damage valuation questions;
claims related to data and network security breaches, information system failures or cyber events, including cases
where coverage was not intended to be provided;
the assertion of “public nuisance” or similar theories of liability, pursuant to which plaintiffs, including governmental
entities, seek to recover monies spent to administer public health care programs, abate hazards to public health and
safety and/or recover damages purportedly attributable to a “public nuisance,” such as litigation against lead paint
manufacturers or manufacturers or distributors of opioids;
claims related to liability, business interruption or workers’ compensation arising out of infectious disease or
pandemic;
claims related to vaccine mandates, testing protocols or other matters related to employees returning to the workplace;
claims relating to abuse by an employee or a volunteer of an insured;
claims that link health issues to particular causes (for example, cumulative traumatic head injury from sports or other
causes), resulting in liability or workers’ compensation claims;
claims alleging that one or more of our underwriting criteria have a disparate impact on persons belonging to a
protected class in violation of the law, including the Fair Housing Act;
claims arising out of modern techniques and practices used in connection with the extraction of natural resources, such
as hydraulic fracturing or wastewater injection;
claims arising out of the use of personal property in commercial transactions, such as ride or home sharing;
claims against fiduciaries of retirement plans, including allegations regarding excessive fees;
claims relating to unanticipated consequences of current or new technologies or business models or processes,
including as a result of related behavioral changes; and
claims relating to changing climate conditions, including claims alleging that our policyholders cause or contribute to
changing climate conditions.
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In some instances, emerging issues may not become apparent for some time after we have issued the affected insurance
policies. As a result, the full extent of liability under our insurance policies may not be known for many years after the policies
are issued.
In addition, the passage of new legislation designed to expand the right to sue, to remove limitations on recovery, to deem by
statute the existence of a covered occurrence, to extend or eliminate the statutes of limitations or otherwise to repeal or weaken
tort reforms could have an adverse effect on our results of operations. For example, over the past few years, a number of states
have enacted legislation allowing victims of sexual molestation to file or proceed with claims that otherwise would have been
time-barred and additional states are considering similar legislative changes.
The effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict and could harm our
business and materially and adversely affect our results of operations.
Financial, Economic and Credit Risks
During or following a period of financial market disruption or an economic downturn, our business could be materially
and adversely affected. If financial markets experience significant disruption or if economic conditions deteriorate, our results
of operations, financial position and/or liquidity likely would be adversely impacted. For example, financial market disruptions
and economic downturns in the past have resulted in, among other things, reduced business volume, heightened credit risk and
reduced valuations for certain of our investments.
Several of the risk factors discussed above and below identify risks that could result from, or be exacerbated by, financial
market disruption, an economic slowdown or economic uncertainty. These include risks discussed above related to our
estimates of claims and claim adjustment expense reserves, and those discussed below related to our investment portfolio, the
competitive environment, emerging claim and coverage issues, reinsurance arrangements, other credit exposures, regulatory
developments and the impact of rating agency actions. See also "Item 7—Management's Discussion and Analysis of Financial
Condition and Results of Operations," particularly the "Outlook" section, for additional information about these risks and the
potential impact on our business.
Our investment portfolio is subject to credit and interest rate risk, and may suffer reduced or low returns or material
Investment returns are an important part of our overall profitability. Fixed maturity and short-
realized or unrealized losses.
term investments comprised approximately 93% of the carrying value of our investment portfolio as of December 31, 2021.
Changes in interest rates affect the carrying value of our fixed maturity investments and returns on our fixed maturity and short-
term investments. A decline in interest rates reduces the returns available on short-term investments and new fixed maturity
investments (including those purchased to re-invest maturities from the existing portfolio), thereby negatively impacting our net
investment income on a going-forward basis, while rising interest rates reduce the market value of existing fixed maturity
investments, thereby negatively impacting our book value.
Interest rates continue to remain at very low levels relative to
historical experience, and rates may remain at low levels for a prolonged period. See also “Item 7—Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Outlook.” The value of our fixed maturity and short-term
investments is also subject to the risk that certain investments may default or become impaired due to a deterioration in the
financial condition of one or more issuers of the securities held in our portfolio, or due to a deterioration in the financial
condition of an insurer that guarantees an issuer’s payments of such investments. Such defaults and impairments could reduce
our net investment income and result in realized investment losses. During an economic downturn, fixed maturity and short-
term investments could be subject to a higher risk of default, and our non-fixed income investments could be negatively
impacted as well.
A significant portion of our fixed maturity investment portfolio is invested in obligations of states, municipalities and political
subdivisions. This municipal bond portfolio could be subject to default or impairment. In particular:
•
•
In recent years, many state and local governments have been operating under deficits or projected deficits. The severity
and duration of these deficits could have an adverse impact on the collectability and valuation of our municipal bond
portfolio. These deficits may also be exacerbated by the impact of unfunded pension plan obligations and other
postretirement obligations or by declining municipal tax bases and revenues in times of financial stress.
Some municipal bond issuers may be unwilling to increase tax rates, or to reduce spending, to fund interest or principal
payments on their municipal bonds, or may be unable to access the municipal bond market to fund such payments.
The risk of widespread defaults may increase if some issuers voluntarily choose to default, instead of implementing
difficult fiscal measures, and the actual or perceived consequences are less severe than expected.
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•
The risk of widespread defaults may also increase if there are changes in legislation that permit states, municipalities
and political subdivisions to file for bankruptcy protection where they were not permitted before.
In addition, the
collectability and valuation of municipal bonds may be adversely affected if there are judicial interpretations in a
bankruptcy or other proceeding that lessen the value of structural protections. For example, debtors may challenge the
effectiveness of structural protections thought to be provided by municipal securities backed by a dedicated source of
revenue. The collectability and valuation may also be adversely affected if there are judicial interpretations in a
bankruptcy or other proceeding that question the payment priority of municipal bonds.
Our portfolio has benefited from tax exemptions (such as those related to interest from municipal bonds) and certain other tax
laws, including, but not limited to, those governing dividends-received deductions and tax credits. Changes in these laws could
adversely impact the value of our investment portfolio.
Our investment portfolio includes: residential mortgage-backed securities; collateralized mortgage obligations; pass-through
securities and asset-backed securities collateralized by sub-prime mortgages; commercial mortgage-backed securities; and
wholly-owned real estate and real estate partnerships, all of which could be adversely impacted by declines in real estate
valuations and/or financial market disruption, including as a result of COVID-19.
We also invest a portion of our assets in equity securities, private equity limited partnerships, hedge funds and real estate
partnerships. From time to time, we may also invest in other types of non-fixed maturity investments, including investments
with exposure to commodity price risk. All of these asset classes are subject to greater volatility in their investment returns than
fixed maturity investments. General economic conditions, changes in applicable tax laws and many other factors beyond our
control can adversely affect the value of our non-fixed maturity investments and the realization of net investment income, and/
or result in realized investment losses. As a result of these factors, we may realize reduced returns on these investments, incur
losses on sales of these investments and be required to write down the value of these investments, which could reduce our net
investment income and result in realized investment losses. From time to time, the Company enters into short positions in U.S.
Treasury futures contracts to manage the duration of its fixed maturity portfolio, which can result in realized investment losses.
Our investment portfolio is also subject to increased valuation uncertainties when investment markets are illiquid. The valuation
of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the
carrying amount) of the portion of the investment portfolio that is carried at fair value as reflected in our financial statements is
not reflective of prices at which actual transactions could occur.
We may, depending on circumstances in the future, including as a result of changes in economic and market conditions, make
changes to the mix of investments in our investment portfolio as part of our ongoing efforts to seek appropriate risk-adjusted
returns. These changes may impact the duration, volatility and risk of our investment portfolio.
Because of the risks set forth above, the value of our investment portfolio could decrease, we could experience reduced net
investment income and we could experience realized and/or unrealized investment losses, which could materially and adversely
affect our results of operations, financial position and/or liquidity.
We may not be able to collect all amounts due to us from reinsurers, reinsurance coverage may not be available to us in
the future at commercially reasonable rates or at all and we are exposed to credit risk related to our structured
settlements. Although the reinsurer is liable to us to the extent of the reinsurance, we remain liable as the direct insurer on all
risks reinsured. As a result, reinsurance arrangements do not eliminate our obligation to pay claims. Accordingly, we are subject
to credit risk with respect to our ability to recover amounts due from reinsurers. In the past, certain reinsurers have ceased
writing business and entered into runoff. Some of our reinsurance claims may be disputed by the reinsurers, and we may
ultimately receive partial or no payment. This is a particular risk in the case of claims that relate to insurance policies written
many years ago, including those relating to asbestos and environmental claims. In addition, in a number of jurisdictions a
reinsurer is permitted to transfer a reinsurance arrangement to another reinsurer, which may be less creditworthy, without a
counterparty’s consent. Also, the reinsurance that we purchase may not cover all of the risks covered by the policies that we
issue.
Included in reinsurance recoverables are amounts related to certain structured settlements. Structured settlements are annuities
purchased from various life insurance companies to settle certain personal physical
injury claims, of which workers’
compensation claims comprise a significant portion.
In cases where we did not receive a release from the claimant, the
structured settlement is included in reinsurance recoverables and the related claim cost is included in the liability for loss
reserves, as we retain the contingent liability to the claimant. Some of the life insurance companies from which we have
purchased annuities have been downgraded to below investment grade credit ratings subsequent to the time of the purchase. If
it is expected that the life insurance company is not able to pay, we would recognize an impairment of the related reinsurance
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recoverable if, and to the extent, the purchased annuities are not covered by state guaranty associations. In the event that the
life insurance company fails to make the required annuity payments, we would be required to make such payments. For a
discussion of the top five providers of our reinsurance and structured settlements, see "Item 7—Management's Discussion and
Analysis of Financial Condition and Results of Operations—Reinsurance Recoverables."
Both the availability of reinsurance capacity and its cost can be impacted, and in recent periods have been impacted, by general
economic conditions and conditions in the reinsurance market, such as the occurrence of significant reinsured events or
unexpected adverse trends. The availability and cost of reinsurance could affect our business volume and profitability. In
addition, the Covered Agreements between the U.S. and each of the EU and U.K. eliminate the requirement for European and
U.K. reinsurers operating in the U.S. to provide collateral, which could make it more difficult for U.S. companies, including us,
to obtain collateral from European and U.K. reinsurers.
Because of the risks set forth above, we may not be able to collect all amounts due to us from reinsurers, and reinsurance
coverage may not be available to us in the future at commercially reasonable rates or at all, and/or life insurance companies
may fail to make required annuity payments, and thus our results of operations could be materially and adversely affected.
We are exposed to credit risk in certain of our insurance operations and with respect to certain guarantee or
indemnification arrangements that we have with third parties. We are exposed to credit risk in several areas of our
business operations, including credit risk relating to policyholders, independent agents and brokers. To a significant degree, the
extent of the credit risk that we face is a function of the health of the economy; accordingly, we face an increased credit risk in
an economic downturn.
We are exposed to credit risk in our surety insurance operations, where we guarantee to a third party that our customer will
satisfy certain performance obligations (e.g., a construction contract) or certain financial obligations, including exposure to
large customers who may have obligations to multiple third parties. If our customer defaults, we may suffer losses and not be
reimbursed by that customer, even though we are entitled to indemnification from such customer. In addition, it is customary
practice for multiple insurers to participate as co-sureties on large surety bonds. Under these arrangements, the co-surety
obligations are typically joint and several, in which case we are also exposed to credit risk with respect to our co-sureties.
In addition, a portion of our business is written with large deductible insurance policies. Under casualty insurance contracts
with deductible features, we are obligated to pay the claimant the full amount of the settled claim. We are subsequently
reimbursed by the contractholder for the deductible amount, and, as a result, we are exposed to credit risk to the policyholder.
Moreover, certain policyholders purchase retrospectively rated workers’ compensation and/or general liability policies (i.e.,
where premiums are adjusted after the policy period based on the actual loss experience of the policyholder during the policy
period). Retrospectively rated policies expose us to additional credit risk to the extent that the adjusted premium is greater than
the original premium.
Our efforts to mitigate the credit risk that we have to our insureds may not be successful. For example, we may not be able to
obtain collateral and any collateral obtained may subsequently have little or no value.
In accordance with industry practice, when policyholders purchase insurance policies from us through independent agents and
brokers, the premiums relating to those policies are often paid to the agents and brokers for payment to us. In most jurisdictions,
the premiums will be deemed to have been paid to us whether or not they are actually received by us. Consequently, we assume
a degree of credit risk associated with amounts due from independent agents and brokers.
We are also exposed to credit risk related to certain guarantee or indemnification arrangements that we have with third parties.
See note 17 of notes to the consolidated financial statements. Our exposure to the above credit risks could materially and
adversely affect our results of operations.
A downgrade in our claims-paying and financial strength ratings could adversely impact our business volumes,
adversely impact our ability to access the capital markets and increase our borrowing costs. Claims-paying and financial
strength ratings are important to an insurer’s competitive position. A downgrade in one or more of our ratings could negatively
impact our business volumes or make it more difficult or costly for us to access the capital markets or borrow money. If
significant losses, including, but not limited to, those resulting from one or more major catastrophes, or significant reserve
additions or significant investment losses were to cause our capital position to deteriorate significantly, or if one or more rating
agencies substantially increase their capital requirements, we may need to raise equity capital in the future (which we may not
be able to do at a reasonable cost or at all, especially at a time of financial market disruption) in order to maintain our ratings or
limit the extent of a downgrade. A continued trend of more frequent and severe catastrophes or a prolonged financial market
disruption or economic downturn may lead rating agencies to substantially increase their capital requirements. Furthermore,
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S&P has recently proposed changes to its capital model that could adversely impact such agency's assessment of capital
adequacy for participants in the insurance industry, including the Company. See also "Item 1—Business—Ratings."
The inability of our insurance subsidiaries to pay dividends to our holding company in sufficient amounts would harm
our ability to meet our obligations, pay future shareholder dividends and/or make future share repurchases. Our holding
company relies on dividends from our U.S. insurance subsidiaries to meet our obligations for payment of interest and principal
on outstanding debt, to pay dividends to shareholders, to make contributions to our qualified domestic pension plan, to pay
other corporate expenses and to make share repurchases. The ability of our insurance subsidiaries to pay dividends to our
holding company in the future will depend on their statutory capital and surplus, earnings and regulatory restrictions.
We are subject to state insurance regulation as an insurance holding company system. Our U.S. insurance subsidiaries are
subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent
without prior approval of insurance regulatory authorities. In a time of prolonged economic downturn or otherwise, insurance
regulators may choose to further restrict the ability of insurance subsidiaries to make payments to their parent companies. The
ability of our insurance subsidiaries to pay dividends to our holding company is also restricted by regulations that set standards
of solvency that must be met and maintained.
The inability of our insurance subsidiaries to pay dividends to our holding company in an amount sufficient to meet our debt
service obligations and other cash requirements could harm our ability to meet our obligations, to pay future shareholder
dividends and to make share repurchases.
Business and Operational Risks
The ongoing impact of COVID-19 and related risks could materially affect our results of operations, financial position
and/or liquidity. Beginning in March 2020, COVID-19 began to impact the global economy and our results of operations.
The direct and indirect consequences of COVID-19 and related economic conditions are hard to predict and may continue to
emerge and evolve for some time. Risks presented by the ongoing effects of COVID-19 and related economic conditions
include the following:
•
•
Revenues. Primarily in 2020, (i) earned premiums in Business Insurance were negatively impacted by reduced
exposures and reductions in the Company's estimate of ultimate audit premiums receivable, as well as decreases in
new business levels and (ii) earned premiums in Personal Insurance were reduced by premium refunds provided to
personal automobile customers. The degree of any future impact on earned premiums will depend on the intensity and
duration of future phases of the pandemic and the related impact on the economy.
Claims and Claim Adjustment Expenses. We have incurred, and expect to continue to incur in future periods, claim and
claim adjustment expenses in certain lines of business as a result of COVID-19. For example, we have incurred
workers’ compensation claims by workers who demonstrate that the injury or illness arose both out of and in the
course of their employment, including, as discussed below, as a result of legislative and regulatory action to effectively
expand workers’ compensation coverage by creating presumptions of compensability for certain types of workers. In
addition, constraints on the availability of medical care could complicate, delay and/or extend treatment, which could
lead to increased costs. We may also experience elevated frequency and/or severity in our liability coverages as a
result of plaintiffs’ lawyers generating COVID-19-related claim activity against our insureds. Frequency and/or
severity has also been impacted with respect to various coverages due to, among other things, inflation, disruptions in
supply chains, labor shortages, and changes in business practices and individual behaviors as a result of COVID-19.
For example, higher costs of used vehicles and parts and increased demand and decreased supply for raw materials
have adversely impacted severity in our auto and property businesses, and driving at faster speeds has resulted in more
severe accidents. We have recognized some elevated frequency, and there is the potential for additional elevated
frequency, in certain product lines, such as directors’ and officers’ liability insurance claims related to alleged
mismanagement or other failures as well as increased securities class actions, and employment practices liability
insurance claims related to vaccine mandates. In our commercial surety lines, there is the potential for elevated
In construction surety, there is the potential for
frequency and severity in the event of another economic downturn.
elevated losses if contractors experience shutdowns, which could negatively impact their cash flows, or experience
disruptions in their supply chains, unavailability of labor (which could be exacerbated by vaccine mandates and worker
illness) or increased costs for materials, each of which drives up their costs. In addition, the short-term and long-term
impacts of COVID-19 on our various product lines could be different. The potential also exists for elevated frequency
and severity related to business interruption coverages as a result of litigation. In addition, risks related to COVID-19
cause additional uncertainty in the process of estimating loss reserves. For example, the disruption to the court system
has impacted the timing and amounts of claims settlements and the actions taken by governmental bodies, both
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legislative and regulatory, in reaction to COVID-19 and their related impacts are hard to predict. As a result, our
estimated level of loss reserves may change. We are also subject to credit risk in our insurance operations which may
be exacerbated in times of economic distress.
Adverse Legislative and/or Regulatory Action. Federal, state and/or local government actions to address and contain
the impact of COVID-19 have adversely affected us and may adversely affect us in the future. For example, some
states proposed legislation to require insurers to cover business interruption claims irrespective of terms, exclusions or
other conditions included in the policies that would otherwise preclude coverage. While none of these legislative
In addition, a number of states have instituted, and other
actions were adopted, future outcomes could be different.
states are considering instituting, changes designed to effectively expand workers' compensation coverage by creating
presumptions of compensability of claims for certain types of workers. Regulatory restrictions or requirements have
impacted or may impact pricing, risk selection and our rights and obligations with respect to our policies and insureds,
including our ability to cancel and non-renew policies and to collect premiums. Several state regulators issued orders
requiring insurers to consider issuing premium refunds or reducing rates, or requiring insurers to defer rate increases,
and similar actions could be taken again in the future. The Company, like many insurers, voluntarily provided
premium refunds or rate reductions in certain lines of business and subsequently experienced increases in frequency
and severity, which adversely impacted profitability. If we have difficulty getting rate increases approved, our
profitability could be further adversely impacted. It is also possible that changes in economic conditions and steps
taken in response to COVID-19 could require an increase in taxes at the federal, state and local levels, which would
adversely impact our results of operations.
Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of
our senior management or a significant percentage of our workforce or the workforce of our agents, brokers, suppliers
or outsourcing providers are unable to continue to work because of illness, government directives or otherwise.
In
addition, the interruption of our or their system capabilities could result in a deterioration of our ability to write and
process new and renewal business, provide customer service, pay claims in a timely manner or perform other
necessary business functions. Having shifted to remote working arrangements, we also face a heightened risk of
cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and
capabilities.
General and Administrative Expenses. We have incurred, and may continue to incur, general and administrative
expenses due to increased estimated credit losses on premiums receivable and increased estimated credit losses related
to contractholder receivables for amounts due on loss sensitive business.
•
•
•
As a result of the above risks, COVID-19 and related economic conditions could materially and adversely impact our results of
operations, financial position and/or liquidity. For a further discussion of risks that can impact us as a result of financial market
disruption or an economic downturn, see “During or following a period of financial market disruption or an economic
downturn, our business could be materially and adversely affected” above and “Item 7—Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Outlook.”
The intense competition that we face, including with respect to attracting and retaining employees, and the impact of
innovation, technological change and changing customer preferences on the insurance industry and the markets in
which we operate, could harm our ability to maintain or increase our business volumes and our profitability. The
property and casualty insurance industry is highly competitive, and we believe that it will remain highly competitive for the
foreseeable future. We compete with both domestic and foreign insurers, including an increasing number of start-ups, which
may offer products at prices and on terms that are not consistent with our economic standards in an effort to maintain or
increase their business. The competitive environment in which we operate could also be impacted by current general economic
conditions, which could reduce the volume of business available to us as well as to our competitors. Pension and hedge funds
and other entities with substantial available capital, more flexible legal structures and/or potentially lower return objectives have
increasingly sought to participate in the property and casualty insurance and reinsurance businesses. Well-capitalized new
entrants to the property and casualty insurance and reinsurance industries and existing competitors that receive substantial
infusions of capital may conduct business in ways that adversely impact our business volumes and profitability. Further, an
expanded supply of reinsurance capital may lower costs for insurers that rely significantly on reinsurance and, as a
consequence, those insurers may be able to price their products more competitively. In addition, the competitive environment
could be impacted by changes in customer preferences, including customer demand for direct distribution channels and/or
greater choice, not only in personal lines, but also in commercial lines (where direct writers may become a more significant
source of competition in the future, particularly in the small commercial market). Similarly, comparative rating technology has
impacted competition in personal lines and is now being used to access comparative rates for small commercial business as
In recent years, there have been new entrants into the small
well, and that trend is likely to continue and may accelerate.
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commercial business, and this trend may continue. Customer behavior could also evolve in the future towards buying insurance
in point-of-sale or other non-traditional distribution channels where we may not have a meaningful presence or which are
designed to sell products that we currently do not provide. Consolidation within the insurance industry also could impact our
business volumes and/or the rates or terms of our products.
Other technological changes also present competitive risks. For example, our competitive position could be impacted if we are
unable to deploy, in a cost effective and competitive manner, technology such as artificial intelligence and machine learning
that collects and analyzes a wide variety of data points (so-called “big data” analysis) to make underwriting or other decisions,
or if our competitors collect and use data which we do not have the ability to access or use. In addition, innovations, such as
telematics and other usage-based methods of determining premiums, can impact product design and pricing and are becoming
an increasingly important competitive factor.
Competitive dynamics may impact the success of efforts to improve our underwriting margins on our insurance products. These
efforts could include seeking improved rates or improved terms and conditions, and could also include other initiatives, such as
reducing operating expenses and acquisition costs. These efforts may not be successful and/or may result in lower business
volumes. In addition, if our underwriting is not effective, further efforts to increase rates could also lead to “adverse selection”,
whereby accounts retained have higher losses, and are less profitable, than accounts lost.
For more detail, see "Item 7—
Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook."
Similar to other industries, the insurance industry is undergoing rapid and significant technological and other change.
Traditional insurance industry participants, technology companies, “InsurTech” start-up companies, the number of which has
increased significantly in recent years and some of which are supported by traditional insurance industry participants, and
others are focused on using technology and innovation to simplify and improve the customer experience, increase efficiencies,
redesign products, alter business or distribution models and effect other potentially disruptive changes in the insurance industry.
If we do not anticipate, keep pace with and adapt to technological and other changes impacting the insurance industry, it will
harm our ability to compete, decrease the value of our products to customers, and materially and adversely affect our business.
Furthermore, innovation, technological change and changing customer preferences in the markets in which we operate also pose
risks to our business.
technologies such as driverless vehicles, assisted-driving or accident prevention
technologies, technologies that facilitate ride, car or home sharing, smart homes or automation could reduce the number of
vehicles in use and/or the demand for, or profitability of, certain of our products, create coverage issues or impact the frequency
or severity of losses, and we may not be able to respond effectively. While there is substantial uncertainty as to the timing of
any impact, in the case of driverless vehicles in particular, new legal frameworks or business practices could be adopted that
reduce the size of the auto insurance market. If competition or technological or other changes to the markets in which we
operate limit our ability to retain existing business or write new business at adequate rates or on appropriate terms, our results of
operations could be materially and adversely affected. See "Competition" sections of the discussion on business segments in
"Item 1—Business." Technological change can impact us in other ways as well. For example, rapid changes in the
sophistication and use of certain types of cyber-attacks, such as ransomware and social engineering attacks, on our insureds
have increased the frequency and severity of losses under our policies. The risk of cyber attacks could be exacerbated by
geopolitical tensions, including hostile actions taken by nation-states and terrorist organizations.
For example,
There is significant competition from within the property and casualty insurance industry and from businesses outside the
industry for qualified employees, especially those in key positions and those possessing highly specialized knowledge in areas
such as underwriting, data and analytics, technology and e-commerce. This competition has increased in recent periods and,
with the increase in remote work, is taking place on a broader geographic scale. In addition, the competition for talent and the
difficulty in attracting and retaining employees has also increased due to the increase in the number of individuals exiting the
workforce since the onset of the pandemic. If we are not able to successfully attract, retain and motivate our employees, our
business, financial results and reputation could be materially and adversely affected.
Disruptions to our relationships with our independent agents and brokers or our inability to manage effectively a
changing distribution landscape could adversely affect us. We market our insurance products primarily through
independent agents and brokers. An important part of our business is written through less than a dozen such intermediaries,
including the agency affiliate of GEICO, with whom we have had a distribution arrangement for homeowners' business since
1995. Further, there has been a trend of increased consolidation by agents and brokers, which could impact our relationships
with, and fees paid to, some agents and brokers, and/or otherwise negatively impact the pricing or distribution of our products.
Agents and brokers may increasingly compete with us to the extent that markets increasingly provide them with direct access to
providers of capital seeking exposure to insurance risk or if they become affiliated with carriers that compete with us. In all of
the foregoing situations, loss of all or a substantial portion of the business provided through such agents and brokers could
materially and adversely affect our future business volume and results of operations.
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Our efforts or the efforts of agents and brokers with respect to new products or markets, alternate distribution channels, changes
to commission terms as well as changes in the way agents and brokers utilize data and technology, including in ways that may
be in direct competition with us, could adversely impact our business relationship with independent agents and brokers who
currently market our products, resulting in a lower volume and/or profitability of business generated from these sources.
In certain markets, brokers increasingly have been packaging portfolios of risks together and offering them to fewer carriers. In
these and other situations, agents and brokers have an increased influence over policy language and compensation structure
which, if we participate on that basis, could adversely impact our ability to profitably manage underwriting risk. It could also
lead to commoditization of products, which could increase the focus on price and cost management and decrease our ability to
differentiate our products in the marketplace with customers based on other factors.
Customers in the past have brought claims against us for the actions of our agents. Even with proper controls in place, actual or
alleged errors or inaccuracies by our agents could result in our involvement in disputes, litigation or regulatory actions.
Our efforts to develop new products or services, expand in targeted markets, improve business processes and workflows
or make acquisitions may not be successful and may create enhanced risks. From time to time, to protect and grow market
share and/or improve our productivity and efficiency, we invest in strategic initiatives and pursue acquisitions. These efforts
may require us to make substantial expenditures and not be successful, and even if successful, they may create additional risks:
Changes to our business processes or workflow, including the use of new technologies, may give rise to execution risk;
•
• Models underlying automated underwriting and pricing decisions may not be effective;
•
•
Demand for new products or expansion into new markets may not meet our expectations;
New products or services and expansion into new markets may change our risk exposures, and the data and models we
use to manage such exposures may not be as effective as those we use in existing markets or with existing products;
Acquisitions may not be successfully integrated, resulting in substantial disruption, costs or delays and adversely
affecting our ability to compete, and may also result in unforeseen liabilities or impact our credit ratings; and
In connection with the conversion of policyholders to a new product, some policyholders’ pricing may increase while
the pricing for other policyholders may decrease, the net impact of which could negatively impact retention and profit
margins.
•
•
These efforts may require us to make substantial expenditures, which may negatively impact results in the near term, and if not
successful, could materially and adversely affect our results of operations.
We may be adversely affected if our pricing and capital models provide materially different indications than actual
results. Our profitability substantially depends on the extent to which our actual claims experience is consistent with the
assumptions we use in pricing our policies. We utilize proprietary and third-party models to help us price business in a manner
that is intended to be consistent, over time, with actual results and return objectives. We incorporate our historical loss
experience, external industry and other data, and economic indices into our modeling processes, and we use various methods,
including predictive modeling, forecasting and sophisticated simulation modeling techniques, to analyze loss trends and the
risks associated with our assets and liabilities. We also use these modeling processes, analyses and methods in making
underwriting, pricing and reinsurance decisions as part of managing our exposure to catastrophes and other extreme adverse
events. These modeling processes incorporate numerous assumptions and forecasts about the future level and variability of the
frequency and severity of losses, inflation, interest rates and capital requirements, among others, that are difficult to make and
may differ materially from actual results. In addition, as the number of third-party models increases, it becomes more difficult
to validate, manage and integrate such models as they evolve over time, and the risk associated with assimilating the output
from such models into our decisions increases.
If we fail to appropriately price the risks we insure or fail to change our pricing models to appropriately reflect our experience,
or if our claims experience is more frequent or severe than our underlying risk assumptions, for example due to inflation,
changing climate conditions, legislative or regulatory changes, changes in behavior such as distracted or faster driving or a
more aggressive tort environment, our profit margins may be negatively affected.
If we underestimate the frequency and/or
severity of extreme adverse events occurring, our financial condition may be adversely affected. If we overestimate the risks we
are exposed to, we may overprice our products, and new business growth and retention of our existing business may be
adversely affected. See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—
Catastrophe Modeling."
We are subject to additional risks associated with our business outside the United States. We conduct business outside the
United States primarily in Canada, the United Kingdom and the Republic of Ireland. In addition, we conduct business in Brazil
and Colombia through joint ventures. We may also explore opportunities in other countries. In conducting business outside of
the United States, we are subject to a number of risks, particularly in emerging economies. These risks include restrictions such
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as price controls, capital controls, currency exchange limits, ownership limits and other restrictive or anti-competitive
governmental actions or requirements, which could have an adverse effect on our business and our reputation. A portion of our
premiums from outside of the United States is generated in Canada, a substantial portion of which consists of automobile
premiums from the province of Ontario, which is a highly regulated market that can result in rate inadequacy. Our business
activities outside the United States may also subject us to currency risk and, in some markets, it may be difficult to effectively
hedge that risk, or we may choose not to hedge that risk. In addition, in some markets, we invest as part of a joint venture with a
local counterparty. Because our governance rights may be limited, we may not have control over the ability of the joint venture
to make certain decisions and/or mitigate risks it faces, and significant disagreements with a joint venture counterparty may
adversely impact our investment and/or reputation. Our business activities outside the United States could subject us to
increased volatility in earnings resulting from the need to recognize and subsequently revise a valuation allowance associated
with income taxes if we became unable to fully utilize any deferred tax assets, including loss carry-forwards from those foreign
operations. Also, political instability could result in financial market disruption or an economic downturn in such regions. The
U.K.'s withdrawal from the European Union, for example, has by some estimates resulted in reduced trade levels in the U.K.
For certain specialty business, we give managing general agents binding authority, which exposes us to additional risks.
Our business activities outside the United States also subject us to additional domestic and foreign laws and regulations,
including the Foreign Corrupt Practices Act and similar laws in other countries that prohibit the making of improper payments
to foreign officials. Although we have policies and controls in place that are designed to ensure compliance with these laws, if
those controls are ineffective and/or an employee or intermediary fails to comply with applicable laws and regulations, we
could suffer civil and criminal penalties and our business and our reputation could be adversely affected. Some countries,
particularly emerging economies, have laws and regulations that lack clarity and, even with local expertise and effective
In some
controls, it can be difficult to determine the exact requirements of, and potential liability under, the local laws.
jurisdictions, including Brazil, parties to a joint venture may, in some circumstances, have liability for some obligations of the
venture, and that liability may extend beyond the capital invested. Failure to comply with local laws in a particular market may
result in substantial liability and could have a significant and negative effect not only on our business in that market but also on
our reputation generally.
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 our products could reduce our future profitability. Our
underwriting profitability depends in large part on our ability to competitively price our products at a level that will adequately
compensate us for the risks assumed. As a result, risk selection and pricing through the application of actuarially sound and
segmented underwriting criteria is critical. However, laws or regulations, or judicial or administrative findings, could
significantly curtail the use of particular types of underwriting criteria. For example, we may use credit scoring as a factor in
pricing decisions where allowed by state law. Some consumer groups and/or regulators have alleged that the use of credit
scoring violates the law by discriminating against persons belonging to a protected class and are calling for the prohibition or
restrictions on the use of credit scoring in underwriting and pricing. A variety of other underwriting criteria and other data or
methodologies used in personal and commercial insurance have been and continue to be criticized by regulators, government
agencies, consumer groups or individuals on similar or other grounds, such as the impact of external data sources, algorithms
and predictive models on protected classes of customers, and a number of states have begun rulemaking efforts in response or
are considering doing so. Resulting legislative or regulatory actions or litigation could result in negative publicity and/or
generate adverse rules or findings, such as curtailing the use of important underwriting criteria, or other data or methodologies,
which could materially and adversely affect our results of operations.
Technology and Intellectual Property Risks
Our business success and profitability depend, in part, on effective information technology systems and on continuing to
develop and implement improvements in technology, particularly as our business processes become more digital. We
depend in large part on our technology systems for conducting business and processing claims, as well as for providing the data
and analytics we utilize to manage our business. As a result, our business success is dependent on maintaining the effectiveness
of existing technology systems and on continuing to develop and enhance technology systems that support our business
processes and strategic initiatives in an efficient manner, particularly as our business processes become more digital. Some
system development projects are long-term in nature, may negatively impact our expense ratios as we invest in the projects and
may cost more than we expect to complete. In addition, system development projects may not deliver the benefits or perform as
expected, or may be replaced or become obsolete more quickly than expected, which could result in operational difficulties,
additional costs or accelerated recognition of expenses. Attracting and retaining technology personnel has also become
significantly more challenging in recent periods. If we do not effectively and efficiently manage and upgrade our technology
portfolio, or if the costs of doing so are higher than we expect, our ability to provide competitive services to, and conduct
business with, new and existing customers in a cost effective manner and our ability to implement our strategic initiatives could
be adversely impacted.
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If we experience difficulties with technology, data and network security (including as a result of cyber attacks),
outsourcing relationships or cloud-based technology, our ability to conduct our business could be negatively impacted.
A shut-down of, or inability to access, one or more of our facilities (including our primary data processing facility); a power
outage; or a failure of one or more of our systems could significantly impair our ability to perform necessary business functions
on a timely basis. In the event of a computer virus or natural or other disaster, our systems could be inaccessible for an extended
period of time, including as a result of hostile actions taken by nation-states or terrorist organizations. In addition, because our
systems increasingly interface with and depend on third-party systems, including cloud-based, we could experience service
denials or failures of controls if demand for our service exceeds capacity or a third-party system fails or experiences an
interruption. Business interruptions and failures of controls could also result if our internal systems do not interface with each
other as intended or if changes to such systems or our other business processes, such as new payment technologies, are not
effectively implemented. Business continuity can also be disrupted by an event, such as a pandemic, that renders large numbers
of a workforce unable to work as needed, particularly at critical locations. If our business continuity plans do not sufficiently
address a business interruption, system failure or service denial, this could result in a deterioration of our ability to write and
process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary
business functions.
In addition, should internet disruptions occur, or frustration with our business platforms or distribution
initiatives develop among our independent agents and brokers, any resulting loss of business could materially and adversely
affect our future business volume and results of operations.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer
systems and networks. Computer viruses, hackers and employee or vendor misconduct, and other external hazards (such as
social engineering attacks), could expose our data systems to security breaches, cyber-attacks or other disruptions. Increased use
of data supplied by third parties in our business increases our exposure to this risk. While we attempt to develop secure
transmission capabilities with third-party vendors and others with whom we do business, we may not be successful and, in
addition, these third parties may not have appropriate controls in place to protect the confidentiality of the information.
Like other global companies, our computer systems are regularly subject to and will continue to be the target of computer
viruses, malware or other malicious codes (including ransomware), unauthorized access, cyber-attacks or other computer-
related penetrations. The Company, like other property and casualty insurers, may be under greater threat from cybercriminals
seeking sensitive personal or other insurance-related information. The risk of cyber attacks could be exacerbated by
geopolitical tensions, including hostile actions taken by nation-states or terrorist organizations.
While we have experienced cyber-attacks, to date, we are not aware that we have experienced a material cyber-security breach.
The sophistication of these threats continues to increase, and the preventative actions we take to reduce the risk of cyber
incidents and protect our systems and information may be insufficient. In addition, new technology that could result in greater
operational efficiency may further expose our computer systems to the risk of cyber-attacks. Also, our increased use of open
source software, cloud technology and software as a service can make it more difficult to identify and remedy such situations
due to the disparate location of code utilized in our operations.
We have outsourced certain technology and business process functions to third parties and may increasingly do so in the future.
If we do not effectively develop, implement and monitor our vendor relationships, if third party providers do not perform as
anticipated, if we experience technological or other problems with a transition, or if vendor relationships relevant to our
business process functions are terminated, we may not realize expected productivity improvements or cost efficiencies and may
experience operational difficulties, increased costs and a loss of business. Our outsourcing of certain technology and business
process functions to third parties may expose us to increased risk related to data security, service disruptions or the
effectiveness of our control system. These risks could increase as additional functions move to the cloud.
The increased risks identified above could expose us to data loss or manipulation, disruption of service, monetary and
reputational damages, competitive disadvantage and significant increases in compliance costs and costs to improve the security
and resiliency of our computer systems. The compromise of personal, confidential or proprietary information could also subject
us to legal liability or regulatory action under evolving cyber-security, data protection and privacy laws and regulations enacted
by the U.S. federal and state governments, Canada, the European Union or other jurisdictions or by various regulatory
organizations or exchanges. As a result, our ability to conduct our business and our results of operations might be materially
and adversely affected.
Intellectual property is important to our business, and we may be unable to protect and enforce our own intellectual
property or we may be subject to claims for infringing the intellectual property of others. Our success depends in part
upon our ability to protect our proprietary trademarks, technology and other intellectual property. See "Item 1—Business—
Other Information—Intellectual Property." We may not, however, be able to protect our intellectual property from unauthorized
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use and disclosure by others. Further, the intellectual property laws may not prevent our competitors from independently
developing trademarks, products and services that are similar to ours. We may incur significant costs in our efforts to protect
and enforce our intellectual property, including the initiation of expensive and protracted litigation, and we may not prevail.
Any inability to enforce our intellectual property rights could have a material adverse effect on our business and our ability to
compete.
We may be subject to claims by third parties from time to time that our products, services and technologies infringe on their
intellectual property rights. In recent years, certain entities have acquired patents in order to allege claims of infringement
against companies, including in some cases, us. Any intellectual property infringement claims brought against us could cause
us to spend significant time and money to defend ourselves, regardless of the merits of the claims. If we are found to infringe
any third-party intellectual property rights, it could result in reputational harm, payment of significant monetary damages or
fees and/or substantial time and expense to redesign our products, services or technologies to avoid the infringement. In
If any of our software vendors or
addition, we use third-party software in some of our products, services and technologies.
licensors are faced with infringement claims, we may lose our ability to use such software until the dispute is resolved. If we
cannot successfully redesign an infringing product, service or technology (or procure a substitute version), this could have a
material adverse effect on our business and ability to compete.
Regulatory and Compliance Risks
Our businesses are heavily regulated by the states and countries in which we conduct business, including licensing,
market conduct and financial supervision, and changes in regulation, including higher tax rates, may reduce our
profitability and limit our growth. These regulatory systems are generally designed to protect the interests of policyholders,
and not necessarily the interests of insurers, their shareholders and other investors. For example, to protect policyholders whose
insurance company becomes financially insolvent, guaranty funds have been established in all 50 states to pay the covered
claims of policyholders in the event of an insolvency of an insurer, subject to applicable state limits. The funding of guaranty
funds is provided through assessments levied against remaining insurers in the marketplace. As a result, the insolvency of one
or more insurance companies or an increase in amounts paid by guaranty funds could result in additional assessments levied
against us.
These regulatory systems also address authorization for lines of business, statutory capital and surplus requirements, limitations
on the types and amounts of certain investments, underwriting limitations, transactions with affiliates, dividend limitations,
changes in control, premium rates and a variety of other financial and non-financial components of an insurer’s business
including, recently, cyber-security.
In addition, many jurisdictions restrict the timing and/or the ability of an insurer to
discontinue writing a line of business or to cancel or non-renew certain policies. Insurance regulators may also increase the
statutory capital and surplus requirements for our insurance subsidiaries or reject rate increases or other terms and conditions
due to the economic environment or other factors. In addition, state tax laws that specifically impact the insurance industry,
such as premium taxes, or more general tax laws, such as U.S. federal corporate taxes, could be enacted or changed and could
have a material adverse impact on us. Other legislative actions could impact our business as well. For example, changes to state
law regarding workers' compensation insurance could impact the demand for our products, and the legalization of cannabis in
In addition, the potential repeal of the
certain states has, according to some studies, resulted in more automobile accidents.
McCarran-Ferguson Act (which exempts insurance from most federal regulation) or a change to the federal health care system
that eliminates or reduces the need for the medical coverage component of workers' compensation insurance, could also
significantly harm the insurance industry, including us. Changes in applicable legislation and regulations and future court and
regulatory decisions may be more restrictive and may result in lower revenues and/or higher costs of compliance and, as a
result, could materially and adversely affect our results of operations. See also “Item 1 – Business – Regulation.”
We could be adversely affected if our controls designed to ensure compliance with guidelines, policies and legal and
regulatory standards are not effective. Our business is highly dependent on our ability to engage on a real-time basis in a
large number of insurance underwriting, claim processing and investment activities, many of which are highly complex and
constantly evolving. These activities often are subject to internal guidelines and policies, as well as legal and regulatory
standards. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control
system’s objectives will be met. If our controls, or the controls of our joint ventures or recently acquired businesses, are not
effective (including with respect to the prevention or identification of misconduct by employees or others with whom we do
business), it could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk), errors
in financial reporting, litigation, regulatory proceedings or damage to our reputation.
Item 1B. UNRESOLVED STAFF COMMENTS
NONE.
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Item 2. PROPERTIES
The Company leases its principal executive offices in New York, New York, as well as approximately 161 field and claim
offices throughout the United States under leases or subleases with third parties. The Company also leases offices outside the
United States, including in Canada, the United Kingdom and the Republic of Ireland. The Company owns six buildings in
Hartford, Connecticut. The Company also owns buildings located in other areas of Connecticut; Norcross, Georgia; St. Paul,
Minnesota; and Omaha, Nebraska.
In the opinion of the Company’s management, the Company’s properties are adequate and suitable for its business as presently
conducted and are adequately maintained.
Item 3. LEGAL PROCEEDINGS
The information required with respect to this item can be found under "Contingencies" in note 17 of notes to the consolidated
financial statements in this annual report and is incorporated by reference into this Item 3.
Item 4. MINE SAFETY DISCLOSURES
NONE.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Information about the Company's executive officers is incorporated by reference from Part III—Item 10 of this annual report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded on the New York Stock Exchange under the symbol “TRV.” The number of holders
of record of the Company’s common stock was 34,585 as of February 14, 2022. This is not the actual number of beneficial
owners of the Company’s common stock as some shares are held in “street name” by brokers and others on behalf of individual
owners.
For information regarding dividends paid to shareholders in 2021 and 2020 and the declaration and payment of future
dividends, see "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity
and Capital Resources—Financing Activities—Dividends."
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SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph shows a five-year comparison of the cumulative total return to shareholders for the Company’s common
stock and the common stock of companies included in the S&P 500 Index and the S&P 500 Property & Casualty Insurance
Index, which the Company believes is the most appropriate comparative index.
COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN TO SHAREHOLDERS
(1)
$250
$200
$150
$100
$50
$0
2016
2017
2018
2019
2020
2021
The Travelers Companies. Inc. (2)
S&P 500 Index
S&P 500 Property & Casualty Insurance Index (3)
As of December 31,
2016
2017
2018
2019
2020
2021
The Travelers Companies, Inc........................... $ 100.00
$ 113.37
$ 102.43
$ 119.85
$ 126.27
$ 143.92
S&P 500 Index ..................................................
S&P 500 Property & Casualty Insurance Index
100.00
100.00
121.82
122.39
116.47
116.64
153.13
146.82
181.29
156.11
233.28
183.45
________________________________________
(1)
(2)
(3)
The cumulative total return to shareholders is a concept used to compare the performance of a company's stock over time.
Cumulative total return to shareholders is calculated as the net stock price change for the specified time period plus the cumulative
amount of dividends (assuming dividend reinvestment on the respective dividend payment dates) divided by the stock price at the
beginning of the time period.
Assumes $100 invested in common shares of The Travelers Companies, Inc. on December 31, 2016.
Companies in the S&P 500 Property & Casualty Insurance Index as of December 31, 2021 were the following: The Travelers
Companies, Inc., Chubb Limited, Cincinnati Financial Corporation, The Progressive Corporation, The Allstate Corporation, Loews
Corporation (CNA) and WR Berkley Corporation. Returns of each of the companies included in this index have been weighted
according to their respective market capitalizations.
in the property and casualty insurance industry, where the periodic
A long-term perspective is particularly important
occurrences of significant catastrophes have historically produced results that can vary significantly year-to-year. Accordingly,
the Company manages with a long-term perspective. From January 1, 2007, the year prior to the financial crisis, through
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December 31, 2021, the Company's cumulative return to shareholders was 322% as compared to 357% for the S&P 500 Index
and 231% for the S&P 500 Property & Casualty Insurance Index.
ISSUER PURCHASES OF EQUITY SECURITIES
The table below sets forth information regarding repurchases by the Company of its common stock during the periods
indicated.
Period Beginning
Period Ending
Oct. 1, 2021
Oct. 31, 2021
Nov. 1, 2021
Nov. 30, 2021
Dec. 1, 2021
Dec. 31, 2021
Total ..............................................
Total number
of shares
purchased
Average
price paid
per share
640,765
2,150,111
2,329,488
5,120,364
$
$
$
$
161.22
157.10
154.12
156.26
Total number of
shares purchased
as part of
publicly
announced
plans or
programs
Approximate
dollar value of
shares that may
yet be purchased
under the
plans or
programs
(in millions)
640,485
2,149,877
2,329,395
5,119,757
$
$
$
$
4,702
4,364
4,005
4,005
The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be
made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the
Securities Exchange Act of 1934, in private transactions or otherwise. The most recent authorization was approved by the
Board of Directors on April 20, 2021 and added $5.0 billion of repurchase capacity to the $805 million capacity remaining at
that date. The authorizations do not have a stated expiration date. The timing and actual number of shares to be repurchased in
the future will 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.
The Company acquired 607 shares for a total cost of approximately $94,000 during the three months ended December 31, 2021
that were not part of the publicly announced share repurchase authorization. These shares consisted of shares retained to cover
payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and
shares used by employees to cover the price of certain stock options that were exercised.
For additional information regarding the Company's share repurchases, see "Item 7—Management's Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources."
Information relating to compensation plans under which the Company's equity securities are authorized for issuance is set forth
in "Part III—Item 12" of this Report.
Item 6. RESERVED
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion and analysis of the Company’s financial condition and results of operations for the years ended
December 31, 2021 and 2020, including year-to-year comparisons between 2021 and 2020. Year-to-year comparisons between
2020 and 2019 have been omitted from this Form 10-K, but may be found in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year
ended December 31, 2020.
FINANCIAL HIGHLIGHTS
2021 Consolidated Results of Operations
•
•
•
•
•
•
•
Net income of $3.66 billion, or $14.63 per share basic and $14.49 per share diluted
Net earned premiums of $30.86 billion
Catastrophe losses of $1.85 billion ($1.46 billion after-tax)
Net favorable prior year reserve development of $538 million ($424 million after-tax)
Combined ratio of 94.5%
Net investment income of $3.03 billion ($2.54 billion after-tax)
Operating cash flows of $7.27 billion
2021 Consolidated Financial Condition
•
•
•
•
•
•
•
•
Total investments of $87.38 billion; fixed maturities and short-term securities comprise 93% of total investments
Total assets of $120.47 billion
Total debt of $7.29 billion, resulting in a debt-to-total capital ratio of 20.2% (21.6% excluding net unrealized
investment gains, net of tax, included in shareholders' equity)
Total capital returned to shareholders of $3.08 billion, comprising $2.20 billion of share repurchases and $876
million of dividends
Shareholders’ equity of $28.89 billion
Net unrealized investment gains of $3.06 billion ($2.42 billion after-tax)
Book value per common share of $119.77
Holding company liquidity of $1.53 billion
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CONSOLIDATED OVERVIEW
Consolidated Results of Operations
(for the year ended December 31, in millions except per share amounts)
Revenues
Premiums ........................................................................................................... $
Net investment income ......................................................................................
Fee income.........................................................................................................
Net realized investment gains ............................................................................
Other revenues ...................................................................................................
Total revenues ...........................................................................................
Claims and expenses
Claims and claim adjustment expenses .............................................................
Amortization of deferred acquisition costs........................................................
General and administrative expenses.................................................................
Interest expense..................................................................................................
Total claims and expenses........................................................................
Income before income taxes .........................................................................
Income tax expense............................................................................................
Net income ..................................................................................................... $
Net income per share
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2021
2020
2019
30,855
3,033
402
171
355
$
29,044
$ 28,272
2,227
2,468
429
2
279
459
113
269
34,816
31,981
31,581
20,298
5,043
4,677
340
30,358
4,458
796
3,662
19,123
19,133
4,773
4,509
339
28,744
3,237
540
2,697
10.56
10.52
4,601
4,365
344
28,443
3,138
516
2,622
10.01
9.92
$
$
$
$
$
$
Basic................................................................................................................ $
Diluted............................................................................................................. $
14.63
14.49
Combined ratio
Loss and loss adjustment expense ratio ..........................................................
Underwriting expense ratio .............................................................................
Combined ratio .........................................................................................
65.1 %
29.4
94.5 %
65.1 %
29.9
95.0 %
66.9 %
29.6
96.5 %
The following discussions of the Company’s net income and segment income are presented on an after-tax basis. Discussions
of the components of net income and segment income are presented on a pre-tax basis, unless otherwise noted. Discussions of
earnings per common share are presented on a diluted basis.
Overview
Diluted net income per share of $14.49 in 2021 increased by 38% over diluted net income per share of $10.52 in 2020. Net
income of $3.66 billion in 2021 increased by 36% over net income of $2.70 billion in 2020. The higher rate of increase in
diluted net income per share reflected the impact of share repurchases in recent periods. The increase in income before income
taxes primarily reflected the pre-tax impacts of (i) higher net investment income, (ii) higher underwriting margins excluding
catastrophe losses and prior year reserve development ("underlying underwriting margins"), (iii) higher net favorable prior year
reserve development and (iv) higher net realized investment gains, partially offset by (v) higher catastrophe losses (net of
recoveries under the Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance treaties). Catastrophe losses in
2021 and 2020 were $1.85 billion and $1.61 billion, respectively. Net favorable prior year reserve development in 2021 and
2020 was $538 million and $351 million, respectively. The higher underlying underwriting margins in 2021 were driven by
Business Insurance and Bond & Specialty Insurance, partially offset by Personal Insurance. Underlying underwriting margins
in 2021 and 2020 reflected a net favorable impact from COVID-19 and related economic conditions. Income tax expense in
2021 was higher than in 2020, primarily reflecting the impact of the increase in income before income taxes.
For discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company, see
"Outlook" and "Part I—Item 1A—Risk Factors."
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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, primarily 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 years ended December 31, 2021 and 2020, 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 for the periods reported.
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Revenues
Earned Premiums
Earned premiums in 2021 were $30.86 billion, $1.81 billion or 6% higher than in 2020. In Business Insurance, earned
premiums in 2021 increased by 3% over 2020. Earned premiums in Business Insurance in 2021 were negatively impacted by
lower net written premiums primarily in the latter half of 2020 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. Earned premiums in Business
Insurance in 2020 were negatively impacted by reduced exposures and reductions in the Company's estimate of ultimate audit
premiums receivable, in each case reflecting the impact of COVID-19 and related economic conditions, including a decrease in
new business levels. In Bond & Specialty Insurance, earned premiums in 2021 increased by 11% over 2020. Earned premiums
in Bond & Specialty Insurance in 2021 and 2020 were not materially impacted by COVID-19 and related economic conditions.
In Personal Insurance, earned premiums in 2021 increased by 10% over 2020. Earned premiums in Personal Insurance in 2021
were not materially impacted by COVID-19 and related economic conditions. Earned premiums in Personal Insurance in 2020
were reduced by premium refunds provided to personal automobile customers in response to COVID-19 and related economic
conditions. Factors contributing to the increase in earned premiums in each segment in 2021 as compared with 2020 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.
(for the year ended December 31, in millions)
Average investments(1)...................................................................................... $
Pre-tax net investment income .........................................................................
After-tax net investment income ......................................................................
Average pre-tax yield(2) ....................................................................................
Average after-tax yield(2) ..................................................................................
___________________________________________
2021
83,574
3,033
2,541
$
$
3.6 %
3.0 %
2020
2019
78,070
$
74,866
2,227
1,908
2.9 %
2.4 %
2,468
2,097
3.3 %
2.8 %
(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 2021 was $3.03 billion, $806 million or 36% higher than in 2020. Net investment income from fixed
maturity investments in 2021 was $1.99 billion, $22 million lower than in 2020. The decrease primarily resulted from lower
long-term interest rates, partially offset by a higher average level of fixed maturity investments. Net investment income from
short-term securities in 2021 was $7 million, $37 million lower than in 2020. The decrease primarily resulted from lower short-
term interest rates. The Company's remaining investment portfolios had net investment income of $1.08 billion in 2021, $868
million higher than in 2020, primarily due to higher private equity partnership returns. Net investment income from these
investments in 2020 included the impact of the disruption in global financial markets associated with COVID-19. 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.
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Fee Income
Fee income in 2021 was $402 million, $27 million lower than in 2020. 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
The following table sets forth information regarding the Company’s net pre-tax realized investment gains.
(for the year ended December 31, in millions)
2021
2020
2019
Credit impairment losses:
Fixed maturities............................................................................................ $
(2) $
Other investments.........................................................................................
Net realized investment gains on equity securities still held ..........................
Other net realized investment gains, including from sales .............................
—
78
95
Total ........................................................................................................... $
171
$
(15) $
(40)
27
30
2
(4)
—
61
56
$
113
In the second quarter of 2020, the Company recorded a $40 million credit impairment loss from the other-than-temporary
impairment of the carrying value of a joint venture investment included in other investments.
Other net realized investment gains in 2021 included $69 million of net realized investment gains related to fixed maturity
investments, $17 million of net realized investment gains related to equity securities sold and $9 million of net realized
investment gains related to other investments. Other net realized investment gains in 2020 included $67 million of net realized
investment gains related to fixed maturity investments, $11 million of net realized investment losses related to equity securities
sold and $26 million of net realized investment losses related to other investments.
Other Revenues
Other revenues in all years presented included revenues from Simply Business and installment premium charges. Installment
premium charges in 2020 were reduced by billing relief actions offered to customers as a result of COVID-19.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2021 were $20.30 billion, $1.18 billion or 6% higher than 2020, primarily reflecting
the impacts of (i) higher catastrophe losses, (ii) loss cost trends, (iii) higher business volumes, (iv) higher losses in the
automobile product line in Personal Insurance due to a comparison to a low level of loss activity in 2020 as a result of the
pandemic and, to a lesser extent, elevated severity in the current year and (v) higher losses in the homeowners and other product
line in Personal Insurance, partially offset by (vi) higher net favorable prior year reserve development and (vii) a net favorable
impact associated with COVID-19 and related economic conditions in Business Insurance and Bond & Specialty Insurance in
the aggregate compared to a net charge in 2020. Catastrophes in 2021 primarily resulted from Hurricane Ida, tornado activity in
Kentucky, winter storms and severe wind and hail storms in several regions of the United States, as well as a wildfire in
Colorado. Catastrophes in 2020 primarily resulted from the derecho windstorm in the midwestern region of the United States,
the Glass wildfire in California, Tropical Storm Isaias, Hurricanes Zeta and Laura, additional wildfires in the western United
States, tornado activity in Tennessee, other severe wind storms and winter storms in several regions of the United States and
civil unrest. Catastrophe and non-catastrophe weather-related losses in 2021 were reduced by the full $350 million of recoveries
available under the Company's 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.
Catastrophe and non-catastrophe weather-related losses, including losses from wildfires, 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.
Net favorable prior year reserve development in 2020 included subrogation recoveries related to wildfires in California in 2017
and 2018, which are discussed in more detail in note 8 of notes to the consolidated financial statements. Factors contributing to
net prior year reserve development during the years ended December 31, 2021, 2020 and 2019 are discussed in more detail in
note 8 of notes to the consolidated financial statements.
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Significant Catastrophe Losses
The Company defines a “catastrophe” as an event:
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•
•
that is 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; and
for which the Company’s estimates of its ultimate losses before reinsurance and taxes exceed a pre-established
dollar threshold.
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 2021 ranged from
approximately $20 million to $30 million of losses before reinsurance and taxes.
The following table presents the amount of losses recorded by the Company for significant catastrophes that occurred in 2021,
2020 and 2019, the amount of net unfavorable (favorable) prior year reserve development recognized in 2021 and 2020 for
catastrophes that occurred in 2020 and 2019, and the estimate of ultimate losses for those catastrophes at December 31, 2021,
2020 and 2019. 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.
(in millions, pre-tax and net of reinsurance)
(1)
2021
2020
2019
2021
2020
2019
Losses Incurred / Unfavorable (Favorable)
Prior Year Reserve Development for the
Year Ended December 31,
Estimated Ultimate Losses at
December 31,
2019
PCS Serial Number:
33 — Severe wind storms ............................
61 — Severe wind storms and tornadoes .....
2020
PCS Serial Number:
16 — Tennessee tornado activity .................
19 — Severe storms .....................................
20 — Severe storms .....................................
33 — Civil unrest .........................................
44 — Tropical Storm Isaias..........................
46 — Midwest derecho ................................
68 — California wildfire - Glass fire (2) .......
2021
PCS Serial Number:
15 — Winter storms .....................................
17 — Winter storms .....................................
29 — Severe wind storms ............................
60 — Hurricane Ida......................................
76 — Tornado outbreak ...............................
___________________________________________
(9)
(13)
(9)
(9)
(25)
(7)
(22)
(10)
(9)
228
508
105
417
131
8
8
151
134
165
100
140
212
145
n/a
n/a
n/a
n/a
n/a
250
109
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
249
104
142
125
140
93
118
202
136
228
508
105
417
131
258
117
151
134
165
100
140
212
145
n/a
n/a
n/a
n/a
n/a
250
109
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(1) Amounts are reported pre-tax and net of recoveries under all applicable reinsurance treaties, except for the Company's 2021, 2020 and
2019 Underlying Property Aggregate Catastrophe Excess-of-Loss Treaties. Those treaties covered the accumulation of certain property
losses arising from one or multiple occurrences (both catastrophe and non-catastrophe events) for the period January 1, 2021 through and
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including December 31, 2021, the period January 1, 2020 through and including December 31, 2020 and the period January 1, 2019
through and including December 31, 2019, respectively. As a result, the benefit from those treaties are not included in the table as the
allocation of the treaties' benefit to each identified catastrophe changes each time there are additional events or changes in estimated
losses from any covered event.
(2)
In addition to the Glass fire, there were 16 other PCS-designated wildfires in 2020. While none of the 16 wildfires were individually
large enough to meet the Company's threshold for disclosure as a significant catastrophe in this table, total losses in 2020 from those
wildfires were $169 million, of which two wildfires totaling $73 million met the Company's threshold for disclosure as catastrophes.
n/a: not applicable.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2021 was $5.04 billion, $270 million or 6% higher than in 2020. The increase in
2021 was consistent with the increase in earned premiums. Amortization of deferred acquisition costs is discussed in more
detail in the segment discussions that follow.
General and Administrative Expenses
General and administrative expenses in 2021 were $4.68 billion, $168 million or 4% higher than in 2020, primarily reflecting
the impact of costs associated with higher business volumes. The benefit of lower net expenses related to COVID-19 and
related economic conditions in 2021 was higher than in 2020. General and administrative expenses are discussed in more detail
in the segment discussions that follow.
Interest Expense
Interest expense in 2021 and 2020 was $340 million and $339 million, respectively.
Income Tax Expense
Income tax expense in 2021 was $796 million, $256 million or 47% higher than in 2020, primarily reflecting the impact of the
$1.22 billion increase in income before income taxes in 2021.
The Company’s effective tax rate was 18% and 17% in 2021 and 2020, respectively. The effective tax rates in both years were
lower than the statutory rate of 21%, primarily due to the impact of tax-exempt investment income on the calculation of the
Company’s income tax provision.
Combined Ratio
The combined ratio of 94.5% in 2021 was 0.5 points lower than the combined ratio of 95.0% in 2020. The loss and loss
adjustment expense ratio of 65.1% in 2021 was comparable to the loss and loss adjustment expense ratio in 2020. The
underwriting expense ratio of 29.4% in 2021 was 0.5 points lower than the underwriting expense ratio of 29.9% in 2020.
Catastrophe losses in 2021 and 2020 accounted for 6.0 points and 5.5 points, respectively, of the combined ratio. Net favorable
prior year reserve development in 2021 and 2020 provided 1.8 points and 1.2 points of benefit, respectively, to the combined
ratio. The combined ratio excluding prior year reserve development and catastrophe losses ("underlying combined ratio") in
2021 was 0.4 points lower than the 2020 ratio on the same basis, primarily reflecting the impacts of (i) earned pricing that
exceeded loss cost trends in Business Insurance and Bond & Specialty Insurance, (ii) a net favorable impact associated with
COVID-19 and related economic conditions in Business Insurance and Bond & Specialty Insurance in the aggregate compared
to a net charge in 2020 and (iii) a lower expense ratio, partially offset by (iv) higher losses in the automobile product line in
Personal Insurance due to a comparison to a low level of loss activity (net of premium refunds) in 2020 as a result of the
pandemic and, to a lesser extent, elevated severity in the current year and (v) higher losses in the homeowners and other product
line in Personal Insurance.
The combined ratio continues to be impacted by the tort environment, including more aggressive attorney involvement in
insurance claims.
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Written Premiums
Consolidated gross and net written premiums were as follows:
(for the year ended December 31, in millions)
Business Insurance .......................................................................................... $
Bond & Specialty Insurance............................................................................
Personal Insurance...........................................................................................
Total ............................................................................................................. $
(for the year ended December 31, in millions)
Business Insurance .......................................................................................... $
Bond & Specialty Insurance............................................................................
Personal Insurance...........................................................................................
Total ............................................................................................................. $
Gross Written Premiums
2021
2020
2019
17,829
3,725
12,690
34,244
$
$
17,060
3,184
11,519
31,763
$
$
17,151
2,931
10,981
31,063
Net Written Premiums
2021
2020
2019
16,092
3,376
12,491
31,959
$
$
15,431
2,951
11,350
29,732
$
$
15,629
2,739
10,783
29,151
Gross and net written premiums in 2021 increased by 8% and 7%, respectively, over 2020. Gross and net written premiums in
2021 were not materially impacted by COVID-19 and related economic conditions. Gross and net written premiums in Business
Insurance in 2021 increased by 5% and 4%, respectively, over 2020. Gross and net written premiums in Business Insurance in
2020 were negatively impacted by reduced exposures, reflecting the impact of COVID-19 and related economic conditions,
including a decrease in new business levels. Gross and net written premiums in Bond & Specialty Insurance in 2021 increased
by 17% and 14%, respectively, over 2020. Gross and net written premiums in Bond & Specialty Insurance in 2020 were
negatively impacted by lower surety volumes, primarily due to COVID-19 and related economic conditions. Gross and net
written premiums in Personal Insurance in 2021 both increased by 10% over 2020. Gross and net written premiums in Personal
Insurance in 2020 were negatively impacted by premium refunds provided to personal automobile customers in response to
COVID-19 and related economic conditions. Factors contributing to the increases in gross and net written premiums in each
segment are discussed in more detail in the segment discussions that follow.
RESULTS OF OPERATIONS BY SEGMENT
Business Insurance
Results of Business Insurance were as follows:
(for the year ended December 31, in millions)
Revenues
Earned premiums ........................................................................................ $
Net investment income................................................................................
Fee income ..................................................................................................
Other revenues ............................................................................................
Total revenues .......................................................................................
Total claims and expenses ...........................................................................
Segment income before income taxes..................................................
Income tax expense ......................................................................................
Segment income .................................................................................... $
2021
2020
2019
15,734
2,265
375
235
18,609
15,725
2,884
499
2,385
$
$
15,294
1,633
405
176
17,508
15,986
1,522
213
$
1,309
$
15,300
1,816
437
155
17,708
16,093
1,615
223
1,392
Loss and loss adjustment expense ratio .........................................................
Underwriting expense ratio............................................................................
Combined ratio .....................................................................................
65.0 %
30.7
95.7 %
69.4 %
30.9
100.3 %
70.3 %
30.6
100.9 %
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Overview
Segment income in 2021 was $2.39 billion, $1.08 billion or 82% higher than segment income of $1.31 billion in 2020. The
increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher net investment income, (ii)
higher underlying underwriting margins and (iii) net favorable prior year reserve development of $173 million in 2021
compared to net unfavorable prior year reserve development of $91 million in 2020, partially offset by (iv) higher catastrophe
losses (net of recoveries under the Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance treaties).
Catastrophe losses in 2021 and 2020 were $793 million and $645 million, respectively. The higher underlying underwriting
margins primarily reflected the impacts of (i) earned pricing that exceeded loss cost trends, (ii) a favorable impact associated
with COVID-19 and related economic conditions and (iii) higher business volumes. Income tax expense in 2021 was higher
than in 2020, primarily reflecting the impact of the increase in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in 2021 were $15.73 billion, $440 million or 3% higher than in 2020. Earned premiums in 2021 were
negatively impacted by lower net written premiums primarily in the latter half of 2020 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. Earned
premiums in 2020 were negatively impacted by reduced exposures and reductions in the Company's estimate of ultimate audit
premiums receivable, in each case reflecting the impact of COVID-19 and related economic conditions, including a decrease in
new business levels.
Net Investment Income
Net investment income in 2021 was $2.27 billion, $632 million or 39% higher than in 2020. Refer to the “Net Investment
Income” section of the “Consolidated Results of Operations” discussion for a description of the factors contributing to the
increase in the Company’s consolidated net investment income in 2021 compared with 2020. In addition, refer to note 2 of
notes to the consolidated financial statements for a discussion of the Company’s net
income allocation
methodology.
investment
Fee Income
National Accounts is the primary source of fee income due to revenue from its large deductible policies and service businesses,
which include risk management, claims administration, loss control and risk management information services provided to third
parties, as well as policy issuance and claims management services to workers’ compensation residual market pools. Fee
income in 2021 was $375 million, $30 million or 7% lower than in 2020, reflecting lower claim volume under administration
and lower serviced premium volume from the workers' compensation residual market pool.
Other Revenues
Other revenues in 2021 were $235 million, $59 million or 34% higher than in 2020, primarily reflecting growth in revenues
from Simply Business. Other revenues also included installment premium charges and other policyholder service charges.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2021 were $10.40 billion, $406 million or 4% lower than in 2020, primarily reflecting
the impacts of (i) reduced exposures, including the impact of COVID-19 and related economic conditions, and (ii) net favorable
prior year reserve development compared to net unfavorable prior year reserve development in 2020, partially offset by (iii)
loss cost trends and (iv) higher catastrophe losses. Claims and claim adjustment expenses in both 2021 and 2020 included
favorable loss activity related to the impact of COVID-19 and related economic conditions. Catastrophe losses and non-
catastrophe weather-related losses in 2021 and 2020 were reduced by recoveries under the Company's Underlying Property
Aggregate Catastrophe Excess-of-Loss Reinsurance treaties.
Net unfavorable prior year reserve development in 2020 included the favorable impact of subrogation recoveries related to
wildfires in California in 2017 and 2018. Factors contributing to net prior year reserve development during the years ended
December 31, 2021, 2020 and 2019 are discussed in more detail in note 8 of notes to the consolidated financial statements.
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Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2021 was $2.58 billion, $63 million or 3% higher than in 2020, consistent with the
increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in 2021 were $2.75 billion, $82 million or 3% higher than in 2020. The increase in 2021
was primarily in support of business growth. General and administrative expenses in both 2021 and 2020 included the benefit of
lower travel-related expenses attributable to COVID-19 and related economic conditions. General and administrative expenses
in 2020 also included an increased allowance for expected credit losses on premiums receivable attributable to COVID-19 and
related economic conditions.
Income Tax Expense
Income tax expense in 2021 was $499 million, $286 million or 134% higher than in 2020, primarily reflecting the impact of the
$1.36 billion increase in income before income taxes in 2021.
Combined Ratio
The combined ratio of 95.7% in 2021 was 4.6 points lower than the combined ratio of 100.3% in 2020. The loss and loss
adjustment expense ratio of 65.0% in 2021 was 4.4 points lower than the loss and loss adjustment expense ratio of 69.4% in
2020. The underwriting expense ratio of 30.7% in 2021 was 0.2 points lower than the underwriting expense ratio of 30.9% in
2020.
Catastrophe losses in 2021 and 2020 accounted for 5.1 points and 4.2 points, respectively, of the combined ratio. Net favorable
prior year reserve development in 2021 provided 1.1 points of benefit to the combined ratio. Net unfavorable prior year reserve
development in 2020 accounted for 0.6 points of the combined ratio. The underlying combined ratio in 2021 was 3.8 points
lower than the 2020 ratio on the same basis, primarily reflecting the impacts of (i) earned pricing that exceeded loss cost trends
and (ii) a favorable impact associated with COVID-19 and related economic conditions in 2021 compared to a net charge in
2020.
Written Premiums
Business Insurance’s gross and net written premiums by market were as follows:
(for the year ended December 31, in millions)
Domestic:
Gross Written Premiums
2021
2020
2019
Select Accounts ........................................................................................... $
Middle Market.............................................................................................
National Accounts .......................................................................................
National Property and Other .......................................................................
Total Domestic ......................................................................................
International ...................................................................................................
Total Business Insurance ..................................................................... $
2,860
$
2,848
$
9,487
1,517
2,701
16,565
1,264
17,829
$
9,017
1,540
2,460
15,865
1,195
17,060
$
2,945
9,073
1,603
2,279
15,900
1,251
17,151
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(for the year ended December 31, in millions)
Domestic:
Net Written Premiums
2021
2020
2019
Select Accounts ........................................................................................... $
Middle Market.............................................................................................
National Accounts .......................................................................................
National Property and Other .......................................................................
Total Domestic ......................................................................................
International ...................................................................................................
2,833
$
2,821
$
8,933
987
2,265
15,018
1,074
8,511
996
2,086
14,414
1,017
Total Business Insurance ..................................................................... $
16,092
$
15,431
$
2,911
8,630
1,051
1,965
14,557
1,072
15,629
Gross and net written premiums in 2021 increased by 5% and 4%, respectively, over 2020. Gross and net written premiums in
2021 were not materially impacted by COVID-19 and related economic conditions. Gross and net written premiums in 2020
were negatively impacted by a modest reduction in exposures and a decrease in new business volume, both impacted by
COVID-19 and related economic conditions.
Select Accounts. Net written premiums of $2.83 billion in 2021 were comparable with 2020. Retention rates remained strong in
2021. Renewal premium changes in 2021 remained positive and were higher than in 2020. New business premiums in 2021
decreased from 2020.
Middle Market. Net written premiums of $8.93 billion in 2021 increased by 5% over 2020. Retention rates remained strong in
2021. Renewal premium changes in 2021 remained positive and were higher than in 2020. New business premiums in 2021
increased over 2020.
National Accounts. Net written premiums of $987 million in 2021 decreased by 1% from 2020, reflecting, in part, lower audit
premium adjustments. Retention rates remained strong in 2021. Renewal premium changes in 2021 were positive and slightly
higher than 2020. New business premiums in 2021 increased over 2020.
National Property and Other. Net written premiums of $2.27 billion in 2021 increased by 9% over 2020. Retention rates
remained strong in 2021 and increased over 2020. Renewal premium changes in 2021 remained positive and were lower than
in 2020. New business premiums in 2021 decreased from 2020.
International. Net written premiums of $1.07 billion in 2021 increased by 6% over 2020, primarily driven by changes in
foreign currency exchange rates and the Company's operations in the United Kingdom and at Lloyd's.
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Bond & Specialty Insurance
Results of Bond & Specialty Insurance were as follows:
(for the year ended December 31, in millions)
Revenues
Earned premiums ........................................................................................ $
Net investment income................................................................................
Other revenues ............................................................................................
Total revenues ......................................................................................
Total claims and expenses ...........................................................................
Segment income before income taxes..................................................
Income tax expense ......................................................................................
Segment income .................................................................................... $
2021
2020
2019
3,138
$
2,823
$
2,565
247
23
3,408
2,575
833
165
668
$
213
27
3,063
2,483
580
107
473
$
233
26
2,824
2,055
769
151
618
Loss and loss adjustment expense ratio .........................................................
Underwriting expense ratio............................................................................
Combined ratio ......................................................................................
46.6 %
34.9
81.5 %
51.5 %
35.9
87.4 %
42.2 %
37.3
79.5 %
Overview
Segment income in 2021 was $668 million, $195 million or 41% higher than segment income of $473 million in 2020. The
increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher underlying underwriting
margins, (ii) net favorable prior year reserve development of $105 million in 2021 compared to net unfavorable prior year
reserve development of $1 million in 2020 and (iii) higher net investment income, partially offset by (iv) higher catastrophe
losses. Catastrophe losses in 2021 and 2020 were $40 million and $11 million, respectively. The higher underlying
underwriting margins primarily reflected the impacts of (i) earned pricing that exceeded loss cost trends, (ii) higher business
volumes and (iii) a lower level of losses associated with COVID-19 and related economic conditions. Income tax expense in
2021 was higher than in 2020, primarily reflecting the impact of the increase in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in 2021 were $3.14 billion, $315 million or 11% higher than in 2020, primarily reflecting an increase in net
written premiums over the preceding twelve months. Earned premiums in 2021 and 2020 were not materially impacted by
COVID-19 and related economic conditions.
Net Investment Income
Net investment income in 2021 was $247 million, $34 million or 16% higher than in 2020. Included in Bond & Specialty
Insurance are certain legal entities whose invested assets and related net investment income are reported exclusively in this
segment and not allocated among all business segments. Refer to the “Net Investment Income” section of the “Consolidated
Results of Operations” discussion for a description of the factors contributing to the increase in the Company’s consolidated net
investment income in 2021 as compared with 2020. In addition, refer to note 2 of notes to the consolidated financial statements
for a discussion of the Company’s net investment income allocation methodology.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2021 were $1.47 billion, $9 million or 1% higher than in 2020, primarily reflecting
the impacts of (i) higher business volumes and (ii) higher catastrophe losses, partially offset by (iii) net favorable prior year
reserve development compared to net unfavorable prior year reserve development in 2020 and (iv) a lower level of losses
associated with COVID-19 and related economic conditions.
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Factors contributing to net prior year reserve development during the years ended December 31, 2021, 2020 and 2019 are
discussed in more detail in note 8 of notes to the consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2021 was $570 million, $51 million or 10% higher than in 2020, generally
consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in 2021 were $532 million, $32 million or 6% higher than in 2020, primarily reflecting the
impact of higher business volumes. The benefit of lower travel-related expenses related to COVID-19 and related economic
conditions in 2021 was higher than in 2020.
Income Tax Expense
Income tax expense in 2021 was $165 million, $58 million or 54% higher than in 2020, primarily reflecting the impact of the
$253 million increase in income before income taxes in 2021.
Combined Ratio
The combined ratio of 81.5% in 2021 was 5.9 points lower than the combined ratio of 87.4% in 2020. The loss and loss
adjustment expense ratio of 46.6% in 2021 was 4.9 points lower than the loss and loss adjustment expense ratio of 51.5% in
2020. The underwriting expense ratio of 34.9% in 2021 was 1.0 points lower than the underwriting expense ratio of 35.9% in
2020.
Net favorable prior year reserve development in 2021 provided 3.3 points of benefit to the combined ratio. Net unfavorable
prior year reserve development had no impact on the combined ratio in 2020. Catastrophe losses in 2021 and 2020 accounted
for 1.3 points and 0.4 points, respectively, of the combined ratio. The underlying combined ratio in 2021 was 3.5 points lower
than the 2020 ratio on the same basis, primarily reflecting the impacts of (i) earned pricing that exceeded loss cost trends, (ii) a
lower level of losses associated with COVID-19 and related economic conditions and (iii) a lower expense ratio.
Written Premiums
Bond & Specialty Insurance’s gross and net written premiums were as follows:
(for the year ended December 31, in millions)
Domestic:
Gross Written Premiums
2021
2020
2019
Management Liability ................................................................................. $
Surety ..........................................................................................................
Total Domestic ......................................................................................
International ...................................................................................................
Total Bond & Specialty Insurance ...................................................... $
2,243
$
1,920
$
952
3,195
530
3,725
$
910
2,830
354
3,184
$
1,720
926
2,646
285
2,931
(for the year ended December 31, in millions)
Domestic:
Net Written Premiums
2021
2020
2019
Management Liability ................................................................................. $
Surety ..........................................................................................................
Total Domestic ......................................................................................
International ...................................................................................................
Total Bond & Specialty Insurance ...................................................... $
1,983
888
2,871
505
3,376
$
$
1,769
845
2,614
337
2,951
$
$
1,605
866
2,471
268
2,739
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Gross written premiums and net written premiums in 2021 increased by 17% and 14%, respectively, over 2020. Gross and net
written premiums in 2021 were not materially impacted by COVID-19 and related economic conditions. Gross and net written
premiums in 2020 were negatively impacted by lower surety volumes, primarily due to COVID-19 and related economic
conditions.
Domestic. Net written premiums in 2021 were $2.87 billion, $257 million or 10% higher than in 2020. Excluding the surety
line of business, for which the following are not relevant measures, retention rates remained strong in 2021, but declined from
2020. Renewal premium changes in 2021 remained positive and were higher than in 2020. New business premiums in 2021
decreased from 2020.
International. Net written premiums in 2021 were $505 million, $168 million or 50% higher than in 2020, primarily driven by
increases in the United Kingdom and Canada, including the impact of changes in foreign currency exchange rates.
Personal Insurance
Results of Personal Insurance were as follows:
(for the year ended December 31, in millions)
Revenues
Earned premiums ........................................................................................ $
Net investment income................................................................................
Fee income ..................................................................................................
Other revenues ............................................................................................
Total revenues ......................................................................................
Total claims and expenses ...........................................................................
Segment income before income taxes..................................................
Income tax expense ......................................................................................
Segment income .................................................................................... $
2021
2020
2019
11,983
$
10,927
$
10,407
521
27
97
12,628
11,689
939
179
760
381
24
76
419
22
87
11,408
10,935
9,905
1,503
308
1,195
$
9,916
1,019
195
824
$
Loss and loss adjustment expense ratio .........................................................
Underwriting expense ratio............................................................................
Combined ratio ....................................................................................
70.3 %
26.2
96.5 %
62.8 %
26.9
89.7 %
68.0 %
26.2
94.2 %
Overview
Segment income in 2021 was $760 million, $435 million or 36% lower than segment income of $1.20 billion in 2020. The
decrease in segment income before income taxes primarily reflected the pre-tax impacts of (i) lower underlying underwriting
margins, (ii) lower net favorable prior year reserve development and (iii) higher catastrophe losses (net of recoveries under the
Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance treaties), partially offset by (iv) higher net investment
income. Catastrophe losses in 2021 and 2020 were $1.01 billion and $957 million, respectively. Net favorable prior year reserve
development in 2021 and 2020 was $260 million and $443 million, respectively. The lower underlying underwriting margins
primarily reflected the impacts of (i) higher losses in the automobile product line due to a comparison to a low level of loss
activity (net of premium refunds) in 2020 as a result of the pandemic and, to a lesser extent, elevated severity in the current year
and (ii) higher losses in the homeowners and other product line, partially offset by (iii) higher business volumes. Income tax
expense in 2021 was lower than in 2020, primarily reflecting the impact of the decrease in segment income before income
taxes.
Revenues
Earned Premiums
Earned premiums in 2021 were $11.98 billion, $1.06 billion or 10% higher than in 2020, primarily reflecting the increase in net
written premiums over the preceding twelve months. Net written and earned premiums in 2020 were reduced by premium
refunds provided to personal automobile customers in response to COVID-19 and related economic conditions.
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Net Investment Income
Net investment income in 2021 was $521 million, $140 million or 37% higher than in 2020. Refer to the “Net Investment
Income” section of the “Consolidated Results of Operations” discussion for a description of the factors contributing to the
increase in the Company’s consolidated net investment income in 2021 as compared with 2020. In addition, refer to note 2 of
notes to the consolidated financial statements for a discussion of the Company’s net
income allocation
methodology.
investment
Other Revenues
Other revenues in all years presented included installment premium charges. Installment premium charges in 2021 were higher
than in 2020, primarily attributable to the impact of billing relief actions offered to customers as a result of COVID-19 in 2020.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2021 were $8.43 billion, $1.57 billion or 23% higher than in 2020, primarily
reflecting the impacts of (i) higher losses in the automobile product line due to a comparison to a low level of loss activity in
2020 as a result of the pandemic and, to a lesser extent, elevated severity in the current year, (ii) higher business volumes, (iii)
loss cost trends, (iv) lower net favorable prior year reserve development, (v) higher losses in the homeowners and other product
line and (vi) higher catastrophe losses. Catastrophe losses and non-catastrophe weather-related losses, in both 2021 and 2020,
were reduced by recoveries under the Company's Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance
treaties.
Net favorable prior year reserve development in 2020 primarily resulted from subrogation recoveries related to wildfires in
California in 2017 and 2018. Factors contributing to net favorable prior year reserve development during the years ended
December 31, 2021, 2020 and 2019 are discussed in more detail in note 8 of notes to the consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2021 was $1.89 billion, $156 million or 9% higher than in 2020, generally
consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in 2021 were $1.37 billion, $56 million or 4% higher than in 2020. The increase in 2021
primarily reflected higher business volumes. The total in 2020 included an increased allowance for expected credit losses on
premiums receivable due to the impact of COVID-19 and related economic conditions.
Income Tax Expense
Income tax expense in 2021 was $179 million, $129 million or 42% lower than in 2020, primarily reflecting the impact of the
$564 million decrease in income before income taxes in 2021.
Combined Ratio
The combined ratio of 96.5% in 2021 was 6.8 points higher than the combined ratio of 89.7% in 2020. The loss and loss
adjustment expense ratio of 70.3% in 2021 was 7.5 points higher than the loss and loss adjustment expense ratio of 62.8% in
2020. The underwriting expense ratio of 26.2% in 2021 was 0.7 points lower than the underwriting expense ratio of 26.9% in
2020.
Catastrophe losses accounted for 8.5 points and 8.8 points of the combined ratio in 2021 and 2020, respectively. Net favorable
prior year reserve development in 2021 and 2020 provided 2.2 points and 4.1 points of benefit, respectively, to the combined
ratio. The underlying combined ratio in 2021 was 5.2 points higher than the 2020 ratio on the same basis, primarily reflecting
the impacts of (i) higher losses in the automobile product line due to a comparison to a low level of loss activity (net of
premium refunds) in 2020 as a result of the pandemic and, to a lesser extent, elevated severity in the current year and (ii) higher
losses in the homeowners and other product line.
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Written Premiums
Personal Insurance’s gross and net written premiums were as follows:
(for the year ended December 31, in millions)
Domestic:
Gross Written Premiums
2021
2020
2019
Automobile ............................................................................................. $
Homeowners and Other ..........................................................................
Total Domestic..................................................................................
International ...................................................................................................
5,852
$
5,395
$
6,137
11,989
701
5,457
10,852
667
5,443
4,814
10,257
724
Total Personal Insurance................................................................. $
12,690
$
11,519
$
10,981
(for the year ended December 31, in millions)
Domestic:
Net Written Premiums
2021
2020
2019
Automobile ............................................................................................. $
Homeowners and Other ..........................................................................
Total Domestic..................................................................................
International ...................................................................................................
5,827
$
5,369
$
5,980
11,807
684
5,329
10,698
652
5,412
4,664
10,076
707
Total Personal Insurance................................................................. $
12,491
$
11,350
$
10,783
Gross and net written premiums in 2021 both increased by 10% over 2020. Gross and net written premiums in 2021 were not
materially impacted by COVID-19 and related economic conditions. Gross and net written premiums in 2020 were negatively
impacted by premium refunds provided to personal automobile customers in response to COVID-19 and related economic
conditions.
Domestic
Automobile net written premiums of $5.83 billion in 2021 increased by 9% over 2020. Net written premiums in 2020 were
negatively impacted by premium refunds provided to personal automobile customers in response to COVID-19 and related
economic conditions. Retention rates remained strong in 2021. Renewal premium changes in 2021 were not significant and
were lower than in the same periods of 2020. New business premiums in 2021 increased over 2020.
Homeowners and Other net written premiums of $5.98 billion in 2021 increased by 12% over 2020. Retention rates remained
strong in 2021. Renewal premium changes in 2021 remained positive and were higher than in 2020. New business premiums in
2021 increased over 2020.
For its Domestic business, Personal Insurance had approximately 8.9 million and 8.4 million active policies at December 31,
2021 and 2020, respectively.
International
International net written premiums of $684 million in 2021 increased by 5% over 2020, primarily driven by changes in foreign
currency exchange rates.
For its International business, Personal Insurance had approximately 477,000 and 491,000 active policies at December 31, 2021
and 2020, respectively.
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Interest Expense and Other
(for the year ended December 31, in millions)
Income (loss).................................................................................................. $
2021
2020
2019
(291) $
(291) $
(297)
The Income (loss) for Interest Expense and Other in both 2021 and 2020 was $(291) million. Pre-tax interest expense in 2021
and 2020 was $340 million and $339 million, respectively. After-tax interest expense in 2021 and 2020 was $269 million and
$268 million, respectively.
ASBESTOS CLAIMS AND LITIGATION
The Company believes that the property and casualty insurance industry has suffered from court decisions and other trends that
have expanded insurance coverage for asbestos claims far beyond the original intent of insurers and policyholders. The
Company has received and continues to receive a significant number of asbestos claims. Factors underlying these claim filings
include continued intensive advertising by lawyers seeking asbestos claimants and the focus by plaintiffs on defendants, such as
manufacturers of talcum powder, who were not traditionally primary targets of asbestos litigation. The focus on these
defendants is primarily the result of the number of traditional asbestos defendants who have sought bankruptcy protection in
previous years. The bankruptcy of many traditional defendants has also caused increased settlement demands against those
policyholders who are not in bankruptcy but remain in the tort system. Currently, in many jurisdictions, those who allege very
serious injury and who can present credible medical evidence of their injuries are receiving priority trial settings in the courts,
while those who have not shown any credible disease manifestation are having their hearing dates delayed or placed on an
inactive docket. Prioritizing claims involving credible evidence of injuries, along with the focus on defendants who were not
traditionally primary targets of asbestos litigation, contributes to the claims and claim adjustment expense payment patterns
experienced by the Company. The Company’s asbestos-related claims and claim adjustment expense experience also has been
impacted by the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of
policy limits or through the insolvency of other participating insurers.
The Company continues to be involved in disputes, including litigation, with a number of policyholders, some of whom are in
bankruptcy, over coverage for asbestos-related claims. Many coverage disputes with policyholders are only resolved through
settlement agreements. Because many policyholders make exaggerated demands, it is difficult to predict the outcome of
settlement negotiations. Settlements involving bankrupt policyholders may include extensive releases which are favorable to the
Company, but which could result in settlements for larger amounts than originally anticipated. Although the Company has seen
a reduction in the overall risk associated with these disputes, it remains difficult to predict the ultimate cost of these claims. As
in the past, the Company will continue to pursue settlement opportunities.
In addition to claims against policyholders, proceedings have been launched directly against insurers, including the Company,
by individuals challenging insurers’ conduct with respect to the handling of past asbestos claims and by individuals seeking
damages arising from alleged asbestos-related bodily injuries.
It is possible that other direct actions against insurers, including
It is difficult to predict the outcome of these proceedings, including whether the
the Company, could be filed in the future.
plaintiffs would be able to sustain these actions against insurers based on novel legal theories of liability. The Company
believes it has meritorious defenses to any such claims and has received favorable rulings in certain jurisdictions.
Because each policyholder presents different liability and coverage issues, the Company generally reviews the exposure
presented by each policyholder with open claims at least annually. Among the factors the Company may consider in the course
of this review are: available insurance coverage, including the role of any umbrella or excess insurance the Company has issued
to the policyholder; limits and deductibles; an analysis of the policyholder’s potential liability; the jurisdictions involved; past
and anticipated future claim activity and loss development on pending claims; past settlement values of similar claims; allocated
claim adjustment expense; the potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos
claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to
whether or not an asbestos claim is a products/completed operation claim subject to an aggregate limit and the available
coverage, if any, for that claim.
The Company's net asbestos reserves at both December 31, 2021 and 2020 were $1.34 billion, and include case reserves, IBNR
reserves and reserves for the costs of defending asbestos-related coverage litigation. IBNR reserves include amounts for new
claims and adverse development on existing policyholders, as well as reserves for claims from policyholders reporting asbestos
claims for the first time and for policyholders for which there is, or may be, litigation. Asbestos reserves also include amounts
related to certain policyholders with whom the Company has entered into permanent settlement agreements, which are based on
the expected payout for each policyholder under the applicable agreement. Additionally, a portion of the asbestos reserves
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relates to assumed reinsurance contracts primarily consisting of reinsurance of excess coverage, including various pool
participations.
The Company conducts an annual review of domestic policyholders with open asbestos claims. Policyholders are identified for
this review based upon, among other factors: a combination of past payments and current case reserves in excess of a specified
threshold (currently $100,000), perceived level of exposure, number of reported claims, products/completed operations and
potential “non-product” exposures, size of policyholder and geographic distribution of products or services sold by the
policyholder.
In the third quarter of 2021, the Company completed its annual in-depth asbestos claim review, including a review of
policyholders with open claims and litigation cases for potential product and "non-product" liability, and noted the continuation
of the following trends:
•
•
•
a high level of litigation activity in certain jurisdictions involving individuals alleging serious asbestos-related illness,
primarily involving mesothelioma claims;
while overall payment patterns have been generally stable, there has been an increase in severity for certain
policyholders due to the high level of litigation activity; and
a moderate level of asbestos-related bankruptcy activity.
Both the number of policyholders with open asbestos claims and net asbestos-related payments decreased slightly when
compared to 2020. Payments on behalf of these policyholders continue to be influenced by a high level of litigation activity in
a limited number of jurisdictions where individuals alleging serious asbestos-related injury, primarily mesothelioma, continue
to target defendants who were not traditionally primary targets of asbestos litigation.
The Company’s quarterly asbestos reserve reviews include an analysis of exposure and claim payment patterns by policyholder,
as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative actions. The Company also analyzes
developing payment patterns among policyholders and the assumed reinsurance component of reserves, as well as projected
reinsurance billings and recoveries. In addition, the Company reviews its historical gross and net loss and expense paid
experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid
activity. Conventional actuarial methods are not utilized to establish asbestos reserves, and the Company’s evaluations have not
resulted in a reliable method to determine a meaningful average asbestos defense or indemnity payment.
The completion of these reviews and analyses in 2021, 2020 and 2019 resulted in $225 million, $295 million and $220 million
In each year, the reserve increases were primarily driven by
increases, respectively, to the Company’s net asbestos reserves.
increases in the Company’s estimate of projected settlement and defense costs related to a broad number of policyholders. The
increase in the estimate of projected settlement and defense costs primarily resulted from payment trends that continue to be
higher than previously anticipated due to the continued high level of mesothelioma claim filings and the impact of the current
litigation environment surrounding those claims discussed above. Over the past decade, the property and casualty insurance
industry, including the Company, has experienced net unfavorable prior year reserve development with regard to asbestos
reserves, but the Company believes that over that period there has been a reduction in the volatility associated with the
Company’s overall asbestos exposure as the overall asbestos environment has evolved from one dominated by exposure to
significant litigation risks, particularly coverage disputes relating to policyholders in bankruptcy who were asserting that their
claims were not subject to the aggregate limits contained in their policies, to an environment primarily driven by a frequency of
litigation related to individuals with mesothelioma. The Company’s overall view of the current underlying asbestos
environment is essentially unchanged from recent periods, and there remains a high degree of uncertainty with respect to future
exposure to asbestos claims.
Net asbestos paid loss and loss expenses in 2021, 2020 and 2019 were $221 million, $237 million and $224 million,
respectively. Approximately 9%, 1% and 4% of total net paid losses in 2021, 2020 and 2019, respectively, related to
policyholders with whom the Company entered into settlement agreements that limit those policyholders' ability to present
future claims to the Company.
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The following table displays activity for asbestos losses and loss expenses and reserves:
(at and for the year ended December 31, in millions)
Beginning reserves:
2021
2020
2019
Gross ........................................................................................................... $
Ceded...........................................................................................................
Net ...............................................................................................................
1,668
$
1,601
$
(330)
1,338
(322)
1,279
1,608
(327)
1,281
Incurred losses and loss expenses:
Gross ...........................................................................................................
Ceded...........................................................................................................
Net ...............................................................................................................
Paid loss and loss expenses:
Gross ...........................................................................................................
Ceded...........................................................................................................
Net ...............................................................................................................
Foreign exchange and other:
Gross ...........................................................................................................
Ceded...........................................................................................................
Net ...............................................................................................................
Ending reserves:
287
(62)
225
267
(46)
221
(1)
—
(1)
362
(67)
295
295
(58)
237
—
1
1
268
(48)
220
277
(53)
224
2
—
2
Gross ...........................................................................................................
Ceded...........................................................................................................
Net ............................................................................................................... $
1,687
(346)
1,668
(330)
1,341
$
1,338
$
1,601
(322)
1,279
ENVIRONMENTAL CLAIMS AND LITIGATION
The Company has received and continues to receive claims from policyholders who allege that they are liable for injury or
damage arising out of the alleged storage, emissions or disposal of toxic substances, frequently under policies issued prior to the
mid-1980s. These claims are mainly brought pursuant to various state or federal statutes that require a liable party to undertake
or pay for environmental remediation. For example, the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) enables private parties as well as federal and state governments to take action with respect to releases and
threatened releases of hazardous substances. This federal statute permits the recovery of response costs from some liable parties
and may require liable parties to undertake their own remedial action. Liability under these statutes may be joint and several
with other responsible parties. The Company has also been, and continues to be, involved in litigation involving insurance
coverage issues pertaining to environmental claims. The Company believes that some court decisions pertaining to
environmental claims have interpreted the insurance coverage to be broader than the original intent of the insurers and
policyholders. For more information regarding environmental claims and litigation, see note 8 of notes to the consolidated
financial statements.
In 2021, 2020 and 2019, the Company increased its net environmental reserves by $89 million, $54 million and $76 million,
respectively. Net environmental paid loss and loss expenses in 2021, 2020 and 2019 were $75 million, $69 million and $90
million, respectively. Net environmental reserves were $321 million, $307 million and $321 million at December 31, 2021,
2020 and 2019, respectively.
UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES
As a result of the processes and procedures discussed above, management believes that the reserves carried for asbestos and
environmental claims are appropriately established based upon known facts, current
law and management’s judgment.
However, the uncertainties surrounding the final resolution of these claims continue, and it is difficult to determine the ultimate
exposure for asbestos and environmental claims and related litigation. As a result, these reserves are subject to revision as new
information becomes available and as claims develop. The continuing uncertainties include, without limitation:
•
the risks and lack of predictability inherent in complex litigation;
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•
•
•
•
•
•
•
•
•
a further increase in the cost to resolve, and/or the number of, asbestos and environmental claims beyond that which is
anticipated;
the emergence of a greater number of asbestos claims than anticipated as a result of extended life expectancies
resulting from medical advances and lifestyle improvements;
the role of any umbrella or excess policies we have issued;
the resolution or adjudication of disputes concerning coverage for asbestos and environmental claims in a manner
inconsistent with our previous assessment of these disputes;
the number and outcome of direct actions against us;
future developments pertaining to our ability to recover reinsurance for asbestos and environmental claims;
any impact on asbestos defendants we insure due to the bankruptcy of other asbestos defendants;
the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of
policy limits or through the insolvency of other participating insurers; and
uncertainties arising from the insolvency or bankruptcy of policyholders.
Changes in the legal, regulatory and legislative environment may impact the future resolution of asbestos and environmental
claims and result in adverse loss reserve development. The emergence of a greater number of asbestos or environmental claims
beyond that which is anticipated may result in adverse loss reserve development. Changes in applicable legislation and future
court and regulatory decisions and interpretations, including the outcome of legal challenges to legislative and/or judicial
reforms establishing medical criteria for the pursuit of asbestos claims, could affect
the settlement of asbestos and
environmental claims.
It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement
negotiations near completion and significant legal questions are resolved or, failing settlement, until the dispute is adjudicated.
This is particularly the case with policyholders in bankruptcy where negotiations often involve a large number of claimants and
other parties and require court approval to be effective. As part of its continuing analysis of asbestos and environmental
reserves, the Company continues to study the implications of these and other developments.
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the Company’s current
reserves.
In addition, the Company’s estimate of claims and claim adjustment expenses may change. These additional
liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income
statement charges that could be material to the Company’s operating results in future periods.
INVESTMENT PORTFOLIO
The Company’s invested assets at December 31, 2021 were $87.38 billion, of which 93% was invested in fixed maturity and
short-term investments, 1% in equity securities, 1% in real estate investments and 5% in other investments. Because the
primary purpose of the investment portfolio is to fund future claims payments, the Company employs a thoughtful investment
philosophy that focuses on appropriate risk-adjusted returns. A significant majority of funds available for investment are
deployed in a widely diversified portfolio of high quality, liquid, taxable U.S. government, tax-exempt and taxable U.S.
municipal and taxable corporate and U.S. agency mortgage-backed bonds.
The carrying value of the Company’s fixed maturity portfolio at December 31, 2021 was $77.81 billion. The Company closely
monitors the duration of its fixed maturity investments, and investment purchases and sales are executed with the objective of
having adequate funds available to satisfy the Company’s insurance and debt obligations. The weighted average credit quality
of the Company’s fixed maturity portfolio, both including and excluding U.S. Treasury securities, was “Aa2” at both
December 31, 2021 and 2020. Below investment grade securities represented 1.4% and 1.8% of the total fixed maturity
investment portfolio at December 31, 2021 and 2020, respectively. The weighted average effective duration of fixed maturities
and short-term securities was 4.2 (4.4 excluding short-term securities) at December 31, 2021 and 3.8 (4.0 excluding short-term
securities) at December 31, 2020.
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The carrying values of investments in fixed maturities classified as available for sale at December 31, 2021 and 2020 were as
follows:
(at December 31, in millions)
U.S. Treasury securities and obligations of U.S.
2021
2020
Carrying Value
Weighted
Average Credit
Quality (1)
Carrying Value
Weighted
Average Credit
Quality (1)
government and government agencies and authorities ... $
3,562
Aaa/Aa1 $
2,149
Aaa/Aa1
Obligations of states, municipalities and political
subdivisions:
Local general obligation ..................................................
Revenue ...........................................................................
State general obligation ...................................................
Pre-refunded ....................................................................
Total obligations of states, municipalities and
political subdivisions ...............................................
Debt securities issued by foreign governments..................
Mortgage-backed securities, collateralized mortgage
obligations and pass-through securities ..........................
All other corporate bonds and redeemable preferred
stock:
Financial:
Bank ............................................................................
Insurance .....................................................................
Finance/leasing............................................................
Brokerage and asset management ...............................
Total financial.........................................................
Industrial..........................................................................
Public utility ....................................................................
Canadian municipal securities .........................................
Sovereign corporate securities (2).....................................
Commercial mortgage-backed securities and project
loans (3) .........................................................................
Asset-backed and other....................................................
Total all other corporate bonds and redeemable
preferred stock.....................................................
Total fixed maturities.............................................. $
___________________________________________
19,667
11,940
1,223
4,032
36,862
1,041
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
18,657
12,715
1,444
3,544
36,360
1,054
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
1,817
Aaa/Aa1
2,361
Aaa/Aa1
4,473
1,626
34
101
6,234
19,459
4,706
1,687
607
1,304
531
34,528
77,810
A1
Aa3
Ba3
Aa3
A3
A2
Aa2
Aaa
Aaa
Aa1
Aa2 $
3,993
1,380
22
94
5,489
17,883
4,255
1,653
609
1,418
772
32,079
74,003
A1
Aa3
Ba3
Aa3
A3
A2
Aa2
Aaa
Aaa
Aa1
Aa2
(1)
(2)
(3)
Rated using external rating agencies or by the Company when a public rating does not exist.
Sovereign corporate securities include corporate securities that are backed by a government and include sovereign banks and securities
issued under the Federal Ship Financing Programs.
Included in commercial mortgage-backed securities and project loans at December 31, 2021 and 2020 were $207 million and $392
million of securities guaranteed by the U.S. government, respectively.
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The following table sets forth the Company’s fixed maturity investment portfolio rated using external ratings agencies or by the
Company when a public rating does not exist:
(at December 31, 2021, in millions)
Quality Rating:
Carrying
Value
Percent of Total
Carrying Value
Aaa .......................................................................................................................................... $
Aa............................................................................................................................................
A..............................................................................................................................................
Baa ..........................................................................................................................................
Total investment grade ........................................................................................................
Below investment grade..........................................................................................................
Total fixed maturities .......................................................................................................... $
33,323
18,140
14,757
10,483
76,703
1,107
77,810
42.8 %
23.3
19.0
13.5
98.6
1.4
100.0 %
Obligations of States, Municipalities and Political Subdivisions
The Company’s fixed maturity investment portfolio at December 31, 2021 and 2020 included $36.86 billion and $36.36 billion,
respectively, of securities which are obligations of states, municipalities and political subdivisions (collectively referred to as
the municipal bond portfolio). The municipal bond portfolio is diversified across the United States, the District of Columbia
and Puerto Rico and includes general obligation and revenue bonds issued by states, cities, counties, school districts and similar
issuers.
Included in the municipal bond portfolio at December 31, 2021 and 2020 were $4.03 billion and $3.54 billion,
respectively, of pre-refunded bonds, which are bonds for which states or municipalities have established irrevocable trusts,
almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and
authorities. These trusts were created to fund the payment of principal and interest due under the bonds. The irrevocable trusts
are verified as to their sufficiency by an independent verification agent of the underwriter, issuer or trustee. All of the
Company’s holdings of securities issued by Puerto Rico and related entities have either been pre-refunded and therefore are
defeased by U.S. Treasury securities or have FHA guarantees subject to federal appropriation.
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The following table shows the geographic distribution of the $32.83 billion of municipal bonds at December 31, 2021 that were
not pre-refunded:
(at December 31, 2021, in millions)
State:
Texas .................................................... $
California .............................................
Virginia ................................................
Washington ..........................................
North Carolina......................................
Minnesota.............................................
Colorado...............................................
Massachusetts.......................................
Maryland ..............................................
Florida ..................................................
Georgia.................................................
Tennessee .............................................
Wisconsin.............................................
All others (2)..........................................
Total ................................................ $
State General
Obligation
Local General
Obligation
Revenue
Total Carrying
Value
33
—
61
143
200
133
—
—
33
60
161
22
47
$
3,340
$
1,435
$
2,071
1,086
1,368
821
1,159
908
177
936
172
654
781
678
489
878
366
543
184
409
1,028
109
720
116
108
139
4,808
2,560
2,025
1,877
1,564
1,476
1,317
1,205
1,078
952
931
911
864
330
1,223
$
5,516
19,667
$
5,416
11,940
$
11,262
32,830
Weighted
Average
Credit
Quality(1)
Aaa
Aaa/Aa1
Aaa
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
Aa1
Aaa/Aa1
Aaa/Aa1
Aa1
Aaa/Aa1
Aa1
Aa1
Aaa/Aa1
Aaa/Aa1
___________________________________________
(1)
Rated using external rating agencies or by the Company when a public rating does not exist. Ratings shown are the higher of the
rating of the underlying issuer or the insurer in the case of securities enhanced by third-party insurance for the payment of principal
and interest in the event of issuer default.
(2)
No other single state accounted for 2.5% or more of the total non-pre-refunded municipal bonds.
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The following table displays the funding sources for the $11.94 billion of municipal bonds identified as revenue bonds in the
foregoing table at December 31, 2021:
(at December 31, 2021, in millions)
Source:
Carrying
Value
Weighted
Average
Credit
Quality(1)
Water....................................................................................................................................... $
Higher education.....................................................................................................................
Sewer ......................................................................................................................................
Power utilities .........................................................................................................................
Special tax...............................................................................................................................
Industrial .................................................................................................................................
Highway tolls..........................................................................................................................
Fuel sales.................................................................................................................................
Transit .....................................................................................................................................
Airport and marina..................................................................................................................
Health care ..............................................................................................................................
Lease .......................................................................................................................................
Housing...................................................................................................................................
Lottery.....................................................................................................................................
Other revenue sources.............................................................................................................
Total................................................................................................................................... $
3,336
3,207
1,112
767
559
297
286
260
200
97
86
37
32
26
1,638
11,940
Aaa/Aa1
Aaa/Aa1
Aaa/Aa1
Aa1
Aa1
A2
Aa2
Aa1
Aa1
A3
Aa2
Aaa/Aa1
Aaa/Aa1
Aa1
Aaa/Aa1
Aaa/Aa1
___________________________________________
(1)
Rated using external rating agencies or by the Company when a public rating does not exist. Ratings shown are the higher of the
rating of the underlying issuer or the insurer in the case of securities enhanced by third-party insurance for the payment of principal
and interest in the event of issuer default.
The Company bases its investment decision on the underlying credit characteristics of the municipal security. The weighted
average credit rating of the municipal bond portfolio was “Aaa/Aa1” at December 31, 2021.
Debt Securities Issued by Foreign Governments
The following table shows the geographic distribution of the Company’s long-term fixed maturity investments in debt securities
issued by foreign governments at December 31, 2021:
(at December 31, 2021, in millions)
Foreign Government:
Carrying
Value
Weighted
Average Credit
Quality (1)
Canada .................................................................................................................................... $
United Kingdom .....................................................................................................................
All others (2) ............................................................................................................................
Total................................................................................................................................... $
830
195
16
1,041
Aaa/Aa1
Aa3
A2
Aaa/Aa1
___________________________________________
(1)
(2)
Rated using external rating agencies or by the Company when a public rating does not exist.
No other country accounted for 2.5% or more of total debt securities issued by foreign governments.
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The following table shows the Company’s Eurozone exposure at December 31, 2021 to all debt securities issued by foreign
governments, financial companies, sovereign corporations (including sovereign banks) whose securities are backed by the
respective country’s government and all other corporate securities (comprised of industrial corporations and utility companies)
which could be affected if economic conditions deteriorated due to a prolonged recession:
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Debt Securities Issued
by Foreign Governments
Weighted
Average
Credit
Quality (1)
Carrying
Value
Corporate Securities
Financial
Weighted
Average
Credit
Quality (1)
Carrying
Value
Sovereign Corporates
Weighted
Average
Credit
Quality (1)
Carrying
Value
All Other
Weighted
Average
Credit
Quality (1)
Carrying
Value
—
—
—
—
—
—
—
87
—
—
—
87
87
— $
—
—
—
—
—
Aa2
—
—
—
$
54
—
—
—
—
54
—
—
124
117
—
241
295
A2 $ —
— $
—
—
—
—
Aaa/Aa1
—
Aaa
—
—
—
—
—
—
—
—
A1
Aa1
—
$
—
—
—
—
—
264
—
109
—
—
373
373
7
173
—
—
—
180
551
614
225
—
124
Baa3
Baa2
—
—
—
A3
A2
A3
—
Baa1
1,514
$ 1,694
(at December 31, 2021, in millions)
Eurozone Periphery
Spain......................................... $
Ireland.......................................
Italy...........................................
Greece.......................................
Portugal ....................................
Subtotal..................................
Eurozone Non-Periphery
Germany ...................................
France .......................................
Netherlands...............................
Finland......................................
Belgium ....................................
Subtotal..................................
Total.................................. $
___________________________________________
(1)
Rated using external rating agencies or by the Company when a public rating does not exist. The table includes $434 million of
short-term securities which have the highest ratings issued by external rating agencies for short-term issuances. For purposes of this
table, the short-term securities, which are rated “A-1+” and/or “P-1,” are included as “Aaa” rated securities.
In addition to fixed maturities noted in the foregoing table, the Company has exposure totaling $300 million to private equity
limited partnerships and real estate partnerships (both of which are included in other investments in the Company’s
consolidated balance sheet) whose primary investing focus is across Europe. The Company has unfunded commitments
totaling $206 million to these partnerships.
Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities
residential mortgage-backed securities,
The Company’s fixed maturity investment portfolio at December 31, 2021 and 2020 included $1.82 billion and $2.36 billion,
respectively, of
including pass-through-securities and collateralized mortgage
obligations (CMOs), all of which are subject to prepayment risk (either shortening or lengthening of duration). While
prepayment risk for securities and its effect on income cannot be fully controlled, particularly when interest rates move
dramatically, the Company’s investment strategy generally favors securities that reduce this risk within expected interest rate
ranges. The Company makes investments in residential CMOs that are either guaranteed by GNMA, FNMA or FHLMC, or if
not guaranteed, are senior or super-senior positions within their respective securitizations. Both guaranteed and non-guaranteed
residential CMOs allocate the distribution of payments from the underlying mortgages among different classes of bondholders.
In addition, non-guaranteed residential CMOs provide structures that allocate the impact of credit losses to different classes of
bondholders. Senior and super-senior CMOs are protected, to varying degrees, from credit losses as those losses are initially
allocated to subordinated bondholders. The Company’s investment strategy is to purchase CMO tranches that are expected to
offer the most favorable return given the Company’s assessment of associated risks. The Company does not purchase residual
interests in CMOs. For more information regarding the Company’s investments in residential mortgage-backed securities, see
note 3 of notes to the consolidated financial statements.
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Commercial Mortgage-Backed Securities and Project Loans
At December 31, 2021 and 2020, the Company held commercial mortgage-backed securities (including FHA project loans) of
$1.30 billion and $1.42 billion, respectively. For more information regarding the Company’s investments in commercial
mortgage-backed securities, see note 3 of notes to the consolidated financial statements.
Equity Securities, Real Estate and Short-Term Investments
See note 1 of notes to the consolidated financial statements for further information about these invested asset classes.
Other Investments
The Company also invests in private equity, hedge fund and real estate partnerships, and joint ventures. These asset classes
have historically provided a higher return than investments in fixed maturities but are subject to more volatility. The Company
also enters into certain derivative financial instruments from time to time that are reported as part of other investments. At
December 31, 2021 and 2020, the carrying value of the Company's other investments was $3.86 billion and $3.40 billion,
respectively. The Company has unfunded commitments to private equity limited partnerships, real estate partnerships and
others in which it invests. These commitments totaled $1.70 billion and $1.72 billion at December 31, 2021 and 2020,
respectively.
It is the opinion of the Company’s management that the Company has adequate liquidity to meet these
commitments.
Securities Lending
The Company has, from time to time, engaged in securities lending activities from which it generates net investment income by
lending certain of its investments to other institutions for short periods of time. At December 31, 2021 and 2020, the Company
had $253 million and $139 million of securities on loan, respectively, as part of a tri-party lending agreement. The average
monthly balance of securities on loan during 2021 and 2020 was $329 million and $254 million, respectively. Borrowers of
these securities provide collateral equal to at least 102% of the market value of the loaned securities plus accrued interest. The
Company did not incur any investment losses in its securities lending program for the years ended December 31, 2021 and
2020.
Lloyd’s Trust Deposits
The Company meets its capital requirements to support its underwriting at Lloyd’s using a combination of the share capital and
retained earnings of the Company's subsidiaries participating in Lloyd's, trust deposits and uncollateralized letters of credit.
Securities with a fair value of approximately $33 million and $119 million held by a wholly-owned subsidiary at December 31,
2021 and 2020, respectively, and $34 million and $35 million held by TRV at December 31, 2021 and 2020, respectively, were
pledged into Lloyd’s trust accounts to provide a portion of the Lloyd’s capital requirements. For more information regarding
the Company’s utilization of uncollateralized letters of credit, see “Liquidity and Capital Resources” herein.
Net Unrealized Investment Gains
The net unrealized investment gains that were included in shareholders' equity were as follows:
(at December 31, in millions)
Fixed maturities ............................................................................................. $
Other ..............................................................................................................
Unrealized investment gains before tax ......................................................
Tax expense ...................................................................................................
Net unrealized investment gains included in shareholders' equity at end
of year ................................................................................................... $
2021
2020
2019
3,062
$
5,175
$
(2)
3,060
645
—
5,175
1,101
2,853
—
2,853
607
2,415
$
4,074
$
2,246
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Net unrealized investment gains included in shareholders’ equity at December 31, 2021 decreased by $1.66 billion from
December 31, 2020, primarily due to an increase in interest rates during 2021. Equity securities, which include common and
non-redeemable preferred stocks, are reported at fair value with changes in fair value recognized in net income.
At December 31, 2021, the Company had no fixed maturity investments reported at fair value for which fair value was less than
80% of amortized cost.
For fixed maturity investments where fair value is less than the carrying value and the Company did not reach a decision to
impair, the Company continues to have the intent and ability to hold such investments to a projected recovery in value, which
may not be until maturity.
At December 31, 2021 and 2020, below investment grade securities comprised 1.4% and 1.8%, respectively, of the fair value of
the Company’s fixed maturity investment portfolio. Included in below investment grade securities at December 31, 2021 were
securities in an unrealized loss position that, in the aggregate, had an amortized cost of $239 million and a fair value of $232
million, resulting in a net pre-tax unrealized investment loss of $7 million. These securities in an unrealized loss position
represented less than 1% of both the amortized cost and fair value of the fixed maturity portfolio at December 31, 2021 and
accounted for approximately 2% of the total gross pre-tax unrealized investment loss in the fixed maturity portfolio at
December 31, 2021.
Impairment Charges
Impairment charges included in net realized investment gains in the consolidated statement of income were $2 million and $55
million for the years ended December 31, 2021 and 2020, respectively. The total in 2020 included a $40 million other-than-
temporary impairment of the carrying value of an equity method investment included in other investments. See note 3 of notes
to the consolidated financial statements for further information.
Purchases and Sales of Investment Securities
Purchases and sales of investments are based on cash requirements, the characteristics of the insurance liabilities and current
market conditions. The Company identifies investments to be sold to achieve its primary investment goals of assuring the
Company’s ability to meet policyholder obligations as well as to optimize investment returns, given these obligations.
During the year ended December 31, 2021, the Company incurred pre-tax realized losses of $5 million on the sale of fixed
maturity investments having a fair value of $488 million.
CATASTROPHE MODELING
The Company uses various analyses and methods,
to make
underwriting and reinsurance decisions designed to manage its exposure to catastrophic events. There are no industry-standard
methodologies or assumptions for projecting catastrophe exposure. Accordingly, catastrophe estimates provided by different
insurers may not be comparable.
including proprietary and third-party modeling processes,
The Company actively monitors and evaluates changes in third-party models and, when necessary, calibrates the catastrophe
risk model estimates delivered via its own proprietary modeling processes. The Company considers historical loss experience,
recent events, underwriting practices, market share analyses, external scientific analysis and various other factors, including
non-modeled losses, to refine its proprietary view of catastrophe risk. These proprietary models are updated regularly as new
information and techniques emerge.
The tables below set forth the probabilities that estimated losses, comprising claims and allocated claim adjustment expenses
(but excluding unallocated claim adjustment expenses), from a single event occurring in a one-year timeframe will equal or
exceed the indicated loss amounts (expressed in dollars, net of tax, and as a percentage of the Company’s common equity),
based on the proprietary and third-party models utilized by the Company at December 31, 2021. For example, on the basis
described below the tables, the Company estimates that there is a one percent chance that the Company’s loss from a single
U.S. and Canadian hurricane in a one-year timeframe would equal or exceed $2.0 billion, or 8% of the Company’s common
equity at December 31, 2021.
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Dollars (in billions)
Likelihood of Exceedance (1)
2.0% (1-in-50) ........................................................................................................................... $
1.0% (1-in-100) ......................................................................................................................... $
0.4% (1-in-250) ......................................................................................................................... $
0.1% (1-in-1,000) ...................................................................................................................... $
Single U.S. and
Canadian
Hurricane
Single U.S. and
Canadian
Earthquake
1.5
2.0
2.5
6.4
$
$
$
$
0.5
0.7
1.2
1.7
Likelihood of Exceedance
2.0% (1-in-50) ...........................................................................................................................
1.0% (1-in-100) .........................................................................................................................
0.4% (1-in-250) .........................................................................................................................
0.1% (1-in-1,000) ......................................................................................................................
___________________________________________
Percentage of Common Equity (2)
Single U.S. and
Canadian
Hurricane
Single U.S. and
Canadian
Earthquake
6 %
8 %
9 %
24 %
2 %
3 %
4 %
6 %
(1)
(2)
An event that has, for example, a 2% likelihood of exceedance is sometimes described as a “1-in-50 year event.” As noted above,
however, the probabilities in the table represent the likelihood of losses from a single event equaling or exceeding the indicated
threshold loss amount in a one-year timeframe, not over a multi-year timeframe. Also, because the probabilities relate to a single
event, the probabilities do not address the likelihood of more than one event occurring in a particular period, and, therefore, the
amounts do not address potential aggregate catastrophe losses occurring in a one-year timeframe.
The percentage of common equity is calculated by dividing (a) indicated loss amounts in dollars by (b) total common equity
excluding net unrealized investment gains and losses, net of taxes, included in shareholders’ equity. Net unrealized investment
gains and losses can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of
operating trends. Accordingly, the Company’s management uses the percentage of common equity calculated on this basis as a
metric to evaluate the potential impact of a single hurricane or single earthquake on the Company’s financial position for purposes
of making underwriting and reinsurance decisions.
The threshold loss amounts in the tables above, which are based on the Company’s in-force portfolio at December 31, 2021 and
catastrophe reinsurance program at January 1, 2022, are net of reinsurance, after-tax and exclude unallocated claim adjustment
expenses, which historically have been less than 10% of loss estimates. For further information regarding the Company’s
reinsurance, see “Item 1-Business-Reinsurance.” The amounts for hurricanes reflect U.S. and Canadian exposures and include
property exposures, property residual market exposures and an adjustment for certain non-property exposures. The hurricane
loss amounts are based on the Company’s catastrophe risk model estimates and include losses from the hurricane hazards of
wind and storm surge. The amounts for earthquakes reflect U.S. and Canadian property and workers’ compensation exposures.
The Company does not believe that the inclusion of hurricane or earthquake losses arising from other geographical areas or
other exposures would materially change the estimated threshold loss amounts.
Catastrophe modeling relies upon inputs based on experience, science, engineering and history. These inputs reflect a
significant amount of judgment and are subject to changes which may result in volatility in the modeled output. Catastrophe
modeling output may also fail to account for risks that are outside the range of normal probability or are otherwise
unforeseeable. Catastrophe modeling assumptions include, among others, the portion of purchased reinsurance that is
collectible after a catastrophic event, which may prove to be materially incorrect. Consequently, catastrophe modeling
estimates are subject to significant uncertainty. In the tables above, the uncertainty associated with the estimated threshold loss
amounts increases significantly as the likelihood of exceedance decreases.
In other words, in the case of a relatively more
remote event (e.g., 1-in-1,000), the estimated threshold loss amount is relatively less reliable. Actual losses from an event
could materially exceed the indicated threshold loss amount. In addition, more than one such event could occur in any period.
Moreover, the Company is exposed to the risk of material losses from other than property and workers’ compensation
coverages arising out of hurricanes and earthquakes, and it is exposed to catastrophe losses from perils other than hurricanes
and earthquakes, such as tornadoes and other windstorms, hail, wildfires, severe winter weather, floods, tsunamis, volcanic
eruptions, solar flares and other naturally-occurring events, as well as acts of terrorism and cyber events.
In addition, compared to models for hurricanes, models for earthquakes are less reliable due to there being a more limited
number of significant historical events to analyze, while models for tornadoes, hail storms wildfires and winter storms are
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newer and may be less reliable due to the highly random geographic nature and size of these events. Accordingly, these models
may be less accurate in predicting risks and estimating losses. Further, changes in climate conditions could cause our
underlying modeling data to be less predictive, thus limiting our ability to effectively evaluate and manage catastrophe risk. As
compared to natural catastrophes, modeling for man-made catastrophes, such as terrorism and cyber events, is even more
difficult and less reliable, and for some events (both natural and man-made), models are either in early stages of development
and, therefore, not widely adopted, or are not available.
For more information about the Company’s exposure to catastrophe losses, see “Item 1A-Risk Factors-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 our results of operations, our financial position and/or liquidity, and could adversely
impact our ratings, our ability to raise capital and the availability and cost of reinsurance” and “Item 1A-Risk Factors- We may
be adversely affected if our pricing and capital models provide materially different indications than actual results.”
CHANGING CLIMATE CONDITIONS
Severe weather events over the last two decades underscore the unpredictability of climate trends, and changing climate
conditions have added to the frequency and severity of natural disasters and created additional uncertainty as to future trends
and exposures. The insurance industry has experienced increased catastrophe losses due to a number of potential causal factors,
including, in addition to weather/climate variability, aging infrastructure, more people living in high-risk areas, population
growth in areas with weaker enforcement of building codes, urban expansion, an increase in the number of amenities included
in, and average size of, a home and increased inflation, including as a results of post-event demand surge. For example, the
In
frequency and severity of tornado and hail events in the United States have been more volatile during this time period.
addition, climate studies by government agencies, academic institutions, catastrophe modeling organizations and other groups
indicate that we are experiencing, and are expected to continue to experience over time, an increase in frequency and/or
intensity of hurricanes, heavy precipitation events, flash flooding, sea level rise, droughts, heat waves and wildfires.
Understanding the potential impacts of changing climate conditions is important to the Company's business. Changing climate
conditions are expected to evolve over decades. Importantly, because most of its policies renew annually, the Company is able
to respond to these changes over time through adjustments to its underwriting strategy, product pricing and related policy terms
and conditions, as appropriate. As an example, in recent years the Company has focused on enhancing the strategic
management of its catastrophe exposure, adding experts in data science, meteorology, geophysics and environmental
engineering, among others, to its catastrophe management organization. The Company also established dedicated teams for
each catastrophe peril, with the goal of developing industry-leading scientific and underwriting expertise. These results have
been incorporated into the Company’s product development, risk selection, pricing, capital allocation and claim response.
The Company discusses how changing climate conditions may present other issues for its business under “Item 1A - Risk
Factors.” and “Outlook.” For example, among other things:
•
•
Increasingly unpredictable and severe weather conditions could result in increased frequency and severity of claims
under policies issued by the Company. See “Item 1A—Risk Factors—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 our results of operations, our financial position and/or liquidity, and could adversely impact our
ratings, our ability to raise capital and the availability and cost of reinsurance” and “-Outlook-Underwriting Gain/
Loss.” Moreover, the Company's catastrophe models may be less reliable due to the increased unpredictability in
frequency and severity of severe weather events, emerging trends in climate conditions and regulatory responses to
catastrophe events not being appropriately reflected in the models, in addition to the other factors mentioned above.
Accordingly, the Company may be subject to increased losses from catastrophes and other weather-related events.
Changing climate conditions could also impact the creditworthiness of issuers of securities in which the Company
invests. For example, water supply adequacy could impact the creditworthiness of bond issuers with significant assets
or business activities in the Southwestern United States; more frequent and/or severe hurricanes could impact the
creditworthiness of issuers with significant assets or business activities in the Southeastern United States, among other
areas; and increased regulation adopted in response to potential changes in climate conditions could impact the
creditworthiness of issuers affects by such regulations.
In addition, as issuers of securities in which the Company
invests become increasingly focused on mitigating the potential environmental impact of their operations, the costs
associated with such initiatives could affect the business models and realized returns of such issuers. See “Item 1A—
Risk Factors—Our investment portfolio is subject to credit and interest rate risk, and may suffer reduced or low returns
or material realized or unrealized losses.”
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•
•
including state insurance regulations that could impact
Increased regulation adopted in response to potential changes in climate conditions may impact the Company and its
customers,
the Company’s ability to manage property
exposures in areas vulnerable to significant climate driven losses. For example, one state passed legislation that
restricted a carrier's ability to cancel or non-renew certain policies within or adjacent to declared state of emergency
zip codes. If the Company is unable to implement risk-based pricing, modify policy terms or reduce exposures to the
extent necessary to address rising losses related to catastrophes and smaller scale weather events (should those
increased losses occur), its business may be adversely affected. See “Item 1—Business—U.S. State and Federal
Regulation—Regulatory and Legislative Responses to Catastrophes.” In addition, climate change regulation could
increase the Company’s customers’ costs of doing business. For example, insureds faced with carbon management
regulatory requirements may have less available capital for investment in loss prevention and safety features which
may, over time, increase loss exposures. Increased regulation may also result in reduced economic activity, which
would decrease the amount of insurable assets and businesses.
The full range of potential liability exposures related to changing climate conditions continues to evolve. For example,
from time to time third parties sue our policyholders alleging that they caused or contributed to changing climate
conditions. Through the Company’s Emerging Issues Committee and its Committee on Climate, Energy and the
Environment, the Company works with its business units and corporate groups, as appropriate, to identify and try to
assess climate change-related liability issues, which are continually evolving and often hard to fully evaluate. The
Company regularly reviews emerging issues, including changing climate conditions, to consider potential changes to
its modeling and the use of such modeling, as well as to help determine the need for new underwriting strategies,
coverage modifications or new products. See “Item 1A—Risk Factors—The effects of emerging claim and coverage
issues on our business are uncertain, and court decisions or legislative changes that take place after we issue our
policies can result in an unexpected increase in the number of claims and have a material adverse impact on our results
of operations.”
REINSURANCE RECOVERABLES
The Company reinsures a portion of the risks it underwrites in order to control its exposure to losses. For additional discussion
regarding the Company’s reinsurance coverage, see “Part I—Item 1—Business—Reinsurance.”
The following table summarizes the composition of the Company’s reinsurance recoverables:
(at December 31, in millions)
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses . $
Gross structured settlements ...................................................................................................
Mandatory pools and associations ..........................................................................................
Gross reinsurance recoverables .......................................................................................
Allowance for estimated uncollectible reinsurance ................................................................
Net reinsurance recoverables ........................................................................................... $
2021
2020
3,931
$
2,900
1,762
8,593
(141)
8,452
$
3,731
2,964
1,801
8,496
(146)
8,350
Net reinsurance recoverables at December 31, 2021 increased by $102 million from December 31, 2020, primarily reflecting
the impacts of catastrophe losses in 2021, partially offset by a lower level of structured settlements and recoverables from
mandatory pools and associations.
The following table presents the Company’s top five reinsurer groups by reinsurance recoverable at December 31, 2021 (in
millions). Also included is the A.M. Best rating of the Company's predominant reinsurer from each such reinsurer group at
February 17, 2022:
Reinsurer Group
Swiss Re Group ........................................ $
Munich Re Group .....................................
Reinsurance
Recoverable
A.M. Best Rating of Group’s Predominant
Reinsurer
531 A+
297 A+
second highest of 16 ratings
second highest of 16 ratings
Berkshire Hathaway .................................
289 A++
highest of 16 ratings
Alleghany Group ......................................
Axa Group ................................................
244 A+
187 A+
second highest of 16 ratings
second highest of 16 ratings
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At December 31, 2021, the Company held $981 million of collateral in the form of letters of credit, funds and trust agreements
held to fully or partially collateralize certain reinsurance recoverables.
Included in net reinsurance recoverables are amounts related to structured settlements, which are annuities purchased from
various life insurance companies to settle certain personal physical injury claims, of which workers’ compensation claims
comprise a significant portion. In cases where the Company did not receive a release from the claimant, the amount due from
the life insurance company related to the structured settlement is included in the Company’s consolidated balance sheet as a
reinsurance recoverable and the related claim cost is included in the liability for claims and claim adjustment expense reserves,
as the Company retains the contingent liability to the claimant. If it is expected that the life insurance company is not able to
pay, the Company would recognize an impairment of the related reinsurance recoverable if, and to the extent, the purchased
annuities are not covered by state guaranty associations. In the event that the life insurance company fails to make the required
annuity payments, the Company would be required to make such payments. The following table presents the Company’s top
five groups by structured settlements at December 31, 2021 (in millions). Also included is the A.M. Best rating of the
Company’s predominant insurer from each such insurer group at February 17, 2022:
Group
Fidelity & Guaranty Life Group............................. $
Genworth Financial Group .....................................
Structured
Settlements
A.M. Best Rating of Group’s Predominant
Insurer
724 A-
307 B
fourth highest of 16 ratings
seventh highest of 16 ratings
John Hancock Group ..............................................
264 A+
second highest of 16 ratings
Symetra Financial Corporation...............................
Brighthouse Financial, Inc. ....................................
222 A
220 A
third highest of 16 ratings
third highest of 16 ratings
The Company considers the ratings and related outlook assigned to reinsurance companies and life insurance companies by
various independent ratings agencies in assessing the adequacy of its allowance for uncollectible amounts.
OUTLOOK
The following discussion provides outlook information for certain key drivers of the Company’s results of operations and
capital position.
Premiums. The Company’s earned premiums are a function of net written premium volume. Net written premiums comprise
both renewal business and new business and are recognized as earned premium over the term of the underlying policies. When
business renews, the amount of net written premiums associated with that business may increase or decrease (renewal premium
change) as a result of increases or decreases in rate and/or insured exposures, which the Company considers as a measure of
units of exposure (such as the number and value of vehicles or properties insured). Net written premiums from both renewal
and new business, and therefore earned premiums, are impacted by competitive market conditions as well as general economic
conditions, which, particularly in the case of Business Insurance, affect audit premium adjustments, policy endorsements and
mid-term cancellations. Net written premiums may also be impacted by the structure of reinsurance programs and related costs,
as well as changes in foreign currency exchange rates.
Overall, the Company expects that retention levels (the amount of expiring premium that renews, before the impact of renewal
premium changes) will remain strong by historical standards during 2022.
Property and casualty insurance market conditions are expected to remain competitive during 2022 for new business. In each of
the Company’s business segments, new business generally has less of an impact on underwriting profitability than renewal
business, given the volume of new business relative to renewal business. However, in periods of meaningful increases in new
business, despite its positive impact on underwriting gains over time, the impact of higher new business levels may negatively
impact the combined ratio for a period of time. In periods of meaningful decreases in new business, despite its negative impact
on underwriting gains over time, the impact of lower new business levels may positively impact the combined ratio for a period
of time.
Underwriting Gain/Loss. The Company’s underwriting gain/loss can be significantly impacted by catastrophe losses and net
favorable or unfavorable prior year reserve development, as well as underlying underwriting margins. Underlying underwriting
margins can be impacted by a number of factors, including variability in non-catastrophe weather, large loss and other loss
activity; changes in current period loss estimates resulting from prior period loss development; changes in loss trend, including
as a result of COVID-19 and related economic conditions; changes in business mix; changes in reinsurance coverages and/or
costs; premium adjustments; and variability in expenses and assessments.
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Catastrophe losses and non-catastrophe weather-related losses are inherently unpredictable from period to period. The
Company’s results of operations could be adversely impacted if significant catastrophe and non-catastrophe weather-related
losses were to occur.
On average for the ten-year period ended December 31, 2021, the Company experienced approximately 40% of its annual
catastrophe losses during the second quarter, primarily arising out of severe wind and hail storms, including tornadoes.
Hurricanes, wildfires and winter storms tend to happen at other times of the year and can also have a material impact on the
Company's results of operations. Catastrophe losses incurred in a particular quarter in any given year may differ materially
In addition, most of the Company's reinsurance programs renew on January 1 or July 1 of each
from historical experience.
year, and, therefore, any changes to the cost or coverage terms of such programs will be effective after such dates.
Over much of the past decade, the Company’s results have included significant amounts of net favorable prior year reserve
development driven by better than expected loss experience. However, given the inherent uncertainty in estimating claims and
claim adjustment expense reserves, loss experience could develop such that the Company recognizes in future periods higher or
lower levels of favorable prior year reserve development, no favorable prior year reserve development or unfavorable prior year
reserve development. In addition, the ongoing review of prior year claims and claim adjustment expense reserves, or other
changes in current period circumstances, may result in the Company revising current year loss estimates upward or downward
in future periods of the current year.
It is possible that changes in economic conditions and steps taken by federal, state and/or local governments and the Federal
Reserve could lead to higher or lower inflation than the Company anticipated, which could in turn lead to an increase or
decrease in the Company’s loss costs and the need to strengthen or reduce claims and claim adjustment expense reserves.
These impacts of inflation on loss costs and claims and claim adjustment expense reserves could be more pronounced for those
lines of business that require a relatively longer period of time to finalize and settle claims for a given accident year and,
accordingly, are relatively more inflation sensitive. Labor shortages, higher costs of used vehicles and parts, and increased
demand and decreased supply for raw materials are adversely impacting severity in our auto and property businesses and may
continue to do so in future quarters. For a further discussion, see “Part I—Item 1A—Risk Factors—If actual claims exceed our
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, our financial results could be materially and adversely affected.”
Economic conditions and therefore the Company’s results of operations may be impacted by a variety of other factors as well,
many of which could continue to be affected by COVID-19, such as the pace of the economic recovery, financial market
volatility, supply chain disruptions, extraordinary monetary and fiscal policy measures, heightened geopolitical tensions,
fluctuations in interest rates and foreign currency exchange rates, the political and regulatory environment, changes to the U.S.
Federal budget and potential changes in tax laws.
Investment Portfolio. The Company expects to continue to focus its investment strategy on maintaining a high-quality
investment portfolio and a relatively short average effective duration. The weighted average effective duration of fixed
maturities and short-term securities was 4.2 (4.4 excluding short-term securities) at December 31, 2021. From time to time, the
Company enters into short positions in U.S. Treasury futures contracts to manage the duration of its fixed maturity portfolio.
At December 31, 2021, the Company had no open U.S. Treasury futures contracts. The Company regularly evaluates its
investment alternatives and mix. Currently, the majority of the Company’s investments are comprised of a widely diversified
portfolio of high-quality, liquid, taxable U.S. government, tax-exempt and taxable U.S. municipal and taxable corporate and
U.S. agency mortgage-backed bonds.
The Company also invests much smaller amounts in equity securities, real estate, and private equity, hedge fund and real estate
partnerships, and joint ventures. These investment classes have the potential for higher returns but also the potential for greater
volatility and higher degrees of risk, including less stable rates of return and less liquidity.
Approximately 29% of the fixed maturity portfolio is expected to mature over the next three years (including the early
redemption of bonds, assuming interest rates (including credit spreads) do not rise significantly by applicable call dates). As a
result, the overall yield on and composition of its portfolio could be meaningfully impacted by the types of investments
available for reinvestment with the proceeds of maturing bonds.
Net investment income is a material contributor to the Company’s results of operations. Based on our current expectations for
slightly higher levels of fixed income investments, partially offset by the impact of expected lower reinvestment yields on fixed
income investments, the Company expects that after-tax net investment income from that portfolio will be approximately $430
million to $440 million for each quarter of 2022. This expectation could be impacted by disruptions in global financial markets.
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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 or loss from these other investments is generally
reflected in the Company's financial statements on a quarter lag basis. Net investment income from these other investments was
particularly strong during 2021 reflecting strong global financial market performance. Given the particularly strong 2021
performance, the Company expects that net investment income from these other investments in 2022 will be significantly lower
than in 2021. The Company’s net investment income in future periods from its non-fixed income investment portfolio will be
impacted, positively or negatively, by the performance of global financial markets.
The Company had net pre-tax realized investment gains of $171 million in 2021. Changes in global financial markets could
result in net realized investment gains or losses in the Company’s investment portfolio.
The Company had a net pre-tax unrealized investment gain of $3.06 billion ($2.42 billion after-tax) in its fixed maturity
investment portfolio at December 31, 2021. While the Company does not attempt to predict future interest rate movements, a
rising interest rate environment would reduce the market value of fixed maturity investments and,
therefore, reduce
shareholders’ equity, and a declining interest rate environment would have the opposite effects. Additionally, disruptions in
global financial markets could also impact the market value of the Company’s investment portfolio. The Company's investment
portfolio has benefited from certain tax exemptions (primarily those related to interest from municipal bonds) and certain other
tax laws, including, but not limited to, those governing dividends-received deductions and tax credits (such as foreign tax
credits). Changes in these laws could adversely impact the value of the Company's investment portfolio. See "Our businesses
are heavily regulated by the states and countries in which we conduct business, including licensing, market conduct and
financial supervision, and changes in regulation, including higher tax rates, may reduce our profitability and limit our growth"
included in “Part I—Item 1A—Risk Factors.”
For further discussion of the Company’s investment portfolio, see “Investment Portfolio.” For a discussion of the risks to the
Company’s business during or following a financial market disruption and risks to the Company’s investment portfolio, see the
risk factors entitled “During or following a period of financial market disruption or an economic downturn, our business could
be materially and adversely affected” and “Our investment portfolio is subject to credit and interest rate risk, and may suffer
reduced or low returns or material realized or unrealized losses” included in “Part I—Item 1A—Risk Factors.” For a discussion
of the risks to the Company’s investments from foreign currency exchange rate fluctuations, see the risk factor entitled “We are
subject to additional risks associated with our business outside the United States” included in “Part I—Item 1A—Risk Factors”
and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate
Risk.”
Capital Position. The Company believes it has a strong capital position and, as part of its ongoing efforts to create shareholder
value, expects to continue to return capital not needed to support its business operations to its shareholders, subject to the
considerations described below. The Company expects that, generally over time, the combination of dividends to common
shareholders and common share repurchases will likely not exceed net income. The Company also expects that to the extent
that it continues to grow premium volumes, the level of capital to support the Company's financial strength ratings will also
increase, and accordingly, the amount of capital returned to shareholders relative to earnings would be somewhat less than it
otherwise would have been absent the growth in premium volumes. The timing and actual number of shares to be repurchased
in the future will depend on a variety of additional 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, changes in tax laws and other factors. For information regarding the
Company’s common share repurchases in 2021, see “Liquidity and Capital Resources” herein. S&P has announced that it
intends to change its capital adequacy model. While the proposed model has not been finalized, it could increase the level of
capital S&P requires for a particular financial strength rating. As part of its capital management strategy, the Company will
continue to make its own assessment of the appropriate level of capital to support the Company’s business operations. See the
risk factor entitled “A downgrade in our claims-paying and financial strength ratings could adversely impact our business
volumes, adversely impact our ability to access the capital markets and increase our borrowing costs” included in “Part I—Item
1A—Risk Factors.”
As a result of the Company’s business outside of the United States, primarily in Canada, the United Kingdom (including
Lloyd’s), the Republic of Ireland and in Brazil through a joint venture, the Company’s capital is also subject to the effects of
changes in foreign currency exchange rates. Strengthening of the U.S. dollar in comparison to other currencies could result in a
reduction in shareholders’ equity, while a weakening of the U.S. dollar in comparison to other currencies could result in an
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increase in shareholders' equity. For additional discussion of the Company’s foreign exchange market risk exposure, see “Part
II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk.”
Many of the statements in this “Outlook” section and in “Liquidity and Capital Resources” are forward-looking statements,
which are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control. Actual results
could differ materially from those expressed or implied by such forward-looking statements. Further, such forward-looking
statements speak only as of the date of this report and the Company undertakes no obligation to update them. See “—Forward
Looking Statements.” For a discussion of potential risks and uncertainties that could impact the Company’s results of
operations or financial position, see “Part I—Item 1A—Risk Factors” and “Critical Accounting Estimates.”
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions
during 2021. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on
the Company's liquidity and capital resources, see “The ongoing impact of COVID-19 and related risks could materially affect
our results of operations, financial position and/or liquidity” included in “Part I—Item 1A—Risk Factors”.
Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the cash requirements of its business
operations and to satisfy general corporate purposes when needed.
Operating Company Liquidity. The liquidity requirements of the Company’s insurance subsidiaries are met primarily by funds
generated from premiums, fees, income received on investments and investment maturities. Cash provided from these sources
is used primarily for claims and claim adjustment expense payments and operating expenses. The insurance subsidiaries’
liquidity requirements can be impacted by, among other factors, the timing and amount of catastrophe claims, which are
inherently unpredictable, as well as the timing and amount of reinsurance recoveries, which may be affected by reinsurer
solvency and reinsurance coverage disputes. Additionally, the variability of asbestos-related claim payments, as well as the
volatility of potential judgments and settlements arising out of litigation, may also result in increased liquidity requirements. It
is the opinion of the Company’s management that the insurance subsidiaries’ future liquidity needs will be adequately met from
all of the sources described above. Subject to restrictions imposed by states in which the Company’s insurance subsidiaries are
domiciled, the Company’s principal insurance subsidiaries pay dividends to their respective parent companies, which, in turn,
pay dividends to the corporate holding (parent) company (TRV). For further information regarding restrictions on dividends
paid by the Company’s insurance subsidiaries, see “Part I—Item 1—Business—Regulation.”
Holding Company Liquidity. TRV’s liquidity requirements primarily include shareholder dividends, debt servicing, common
share repurchases and, from time to time, contributions to its qualified domestic pension plan. At December 31, 2021, TRV
held total cash and short-term invested assets in the United States aggregating $1.53 billion and having a weighted average
maturity of 28 days. TRV has established a holding company liquidity target equal to its estimated annual pre-tax interest
expense and common shareholder dividends (currently approximately $1.18 billion). TRV’s holding company liquidity of $1.53
billion at December 31, 2021 exceeded this target, and it is the opinion of the Company’s management that these assets are
sufficient to meet TRV’s current liquidity requirements.
TRV is not dependent on dividends or other forms of repatriation from its foreign operations to support its liquidity needs. The
undistributed earnings of the Company’s foreign operations are intended to be permanently reinvested in those operations, and
such earnings were not material to the Company’s financial position or liquidity at December 31, 2021.
TRV has a shelf registration statement filed with the Securities and Exchange Commission that expires on June 10, 2022 which
permits it to issue securities from time to time. TRV also has a $1.0 billion line of credit facility with a syndicate of financial
institutions that expires on June 4, 2023. At December 31, 2021, the Company had $100 million of commercial paper
outstanding. TRV is not reliant on its commercial paper program to meet its operating cash flow needs. The Company has no
senior notes or junior subordinated debentures maturing until April 2026, at which time $200 million of senior notes will
mature.
The Company utilized uncollateralized letters of credit issued by major banks with an aggregate limit of $279 million to provide
a portion of the capital needed to support its obligations at Lloyd’s at December 31, 2021. If uncollateralized letters of credit
are not available at a reasonable price or at all in the future, the Company can collateralize these letters of credit or may have to
seek alternative means of supporting its obligations at Lloyd’s, which could include utilizing holding company funds on hand.
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Operating Activities
Net cash provided by operating activities were $7.27 billion and $6.52 billion in 2021 and 2020, respectively. The increase in
cash flows in 2021 primarily reflected the impacts of higher levels of cash received for premiums and net investment income,
partially offset by higher levels of payments for claims and claim adjustment expenses, general and administrative expenses and
commissions. The increase in cash received for premiums in 2021 compared to the prior year was impacted by premium
refunds provided primarily in 2020 to personal automobile customers in response to COVID-19 and related economic
conditions. The increase in cash paid for claims and claim adjustment expenses in 2021 reflected the impact in 2020 of
COVID-19 and related economic conditions, such as lower loss payments in the automobile product line due to a decrease in
miles driven. Both years were impacted by reduced judicial system and claims settlement activity related to COVID-19 and
related economic conditions. Cash paid for claims and claim adjustment expenses in the prior year also benefited from $380
million of subrogation recoveries from PG&E related to the 2017 and 2018 California wildfires received in 2020.
Investing Activities
Net cash used in investing activities was $5.20 billion and $4.89 billion in 2021 and 2020, respectively. The Company’s
consolidated total investments at December 31, 2021 increased by $2.95 billion, or 3% over December 31, 2020, primarily
reflecting the impact of (i) net cash flows provided by operating activities, partially offset by (ii) a decrease in net unrealized
gains on investments at December 31, 2021 as compared with December 31, 2020, due to the impact of higher interest rates
during 2021, and (iii) net cash used in financing activities.
The Company’s investment portfolio is managed to support its insurance operations; accordingly, the portfolio is positioned to
meet obligations to policyholders. As such, the primary goals of the Company’s asset-liability management process are to
satisfy the insurance liabilities and maintain sufficient liquidity to cover fluctuations in projected liability cash flows.
Generally, the expected principal and interest payments produced by the Company’s fixed maturity portfolio adequately fund
the estimated runoff of the Company’s insurance reserves. Although this is not an exact cash flow match in each period, the
substantial amount by which the market value of the fixed maturity portfolio exceeds the value of the net insurance liabilities, as
well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds, contributes to the
Company’s ability to fund claim payments without having to sell illiquid assets or access credit facilities.
Financing Activities
Net cash used in financing activities were $2.04 billion and $1.42 billion in 2021 and 2020, respectively. The totals in both
2021 and 2020 reflected common share repurchases and dividends paid to shareholders, partially offset by the net proceeds
from the issuance of debt and employee stock option exercises. The total in 2020 also included the payment of $500 million of
maturing debt. Common share repurchases in 2021 and 2020 were $2.20 billion and $672 million, respectively.
Debt Transactions.
2021. On June 8, 2021, the Company issued $750 million aggregate principal amount of 3.05% senior notes that will mature on
June 8, 2051. The net proceeds of the issuance, after the deduction of the underwriting discount and expenses payable by the
Company, totaled approximately $739 million. Interest on the senior notes is payable semi-annually in arrears on June 8 and
December 8. Prior to December 8, 2050, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any
time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any senior notes to
be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to but excluding
December 8, 2050 on any senior notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to
the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current
Treasury rate (as defined in the senior notes), plus 15 basis points. On or after December 8, 2050, the senior notes may be
redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to 100%
of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption
date.
2020. On April 27, 2020, the Company issued $500 million aggregate principal amount of 2.55% senior notes that will mature
on April 27, 2050. The net proceeds of the issuance, after the deduction of the underwriting discount and expenses payable by
the Company, totaled approximately $490 million. Interest on the senior notes is payable semi-annually in arrears on April 27
and October 27. Prior to October 27, 2049, the senior notes may be redeemed, in whole or in part, at the Company’s option, at
any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any senior notes
to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to but
excluding October 27, 2049 on any senior notes to be redeemed (exclusive of interest accrued to the date of redemption)
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discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at
the then current Treasury rate (as defined in the senior notes), plus 25 basis points. On or after October 27, 2049, the senior
notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price
equal to 100% of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to, but excluding,
the redemption date.
On November 1, 2020, the Company's $500 million, 3.90% senior notes matured and were fully paid.
Dividends. Dividends paid to shareholders were $869 million and $861 million in 2021 and 2020, respectively. The
declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the
Company’s Board of Directors and will depend upon many factors, including the Company’s financial position, earnings,
capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints and other factors as the
Board of Directors deems relevant. Dividends will be paid by the Company only if declared by its Board of Directors out of
funds legally available, subject to any other restrictions that may be applicable to the Company. On January 20, 2022, the
Company announced that its Board of Directors declared a regular quarterly dividend of $0.88 per share, payable March 31,
2022 to shareholders of record on March 10, 2022.
Share Repurchases. The Company’s Board of Directors has approved common share repurchase authorizations under which
repurchases may be made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of
Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise. The authorizations do not have a
stated expiration date. The most recent authorization was approved by the Board of Directors on April 20, 2021 and added $5.0
billion of repurchase capacity to the $805 million capacity remaining at that date. The Company expects that, generally over
time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income.
The Company also expects that to the extent that it continues to grow premium volumes, the amount of capital returned to
shareholders relative to earnings would be somewhat less than it otherwise would have been. The timing and actual number of
shares to be repurchased in the future will 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. During 2021, the Company repurchased
13.9 million shares under its share repurchase authorization, for a total of $2.16 billion. The average cost per share repurchased
was $154.79. Common share repurchases in 2021 were higher than the total of $625 million in 2020, due, in part, to
uncertainties related to the impact of COVID-19 and related economic conditions in 2020. At December 31, 2021, the
Company had $4.01 billion of capacity remaining under its share repurchase authorization.
From the inception of the first authorization on May 2, 2006 through December 31, 2021, the Company has repurchased a
cumulative total of 526.9 million shares for a total of $36.99 billion, or an average of $70.21 per share.
In both 2021 and 2020, the Company acquired 0.3 million shares of common stock from employees as treasury stock primarily
to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards,
and shares used by employees to cover the price of certain stock options that were exercised.
Capital Resources
Capital resources reflect the overall financial strength of the Company and its ability to borrow funds at competitive rates and
raise new capital to meet its needs. The following table summarizes the components of the Company’s capital structure at
December 31, 2021 and 2020:
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(at December 31, in millions)
Debt:
2021
2020
Short-term ............................................................................................................................... $
Long-term ...............................................................................................................................
Net unamortized fair value adjustments and debt issuance costs ...........................................
Total debt............................................................................................................................
Shareholders’ equity:
Common stock and retained earnings, less treasury stock......................................................
Accumulated other comprehensive income ............................................................................
Total shareholders’ equity ..................................................................................................
100
$
7,254
(64)
7,290
27,694
1,193
28,887
Total capitalization ........................................................................................................ $
36,177
$
100
6,504
(54)
6,550
26,699
2,502
29,201
35,751
Total capitalization at December 31, 2021 was $36.18 billion, $426 million higher than at December 31, 2020, primarily
reflecting the impacts of (i) net income of $3.66 billion and (ii) proceeds from the exercise of employee share options of $293
million, partially offset by (iii) common share repurchases totaling $2.16 billion under the Company’s share repurchase
authorization, (iv) other comprehensive loss of $1.31 billion, primarily reflecting the decrease in net unrealized appreciation on
investments due to an increase in interest rates during 2021, and (v) shareholder dividends of $876 million.
The following table provides a reconciliation of total capitalization presented in the foregoing table to total capitalization
excluding net unrealized gains on investments, net of taxes, included in shareholders' equity:
(at December 31, dollars in millions)
Total capitalization .................................................................................................................... $
Less: net unrealized gains on investments, net of taxes, included in shareholders' equity .......
2021
36,177
2,415
Total capitalization excluding net unrealized gains on investments, net of taxes, included
in shareholders' equity......................................................................................................... $
33,762
2020
35,751
4,074
31,677
$
$
Debt-to-total capital ratio........................................................................................................
20.2 %
18.3 %
Debt-to-total capital ratio excluding net unrealized gains on investments, net of taxes,
included in shareholders' equity ..........................................................................................
21.6 %
20.7 %
The debt-to-total capital ratio excluding net unrealized gains on investments, net of taxes, included in shareholders’ equity, is
calculated by dividing (a) debt by (b) total capitalization excluding net unrealized gains and losses on investments, net of taxes,
included in shareholders’ equity. Net unrealized gains and losses on investments can be significantly impacted by both interest
rate movements and other economic factors. Accordingly, in the opinion of the Company’s management, the debt-to-total
capital ratio calculated on this basis provides another useful metric for investors to understand the Company’s financial leverage
position. The Company’s ratio of debt-to-total capital excluding after-tax net unrealized investment gains included in
shareholders’ equity of 21.6% at December 31, 2021 was within the Company’s target range of 15% to 25%.
Credit Agreement. The Company is a party to a five-year, $1.0 billion revolving credit agreement with a syndicate of financial
institutions that expires on June 4, 2023. Terms of the credit agreement are discussed in more detail in note 9 of notes to the
consolidated financial statements.
Shelf Registration. The Company has filed a universal shelf registration statement with the Securities and Exchange
Commission that expires on June 10, 2022 for the potential offering and sale of securities. The Company may offer these
securities from time to time at prices and on other terms to be determined at the time of offering.
Share Repurchase Authorization. At December 31, 2021, the Company had $4.01 billion of capacity remaining under its share
repurchase authorization approved by the Board of Directors.
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Cash Requirements from Contractual and Other Obligations
The following table summarizes, as of December 31, 2021, the Company’s future payments under material contractual
obligations and estimated claims and claim-related payments. The table includes only liabilities at December 31, 2021 that are
expected to be settled in cash.
The table below includes the amount and estimated future timing of claims and claim-related payments. The amounts do not
represent the exact liability, but instead represent estimates, generally utilizing actuarial projection techniques, at a given
accounting date. These estimates include expectations of what the ultimate settlement and administration of claims will cost
based on the Company’s assessment of facts and circumstances known, review of historical settlement patterns, estimates of
trends in claims severity, frequency, legal theories of liability and other factors. Variables in the reserve estimation process can
be affected by both internal and external events, such as changes in claims handling procedures, economic inflation or deflation,
legal trends and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective basis.
Additionally, there may be significant reporting lags between the occurrence of the policyholder event and the time it is actually
reported to the insurer. The future cash flows related to the items contained in the table below required estimation of both
amount (including severity considerations) and timing. Amount and timing are frequently estimated separately. An estimation
of both amount and timing of future cash flows related to claims and claim-related payments has unavoidable estimation
uncertainty.
The material cash requirements from contractual and other obligations at December 31, 2021 were as follows:
Payments Due by Period (in millions)
Debt
Senior notes...................................................... $
Junior subordinated debentures........................
Total debt principal .......................................
Interest ............................................................
Total long-term debt obligations (1)..........
Real estate and other operating leases (2) ........
Information systems-related commitments (3)
Long-term unfunded investment
commitments (4)..............................................
Estimated claims and claim-related
payments ........................................................
Claims and claim adjustment expenses (5)........
Claims from large deductible policies (6) .........
Total estimated claims and claim-related
payments......................................................
Total ............................................................ $
___________________________________________
Total
Less than
1 Year
1-3
Years
3-5
Years
After 5
Years
7,000 $
— $
— $
200 $
254
7,254
6,919
14,173
372
486
1,699
55,197
—
—
—
348
348
100
285
349
—
—
696
696
149
162
558
—
200
689
889
80
39
547
12,064
—
13,858
—
7,082
—
55,197
71,927 $
12,064
13,146 $
13,858
15,423 $
7,082
8,637 $
6,800
254
7,054
5,186
12,240
43
—
245
22,193
—
22,193
34,721
(1)
(2)
(3)
(4)
(5)
See note 9 of notes to the consolidated financial statements for a further discussion of outstanding indebtedness. Because the
amounts reported in the foregoing table include principal and interest, the total long-term debt obligations will not agree with the
amounts reported in note 9.
Represents agreements entered into in the ordinary course of business to lease office space, equipment and furniture.
Includes agreements with vendors to purchase system software (including software as a service), software maintenance services and
technology-related costs.
Represents estimated timing for fulfilling unfunded commitments for private equity limited partnerships, real estate partnerships
and other, as well as a put/call option entered into by the Company in connection with a business acquisition.
The amounts in “Claims and claim adjustment expenses” in the table above represent the estimated timing of future payments for
both reported and unreported claims incurred and related claim adjustment expenses, gross of reinsurance recoverables, excluding
structured settlements expected to be paid by annuity companies.
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The Company has entered into reinsurance agreements to manage its exposure to losses and protect its capital as described in note 6
of notes to the consolidated financial statements.
In order to qualify for reinsurance accounting, a reinsurance agreement must indemnify the insurer from insurance risk, i.e., the
agreement must transfer amount and timing risk. Since the timing and amount of cash inflows from such reinsurance agreements
are directly related to the underlying payment of claims and claim adjustment expenses by the insurer, reinsurance recoverables are
recognized in a manner consistent with the liabilities (the estimated liability for claims and claim adjustment expenses) relating to
the underlying reinsured contracts. The presence of any feature that can delay timely reimbursement of claims by a reinsurer results
in the reinsurance contract being accounted for as a deposit rather than reinsurance. The assumptions used in estimating the amount
and timing of the reinsurance recoverables are consistent with those used in estimating the amount and timing of the related
liabilities.
The estimated future cash inflows from the Company’s reinsurance contracts that qualify for reinsurance accounting are as follows:
(in millions)
Reinsurance recoverables ..........................
Total
Less than 1
Year
1-3
Years
3-5
Years
After 5
Years
$
5,418
$
1,061
$
1,091
$
651
$
2,615
The Company manages its business and evaluates its liabilities for claims and claim adjustment expenses on a net of reinsurance
basis. The estimated cash flows on a net of reinsurance basis are as follows:
(in millions)
Claims and claim adjustment expenses,
net.............................................................
Total
Less than 1
Year
1-3
Years
3-5
Years
After 5
Years
$
49,779
$
11,003
$
12,767
$
6,431
$
19,578
For business underwritten by non-U.S. operations, future cash flows related to reported and unreported claims incurred and related
claim adjustment expenses were translated at the spot rate on December 31, 2021.
The amounts reported in the table above and in the table of reinsurance recoverables above are presented on a nominal basis and
have not been adjusted to reflect the time value of money. Accordingly, the amounts above will differ from the Company’s balance
sheet to the extent that the liability for claims and claim adjustment expenses and the related reinsurance recoverables have been
discounted in the balance sheet. See note 1 of notes to the consolidated financial statements.
(6)
Workers’ compensation large deductible policies provide third-party coverage in which the Company typically is responsible for
paying the entire loss under such policies and then seeks reimbursement from the insured for the deductible amount. “Claims from
large deductible policies” represent the estimated future payment for claims and claim related expenses below the deductible
amount, net of the estimated recovery of the deductible. The liability and the related deductible receivable for unpaid claims are
presented in the consolidated balance sheet as “contractholder payables” and “contractholder receivables,” respectively. Most
deductibles for such policies are paid directly from the policyholder’s escrow, which is periodically replenished by the policyholder.
The payment of the loss amounts above the deductible are reported within “Claims and claim adjustment expenses” in the above
table. Because the timing of the collection of the deductible (contractholder receivables) occurs shortly after the payment of the
deductible to a claimant (contractholder payables), these cash flows offset each other in the table.
The estimated timing of the payment of the contractholder payables and the collection of contractholder receivables (net of
allowance for expected credit losses) for workers’ compensation policies is presented below:
(in millions)
Contractholder payables/receivables......
Total
Less than 1
Year
1-3
Years
3-5
Years
After 5
Years
$
3,890
$
1,121
$
1,109
$
531
$
1,129
The above table does not include an analysis of liabilities reported for structured settlements for which the Company has
purchased annuities and remains contingently liable in the event of default by the company issuing the annuity. The Company is
In addition, the Company is not
not reasonably likely to incur material future payment obligations under such agreements.
currently subject to any minimum funding requirements for its qualified pension plan. Accordingly, future contributions are not
included in the foregoing table.
The Company believes that the combination of operating company liquidity, holding company liquidity, its investment portfolio
and its capital resources are sufficient to meet its contractual obligations.
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Dividend Availability
The Company’s principal insurance subsidiaries are domiciled in the State of Connecticut. The insurance holding company
laws of Connecticut applicable to the Company’s subsidiaries requires notice to, and approval by, the state insurance
commissioner for the declaration or payment of any dividend that, together with other distributions made within the preceding
twelve months, exceeds the greater of 10% of the insurer’s statutory capital and surplus as of the preceding December 31, or the
insurer’s net income for the twelve-month period ending the preceding December 31, in each case determined in accordance
with statutory accounting practices and by state regulation. This declaration or payment is further limited by adjusted
unassigned surplus, as determined in accordance with statutory accounting practices. The insurance holding company laws of
other states in which the Company’s subsidiaries are domiciled generally contain similar, although in some instances somewhat
more restrictive, limitations on the payment of dividends. A maximum of $3.08 billion is available by the end of 2022 for such
dividends to the holding company, TRV, without prior approval of the Connecticut Insurance Department. The Company may
choose to accelerate the timing within 2022 and/or increase the amount of dividends from its insurance subsidiaries in 2022,
which could result in certain dividends being subject to approval by the Connecticut Insurance Department.
In addition to the regulatory restrictions on the availability of dividends that can be paid by the Company’s U.S. insurance
subsidiaries, the maximum amount of dividends that may be paid to the Company’s shareholders is limited, to a lesser degree,
by certain covenants contained in its line of credit agreement with a syndicate of financial institutions that require the Company
to maintain a minimum consolidated net worth as described in note 9 of notes to the consolidated financial statements.
TRV is not dependent on dividends or other forms of repatriation from its foreign operations to support its liquidity needs. The
undistributed earnings of the Company’s foreign operations are intended to be permanently reinvested in those operations, and
such earnings were not material to the Company’s financial position or liquidity at December 31, 2021.
TRV and its two non-insurance holding company subsidiaries received dividends of $2.18 billion and $2.00 billion from their
U.S. insurance subsidiaries in 2021 and 2020, respectively.
Pension and Other Postretirement Benefit Plans
The Company sponsors a qualified non-contributory defined benefit pension plan (the qualified domestic pension plan), which
covers substantially all U.S. domestic employees and provides benefits primarily under a cash balance formula. In addition, the
Company sponsors a nonqualified defined benefit pension plan which covers certain highly-compensated employees, pension
plans for employees of its foreign subsidiaries, and a postretirement health and life insurance benefit plan for employees
satisfying certain age and service requirements and for certain retirees.
The qualified domestic pension plan is subject to regulations under the Employee Retirement Income Security Act of 1974 as
amended (ERISA), which requires plans to meet minimum standards of funding and requires such plans to subscribe to plan
termination insurance through the Pension Benefit Guaranty Corporation (PBGC). The Company does not have a minimum
funding requirement for the qualified domestic pension plan for 2022 and does not anticipate having a minimum funding
requirement in 2023. The Company has significant discretion in making contributions above those necessary to satisfy the
minimum funding requirements. In 2021, 2020 and 2019, there was no minimum funding requirement for the qualified
domestic pension plan.
In 2021, 2020 and 2019, the Company made no voluntary contributions to the qualified domestic
pension plan. The qualified domestic pension plan had a funded status of 116% and 107% at December 31, 2021 and 2020,
respectively. Based on its funded status at December 31, 2021, the Company does not currently anticipate making a voluntary
contribution to the qualified domestic pension plan in 2022. In determining future contributions, the Company will consider the
performance of the plan’s investment portfolio, the effects of interest rates on the projected benefit obligation of the plan and
the Company’s other capital requirements.
The qualified domestic pension plan assets are managed to maximize long-term total return while maintaining an appropriate
level of risk. The Company’s overall investment strategy is to achieve a mix of approximately 85% to 90% of investments for
long-term growth and 10% to 15% for near-term benefit payments with a diversification of asset types, fund strategies and fund
managers. The current target allocations for plan assets are 55% to 65% equity securities and 20% to 40% fixed income
securities, with the remainder allocated to short-term securities. For 2022, the Company plans to apply an expected long-term
rate of return on plan assets of 6.50%, comparable with 2021. The expected rate of return reflects the Company’s current
expectations with regard to long-term returns in the capital markets, taking into account the pension plan’s asset allocation
targets, the historical performance and current valuation of U.S. and international equities, and the level of long term interest
rate and inflation expectations.
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For further discussion of the pension and other postretirement benefit plans, see note 15 of notes to the consolidated financial
statements.
Risk-Based Capital
The NAIC has an RBC requirement for most property and casualty insurance companies, which determines minimum capital
requirements and is intended to raise the level of protection for policyholder obligations. The Company’s U.S. insurance
subsidiaries are subject to these NAIC RBC requirements based on laws that have been adopted by individual states. These
requirements subject insurers having policyholders’ surplus less than that required by the RBC calculation to varying degrees of
regulatory action, depending on the level of capital inadequacy. Each of the Company’s U.S. insurance subsidiaries had
policyholders’ surplus at December 31, 2021 significantly above the level at which any RBC regulatory action would occur.
Regulators in the jurisdictions in which the Company’s foreign insurance subsidiaries are located require insurance companies
to maintain certain levels of capital depending on, among other things, the type and amount of insurance policies written. Each
of the Company’s foreign insurance subsidiaries had capital significantly above their respective regulatory requirements at
December 31, 2021.
Off-Balance Sheet Arrangements
The Company has entered into certain contingent obligations for guarantees related to selling businesses to third parties, certain
investments, certain insurance policy obligations of former insurance subsidiaries and various other indemnifications. See note
17 of notes to the consolidated financial statements. The Company does not believe it is reasonably likely that these
arrangements will have a material current or future effect on the Company’s financial position, changes in financial position,
revenues and expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING ESTIMATES
The Company considers its most significant accounting estimates to be those applied to claims and claim adjustment expense
reserves and related reinsurance recoverables, and impairments of investments, goodwill and other intangible assets.
Claims and Claim Adjustment Expense Reserves
Gross claims and claim adjustment expense reserves by product line were as follows:
(in millions)
General liability............................................... $
Commercial property ......................................
Commercial multi-peril...................................
Commercial automobile ..................................
Workers’ compensation ..................................
Fidelity and surety...........................................
Personal automobile ........................................
Personal homeowners and other......................
International and other ....................................
December 31, 2021
December 31, 2020
Case
IBNR
Total
Case
IBNR
Total
5,351
$
8,863
$
14,214
$
5,267
$
8,098
$
13,365
1,220
2,404
2,594
10,152
188
2,062
1,021
2,525
392
2,573
2,335
9,551
436
1,765
1,395
2,070
1,612
4,977
4,929
1,006
2,354
2,551
19,703
10,271
624
3,827
2,416
4,595
215
1,901
901
2,565
366
2,311
2,231
9,514
317
1,514
1,168
1,960
1,372
4,665
4,782
19,785
532
3,415
2,069
4,525
Property-casualty..........................................
27,517
29,380
56,897
27,031
27,479
54,510
Accident and health.........................................
Claims and claim adjustment expense
reserves .................................................... $
10
—
10
11
—
11
27,527
$
29,380
$
56,907
$
27,042
$
27,479
$
54,521
The $2.39 billion increase in gross claims and claim adjustment expense reserves since December 31, 2020 primarily reflected
the impacts of (i) higher volumes of insured exposures, (ii) catastrophe losses in 2021, (iii) loss cost trends for the current
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accident year and (iv) reduced claim settlement activity largely due to continued disruptions in the judicial system related to
COVID-19.
Asbestos and environmental reserves are included in the General liability, Commercial multi-peril and International and other
lines in the foregoing summary table. Asbestos and environmental reserves are discussed separately; see “Asbestos Claims and
Litigation,” “Environmental Claims and Litigation” and “Uncertainty Regarding Adequacy of Asbestos and Environmental
Reserves” herein.
Claims and claim adjustment expense reserves represent management’s estimate of the ultimate liability for unpaid losses and
loss adjustment expenses for claims that have been reported and claims that have been incurred but not yet reported (IBNR) as
of the balance sheet date. Claims and claim adjustment expense reserves do not represent an exact calculation of liability, but
instead represent management estimates, primarily utilizing actuarial expertise and projection methods. These estimates are
expectations of what the ultimate settlement and administration of claims will cost upon final resolution in the future, based on
the Company’s assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends
in claims severity and frequency, expected interpretations of legal theories of liability and other factors. In establishing gross
claims and claim adjustment expense reserves, the Company also considers salvage and subrogation. Estimated recoveries from
reinsurance are included in “Reinsurance Recoverables” as an asset on the Company’s consolidated balance sheet. The claims
and claim adjustment expense reserves are reviewed regularly by qualified actuaries employed by the Company.
The process of estimating claims and claim adjustment expense reserves involves a high degree of judgment and is subject to a
number of variables. These variables can be affected by both internal and external events, such as changes in claims handling
procedures, changes in individuals involved in the reserve estimation process, economic inflation, changes in the tort
environment, legal trends and legislative changes, among others. The impact of many of these items on ultimate costs for claims
and claim adjustment expenses is difficult to estimate. Estimation difficulties also differ significantly by product line due to
differences in claim complexity, the volume of claims, the potential severity of individual claims, the determination of
occurrence date for a claim and reporting lags (the time between the occurrence of the policyholder event and when it is
actually reported to the insurer). Informed judgment is applied throughout the process, including the application of various
individual experiences and expertise to multiple sets of data and analyses. The Company refines its estimates in a regular
ongoing process as historical loss experience develops and additional claims are reported and settled. The Company rigorously
attempts to consider all significant facts and circumstances known at the time claims and claim adjustment expense reserves are
established. Due to the inherent uncertainty underlying these estimates including, but not limited to, the future settlement
environment, final resolution of the estimated liability for claims and claim adjustment expenses may be higher or lower than
the related claims and claim adjustment expense reserves at the reporting date. Therefore, actual paid losses, as claims are
settled in the future, may be materially different than the amount currently recorded-favorable or unfavorable. Because
establishment of claims and claim adjustment expense reserves is an inherently uncertain process involving estimates and the
application of judgment, currently established claims and claim adjustment expense reserves may change. The Company
reflects adjustments to the reserves in the results of operations in the period the estimates are changed.
There are also additional risks which impact the estimation of ultimate costs for catastrophes. For example, the estimation of
reserves related to hurricanes, tornadoes, wildfires and other catastrophic events can be affected by the inability of the Company
and its insureds to access portions of the impacted areas, the complexity of factors contributing to the losses, the legal and
regulatory uncertainties, including the interpretation of policy terms and conditions, and the nature of the information available
to establish the reserves. Complex factors include, but are not limited to: determining whether damage was caused by flooding
versus wind; evaluating general liability and pollution exposures; estimating additional living expenses; estimating the impact
of demand surge, infrastructure disruption, fraud, the effect of mold damage and business interruption costs; and reinsurance
collectibility. The timing of a catastrophe, such as at or near the end of a reporting period, can also affect the information
available to the Company in estimating reserves for that reporting period. The estimates related to catastrophes are adjusted as
actual claims emerge.
A portion of the Company’s gross claims and claim adjustment expense reserves (totaling $2.04 billion at December 31, 2021)
are for asbestos and environmental claims and related litigation. While the ongoing review of asbestos and environmental
claims and associated liabilities considers the inconsistencies of court decisions as to coverage, plaintiffs’ expanded theories of
liability and the risks inherent in complex litigation and other uncertainties, in the opinion of the Company’s management, it is
possible that the outcome of the continued uncertainties regarding these claims could result in liability in future periods that
differs from current insurance reserves by an amount that could be material to the Company’s future operating results. See the
preceding discussion of “Asbestos Claims and Litigation” and “Environmental Claims and Litigation.”
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General Discussion
The process for estimating the liabilities for claims and claim adjustment expenses begins with the collection and analysis of
claim data. Data on individual reported claims, both current and historical, including paid amounts and individual claim adjuster
estimates, are grouped by common characteristics (components) and evaluated by actuaries in their analyses of ultimate claim
liabilities. Such data is occasionally supplemented with external data as available and when appropriate. The process of
analyzing reserves for a component is undertaken on a regular basis, generally quarterly, in light of continually updated
information.
Multiple estimation methods are available for the analysis of ultimate claim liabilities. Each estimation method has its own set
of assumption variables and its own advantages and disadvantages, with no single estimation method being better than the
others in all situations and no one set of assumption variables being meaningful for all product line components. The relative
strengths and weaknesses of the particular estimation methods when applied to a particular group of claims can also change
over time. Therefore, the actual choice of estimation method(s) can change with each evaluation. The estimation method(s)
chosen are those that are believed to produce the most reliable indication at that particular evaluation date for the claim
liabilities being evaluated.
In most cases, multiple estimation methods will be valid for the particular facts and circumstances of the claim liabilities being
evaluated. This will result in a range of reasonable estimates for any particular claim liability. The Company uses such range
analyses to back test whether previously established estimates for reserves by reporting segments are reasonable, given
available information. Reported values found to be closer to the endpoints of a range of reasonable estimates are subject to
further detailed reviews. These reviews may substantiate the validity of management’s recorded estimate or lead to a change in
the reported estimate.
The exact boundary points of these ranges are more qualitative than quantitative in nature, as no clear line of demarcation exists
to determine when the set of underlying assumptions for an estimation method switches from being reasonable to unreasonable.
As a result, the Company does not believe that the endpoints of these ranges are or would be comparable across companies. In
addition, potential interactions among the different estimation assumptions for different product lines make the aggregation of
individual ranges a highly judgmental and inexact process.
Property-casualty insurance policies are either written on a “claims-made” or on an “occurrence” basis. Claims-made policies
generally cover, subject to requirements in individual policies, claims reported during the policy period. Policies that are
written on an occurrence basis require that the insured demonstrate that a loss occurred in the policy period, even if the insured
reports the loss many years later.
Most general liability policies are written on an occurrence basis. These policies are subject to substantial loss development
over time as facts and circumstances change in the years following the policy issuance. The occurrence form, which accounts
for much of the reserve development in asbestos and environmental exposures, is also used to provide coverage for construction
general liability, including construction defect. Occurrence-based forms of insurance for general liability exposures require
substantial projection of loss trends, which can be influenced by a number of factors, including future inflation, judicial
interpretations and societal litigation trends (e.g., size of jury awards and propensity of individuals to pursue litigation), among
others.
A basic premise in most actuarial analyses is that past patterns demonstrated in the data will repeat themselves in the future,
absent a material change in the associated risk factors discussed below. To the extent a material change affecting the ultimate
claim liability is known, such change is estimated to the extent possible through an analysis of internal company data and, if
available and when appropriate, external data. Such a measurement is specific to the facts and circumstances of the particular
claim portfolio and the known change being evaluated. Significant structural changes to the available data, product mix or
organization can materially impact the reserve estimation process.
In addition, the introduction of new products creates a
unique risk as historical company data would typically not be available.
Informed judgment is applied throughout the reserving process. This includes the application of various individual experiences
and expertise to multiple sets of data and analyses. In addition to actuaries, experts involved with the reserving process also
include underwriting and claims personnel and lawyers, as well as other company management. Therefore, management may
have to consider varying individual viewpoints as part of its estimation of claims and claim adjustment expense reserves. It is
also likely that during periods of significant change, such as a merger, consistent application of informed judgment becomes
even more complicated and difficult.
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The variables discussed above in this general discussion have different impacts on reserve estimation uncertainty for a given
product line, depending on the length of the claim tail, the reporting lag, the impact of individual claims and the complexity of
the claim process for a given product line.
Product lines are generally classifiable as either long tail or short tail, based on the average length of time between the event
triggering claims under a policy and the final resolution of those claims. Short tail claims are reported and settled quickly,
resulting in less estimation variability. The longer the time to final claim resolution, the greater the exposure to estimation risks
and hence the greater the estimation uncertainty.
A major component of the claim tail is the reporting lag. The reporting lag, which is the time between the event triggering a
claim and the reporting of the claim to the insurer, makes estimating IBNR inherently more uncertain. In addition, the greater
the reporting lag, the greater the proportion of IBNR to the total claim liability for the product line. Writing new products with
material reporting lags can result in adding several years’ worth of IBNR claim exposure before the reporting lag exposure
becomes clearly observable, thereby increasing the risk associated with estimating the liabilities for claims and claim
adjustment expenses for such products. The most extreme example of claim liabilities with long reporting lags are asbestos
claims.
For some lines, the impact of large individual claims can be material to the analysis. These lines are generally referred to as
being “low frequency/high severity,” while lines without this “large claim” sensitivity are referred to as “high frequency/low
severity.” Estimates of claim liabilities for low frequency/high severity lines can be sensitive to the impact of a small number
of potentially large claims. As a result, the role of judgment is much greater for these reserve estimates. In contrast, for high
frequency/low severity lines the impact of individual claims is relatively minor and the range of reasonable reserve estimates is
likely narrower and more stable.
Claim complexity can also greatly affect the estimation process by impacting the number of assumptions needed to produce the
estimate, the potential stability of the underlying data and claim process, and the ability to gain an understanding of the data.
Product lines with greater claim complexity, such as for certain surety and construction exposures, have inherently greater
estimation uncertainty.
Actuaries have to exercise a considerable degree of judgment in the evaluation of all these factors in their analysis of reserves.
The human element in the application of actuarial judgment is unavoidable when faced with material uncertainty. Different
actuaries may choose different assumptions when faced with such uncertainty, based on their individual backgrounds,
professional experiences and areas of focus. Hence, the estimates selected by the various actuaries may differ materially from
each other.
Lastly, significant structural changes to the available data, product mix or organization can also materially impact the reserve
estimation process. Events such as mergers increase the inherent uncertainty of reserve estimates for a period of time, until
stable trends re-establish themselves within the new organization.
Risk Factors
The major causes of material uncertainty (“risk factors”) generally will vary for each product line, as well as for each separately
analyzed component of the product line. In a few cases, such risk factors are explicit assumptions of the estimation method, but
in most cases, they are implicit. For example, a method may explicitly assume that a certain percentage of claims will close
each year, but will implicitly assume that the legal interpretation of existing contract language will remain unchanged. Actual
results will likely vary from expectations for each of these assumptions, causing actual paid losses, as claims are settled in the
future, to be different in amount than the reserves being estimated currently.
Some risk factors will affect more than one product line. Examples, some of which have been exacerbated by COVID-19,
include changes in claim department practices, changes in the tort environment, changes in settlement patterns, regulatory and
legislative actions, court actions, timeliness of claim reporting, state mix of claimants, medical utilization and degree of
claimant fraud. The extent of the impact of a risk factor will also vary by components within a product line. Individual risk
factors are also subject to interactions with other risk factors within product line components.
The effect of a particular risk factor on estimates of claim liabilities cannot be isolated in most cases. For example, estimates of
potential claim settlements may be impacted by the risk associated with potential court rulings, but the final settlement
agreement typically does not delineate how much of the settled amount is due to this and other factors.
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The evaluation of data is also subject to distortion from extreme events or structural shifts, sometimes in unanticipated ways.
For example, the timing of claims payments in one geographic region may be impacted if claim adjusters are temporarily
reassigned from that region to help settle catastrophe claims in another region.
While some changes in the claim environment are sudden in nature (such as a new court ruling affecting the interpretation of all
contracts in that jurisdiction), others are more evolutionary. Evolutionary changes can occur when multiple factors affect final
claim values, with the uncertainty surrounding each factor being resolved separately, in stepwise fashion. The final impact is
not known until all steps have occurred.
Sudden changes generally cause a one-time shift in claim liability estimates, although there may be some lag in reliable
quantification of their impact. Evolutionary changes generally cause a series of shifts in claim liability estimates, as each
component of the evolutionary change becomes evident and estimable.
Actuarial Methods for Analyzing and Estimating Claims and Claim Adjustment Expense Reserves
The principal estimation and analysis methods utilized by the Company’s actuaries to evaluate management’s existing estimates
for prior accident periods are the paid loss development method, the case incurred development method, the Bornhuetter-
Ferguson (BF) method, and average value analysis combined with the reported claim development method. The BF method is
usually utilized for more recent accident periods, with a transition to other methods as the underlying claim data becomes more
voluminous and therefore more credible. These estimation and analysis methods are typically referred to as conventional
actuarial methods. (See note 8 of notes to the consolidated financial statements for an explanation of these methods).
While the Company utilizes these conventional actuarial methods to estimate the claims liability for its various businesses,
Company actuaries evaluating a particular component for a product line may select from the full range of methods developed
within the casualty actuarial profession. The Company’s actuaries are also regularly monitoring developments within the
profession for advances in existing techniques or the creation of new techniques that might improve current and future
estimates.
Some components of a product line may be susceptible to infrequent large claims or not be subject to conventional methods. In
such cases, the Company’s actuarial analysis will isolate such components for review. The reserves excluding such large
claims are generally analyzed using the conventional methods described above. The reserves associated with large claims are
then analyzed utilizing various methods, such as:
•
•
•
•
Estimating the number of large claims and their average values based on historical trends from prior accident periods,
adjusted for the current environment and supplemented with actual data for the accident year analyzed to the extent
available.
Utilizing individual claim adjuster estimates of the large claims, combined with continual monitoring of the aggregate
accuracy of such claim adjuster estimates. (This monitoring may lead to supplemental adjustments to the aggregate of
such claim estimates).
Utilizing historic longer-term average ratios of large claims to small claims, and applying such ratios to the estimated
ultimate small claims from conventional analysis.
Ground-up analysis of the underlying exposure (typically used for asbestos and environmental).
The results of such methodologies are subjected to various reasonability and diagnostic tests, including implied incurred-loss-
to-earned-premium ratios, non-zero claim severity trends and paid-to-incurred loss ratios. An actual versus expected analysis is
also performed comparing actual loss development to expected development embedded within management’s estimate.
Additional analyses may be performed based on the results of these diagnostics, including the investigation of other actuarial
methods.
The methods described above are generally utilized to evaluate management’s estimate for prior accident periods. For the
initial estimate of the current accident year, however, the available claim data is typically insufficient to produce a reliable
indication. As a result, the initial estimate for an accident year is generally based on an exposure-based method using either the
loss ratio projection method or the expected loss method. The loss ratio projection method, which is typically used for
guaranteed-cost business, develops an initial estimate for an accident year by multiplying earned premiums for the accident year
by a projected loss ratio. The projected loss ratio is determined by analyzing prior period experience, and adjusting for loss cost
trends, rate level differences, mix of business changes and other known or observed factors influencing the current accident
year relative to prior accident years. The exact number of prior accident years utilized varies by product line component, based
on the stability and consistency of the individual accident year estimates. The expected loss method, which is typically used for
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loss sensitive business, develops an initial estimate of ultimate claims and claim adjustment expenses for an accident year by
analyzing exposures by account.
Management’s Estimates
At least once per quarter, certain members of Company management meet with the Company’s actuaries to review the latest
claims and claim adjustment expense reserve analyses. Based on these analyses, management determines whether its ultimate
claim liability estimates should be changed from the prior period. In doing so, it must evaluate whether the new data provided
represents credible actionable information or an anomaly that will have no effect on estimated ultimate claim liability. For
example, as described above, payments may have decreased in one geographic region due to fewer claim adjusters being
available to process claims. The resulting claim payment patterns would be analyzed to determine whether or not the change in
payment pattern represents a change in ultimate claim liability.
Such an assessment requires considerable judgment. It is frequently not possible to determine whether a change in the data is an
anomaly until sometime after the event. Even if a change is determined to be permanent, it is not always possible to reliably
determine the extent of the change until sometime later. The overall detailed analyses supporting such an effort can take several
months to perform as the underlying causes of the trends observed need to be evaluated, which may require the gathering or
assembling of data not previously available. It may also include interviews with experts involved with the underlying processes.
As a result, there can be a time lag between the emergence of a change and a determination that the change should be reflected
in the Company’s estimated claim liabilities. The final estimate selected by management in a reporting period is based on these
various detailed analyses of past data, adjusted to reflect any new actionable information.
The Audit Committee of the Board of Directors reviews the process by which the Company establishes reserves for the purpose
of the Company’s financial statements.
Discussion of Product Lines
The following section details reserving considerations and common risk factors by product line. There are many additional risk
factors that may impact ultimate claim costs. Each risk factor presented will have a different impact on required reserves. Also,
risk factors can have offsetting or compounding effects on required reserves. For example, in workers’ compensation, the use of
expensive medical procedures that result in medical cost inflation may enable workers to return to work faster, thereby lowering
indemnity costs. Thus, in almost all cases, it is impossible to discretely measure the effect of a single risk factor and construct a
meaningful sensitivity expectation.
In order to provide information on reasonably possible reserving changes by product line, the historical changes in year-end
claims and claim adjustment expense reserves over a one-year period are provided for the U.S. product lines. This information
is provided for both the Company and the industry for the nine most recent years, and is based on the most recent publicly
available data for the reported line(s) that most closely match the individual product line being discussed. These changes were
calculated, net of reinsurance, from statutory annual statement data found in Schedule P of those statements, and represent the
reported reserve development on the beginning-of-the-year claim liabilities divided by the beginning claim liabilities, all
accident years combined, excluding non-defense related claim adjustment expense. Data presented for the Company includes
history for the entire Travelers group (U.S. companies only), as required by the statutory reporting instructions promulgated by
state regulatory authorities for Schedule P. Comparable data for non-U.S. companies is not available.
General Liability
General liability is generally considered a long tail line, as it takes a relatively long period of time to finalize and settle claims
from a given accident year. The speed of claim reporting and claim settlement is a function of the characteristics of claims,
including specific coverage provided, the jurisdiction and specific policy provisions such as self-insured retentions, among
others. There are numerous components underlying the general liability product line. Some of these have relatively moderate
payment patterns (with most of the claims for a given accident year closed within five to seven years), while others can have
extreme lags in both reporting and payment of claims (e.g., a reporting lag of a decade or more for “construction defect”
claims).
While the majority of general liability coverages are written on an “occurrence” basis, certain general liability coverages (such
as those covering management and professional liability, including cyber coverages) are typically insured on a “claims-made”
basis.
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General liability reserves are generally analyzed as two components: primary and excess/umbrella, with the primary component
generally analyzed separately for bodily injury and property damage. Bodily injury liability payments reimburse the claimant
for damages pertaining to physical injury as a result of the policyholder’s legal obligation arising from non-intentional acts such
as negligence, subject to the insurance policy provisions. In some cases the damages can include future wage loss (which is a
function of future earnings power and wage inflation) and future medical treatment costs. Property damage liability payments
result from damages to the claimant’s private property arising from the policyholder’s legal obligation for non-intentional acts.
In most cases, property damage losses are a function of costs as of the loss date, or soon thereafter.
In addition, sizable or unique exposures are reviewed separately. These exposures include asbestos, environmental, other mass
torts, construction defect and large unique accounts that would otherwise distort the analysis. These unique categories often
require a very high degree of judgment and require reserve analyses that do not rely on conventional actuarial methods.
Defense costs are also a part of the insured costs covered by liability policies and can be significant, sometimes greater than the
cost of the actual paid claims. For some products this risk is mitigated by policy language such that the insured portion of
defense costs is included in the policy limit available to pay the claim. Such “defense within the limits” policies are most
common for “claims-made” products. When defense costs are outside of the policy limits, the full amount of the policy limit is
available to pay claims and the amounts paid for defense costs have no contractual limit.
This line is typically the largest source of reserve estimate uncertainty in the United States (excluding assumed reinsurance
contracts covering the same risk). Major contributors to this reserve estimate uncertainty include the reporting lag (i.e., the
length of time between the event triggering coverage and the actual reporting of the claim), the number of parties involved in
the underlying tort action, whether the “event” triggering coverage is confined to only one time period or is spread over
multiple time periods, the potential dollars involved (in the individual claim actions), whether such claims were reasonably
foreseeable and intended to be covered at the time the contracts were written (i.e., coverage dispute potential), and the potential
for mass claim actions. Claims with longer reporting lags result in greater estimation uncertainty. This is especially true for
alleged claims with a latency feature, particularly where courts have ruled that coverage is spread over multiple policy years,
hence involving multiple defendants (and their insurers and reinsurers) and multiple policies (thereby increasing the potential
dollars involved and the underlying settlement complexity). Claims with long latencies also increase the potential recognition
lag (i.e., the lag between writing a type of policy in a certain market and the recognition that such policies have potential mass
tort and/or latent claim exposure).
The amount of reserve estimate uncertainty also varies significantly by component for the general liability product line. The
components in this product line with the longest latency, longest reporting lags, largest potential dollars involved and greatest
claim settlement complexity are asbestos and environmental. Components that include latency, reporting lag and/or complexity
issues, but to a materially lesser extent than asbestos and environmental, include construction defect and other mass tort actions.
Many components of general liability are not subject to material latency or claim complexity risks and hence have materially
less uncertainty than the previously mentioned components. In general, components with shorter reporting lags, fewer parties
involved in settlement negotiations, only one policy potentially triggered per claim, fewer potential settlement dollars,
reasonably foreseeable (and stable) potential hazards/claims and no mass tort potential result in much less reserve estimate
uncertainty than components without those characteristics.
In addition to the conventional actuarial methods mentioned in the general discussion section, the company utilizes various
report year development methods for the construction defect components of this product line. The Construction Defect report
year development analysis is supplemented with projected claim counts and average values for IBNR claim counts. For
components with greater lags in claim reporting, such as excess and umbrella components of this product line, the Company
relies more heavily on the BF method than on the paid and case incurred development methods.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required general liability
reserves (beyond those included in the general discussion section) include:
General liability risk factors
•
•
•
•
•
•
Changes in claim handling philosophies
Changes in policy provisions or court interpretation of such provisions
New or expanded theories of liability
Trends in jury awards
Changes in the propensity to sue, in general with specificity to particular issues
Changes in the propensity to litigate rather than settle a claim
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•
•
•
•
•
•
•
•
•
Increases in attorney involvement in, or impact on, claims
Changes in statutes of limitations
Changes in the underlying court system
Distortions from losses resulting from large single accounts or single issues
Changes in tort law
Shifts in lawsuit mix between federal and state courts
Changes in claim adjuster processes or reporting which may cause distortions in the data being analyzed
The potential impact of inflation on loss costs
Changes in settlement patterns
General liability book of business risk factors
•
•
•
Changes in policy provisions (e.g., deductibles, policy limits, endorsements)
Changes in underwriting standards
Product mix (e.g., size of account, industries insured, jurisdiction mix)
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for general liability (excluding asbestos and environmental), a 1% increase (decrease) in
incremental paid loss development for each future calendar year could result in a 1.6% increase (decrease) in claims and claim
adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line, excluding estimated asbestos and environmental
amounts, over the last nine years has varied from -5% to 6% (averaging -1%) for the Company, and from -3% to 3% (averaging
-1%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the
year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in
reserve estimates for this product
liability reserves (excluding asbestos and environmental) represent
line. General
approximately 22% of the Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line related to the last nine accident years, which excludes the
impacts of increases in asbestos and environmental reserves, the extension of the statute of limitations for childhood sexual
molestation claims and increases in reserves in the Company's runoff operations, was 1% for 2021, 3% for 2020 and 6% for
2019. The 2021 change primarily reflected higher than expected loss experience in Bond & Specialty Insurance for accident
years 2012 and 2017 through 2019 and in Business Insurance for accident years 2018 through 2020. The 2020 change primarily
reflected higher than expected loss experience in Business Insurance for both primary and excess coverages for accident years
2015 through 2019 and in Bond & Specialty Insurance for accident years 2015, 2018 and 2019. The 2019 change primarily
reflected higher than expected loss experience in Business Insurance for both primary and excess coverages for accident years
2013 through 2018, partially offset by better than expected loss experience for management liability coverages in Bond &
Specialty Insurance for accident years 2013 through 2015.
Commercial Property
Commercial property is generally considered a short tail line with a simpler and faster claim reporting and adjustment process
than liability coverages, and less uncertainty in the reserve setting process (except for more complex business interruption
claims). It is generally viewed as a moderate frequency, low to moderate severity line, except for catastrophes and coverage
related to large properties. The claim reporting and settlement process for property coverage claim reserves is generally
restricted to the insured and the insurer. Overall, the claim liabilities for this line create a low estimation risk, except possibly
for catastrophes and business interruption claims.
Commercial property reserves are typically analyzed in two components, one for catastrophic or other large single events, and
another for all other events. Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the
required property reserves (beyond those included in the general discussion section) include:
Commercial property risk factors
•
•
•
•
•
Physical concentration of policyholders
Availability and cost of local contractors
For the more severe catastrophic events, “demand surge” inflation, which refers to significant short-term increases in
building material and labor costs due to a sharp increase in demand for those materials and services
Local building codes
Amount of time to return property to full usage (for business interruption claims)
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•
•
•
•
Frequency of claim re-openings on claims previously closed
Court interpretation of policy provisions (such as occurrence definition, wind versus flooding or communicable
disease exclusions)
Lags in reporting claims (e.g., winter damage to summer homes, hidden damage after an earthquake, hail damage to
roofs and/or equipment on roofs)
Court or legislative changes to the statute of limitations
Commercial property book of business risk factors
•
•
Policy provisions mix (e.g., deductibles, policy limits, endorsements)
Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for property, a 1% increase (decrease) in incremental paid loss development for each future
calendar year could result in a 1.1% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -21% to
-6% (averaging -12%) for the Company, and from -10% to -5% (averaging -6%) for the industry overall. The Company’s year-
to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of
historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product
line.
Commercial property reserves represent approximately 3% of the Company’s total claims and claim adjustment expense
reserves.
Since commercial property is considered a short tail coverage, the one year change for commercial property can be more
volatile than that for the longer tail product lines. This is due to the fact that the majority of the reserve for commercial property
relates to the most recent accident year, which is subject to the most uncertainty for all product lines. This recent accident year
uncertainty is relevant to commercial property because weather-related events that occur in the second half of the year may not
be completely resolved until the following year. Reserve estimates associated with major catastrophes may take even longer to
resolve. The reserve estimates for this product line are also potentially subject to material changes due to uncertainty in
measuring ultimate losses for significant catastrophes such as hurricanes, tornadoes, hail storms and wildfires.
The Company’s change in reserve estimate for this product line was -10% for 2021, -11% for 2020 and -6% for 2019. The
2021 change primarily reflected better than expected loss experience related to both catastrophe and non-catastrophe losses for
accident year 2020. The 2020 change primarily reflected better than expected loss experience related to both catastrophe and
non-catastrophe losses for accident year 2019 and the PG&E subrogation recovery for accident years 2017 and 2018. The 2019
change primarily reflected better than expected loss experience related to both catastrophe and non-catastrophe losses for
accident years 2016 through 2018.
Commercial Multi-Peril
Commercial multi-peril provides a combination of property and liability coverage typically for small businesses and, therefore,
includes both short and long tail coverages. For property coverage, it generally takes a relatively short period of time to close
claims, while for the other coverages, generally for the liability coverages, it takes a longer period of time to close claims.
The reserving risk for this line is dominated by the liability coverage portion of this product, except occasionally in the event of
catastrophic or other large single loss events. The reserving risk for this line differs from that of the general liability product line
and the property product line due to the nature of the customer. Commercial multi-peril is generally sold to small- to mid-sized
accounts, while the customer profile for general liability and commercial property includes larger customers.
See “Commercial property risk factors” and “General liability risk factors,” discussed above, with regard to reserving risk for
commercial multi-peril.
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for commercial multi-peril (excluding asbestos and environmental), a 1% increase (decrease) in
incremental paid loss development for each future calendar year could result in a 1.3% increase (decrease) in claims and claim
adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line, excluding estimated asbestos and environmental
amounts, over the last nine years has varied from -5% to 4% (averaging 1%) for the Company, and from -3% to 1% (averaging
-1%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the
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year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in
reserve estimates for this product line. Commercial multi-peril reserves (excluding asbestos and environmental reserves)
represent approximately 8% of the Company’s total claims and claim adjustment expense reserves.
As discussed above, this line combines general liability and commercial property coverages and it has been impacted in the past
by many of the same events as those two lines.
The Company’s change in reserve estimate for this product line related to the last nine accident years, which excludes the
impacts of increases in asbestos and environmental reserves and increases in reserves in the Company's runoff operations, was
0% for 2021, 0% for 2020 and 4% for 2019. In 2021, higher than expected loss experience for liability coverages for accident
years 2017 and 2018 was largely offset by better than expected loss experience for liability coverages for accident years 2012
through 2016. In 2020, higher than expected loss experience for liability coverages for accident year 2019 was largely offset by
the PG&E subrogation recovery for accident years 2017 and 2018. The 2019 change primarily reflected higher than expected
loss experience for liability coverages for accident years 2017 and 2018.
Commercial Automobile
The commercial automobile product line is a mix of property and liability coverages and, therefore, includes both short and
long tail coverages. The payments that are made quickly typically pertain to auto physical damage (property) claims and
property damage (liability) claims. The payments that take longer to finalize and are more difficult to estimate relate to bodily
injury claims. In general, claim reporting lags are generally short, claim complexity is not a major issue, and the line is viewed
as high frequency, low to moderate severity. Overall, the claim liabilities for this line create a moderate estimation risk.
Recently, the Company has seen more of an increase in the rate of attorney involvement than it had anticipated and a
lengthening of the claim development pattern. As a consequence, the Company has experienced a higher level of bodily injury
severity than it had anticipated.
Commercial automobile reserves are typically analyzed in four components: bodily injury liability; property damage liability;
collision claims; and comprehensive claims. These last two components have minimum reserve risk and fast payouts and,
accordingly, separate risk factors are not presented.
The Company utilizes the conventional actuarial methods mentioned in the general discussion above in estimating claim
liabilities for this line. This is supplemented with detailed custom analyses where needed.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required commercial
automobile reserves (beyond those included in the general discussion section) include:
Bodily injury and property damage liability risk factors
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Trends in jury awards
Changes in the underlying court system
Changes in case law
Litigation trends
Increases in attorney involvement in, or impact on, claims
Frequency of claims with payment capped by policy limits
Change in average severity of accidents, or proportion of severe accidents, including the impact of inflation
Changes in auto safety technology
Subrogation opportunities
Changes in claim handling philosophies
Frequency of visits to health providers
Number of medical procedures given during visits to health providers
Types of health providers used
Types of medical treatments received
Changes in cost of medical treatments
Degree of patient responsiveness to treatment
Commercial automobile book of business risk factors
•
Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
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•
Changes in mix of insured vehicles (e.g., long haul trucks versus local and smaller vehicles, fleet risks versus non-
fleets)
Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for commercial automobile, a 1% increase (decrease) in incremental paid loss development for
each future calendar year could result in a 1.3% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -2% to
11% (averaging 2%) for the Company, and from 2% to 7% (averaging 5%) for the industry overall. The Company’s year-to-
year changes are driven by, and are based on, observed events during the year. The Company believes that its range of
historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product
line.
Commercial automobile reserves represent approximately 9% of the Company’s total claims and claim adjustment expense
reserves.
The Company’s change in reserve estimate for this product line was -2% for 2021, 4% for 2020 and 7% for 2019. The 2021
change primarily reflected better than expected loss experience for liability and physical damage coverage for accident year
2020. The 2020 change primarily reflected higher than expected loss experience for liability coverages for accident year 2019.
The 2019 change primarily reflected higher than expected loss experience for liability coverages for accident years 2015
through 2018.
Workers’ Compensation
Workers’ compensation is generally considered a long tail coverage, as it takes a relatively long period of time to finalize
claims from a given accident year. While certain payments such as initial medical treatment or temporary wage replacement for
the injured worker are made quickly, some other payments are made over the course of several years, such as awards for
permanent partial injuries. In addition, some payments can run as long as the injured worker’s life, such as permanent disability
benefits and on-going medical care. Despite the possibility of long payment tails, the reporting lags are generally short,
payment obligations are generally not complex, and most of the liability can be considered high frequency with moderate
severity. The largest reserve risk generally comes from the low frequency, high severity claims providing lifetime coverage for
medical expense arising from a worker’s injury, as such claims are subject to greater inflation risk. Overall, the claim liabilities
for this line create a somewhat greater than moderate estimation risk.
Workers’ compensation reserves are typically analyzed in three components: indemnity losses, medical losses and claim
adjustment expenses.
Examples of common risk factors, or perceptions thereof,
that could change and,
compensation reserves (beyond those included in the general discussion section) include:
thus, affect
the required workers’
Indemnity risk factors
•
•
•
•
•
•
Time required to recover from the injury
Degree of available transitional jobs
Degree of legal involvement
Changes in the interpretations and processes of the administrative bodies that oversee workers’ compensation claims
Future wage inflation for states that index benefits
Changes in the administrative policies of second injury funds
Medical risk factors
•
•
•
•
•
•
•
•
•
•
Changes in the cost of medical treatments (including prescription drugs) and underlying fee schedules (“inflation”)
Availability of medical providers and medical wage impacts
Frequency of visits to health providers
Number of medical procedures given during visits to health providers
Types of health providers used
Type of medical treatments received
Use of preferred provider networks and other medical cost containment practices
Availability of new medical processes and equipment
Changes in the use of pharmaceutical drugs, including drugs for pain management
Degree of patient responsiveness to treatment
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•
• Mortality trends of injured workers with lifetime benefits and medical treatment
•
•
Changes in statutory benefits, including due to presumption laws
The impact, if any, of potential future changes to government health insurance legislation
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Workers’ compensation book of business risk factors
•
•
•
Product mix
Injury type mix
Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for workers’ compensation, a 1% increase (decrease) in incremental paid loss development for
each future calendar year could result in a 1.3% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -4% to 0%
(averaging -2%) for the Company, and from -5% to -1% (averaging -3%) for the industry overall. The Company’s year-to-year
changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical
outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Workers’
compensation reserves represent approximately 35% of the Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line was -3% for 2021, -3% for 2020 and -4% for 2019. The 2021
change primarily reflected better than expected loss experience for accident years 2020 and prior. The 2020 change primarily
reflected better than expected loss experience for accident years 2018 and prior. The 2019 change primarily reflected better than
expected loss experience for accident years 2018 and prior.
Fidelity and Surety
Fidelity is generally considered a short tail coverage. It takes a relatively short period of time to finalize and settle most fidelity
claims. The volatility of fidelity reserves is generally related to the type of business of the insured, the size and complexity of
the insured’s business operations, amount of policy limit and attachment point of coverage. The uncertainty surrounding
reserves for small, commercial insureds is typically less than the uncertainty for large commercial or financial institutions. The
high frequency, low severity nature of small commercial fidelity losses provides for stability in loss estimates, whereas the low
frequency, high severity nature of losses for large insureds results in a wider range of ultimate loss outcomes. Actuarial
techniques that rely on a stable pattern of loss development are generally not applicable to low frequency, high severity claims.
Surety has certain components that are generally considered short tail coverages with short reporting lags, although large
individual construction and commercial surety contracts can result in a long settlement tail, based on the length and complexity
of the construction project(s) or commercial transaction being bonded. The frequency of losses in surety generally has a lagging
correlation with economic cycles as the primary cause of surety loss is the inability of an insured to fulfill its contractual
obligations. The Company actively seeks to mitigate this exposure to loss through disciplined risk selection, adherence to
underwriting standards and ongoing monitoring of contractor progress in significant construction projects. The volatility of
surety losses is generally related to the type of business performed by the bonded party, the type of bonded obligation, the
amount of limit exposed to loss and the amount of assets available to the surety company to mitigate losses, such as unbilled
contract funds, collateral, first and third party indemnity, and other security positions of a bonded party's assets. Certain classes
of surety claims are very high severity, low frequency in nature. These can include large construction contractors involved with
one or multiple large, complex projects as well as certain large commercial surety exposures. Other claim factors affecting
reserve variability of surety include litigation related to amounts owed by the bonded party and due to the surety company (e.g.,
salvage and subrogation efforts), the results of financial restructuring of a bonded party and the availability and cost of
replacement contractors, labor and materials.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required fidelity and surety
reserves (beyond those included in the general discussion section) include:
Fidelity risk factors
•
•
•
•
Type of business of insured
Policy limit and attachment points
Third-party claims
Coverage litigation
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•
•
Complexity of claims
Growth in insureds’ operations
Surety risk factors
•
•
•
•
•
•
•
•
•
•
Economic trends, including the general level of construction activity
Concentration of reserves in a relatively few large claims
Type of business bonded
Type of obligation bonded
Cumulative limits of liability for the bonded party
Assets available to mitigate loss
Defective workmanship/latent defects
Financial strategy of the bonded party
Changes in statutory obligations
Geographic spread of business
Fidelity and Surety book of business risk factors
•
•
Changes in policy provisions (e.g., deductibles, limits, endorsements)
Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for fidelity and surety, a 1% increase (decrease) in incremental paid loss development for each
future calendar year could result in a 1.5% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -36% to
-10% (averaging -21%) for the Company, and from -17% to 0% (averaging -11%) for the industry overall. The Company’s
year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of
historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Fidelity
and surety reserves represent approximately 1% of the Company’s total claims and claim adjustment expense reserves.
In general, developments on single large claims (both adverse and favorable) are a primary source of changes in reserve
estimates for this product line.
The Company’s change in reserve estimate for this product line was -27% for 2021, -12% for 2020 and -11% for 2019. The
2021 change primarily reflected better than expected loss experience in the fidelity and surety product line for accident years
2015 through 2017 and 2020. The 2020 change primarily reflected better than expected loss experience in the fidelity and
surety product line for accident years 2015, 2018 and 2019. The 2019 change primarily reflected better than expected loss
experience in the fidelity and surety product line for accident year 2017.
Personal Automobile
Personal automobile includes both short and long tail coverages. The payments that are made quickly typically pertain to auto
physical damage (property) claims and property damage (liability) claims. The payments that take longer to finalize and are
more difficult to estimate relate to bodily injury claims. Reporting lags are relatively short and the claim settlement process for
personal automobile liability generally is the least complex of the liability products. It is generally viewed as a high frequency,
low to moderate severity product line. Overall, the claim liabilities for this line create a moderate estimation risk.
Personal automobile reserves are typically analyzed in five components: bodily injury liability, property damage liability, no-
fault losses, collision claims and comprehensive claims. These last two components have minimum reserve risk and fast
payouts and, accordingly, separate factors are not presented.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required personal automobile
reserves (beyond those included in the general reserve discussion section) include:
Bodily injury, property damage liability and no-fault risk factors
•
•
•
•
•
Trends in jury awards
Changes in the underlying court system and its philosophy
Changes in case law
Litigation trends
Increases in attorney involvement in, or impact on, claims
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•
•
•
•
•
•
•
•
•
•
•
•
•
Frequency of claims with payment capped by policy limits
Change in average severity of accidents, or proportion of severe accidents, including the impact of inflation
Changes in auto technology, including safety features
Frequency and severity of claims involving distracted drivers and pedestrians
Subrogation opportunities
Frequency of visits to health providers
Number of medical procedures given during visits to health providers
Types of health providers used
Types of medical treatments received
Changes in cost of medical treatments
Effectiveness of no-fault laws
Degree of patient responsiveness to treatment
Changes in claim handling philosophies
Personal automobile book of business risk factors
•
•
•
Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
Changes in underwriting standards
Changes in the use of permissible data for rating and underwriting
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for personal automobile, a 1% increase (decrease) in incremental paid loss development for each
future calendar year could result in a 1.1% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -4% to 3%
(averaging -1%) for the Company, and from -3% to 2% (averaging 0%) for the industry overall. The Company’s year-to-year
changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical
outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Personal automobile
reserves represent approximately 7% of the Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line was -4% for 2021, -2% for 2020 and -2% for 2019. The 2021
change primarily reflected better than expected loss experience for liability and physical damage coverages for accident years
2017 through 2020. The 2020 change primarily reflected better than expected loss experience for liability and physical damage
coverages for accident years 2016 through 2018. The 2019 change primarily reflected better than expected loss experience for
liability coverages in accident years 2016 through 2018.
Personal Homeowners and Other
Homeowners is generally considered a short tail coverage. Most payments are related to the property portion of the policy,
where the claim reporting and settlement process is generally restricted to the insured and the insurer. Claims on property
coverage are typically reported soon after the actual damage occurs, although delays of several months are not unusual. The
resulting settlement process is typically fairly short term, although exceptions do exist.
The liability portion of the homeowners policy generates claims which take longer to pay due to the involvement of litigation
and negotiation, but with generally small reporting lags. Personal Insurance Other products include personal umbrella policies,
among others. See “general liability reserving risk factors,” discussed above, for reserving risk factors related to umbrella
coverages.
Overall, the line is generally high frequency, low to moderate severity (except for catastrophes), with simple to moderate claim
complexity.
Homeowners reserves are typically analyzed in two components: non-catastrophe related losses and catastrophe losses.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required homeowners reserves
(beyond those included in the general discussion section) include:
Non-catastrophe risk factors
•
•
•
Salvage opportunities
Amount of time to return property to residential use
Changes in weather patterns
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•
•
•
•
•
•
•
Local building codes
Construction and building labor and material costs
Litigation trends
Trends in jury awards
Court interpretation of policy provisions (such as occurrence definition, or wind versus flooding)
Lags in reporting claims (e.g., winter damage to summer homes, hidden damage after an earthquake, hail damage to
roofs and/or equipment on roofs)
Court or legislative changes to the statute of limitations
Additional risk factors for catastrophes
•
•
•
•
•
•
Physical concentration of policyholders
Availability and cost of local contractors
Local building codes
Quality of construction of damaged homes
Amount of time to return property to residential use
For the more severe catastrophic events, “demand surge” inflation, which refers to significant short-term increases in
building material and labor costs due to a sharp increase in demand for those materials and services
Homeowners book of business risk factors
•
•
•
•
Policy provisions mix (e.g., deductibles, policy limits, endorsements, etc.)
Degree of concentration of policyholders
Changes in underwriting standards
Changes in the use of permissible data for rating and underwriting
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for personal homeowners and other, a 1% increase (decrease) in incremental paid loss
development for each future calendar year could result in a 1.1% increase (decrease) in claims and claim adjustment expense
reserves.
Historically, the one-year change in the reserve estimate for this product line (excluding Personal Insurance Other, which for
statutory reporting purposes is included with other lines of business) over the last nine years has varied from -28% to 3%
(averaging -10%) for the Company, and from -7% to 1% (averaging -3%) for the industry overall. The Company’s year-to-year
changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical
outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product
Personal
homeowners and other reserves represent approximately 4% of the Company’s total claims and claim adjustment expense
reserves.
line.
This line combines both liability and property coverages; however, the majority of the reserves relate to property. While
property is considered a short tail coverage, the one year change for property can be more volatile than that for the longer tail
product lines. This is due to the fact that the majority of the reserve for property relates to the most recent accident year, which
is subject to the most uncertainty for all product lines. This recent accident year uncertainty is relevant to property because
weather-related events in the second half of the year may not be completely resolved until the following year. Reserve
estimates associated with major catastrophes, including California wildfires in recent years, may take even longer to resolve.
The Company’s change in reserve estimate for this product line (excluding Personal Insurance Other) was -9% for 2021, -28%
for 2020 and -5% for 2019. The 2021 change primarily reflected better than expected loss experience for catastrophe and non-
catastrophe losses for accident years 2016 through 2018 and 2020. The 2020 change primarily reflected the PG&E subrogation
recovery for accident years 2017 and 2018, partially offset by higher than expected loss experience for catastrophe and non-
catastrophe losses for accident year 2019. The 2019 change primarily reflected better than expected loss experience for
catastrophe and non-catastrophe losses for accident years 2015, 2016 and 2018.
International and Other
International and other includes products written by the Company’s international operations, as well as all other products not
explicitly discussed above. The principal component of “other” claim reserves is assumed reinsurance written on an excess-of-
loss basis, which may include reinsurance of non-U.S. exposures, and is runoff business.
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International and other claim liabilities result from a mix of coverages, currencies and jurisdictions/countries. The common
characteristic is the need to customize the analysis to the individual component, and the inability to rely on data
characterizations and reporting requirements in the U.S. statutory reporting framework.
Due to changes in the business mix for this product line over time, incurred claim liabilities for more recent years are generally
shorter-tailed (due to both the products and the jurisdictions involved, e.g., Canada, the Republic of Ireland and the United
Kingdom), compared to the older liabilities from runoff operations that are extremely long tail (e.g., U.S. excess liabilities
reinsured through the London market, and several underwriting pools in runoff). The speed of claim reporting and claim
settlement is a function of the specific coverage provided, the jurisdiction, the distribution system (e.g., underwriting pool
versus direct) and the proximity of the insurance sale to the insured hazard (e.g., insured and insurer located in different
countries). In particular, liabilities arising from the underwriting pools in runoff may result in significant reporting lags,
settlement lags and claim complexity, due to the need to coordinate with other pool members or co-insurers through a broker or
lead-insurer for claim settlement purposes.
International reserves are generally analyzed by country and general coverage category (e.g., General Liability in Canada,
Commercial Property in the United Kingdom, etc.). The business is also generally split by direct versus assumed reinsurance
for a given coverage. Where the underlying insured hazard is outside the United States, the underlying coverages are generally
similar to those described under the Homeowners, Personal Automobile, Commercial Automobile, General Liability,
Commercial Property and Surety discussions above, taking into account differences in the legal environment and differences in
terms and conditions. However, statutory coverage differences exist amongst various jurisdictions. For example, in some
jurisdictions there are no aggregate policy limits on certain liability coverages.
Other reserves, primarily assumed reinsurance in runoff, are generally analyzed by program/pool, treaty type, and general
coverage category (e.g., General Liability — excess of loss reinsurance). Excess exposure requires the insured to “prove” not
only claims under the policy, but also the prior payment of claims reaching up to the excess policy’s attachment point.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required International and
other reserves (beyond those included in the general discussion section, and in the Personal Automobile, Homeowners, General
Liability, Commercial Property, Commercial Automobile and Surety discussions above) include:
International and other risk factors
•
•
•
•
•
•
•
•
•
•
•
•
Changes in claim handling procedures, including those of the primary carriers
Changes in policy provisions or court interpretation of such provision
Economic trends
New theories of liability
Trends in jury awards
Changes in the propensity to sue
Changes in statutes of limitations
Changes in the underlying court system
Distortions from losses resulting from large single accounts or single issues
Changes in tort law
Changes in claim adjuster office structure (causing distortions in the data)
Changes in foreign currency exchange rates
International and other book of business risk factors
•
•
•
Changes in policy provisions (e.g., deductibles, policy limits, endorsements, “claims-made” language)
Changes in underwriting standards
Product mix (e.g., size of account, industries insured, jurisdiction mix)
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk
factors could have on reserves for International and other (excluding asbestos and environmental), a 1% increase (decrease) in
incremental paid loss development for each future calendar year could result in a 1.3% increase (decrease) in claims and claim
adjustment expense reserves. International and other reserves (excluding asbestos and environmental) represent approximately
8% of the Company’s total claims and claim adjustment expense reserves.
International and other represents a combination of different product lines, some of which are in runoff. Comparative historical
information is not available for international product lines as insurers domiciled outside of the United States do not file U.S.
statutory reports. Comparative historical information on runoff business is not indicative of reasonably possible one-year
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changes in the reserve estimate for this mix of runoff business. Accordingly, the Company has not included comparative
analyses for International and other.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. The Company
evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its
exposure to significant losses from reinsurer insolvencies.
In addition, in the ordinary course of business, the Company
becomes involved in coverage disputes with its reinsurers. Some of these disputes could result in lawsuits and arbitrations
brought by or against the reinsurers to determine the Company’s rights and obligations under the various reinsurance
agreements. The Company employs dedicated specialists and comprehensive strategies to manage reinsurance collections and
disputes.
The Company has entered into a reinsurance contract in connection with catastrophe bonds issued by Long Point Re III. This
contract meets the requirements to be accounted for as reinsurance in accordance with guidance for accounting for reinsurance
contracts. The catastrophe bonds are described in more detail in “Item 1-Business-Catastrophe Reinsurance.”
Recoverables attributable to structured settlements relate primarily to personal injury claims, of which workers’ compensation
claims comprise a significant portion, for which the Company has purchased annuities and remains contingently liable in the
event of a default by the companies issuing the annuities. Recoverables attributable to mandatory pools and associations relate
primarily to workers’ compensation service business. These recoverables are supported by the participating insurance
companies’ obligation to pay a pro rata share based on each company’s voluntary market share of written premium in each state
in which it is a pool participant. In the event a member of a mandatory pool or association defaults on its share of the pool’s or
association’s obligations, the other members’ share of such obligation increases proportionally.
The Company reports its reinsurance recoverables net of an allowance for estimated uncollectible reinsurance. The allowance is
based upon the Company’s ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit
standing, disputes, applicable coverage defenses and other relevant factors. For structured settlements, the allowance is also
based upon the Company’s ongoing review of life insurers’ creditworthiness and estimated amounts of coverage that would be
available from state guaranty funds if a life insurer defaults. A probability-of-default methodology which reflects current and
forecasted economic conditions is used to estimate the amount of uncollectible reinsurance due to credit-related factors and the
estimate is reported in an allowance for estimated uncollectible reinsurance. The allowance also includes estimated
uncollectible amounts related to dispute risk with reinsurers. Amounts deemed to be uncollectible, including amounts due from
known insolvent reinsurers, are written off against the allowance. Changes in the allowance, as well as any subsequent
collections of amounts previously written off, are reported as part of claims and claim adjustment expenses. The Company
evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its
exposure to significant losses from reinsurer insolvencies.
Impairments
Investment Impairments
See note 1 of notes to the consolidated financial statements for a discussion of investment impairments.
Due to the subjective nature of the Company’s analysis and estimates of future cash flows, along with the judgment that must
be applied in the analysis, it is possible that the Company could reach a different conclusion whether or not to impair a security
if it had access to additional information about the issuer. Additionally, it is possible that the issuer's actual ability to meet
contractual obligations may be different than what the Company determined during its analysis, which may lead to a different
impairment conclusion in future periods.
Goodwill and Other Intangible Assets Impairments
See note 1 of notes to the consolidated financial statements for a discussion of impairments of goodwill and other intangible
assets.
OTHER UNCERTAINTIES
For a discussion of other risks and uncertainties that could impact the Company’s results of operations or financial position, see
note 17 of notes to the consolidated financial statements and “Item 1A—Risk Factors.”
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FORWARD-LOOKING STATEMENTS
This report 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
including the potential
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,
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;
catastrophe losses and modeling, including statements about probabilities or likelihood of exceedance;
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;
the impact of changing climate conditions;
strategic and operational initiatives to improve profitability and competitiveness;
the Company's competitive advantages and innovation agenda;
new product offerings; and
the impact of developments in the tort environment, such as increased attorney involvement in insurance claims.
impact on the Company's
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.
For a discussion of some of the factors that could cause actual results to differ, see “Item 1A-Risk Factors” and “Item 7-
Management's Discussion and Analysis of Financial Condition and Results of Operations.”
The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and the
Company undertakes no obligation to update its forward-looking statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates (inclusive of credit
spreads), foreign currency exchange rates and other relevant market rate or price changes. Market risk is directly influenced by
the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of the
Company's primary market risk exposures and how those exposures are managed as of December 31, 2021. The Company's
market risk sensitive instruments, including derivatives, are primarily entered into for purposes other than trading.
The carrying value of the Company's investment portfolio at December 31, 2021 and 2020 was $87.38 billion and $84.42
billion, respectively, of which 89% and 88% was invested in fixed maturity securities, respectively. At December 31, 2021 and
2020, approximately 6.8% and 6.6%, respectively, of the Company's invested assets were denominated in foreign currencies.
The Company's exposure to equity price risk is not significant. The Company has no direct commodity risk and is not a party to
any credit default swaps.
The primary market risks to the investment portfolio are interest rate risk and credit risk associated with investments in fixed
maturity securities. The portfolio duration is primarily managed through cash market transactions and treasury futures
transactions. For additional information regarding the Company’s investments, see notes 3 and 4 of notes to the consolidated
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financial statements as well as the “Investment Portfolio” and “Outlook” sections of “Item 7—Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
The primary market risk for all of the Company’s debt is interest rate risk at the time of refinancing. The Company monitors the
interest rate environment and evaluates refinancing opportunities as maturity dates approach. For additional information
regarding the Company’s debt, see note 9 of notes to the consolidated financial statements as well as the “Liquidity and Capital
Resources” section of “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The Company’s foreign exchange market risk exposure is concentrated in the Company’s invested assets, insurance reserves
and shareholders’ equity denominated in foreign currencies. Cash flows from the Company’s foreign operations are the primary
source of funds for the purchase of investments denominated in foreign currencies. The Company purchases these investments
primarily to fund insurance reserves and other liabilities denominated in the same currency, effectively reducing its foreign
Invested assets denominated in the Canadian dollar comprised approximately 4.2% of the
currency exchange rate exposure.
total invested assets at both December 31, 2021 and 2020. Invested assets denominated in the British Pound Sterling comprised
approximately 2.1% and 1.8% of total
invested assets at December 31, 2021 and 2020, respectively. Invested assets
denominated in other currencies at December 31, 2021 and 2020 were not material.
There were no other significant changes in the Company's primary market risk exposures or in how those exposures were
managed for the year ended December 31, 2021 compared to the year ended December 31, 2020. The Company does not
currently anticipate significant changes in its primary market risk exposures or in how those exposures are managed in future
reporting periods based upon what is known or expected to be in effect in future reporting periods.
SENSITIVITY ANALYSIS
Sensitivity analysis is defined as the measurement of potential loss in future earnings, fair values or cash flows of market
sensitive instruments resulting from one or more selected hypothetical changes in interest rates and other market rates or prices
over a selected period of time. In the Company’s sensitivity analysis model, a hypothetical change in market rates is selected
that is expected to reflect reasonably possible near-term changes in those rates. “Near-term” means a period of time going
forward up to one year from the date of the consolidated financial statements. Actual results may differ from the hypothetical
change in market rates assumed in this disclosure, especially since this sensitivity analysis does not reflect the results of any
actions that would be taken by the Company to mitigate such hypothetical losses in fair value.
Interest Rate Risk
In this sensitivity analysis model, the Company uses fair values to measure its potential loss. The sensitivity analysis model
includes the following financial instruments entered into for purposes other than trading: fixed maturities, non-redeemable
preferred stocks, mortgage loans, short-term securities and debt and derivative financial instruments. The primary market risk to
the Company's market sensitive instruments is interest rate risk (inclusive of credit spreads). The sensitivity analysis model uses
various basis point changes in interest rates to measure the hypothetical change in fair value of financial instruments included in
the model.
For invested assets with primary exposure to interest rate risk, estimates of portfolio duration and convexity are used to model
the loss of fair value that would be expected to result from a parallel increase in interest rates. Durations on invested assets are
adjusted for call, put and interest rate reset features. Durations on tax-exempt securities are adjusted for the fact that the yields
on such securities do not normally move in lockstep with changes in the U.S. Treasury curve. Fixed maturity portfolio durations
are calculated on a market value-weighted basis, including accrued interest, using holdings as of December 31, 2021 and 2020.
For debt, the change in fair value is determined by calculating hypothetical December 31, 2021 and 2020 ending prices based
on yields adjusted to reflect a 100 basis point change, comparing such hypothetical ending prices to actual ending prices, and
multiplying the difference by the par or securities outstanding.
The sensitivity analysis model used by the Company produces a loss in fair value of market sensitive instruments of
approximately $2.33 billion and $1.87 billion based on a 100 basis point increase in interest rates at December 31, 2021 and
2020, respectively.
The loss estimates do not take into account the impact of possible interventions that the Company might reasonably undertake
in order to mitigate or avoid losses that would result from emerging interest rate trends. In addition, the loss value only reflects
the impact of an interest rate increase on the fair value of the Company's financial instruments.
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Foreign Currency Exchange Rate Risk
The Company uses fair values of investment securities to measure its potential loss from foreign denominated investments. A
hypothetical 10% reduction in value of foreign denominated investments is used to estimate the impact on the market value of
the foreign denominated holdings. The Company's analysis indicates that a hypothetical 10% reduction in the value of foreign
denominated investments would be expected to produce a loss in fair value of approximately $596 million and $555 million at
December 31, 2021 and 2020, respectively.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Registered Public Accounting Firm (KPMG LLP, New York, NY, Auditor Firm ID: 185) ........
Consolidated Financial Statements:
Statement of Income for the years ended December 31, 2021, 2020 and 2019 ..........................................................
Statement of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019................................
Balance Sheet at December 31, 2021 and 2020 ..........................................................................................................
Statement of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019 .................
Statement of Cash Flows for the years ended December 31, 2021, 2020 and 2019 ...................................................
Notes to Consolidated Financial Statements ......................................................................................................................
Schedules:
Schedule II - Condensed Financial Information of Registrant (Parent Company Only) ............................................
Schedule III - Supplementary Insurance Information .................................................................................................
Schedule V - Valuation and Qualifying Accounts ......................................................................................................
Schedule VI - Supplementary Information Concerning Property-Casualty Insurance Operations ............................
Page
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
The Travelers Companies, Inc.:
Opinion on the Consolidated Financial Statements
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We have audited the accompanying consolidated balance sheet of The Travelers Companies, Inc. and subsidiaries (the
Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes
in shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2021, and the related
notes and financial statement schedules as listed in the accompanying index to consolidated financial statements and schedules
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and
its cash flows for each of the years in the three‑year period ended December 31, 2021, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 17, 2022 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the estimate of claims and claim adjustment expense reserves
As discussed in Notes 1 and 8 to the consolidated financial statements, the claims and claim adjustment expense reserves
represent the Company’s estimate of the ultimate liability for unpaid losses and loss adjustment expenses for claims that
have been reported and claims that have been incurred but not yet reported as of the balance sheet date. The Company's
claims and claim adjustment expense reserves balance at December 31, 2021 was $56.9 billion.
We identified the evaluation of the estimate of claims and claim adjustment expense reserves as a critical audit matter.
The process of evaluating the estimate of claims and claim adjustment expense reserves involves significant auditor
judgment due to the inherent uncertainty in the ultimate amounts and timing of claim payments, which may be affected
by a number of internal and external considerations, such as:
•
•
•
changes in claims handling procedures
economic inflation and changes in the tort environment
legislative changes, among others.
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Evaluating the impact of these considerations on the ultimate costs of claims and claim adjustment expenses requires
specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls over the Company’s reserving process for claims and
claim adjustment expense reserves. This included controls related to the actuarial analyses and the determination of the
Company’s estimate of the claims and claim adjustment expense reserves. We involved actuarial professionals with
specialized skills and knowledge who assisted in:
•
•
•
•
assessing the assumptions and methodologies underlying the Company’s claims and claim adjustment
expense reserve estimate
evaluating the Company’s estimates by performing independent analyses of claims and claim adjustment
expense reserves for certain lines of business
assessing the Company's internally prepared actuarial analyses in comparison to the Company's internal
experience and related industry trends for selected other lines of business
developing an overall range of reserve estimates and assessing the position of the Company’s recorded
reserve relative to the range.
/s/ KPMG LLP
KPMG LLP
We have served as the Company’s auditor since 1994.
New York, New York
February 17, 2022
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
For the year ended December 31,
Revenues
2021
2020
2019
Premiums ....................................................................................................... $
30,855
$
29,044
$
Net investment income ..................................................................................
Fee income .....................................................................................................
Net realized investment gains .......................................................................
Other revenues ...............................................................................................
3,033
402
171
355
Total revenues..........................................................................................
34,816
Claims and expenses
Claims and claim adjustment expenses..........................................................
Amortization of deferred acquisition costs ....................................................
General and administrative expenses.............................................................
Interest expense..............................................................................................
Total claims and expenses.......................................................................
Income before income taxes .....................................................................
Income tax expense........................................................................................
Net income.................................................................................................. $
Net income per share
Basic............................................................................................................ $
Diluted......................................................................................................... $
Weighted average number of common shares outstanding
Basic............................................................................................................
Diluted.........................................................................................................
20,298
5,043
4,677
340
30,358
4,458
796
3,662
14.63
14.49
248.5
250.8
$
$
$
2,227
429
2
279
31,981
19,123
4,773
4,509
339
28,744
3,237
540
2,697
10.56
10.52
253.5
254.6
$
$
$
28,272
2,468
459
113
269
31,581
19,133
4,601
4,365
344
28,443
3,138
516
2,622
10.01
9.92
260.0
262.3
The accompanying notes are an integral part of the consolidated financial statements.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
For the year ended December 31,
Net income .................................................................................................... $
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of
income .....................................................................................................
Having credit losses recognized in the consolidated statement of income .
Net changes in benefit plan assets and obligations........................................
Net changes in unrealized foreign currency translation.................................
Other comprehensive income (loss) before income taxes..................
Income tax expense (benefit) .........................................................................
Other comprehensive income (loss), net of taxes ...............................
Comprehensive income ........................................................................ $
2021
2020
2019
3,662
$
2,697
$
2,622
(2,115)
2,331
2,994
—
455
(11)
(1,671)
(362)
(1,309)
(9)
18
12
2,352
490
1,862
2,353
$
4,559
$
(4)
33
117
3,140
641
2,499
5,121
The accompanying notes are an integral part of the consolidated financial statements.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
At December 31,
Assets
Fixed maturities, available for sale, at fair value (amortized cost $74,751 and $68,830;
allowance for expected credit losses of $3 and $2) ................................................................... $
2021
2020
77,810
$
74,003
Equity securities, at fair value (cost $749 and $415) ................................................................
Real estate investments..............................................................................................................
Short-term securities..................................................................................................................
Other investments......................................................................................................................
Total investments ................................................................................................................
Cash ...........................................................................................................................................
Investment income accrued .......................................................................................................
Premiums receivable (net of allowance for expected credit losses
of $107 and $105)...................................................................................................................
Reinsurance recoverables (net of allowance for estimated uncollectible
reinsurance of $141 and $146) ...............................................................................................
Ceded unearned premiums ........................................................................................................
Deferred acquisition costs .........................................................................................................
Contractholder receivables (net of allowance for expected credit losses
of $21 and $19).........................................................................................................................
Goodwill ....................................................................................................................................
Other intangible assets...............................................................................................................
Other assets................................................................................................................................
893
979
3,836
3,857
87,375
761
615
8,085
8,452
902
2,542
3,890
4,008
306
3,530
$
$
Total assets........................................................................................................................... $
120,466
Liabilities
Claims and claim adjustment expense reserves......................................................................... $
Unearned premium reserves ......................................................................................................
Contractholder payables ............................................................................................................
Payables for reinsurance premiums...........................................................................................
Deferred taxes............................................................................................................................
Debt ...........................................................................................................................................
Other liabilities ..........................................................................................................................
Total liabilities .....................................................................................................................
Shareholders’ equity
Common stock (1,750.0 shares authorized; 241.2 and 252.4 shares
issued and outstanding)...........................................................................................................
Retained earnings ......................................................................................................................
Accumulated other comprehensive income...............................................................................
Treasury stock, at cost (541.5 and 527.3 shares).......................................................................
Total shareholders’ equity..................................................................................................
56,907
16,469
3,911
384
289
7,290
6,329
91,579
24,154
41,555
1,193
(38,015)
28,887
484
1,026
5,511
3,399
84,423
721
603
7,829
8,350
772
2,358
4,242
3,976
317
3,173
116,764
54,521
15,222
4,261
356
558
6,550
6,095
87,563
23,743
38,771
2,502
(35,815)
29,201
Total liabilities and shareholders’ equity.......................................................................... $
120,466
$
116,764
The accompanying notes are an integral part of the consolidated financial statements.
124
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(in millions)
For the year ended December 31,
Common stock
Balance, beginning of year ............................................................................ $
Employee share-based compensation ............................................................
Compensation amortization under share-based plans and other changes ......
Balance, end of year ...................................................................................
Retained earnings
Balance, beginning of year ............................................................................
Cumulative effect of adoption of updated accounting guidance
for credit losses at January 1, 2020...............................................................
Net income .....................................................................................................
Dividends .......................................................................................................
Other ..............................................................................................................
2021
2020
2019
23,743
$
23,469
$
23,144
247
164
24,154
38,771
—
3,662
(876)
(2)
123
151
23,743
.
36,977
(43)
2,697
(864)
4
180
145
23,469
35,204
—
2,622
(848)
(1)
Balance, end of year ...................................................................................
41,555
38,771
36,977
Accumulated other comprehensive income (loss), net of tax
Balance, beginning of year ............................................................................
Other comprehensive income (loss)...............................................................
Balance, end of year ...................................................................................
Treasury stock, at cost
Balance, beginning of year ............................................................................
Treasury stock acquired — share repurchase authorization ..........................
Net shares acquired related to employee share-based compensation plans ...
Balance, end of year ...................................................................................
Total shareholders’ equity .......................................................................... $
Common shares outstanding
Balance, beginning of year ............................................................................
Treasury stock acquired — share repurchase authorization ..........................
Net shares issued under employee share-based compensation plans.............
Balance, end of year ...................................................................................
2,502
(1,309)
1,193
(35,815)
(2,156)
(44)
(38,015)
640
1,862
2,502
(35,143)
(625)
(47)
(35,815)
28,887
$
29,201
$
252.4
(13.9)
2.7
241.2
255.5
(4.9)
1.8
252.4
(1,859)
2,499
640
(33,595)
(1,500)
(48)
(35,143)
25,943
263.6
(10.8)
2.7
255.5
The accompanying notes are an integral part of the consolidated financial statements.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the year ended December 31,
Cash flows from operating activities
2021
2020
2019
Net income ...................................................................................................................................
$
3,662
$
2,697
$
2,622
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Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains .............................................................................................
Depreciation and amortization............................................................................................
Deferred federal income tax expense (benefit)...................................................................
Amortization of deferred acquisition costs.........................................................................
Equity in income from other investments...........................................................................
Premiums receivable...........................................................................................................
Reinsurance recoverables....................................................................................................
Deferred acquisition costs...................................................................................................
Claims and claim adjustment expense reserves ..................................................................
Unearned premium reserves ...............................................................................................
Other ...................................................................................................................................
Net cash provided by operating activities .....................................................................
Cash flows from investing activities
Proceeds from maturities of fixed maturities...............................................................................
Proceeds from sales of investments:
Fixed maturities ........................................................................................................................
Equity securities .......................................................................................................................
Real estate investments.............................................................................................................
Other investments.....................................................................................................................
Purchases of investments:
(171)
870
62
5,043
(993)
(258)
(101)
(5,227)
2,388
1,249
750
7,274
8,852
3,165
102
31
427
(2)
789
(29)
4,773
(130)
94
(162)
(4,854)
2,622
592
129
6,519
7,387
3,057
116
—
276
(113)
763
(33)
4,601
(251)
(384)
157
(4,747)
1,047
1,008
535
5,205
6,845
2,187
165
—
434
Fixed maturities ........................................................................................................................
(18,153)
(14,073)
(10,711)
Equity securities .......................................................................................................................
Real estate investments.............................................................................................................
Other investments.....................................................................................................................
Net sales (purchases) of short-term securities .............................................................................
Securities transactions in the course of settlement ......................................................................
Acquisition, net of cash acquired.................................................................................................
Other ............................................................................................................................................
Net cash used in investing activities .............................................................................
Cash flows from financing activities
Treasury stock acquired — share repurchase authorization ........................................................
Treasury stock acquired — net employee share-based compensation.........................................
Dividends paid to shareholders....................................................................................................
Payment of debt ...........................................................................................................................
Issuance of debt............................................................................................................................
Issuance of common stock — employee share options ...............................................................
(407)
(28)
(520)
1,671
(19)
(38)
(279)
(5,196)
(2,156)
(44)
(869)
—
739
293
(127)
(113)
(472)
(566)
(47)
—
(330)
(4,892)
(625)
(47)
(861)
(500)
490
127
(100)
(107)
(491)
(957)
158
—
(325)
(2,902)
(1,500)
(48)
(844)
(500)
492
213
Net cash used in financing activities .............................................................................
(2,037)
(1,416)
(2,187)
Effect of exchange rate changes on cash .....................................................................................
Net increase in cash .....................................................................................................................
Cash at beginning of year ............................................................................................................
Cash at end of year ....................................................................................................................
Supplemental disclosure of cash flow information
Income taxes paid ........................................................................................................................
Interest paid..................................................................................................................................
$
$
$
(1)
40
721
761
707
337
$
$
$
16
227
494
721
578
339
$
$
$
5
121
373
494
428
338
The accompanying notes are an integral part of the consolidated financial statements.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the
Company). The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and claims and expenses during the reporting period. Actual results could differ from those estimates. All
material intercompany transactions and balances have been eliminated. Certain reclassifications have been made to the 2020
and 2019 financial statements to conform to the 2021 presentation.
Adoption of Accounting Standards
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board (FASB) issued updated guidance for the accounting for credit losses
for financial instruments. The updated guidance applies a new credit loss model (current expected credit losses or CECL) for
determining credit-related impairments for
(including reinsurance
recoverables and structured settlements that are recorded as part of reinsurance recoverables) and requires an entity to estimate
the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should
consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of
prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account
that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented
on the consolidated balance sheet at the amount expected to be collected.
instruments measured at amortized cost
financial
The updated guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities
by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of
credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security
has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.
The Company adopted the updated guidance for the quarter ended March 31, 2020. For available-for-sale debt securities, the
updated guidance was applied prospectively. For financial instruments measured at amortized cost, the updated guidance was
applied by a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2020, the beginning of
the period of adoption. The adoption of this guidance resulted in the recognition of an after-tax cumulative effect adjustment of
$43 million to reflect the impact of recognizing expected credit losses, as compared to incurred credit losses recognized under
the previous guidance. This adjustment is primarily associated with structured settlements that are recorded as part of
reinsurance recoverables. The cumulative effect adjustment decreased retained earnings as of January 1, 2020 and increased the
allowance for estimated uncollectible reinsurance.
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, FASB issued updated guidance for the accounting for income taxes. The updated guidance is intended to
simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other
existing guidance to simplify several other income tax accounting matters. The Company adopted the guidance for the quarter
ended March 31, 2021. The adoption of this guidance did not have a material effect on the Company's results of operations,
financial position or liquidity.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Management's Discussion and Analysis, Selected Financial Data and Supplementary Financial Information
In November 2020, the SEC issued Release No. 33-10890 to adopt amendments to modernize, simplify and enhance certain
financial disclosure requirements in Regulation S-K, including the elimination of the requirement to disclose five years of
selected financial data. The amendments in the release became effective February 10, 2021 with application of the amended
rules required for fiscal years ending on or after August 9, 2021. The Company applied the amended requirements beginning
with the year ended December 31, 2021 and no longer provides five years of selected quarterly financial data in the notes to
consolidated financial statements.
Accounting Policies
Investments
Fixed Maturities
Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities, including instruments subject to
securities lending agreements, are classified as available for sale and reported at fair value, with unrealized investment gains
and losses, net of income taxes, charged or credited directly to other comprehensive income.
Equity Securities
Equity securities, which include public and non-public common and non-redeemable preferred stocks, are reported at fair value
with changes in fair value recognized in net realized investment gains (losses).
Real Estate Investments
The Company’s real estate investments include warehouses, office buildings and other commercial land and properties that are
directly owned. Real estate is recorded on the purchase date at the purchase price, which generally represents fair value, and is
supported by internal analysis or external appraisals that use discounted cash flow analyses and other acceptable valuation
techniques. Real estate held for investment purposes is subsequently carried at cost less accumulated depreciation.
Buildings are depreciated on a straight-line basis over the shorter of the expected useful life of the building or 39 years. Real
estate held for sale is carried at lower of cost or fair value, less estimated costs to sell.
Short-term Securities
Short-term securities have an original maturity of less than one year and are carried at amortized cost, which approximates fair
value.
Other Investments
Investments in Private Equity Limited Partnerships, Hedge Funds and Real Estate Partnerships
The Company uses the equity method of accounting for investments in private equity limited partnerships, hedge funds and real
estate partnerships. The partnerships and the hedge funds generally report investments on their balance sheet at fair value. The
financial statements prepared by the investee are received by the Company on a lag basis, with the lag period generally
dependent upon the type of underlying investments. The private equity and real estate partnerships provide financial
information quarterly which is generally available to investors, including the Company, within three months following the date
of the reporting period. The hedge funds provide financial information monthly, which is generally available to investors
within one month following the date of the reporting period. The Company regularly requests financial information from the
partnerships prior to the receipt of the partnerships’ financial statements and records any material information obtained from
these requests in its consolidated financial statements.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other
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Derivatives are also included in other investments. The Company’s derivative financial instruments are carried at fair value,
with the changes in fair value reflected in the consolidated statement of income in net realized investment gains (losses). For a
further discussion of the derivatives used by the Company, see note 3.
Net Investment Income
Investment income from fixed maturities is recognized based on the constant effective yield method which includes an
adjustment for estimated principal pre-payments, if any. The effective yield used to determine amortization for fixed maturities
subject to prepayment risk (e.g., asset-backed, loan-backed and structured securities) is recalculated and adjusted periodically
based upon actual historical and/or projected future cash flows, which are obtained from a widely-accepted securities data
provider. The adjustments to the yield for highly rated prepayable fixed maturities are accounted for using the retrospective
method. The adjustments to the yield for non-highly rated prepayable fixed maturities are accounted for using the prospective
method. Dividends on equity securities (including those with transfer restrictions) are recognized in income when declared.
Rental income on real estate is recognized on a straight-line basis over the lease term. See the section titled: Real Estate in note
3 for further discussion.
Investments in private equity limited partnerships, hedge funds, real estate partnerships and joint
ventures are accounted for using the equity method of accounting, whereby the Company’s share of the investee’s earnings or
losses in the fund is reported in net investment income.
Accrual of income is suspended on non-securitized fixed maturities that are in default, or on which it is likely that future
Interest income on investments in default is recognized only when payments are
payments will not be made as scheduled.
received. Investments included in the consolidated balance sheet that were not income-producing for the preceding 12 months
were not material.
Net Realized Investment Gains and Losses
Net realized investment gains and losses include net realized gains (losses) from the sale of investments, credit impairment
losses on investment assets, changes in the fair value of equity securities, foreign currency transaction gains and losses and
changes in the fair value of derivative financial instruments. Net realized investment gains (losses) on the sale of investments
are included as a component of pre-tax revenues based upon specific identification of the investments sold on the trade date.
Investment Impairments
The Company conducts a periodic review to identify and evaluate invested assets that may have credit impairments.
Credit Impairments Related to Fixed Maturity Investments
Some of the factors considered in assessing impairment of fixed maturity investments due to credit-related factors include: (1)
the extent to which the fair value has been less than amortized cost; (2) the financial condition, near-term and long-term
prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and
offering prices; (3) the likelihood of the recoverability of principal and interest; and (4) whether it is more likely than not that
the Company will be required to sell the investment prior to an anticipated recovery in value.
Beginning on January 1, 2020, credit losses are recognized through an allowance account. See note 1 - Adoption of Accounting
Standards - Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments for additional
information.
For fixed maturity investments that the Company does not intend to sell or for which it is more likely than not that the
Company would not be required to sell before an anticipated recovery in value, the Company separates the credit loss
component of the impairment from the amount related to all other factors and reports the credit loss component in net realized
investment gains (losses). The impairment related to all other factors (non-credit factors) is reported in other comprehensive
income. The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss,
the cost basis is not adjusted.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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For fixed maturity investments where the Company records a credit loss, a determination is made as to the cause of the
impairment and whether the Company expects a recovery in the value. For fixed maturity investments where the Company
expects a recovery in value, the constant effective yield method is utilized, and the investment is amortized to par.
For fixed maturity investments the Company intends to sell or for which it is more likely than not that the Company will be
required to sell before an anticipated recovery in value, the full amount of the impairment is included in net realized investment
gains (losses). The new cost basis of the investment is the previous amortized cost basis less the impairment recognized in net
realized investment gains (losses). The new cost basis is not adjusted for any subsequent recoveries in fair value.
The Company reports investment income accrued separately from fixed maturity investments, available for sale, and has elected
not to measure an allowance for credit losses for investment income accrued. Investment income accrued is written off through
net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payments.
Uncollectible available-for-sale debt securities are written-off when the Company determines that no additional payments of
principal or interest will be received.
Determination of Credit Loss — Fixed Maturities
The Company determines the credit loss component of fixed maturity investments by utilizing discounted cash flow modeling
to determine the present value of the security and comparing the present value with the amortized cost of the security. If the
amortized cost is greater than the present value of the expected cash flows, the difference is considered a credit loss and
recognized as an impairment loss in net realized investment gains (losses).
For non-structured fixed maturities (U.S. Treasury securities, obligations of U.S. government and government agencies and
authorities, obligations of states, municipalities and political subdivisions, debt securities issued by foreign governments and
certain corporate debt), the estimate of expected cash flows is determined by projecting a recovery value and a recovery time
frame and assessing whether further principal and interest will be received. The determination of recovery value incorporates
an issuer valuation assumption utilizing one or a combination of valuation methods as deemed appropriate by the Company.
The Company determines the undiscounted recovery value by allocating the estimated value of the issuer to the Company’s
assessment of the priority of claims. The present value of the cash flows is determined by applying the effective yield of the
security at the date of acquisition (or the most recent implied rate used to accrete the security if the implied rate has changed as
a result of a previous impairment) and an estimated recovery time frame. Generally, that time frame for securities for which the
issuer is in bankruptcy is 12 months. For securities for which the issuer is financially troubled but not in bankruptcy, that time
frame is generally 24 months. Included in the present value calculation are expected principal and interest payments; however,
for securities for which the issuer is classified as bankrupt or in default, the present value calculation assumes no interest
payments and a single recovery amount.
In estimating the recovery value, significant judgment is involved in the development of assumptions relating to a myriad of
factors related to the issuer including, but not limited to, revenue, margin and earnings projections, the likely market or
liquidation values of assets, potential additional debt to be incurred pre- or post-bankruptcy/restructuring, the ability to shift
existing or new debt to different priority layers, the amount of restructuring/bankruptcy expenses, the size and priority of
unfunded pension obligations, litigation or other contingent claims, the treatment of intercompany claims and the likely
outcome with respect to inter-creditor conflicts.
For structured fixed maturity securities (primarily residential and commercial mortgage-backed securities and asset-backed
securities), the Company estimates the present value of the security by projecting future cash flows of the assets underlying the
securitization, allocating the flows to the various tranches based on the structure of the securitization and determining the
present value of the cash flows using the effective yield of the security at the date of acquisition (or the most recent implied rate
used to accrete the security if the implied rate has changed as a result of a previous impairment or changes in expected cash
flows). The Company incorporates levels of delinquencies, defaults and severities as well as credit attributes of the remaining
assets in the securitization, along with other economic data, to arrive at its estimate of the parameters applied to the assets
underlying the securitization.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate Investments
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On at least an annual basis, the Company obtains independent appraisals for substantially all of its real estate investments. In
addition, the carrying value of all real estate investments is reviewed for impairment on a quarterly basis or when events or
changes in circumstances indicate that the carrying amount may not be recoverable. The review for impairment considers the
valuation from the independent appraisal, when applicable, and incorporates an estimate of the undiscounted cash flows
expected to result from the use and eventual disposition of the real estate property. An impairment loss is recognized if the
expected future undiscounted cash flows are less than the carrying value of the real estate property. The impairment loss is the
amount by which the carrying amount exceeds fair value.
Other Investments
The Company reviews its investments in private equity limited partnerships, hedge funds and real estate partnerships for
impairment no less frequently than quarterly and monitors the performance throughout the year through discussions with the
managers/general partners.
If the Company becomes aware of an impairment of a partnership’s investments at the balance
sheet date prior to receiving the partnership’s financial statements, it will recognize an impairment by recording a reduction in
the carrying value of the partnership with a corresponding charge to net investment income.
Changes in Intent to Sell Temporarily Impaired Assets
The Company may, from time to time, sell invested assets subsequent to the balance sheet date that it did not intend to sell at
the balance sheet date. Conversely, the Company may not sell invested assets that it asserted that it intended to sell at the
balance sheet date. Such changes in intent are due to events occurring subsequent to the balance sheet date. The types of
events that may result in a change in intent include, but are not limited to, significant changes in the economic facts and
circumstances related to the invested asset (e.g., a downgrade or upgrade from a rating agency), significant unforeseen changes
in liquidity needs, or changes in tax laws or the regulatory environment.
Securities Lending
The Company has, from time to time, engaged in securities lending activities from which it generates net investment income by
lending certain of its investments to other institutions for short periods of time. Borrowers of these securities provide collateral
equal to at least 102% of the market value of the loaned securities plus accrued interest. This collateral is held by a third-party
custodian, and the Company has the right to access the collateral only in the event that the institution borrowing the Company’s
securities is in default under the lending agreement (i.e., the Company is not permitted to re-pledge or sell any such collateral).
Therefore, the Company does not recognize the receipt of the collateral held by the third-party custodian or the obligation to
return the collateral. The loaned securities remain a recorded asset of the Company. The Company accepts only cash as
collateral for securities on loan and restricts the manner in which that cash is invested.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. Included in
reinsurance recoverables are amounts related to certain structured settlements. The Company reports its reinsurance
recoverables net of an allowance for amounts that are estimated to be uncollectible. The allowance is based upon the
Company’s ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, disputes,
applicable coverage defenses and other relevant factors. For structured settlements, the allowance is also based upon the
Company’s ongoing review of life insurers’ creditworthiness and estimated amounts of coverage that would be available from
state guaranty funds if a life insurer defaults. A probability-of-default methodology which reflects current and forecasted
economic conditions is used to estimate the amount of uncollectible reinsurance due to credit-related factors and the estimate is
reported in an allowance for estimated uncollectible reinsurance. The allowance also includes estimated uncollectible amounts
related to dispute risk with reinsurers. Amounts deemed to be uncollectible, including amounts due from known insolvent
reinsurers, are written off against the allowance. Changes in the allowance, as well as any subsequent collections of amounts
previously written off, are reported as part of claims and claim adjustment expenses. The Company evaluates and monitors the
financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure to significant losses
from reinsurer insolvencies.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Acquisition Costs
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Incremental direct costs of acquired, new and renewal insurance contracts, consisting of commissions (other than contingent
commissions) and premium-related taxes, are capitalized and charged to expense pro rata over the contract periods in which the
related premiums are earned. Deferred acquisition costs are reviewed to determine if they are recoverable from future income
and, if not, are charged to expense. Future investment income attributable to related premiums is taken into account in
measuring the recoverability of the carrying value of this asset. All other acquisition expenses are charged to operations as
incurred.
Contractholder Receivables and Payables
Under certain workers’ compensation insurance contracts with deductible features, the Company is obligated to pay the
claimant for the full amount of the claim. The Company is subsequently reimbursed by the policyholder for the deductible
amount. These amounts are included on a gross basis in the consolidated balance sheet in both contractholder payables and
contractholder receivables. Contractholder receivables are reported net of an allowance for expected credit losses. The
allowance is based upon the Company’s ongoing review of amounts outstanding, changes in policyholder credit standing, and
other relevant factors. A probability-of-default methodology, which reflects current and forecasted economic conditions, is
used to estimate the allowance for expected credit losses.
Goodwill and Other Intangible Assets
The Company performs a review, on at least an annual basis, of goodwill held by the reporting units which are the Company’s
three operating and reportable segments: Business Insurance; Bond & Specialty Insurance; and Personal Insurance. The
Company estimates the fair value of its reporting units and compares it to their carrying value, including goodwill.
If the
carrying values of the reporting units were to exceed their fair value, the amount of the impairment would be calculated and
goodwill adjusted accordingly.
The Company uses a discounted cash flow model to estimate the fair value of its reporting units. The discounted cash flow
model is an income approach to valuation that is based on a detailed cash flow analysis for deriving a current fair value of
reporting units and is representative of the Company’s reporting units’ current and expected future financial performance. The
discount rate assumptions reflect the Company’s assessment of the risks inherent in the projected future cash flows and the
Company’s weighted-average cost of capital, and are compared against available market data for reasonableness.
Other indefinite-lived intangible assets held by the Company are also reviewed for impairment on at least an annual basis. The
classification of the asset as indefinite-lived is reassessed and an impairment is recognized if the carrying amount of the asset
exceeds its fair value.
Intangible assets that are deemed to have a finite useful life are amortized over their useful lives. The carrying amount of
intangible assets with a finite useful life is regularly reviewed for indicators of impairment in value. Impairment is recognized
only if the carrying amount of the intangible asset is not recoverable from its undiscounted cash flows and is measured as the
difference between the carrying amount and the fair value of the asset.
As a result of the reviews performed for the years ended December 31, 2021, 2020 and 2019, the Company determined that the
estimated fair value substantially exceeded the respective carrying value of its reporting units for those years and that goodwill
was not impaired. The Company also determined during its reviews for each year that its other indefinite-lived intangible assets
and finite-lived intangible assets were not impaired.
Internal-Use Software
In the ordinary course of business, the Company develops and purchases software as well as enters into arrangements to utilize
software as a service under cloud computing arrangements. These software costs and any costs related to the implementation
and set-up of the cloud computing arrangements are capitalized and reported within other assets in the consolidated balance
sheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Claims and Claim Adjustment Expense Reserves
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Claims and claim adjustment expense reserves represent management's estimate of the ultimate liability for unpaid losses and
loss adjustment expenses for claims that have been reported and claims that have been incurred but not yet reported (IBNR) as
of the balance sheet date. The reserves are adjusted regularly based upon experience. Included in the claims and claim
adjustment expense reserves in the consolidated balance sheet are reserves for long-term disability and annuity claim payments,
primarily arising from workers’ compensation insurance and workers’ compensation excess insurance policies, that are
discounted to the present value of estimated future payments.
The Company performs a continuing review of its claims and claim adjustment expense reserves, including its reserving
techniques and the impact of reinsurance. The reserves are also reviewed regularly by qualified actuaries employed by the
Company. Since the reserves are based on estimates, the ultimate liability may be more or less than such reserves. The effects
of changes in such estimated reserves are included in the results of operations in the period in which the estimates are changed.
Such changes in estimates could occur in a future period and may be material to the Company’s results of operations and
financial position in such period.
Other Liabilities
Included in other liabilities in the consolidated balance sheet is the Company’s estimate of its liability for guaranty fund and
other insurance-related assessments. The liability for expected state guaranty fund and other premium-based assessments is
recognized as the Company writes or becomes obligated to write or renew the premiums on which the assessments are expected
to be based. The liability for loss-based assessments is recognized as the related losses are incurred. At December 31, 2021 and
2020, the Company had a liability of $176 million and $178 million, respectively, for guaranty fund and other insurance-related
assessments and related recoverables of $8 million and $10 million, respectively. The liability for such assessments and the
related recoverables are not discounted for the time value of money. The loss-based assessments are expected to be paid over a
period ranging from one year to the life expectancy of certain workers’ compensation claimants and the recoveries are expected
to occur over the same period of time.
Also included in other liabilities is an accrual for policyholder dividends. Certain insurance contracts, primarily workers’
compensation, are participating whereby dividends are paid to policyholders in accordance with contract provisions. Net written
premiums for participating dividend policies were approximately 1% of total net written premiums for each of the years ended
December 31, 2021, 2020 and 2019. Policyholder dividends are accrued against earnings using best available estimates of
amounts to be paid. The liability accrued for policyholder dividends totaled $69 million at both December 31, 2021 and 2020.
Treasury Stock
The cost of common stock repurchased by the Company is reported as treasury stock and represents authorized and unissued
shares of the Company under the Minnesota Business Corporation Act.
Statutory Accounting Practices
The Company’s U.S. insurance subsidiaries, domiciled principally in the State of Connecticut, are required to prepare statutory
financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of the
states of domicile. Prescribed statutory accounting practices are those practices that are incorporated directly or by reference in
state laws, regulations, and general administrative rules applicable to all insurance enterprises domiciled in a particular state.
The State of Connecticut requires insurers domiciled in Connecticut to prepare their statutory financial statements in accordance
with National Association of Insurance Commissioners’ (NAIC) statutory accounting practices.
Permitted statutory accounting practices are those practices that differ either from state-prescribed statutory accounting
practices or NAIC statutory accounting practices.
The Company does not apply any statutory accounting practices that would be considered a prescribed or permitted statutory
accounting practice that differs from NAIC statutory accounting practices.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company’s non-U.S. insurance subsidiaries file financial statements prepared in accordance with the regulatory reporting
requirements of their respective local jurisdiction.
Premiums and Unearned Premium Reserves
Premiums are recognized as revenues pro rata over the policy period. Unearned premium reserves represent the unexpired
portion of policy premiums. Accrued retrospective premiums are included in premium balances receivable. Premium balances
receivable are reported net of an allowance for expected credit losses. The allowance is based upon the Company’s ongoing
review of amounts outstanding, historical loss data, including delinquencies and write-offs, current and forecasted economic
conditions and other relevant factors. Credit risk is partially mitigated by the Company’s ability to cancel the policy if the
policyholder does not pay the premium. However, the impact of extended payment terms and non-cancellation concessions
granted to customers as a result of COVID-19 and related economic conditions is also considered in the Company's evaluation
of the allowance.
Ceded premiums are charged to income over the applicable term of the various reinsurance contracts with third party reinsurers.
Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers and are reported as part of other
assets.
Fee Income
Fee income includes revenues from risk and claims management services provided to the Company’s insureds and third-party
non-insureds, as well as policy issuance and claims management services to workers' compensation residual market pools. Fee
income is earned over the policy period for the services provided to the Company’s insureds, and either over the contract period
or as the Company completes its service obligations for the services provided to third-party non-insureds.
Other Revenues
Other revenues include revenues from premium installment charges, which are recognized as collected, gains and losses on
dispositions of assets and redemption of debt, and other miscellaneous revenues, including gains recognized as a result of
settlements of reinsurance disputes and claim-related legal matters.
Other revenues also include revenues from noninsurance subsidiaries (other than fee income) for insurance-related services and
on-line insurance brokerage services and is recognized as the service is provided to the customer.
Income Taxes
The Company recognizes deferred income tax assets and liabilities for the expected future tax effects attributable to temporary
differences between the financial statement and tax return bases of assets and liabilities, based on enacted tax rates and other
provisions of the tax law. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in
income in the period in which such change is enacted. Deferred tax assets are reduced by a valuation allowance if it is more
likely than not that all or some portion of the deferred tax assets will not be realized.
Foreign Currency
The Company assigns functional currencies to its foreign operations, which are generally the currencies of the local operating
environment. Foreign currency amounts are remeasured to the functional currency, and the resulting foreign exchange gains or
losses are reported in net realized investment gains (losses). Functional currency amounts are then translated into U.S. dollars.
The foreign currency remeasurement and translation are calculated using current exchange rates for items reported in the
balance sheet and average exchange rates for items recorded in earnings. The change in unrealized foreign currency translation
gain or loss during the year, net of tax, is a component of other comprehensive income.
Foreign currency gains and losses related to the changes in fair value of available-for-sale fixed maturities are reported in other
comprehensive income. All other foreign currency transaction gains and losses are reported in earnings.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Share-Based Compensation
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The Company has an employee stock incentive compensation plan that permits grants of nonqualified stock options, incentive
stock options, stock appreciation rights, restricted stock, deferred stock, stock units, performance awards and other share-based
or share-denominated awards with respect to the Company’s common stock.
Compensation cost is measured based on the grant-date fair value of an award, utilizing the assumptions discussed in note 14.
Compensation cost is recognized for financial reporting purposes over the period in which the employee is required to provide
service in exchange for the award (generally the vesting period). In connection with certain share-based awards, participants
are entitled to receive dividends during the vesting period, either in cash or dividend equivalent shares, commensurate with the
dividends paid to common shareholders. Dividends and dividend equivalent shares on awards that are expected to vest are
recorded in retained earnings. Dividends paid on awards that are not expected to vest as part of the Company’s forfeiture
estimate are recorded as compensation expense.
Nature of Operations
Business Insurance
Business Insurance offers a broad array of property and casualty insurance products and services to its customers, primarily in
the United States, as well as in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world as
a corporate member of Lloyd’s. Business Insurance is organized as follows:
Domestic
•
Select Accounts provides small businesses with property and casualty insurance products and services, including
commercial multi-peril, workers’ compensation, commercial automobile, general liability and commercial property.
• Middle Market provides mid-sized businesses with property and casualty insurance products and services, including
workers’ compensation, general liability, commercial multi-peril, commercial automobile and commercial property, as
well as risk management, claims handling and other services. Middle Market generally provides these products to
mid-sized businesses through Commercial Accounts, as well as to targeted industries through Construction,
Technology, Public Sector Services and Oil & Gas, and additionally, provides mono-line umbrella and excess
coverage insurance through Excess Casualty. Middle Market also provides insurance for goods in transit and movable
objects, as well as builders’ risk insurance, through Inland Marine; insurance for the marine transportation industry
through Ocean Marine; and
and related services, as well as other businesses involved in international
comprehensive breakdown for equipment, including property and business interruption, through Boiler & Machinery.
trade,
•
•
National Accounts provides large companies with casualty insurance products and services, including workers’
compensation, commercial automobile and general liability, generally utilizing loss-sensitive products, on both a
bundled and unbundled basis, as well as risk management, claims administration and other insurance-related services.
National Accounts also includes the Company’s commercial residual market business, which primarily offers workers’
compensation claims, policy management and other administrative services related to the involuntary market.
National Property and Other provides traditional and customized commercial property insurance programs to large
and mid-sized customers through National Property. National Property and Other also provides insurance coverage
for the commercial
trucking industry through Northland Transportation, and serves small- to medium-sized
agricultural businesses, including farms, ranches and other agricultural-related operations through Agribusiness.
National Property and Other also includes commercial property and general liability policies for small, difficult to
place specialty classes of commercial business primarily on an excess and surplus lines basis through Northfield, and
also offers tailored property and casualty insurance programs on an admitted basis for customers with common risk
characteristics or coverage requirements through National Programs.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
International
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•
International, through its operations in Canada, the United Kingdom and the Republic of Ireland, provides property
and casualty insurance and risk management services to several customer groups, including, among others, those in the
International also provides insurance for both the
technology, manufacturing and public services industry sectors.
foreign exposures of United States organizations and the United States exposures of foreign organizations through
Global Services. At
its Lloyd’s syndicate (Syndicate 5000), for which the Company provides 100% of the
capital, International underwrites six principal businesses — international marine, retail marine, global property,
construction & special risks, energy and aviation.
Business Insurance also includes Simply Business, a leading provider of small business insurance policies primarily in the
United Kingdom, and Business Insurance Other, which primarily comprises the Company’s asbestos and environmental
liabilities, and the assumed reinsurance and certain other runoff operations.
Bond & Specialty Insurance
Bond & Specialty Insurance offers surety, fidelity, management liability, professional liability, and other property and casualty
coverages and related risk management services to its customers, primarily in the United States, and certain specialty insurance
products in Canada, the United Kingdom, the Republic of Ireland and Brazil (through a joint venture, as described below), in
each case utilizing various degrees of financially-based underwriting approaches.
The range of coverages includes
performance, payment and commercial surety bonds for construction and general commercial enterprises; management liability
coverages including directors’ and officers’ liability, employment practices liability, fidelity liability, fiduciary liability and
cyber risk for public corporations, private companies, not-for-profit organizations and financial institutions; professional
liability coverage for a variety of professionals including, among others, lawyers and design professionals; in the United States
only, property, workers’ compensation, auto and general liability for financial institutions; and transactional liability coverages
to public and private companies.
Bond & Specialty Insurance surety business in Brazil and Colombia is conducted through Junto Holding Brasil S.A. (Junto) and
Junto Holding Latam S.A. in Brazil. The Company owns 49.5% of both Junto, a market leader in surety coverages in Brazil,
and Junto Holding Latam S.A., which owns a majority interest in JMalucelli Travelers Seguros S.A., a Colombian surety
provider. These joint venture investments are accounted for using the equity method and are included in “other investments” on
the consolidated balance sheet.
Personal Insurance
Personal Insurance offers a broad range of property and casualty insurance products and services covering individuals’ personal
risks, primarily in the United States, as well as in Canada. The primary products of automobile and homeowners insurance are
complemented by a broad suite of related coverages.
Automobile policies provide coverage for liability to others for both bodily injury and property damage, uninsured motorist
protection, and for physical damage to an insured’s own vehicle from collision, fire, flood, hail and theft.
In addition, many
states require policies to provide first-party personal injury protection, frequently referred to as no-fault coverage.
Homeowners and Other policies provide protection against losses to dwellings and contents from a variety of perils (excluding
flooding) as well as coverage for personal liability. The Company writes homeowners insurance for dwellings, condominiums
and tenants, and rental properties. The Company also writes coverage for boats and yachts, valuable personal items such as
jewelry, umbrella liability, and weddings and special events.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SEGMENT INFORMATION
The accounting policies used to prepare the segment reporting data for the Company’s three reportable business segments are
the same as those described in the Summary of Significant Accounting Policies in note 1.
Except as described below for certain legal entities, the Company allocates its invested assets and the related net investment
income to its reportable business segments. Pre-tax net investment income is allocated based upon an investable funds concept,
which takes into account liabilities (net of non-invested assets) and appropriate capital considerations for each segment. For
investable funds, a benchmark investment yield is developed that reflects the estimated duration of the loss reserves’ future cash
flows, the interest rate environment at the time the losses were incurred and A+ rated corporate debt instrument yields. For
capital, a benchmark investment yield is developed that reflects the average yield on the total investment portfolio. The
benchmark investment yields are applied to each segment’s investable funds and capital, respectively, to produce a total
notional investment income by segment. The Company’s actual net investment income is allocated to each segment in
proportion to the respective segment’s notional investment income to total notional investment income. There are certain legal
entities within the Company that are dedicated to specific reportable business segments. The invested assets and related net
investment income from these legal entities are reported in the applicable business segment and are not allocated among the
other business segments.
The cost of the Company’s catastrophe treaty program is included in the Company’s ceded premiums and is allocated among
reportable business segments based on an estimate of actual market reinsurance pricing using expected losses calculated by the
Company’s catastrophe model, adjusted for any experience adjustments.
The following tables summarize the components of the Company’s revenues, income, net written premiums and total assets by
reportable business segments.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SEGMENT INFORMATION (Continued)
(for the year ended December 31, in millions)
2021
Premiums ............................................................................ $
Net investment income .......................................................
Fee income..........................................................................
Other revenues....................................................................
Total segment revenues (1)................................................ $
Amortization and depreciation ........................................... $
Income tax expense ............................................................
Segment income (1) .............................................................
2020
Premiums ............................................................................ $
Net investment income .......................................................
Fee income..........................................................................
Other revenues....................................................................
Total segment revenues (1)................................................ $
Amortization and depreciation ........................................... $
Income tax expense ............................................................
Segment income (1) .............................................................
2019
Premiums ............................................................................ $
Net investment income .......................................................
Fee income..........................................................................
Other revenues....................................................................
Total segment revenues (1)................................................ $
Amortization and depreciation ........................................... $
Income tax expense ...........................................................
Segment income (1) .............................................................
_________________________________________
Business
Insurance
Bond &
Specialty
Insurance
Personal
Insurance
Total
Reportable
Segments
15,734
$
3,138
$
11,983
$
30,855
2,265
375
235
18,609
3,180
499
2,385
$
$
247
—
23
3,408
643
165
668
$
$
521
27
97
12,628
2,084
179
760
$
$
15,294
$
2,823
$
10,927
$
1,633
405
176
17,508
3,069
213
1,309
$
$
213
—
27
3,063
579
107
473
$
$
381
24
76
11,408
1,908
308
1,195
$
$
3,033
402
355
34,645
5,907
843
3,813
29,044
2,227
429
279
31,979
5,556
628
2,977
15,300
$
2,565
$
10,407
$
28,272
1,816
437
155
17,708
3,037
223
1,392
$
$
233
—
26
2,824
533
151
618
$
$
419
22
87
10,935
1,787
195
824
$
$
2,468
459
268
31,467
5,357
569
2,834
(1)
Segment revenues for reportable business segments exclude net realized investment gains (losses) and revenues included in "interest
expense and other." Segment income for reportable business segments equals net income excluding the after-tax impact of net
realized investment gains (losses) and income (loss) from "interest expense and other."
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SEGMENT INFORMATION (Continued)
Net written premiums by market were as follows:
(for the year ended December 31, in millions)
Business Insurance:
Domestic:
Select Accounts....................................................................................... $
Middle Market.........................................................................................
National Accounts...................................................................................
National Property and Other ...................................................................
Total Domestic ...................................................................................
International.................................................................................................
Total Business Insurance....................................................................
Bond & Specialty Insurance:
Domestic:
Management Liability .............................................................................
Surety ......................................................................................................
Total Domestic ...................................................................................
International.................................................................................................
Total Bond & Specialty Insurance .....................................................
Personal Insurance:
Domestic:
Automobile .........................................................................................
Homeowners and Other......................................................................
Total Domestic ...................................................................................
International.................................................................................................
Total Personal Insurance ....................................................................
Total consolidated net written premiums................................................ $
2021
2020
2019
2,833
$
2,821
$
8,933
987
2,265
15,018
1,074
16,092
1,983
888
2,871
505
3,376
5,827
5,980
11,807
684
12,491
8,511
996
2,086
14,414
1,017
15,431
1,769
845
2,614
337
2,951
5,369
5,329
10,698
652
11,350
31,959
$
29,732
$
2,911
8,630
1,051
1,965
14,557
1,072
15,629
1,605
866
2,471
268
2,739
5,412
4,664
10,076
707
10,783
29,151
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SEGMENT INFORMATION (Continued)
Business Segment Reconciliations
(for the year ended December 31, in millions)
Revenue reconciliation
Earned premiums
Business Insurance:
Domestic:
Workers’ compensation..................................................................................
$
Commercial automobile .................................................................................
Commercial property......................................................................................
General liability ..............................................................................................
Commercial multi-peril ..................................................................................
Other ...............................................................................................................
Total Domestic ............................................................................................
International.........................................................................................................
Total Business Insurance.............................................................................
Bond & Specialty Insurance:
Domestic:
Fidelity and surety ..........................................................................................
General liability ..............................................................................................
Other ...............................................................................................................
Total Domestic ............................................................................................
International.........................................................................................................
Total Bond & Specialty Insurance...............................................................
Personal Insurance:
Domestic
Automobile .....................................................................................................
Homeowners and Other ..................................................................................
Total Domestic ............................................................................................
International.........................................................................................................
Total Personal Insurance .............................................................................
Total earned premiums ................................................................................
Net investment income ................................................................................................
Fee income...................................................................................................................
Other revenues.............................................................................................................
Total segment revenues ...............................................................................
Other revenues.............................................................................................................
Net realized investment gains......................................................................................
Total revenues...............................................................................................
Income reconciliation, net of tax
Total segment income..................................................................................................
Interest Expense and Other (1) .....................................................................................
Core income..................................................................................................
Net realized investment gains......................................................................................
Impact of changes in tax laws and/or tax rates (2) ........................................................
Net income....................................................................................................
$
$
$
______________________________________
2021
2020
2019
3,227
2,855
2,275
2,576
3,667
65
14,665
1,069
15,734
1,091
1,415
220
2,726
412
3,138
5,687
5,608
11,295
688
11,983
30,855
3,033
402
355
34,645
—
171
34,816
3,813
(291)
3,522
132
8
3,662
$
$
$
$
3,378
2,761
2,087
2,401
3,552
54
14,233
1,061
15,294
1,075
1,219
237
2,531
292
2,823
5,280
4,988
10,268
659
10,927
29,044
2,227
429
279
31,979
—
2
31,981
2,977
(291)
2,686
11
—
2,697
$
$
$
$
3,829
2,632
1,937
2,342
3,453
40
14,233
1,067
15,300
1,036
1,082
216
2,334
231
2,565
5,311
4,393
9,704
703
10,407
28,272
2,468
459
268
31,467
1
113
31,581
2,834
(297)
2,537
85
—
2,622
(1) The primary component of Interest Expense and Other was after-tax interest expense of $269 million, $268 million and $272 million in
2021, 2020 and 2019, respectively.
(2)
Impact is recognized in the accounting period in which the change is enacted.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SEGMENT INFORMATION (Continued)
(at December 31, in millions)
Asset reconciliation:
2021
2020
Business Insurance .................................................................................................................. $
Bond & Specialty Insurance....................................................................................................
Personal Insurance ..................................................................................................................
Total assets for reportable segments...................................................................................
Other assets (1) .........................................................................................................................
90,353
$
10,146
18,983
119,482
984
Total consolidated assets................................................................................................ $
120,466
$
88,422
9,420
18,328
116,170
594
116,764
___________________________________________
(1) The primary components of other assets at both December 31, 2021 and 2020, were accrued over-funded benefit plan assets related to
the Company's qualified domestic pension plan and other intangible assets.
Enterprise-Wide Disclosures
The Company does not have revenue from transactions with a single customer amounting to 10 percent or more of its revenues.
The following table presents revenues of the Company’s operations based on location:
(for the year ended December 31, in millions)
U.S.................................................................................................................. $
Non-U.S.:
Canada .........................................................................................................
Other Non-U.S.............................................................................................
Total Non-U.S.........................................................................................
Total revenues ......................................................................................... $
2021
2020
2019
32,596
$
30,123
$
29,638
1,351
869
2,220
1,278
580
1,858
34,816
$
31,981
$
1,371
572
1,943
31,581
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS
Fixed Maturities
The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:
(at December 31, 2021, in millions)
U.S. Treasury securities and obligations
of U.S. government and government
agencies and authorities....................... $
Obligations of states, municipalities and
political subdivisions:
Local general obligation .......................
Revenue ................................................
State general obligation ........................
Pre-refunded .........................................
Total obligations of states,
municipalities and political
subdivisions ..................................
Debt securities issued by foreign
governments ............................................
Mortgage-backed securities,
collateralized mortgage obligations
and pass-through securities..................
All other corporate bonds........................
Redeemable preferred stock ....................
Amortized
Cost
Allowance for
Expected Credit
Losses
Gross Unrealized
Gains
Losses
Fair
Value
3,574
$
— $
20
$
32
$
3,562
18,668
11,274
1,158
3,825
34,925
1,041
1,754
33,445
12
—
—
—
—
—
—
—
3
—
1,045
693
67
207
2,012
7
68
1,247
2
46
27
2
—
75
7
5
175
—
19,667
11,940
1,223
4,032
36,862
1,041
1,817
34,514
14
Total ................................................. $
74,751
$
3 $
3,356
$
294
$
77,810
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
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Amortized
Cost
Allowance for
Expected Credit
Losses
Gross Unrealized
Gains
Losses
Fair
Value
2,111
$
— $
38
$
— $
2,149
3. INVESTMENTS (Continued)
(at December 31, 2020, in millions)
U.S. Treasury securities and obligations
of U.S. government and government
agencies and authorities....................... $
Obligations of states, municipalities and
political subdivisions:
Local general obligation .......................
Revenue ................................................
State general obligation ........................
Pre-refunded .........................................
Total obligations of states,
municipalities and political
subdivisions ..................................
Debt securities issued by foreign
governments ............................................
Mortgage-backed securities,
collateralized mortgage obligations
and pass-through securities..................
All other corporate bonds........................
Redeemable preferred stock ....................
17,289
11,806
1,343
3,325
33,763
1,028
2,222
29,683
23
Total ................................................. $
68,830
$
—
—
—
—
—
—
—
2
—
2
1,370
909
101
219
2,599
26
139
2,382
2
$
5,186
$
2
—
—
—
2
—
—
9
—
11
18,657
12,715
1,444
3,544
36,360
1,054
2,361
32,054
25
$
74,003
The amortized cost and fair value of fixed maturities by contractual maturity follow. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.
(at December 31, 2021, in millions)
Due in one year or less............................................................................................................... $
Due after 1 year through 5 years................................................................................................
Due after 5 years through 10 years ............................................................................................
Due after 10 years ......................................................................................................................
Mortgage-backed securities, collateralized mortgage obligations
and pass-through securities ...................................................................................................
Total ........................................................................................................................................ $
74,751
$
Amortized
Cost
Fair
Value
4,592
$
18,081
25,645
24,679
72,997
1,754
4,635
18,833
26,401
26,124
75,993
1,817
77,810
Pre-refunded bonds of $4.03 billion and $3.54 billion at December 31, 2021 and 2020, respectively, were bonds for which
states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and
obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of
principal and interest due under the bonds.
The Company’s fixed maturity investment portfolio at December 31, 2021 and 2020 included $1.82 billion and $2.36 billion,
respectively, of residential mortgage-backed securities, which include pass-through securities and collateralized mortgage
obligations (CMOs). Included in the totals at December 31, 2021 and 2020 were $846 million and $1.24 billion, respectively,
of GNMA, FNMA, FHLMC (excluding FHA project loans) and Canadian government guaranteed residential mortgage-backed
pass-through securities classified as available for sale. Also included in those totals were residential CMOs classified as
available for sale with a fair value of $971 million and $1.12 billion at December 31, 2021 and 2020, respectively.
Approximately 47% and 65% of the Company’s CMO holdings at December 31, 2021 and 2020, respectively, were guaranteed
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3. INVESTMENTS (Continued)
by or fully collateralized by securities issued by GNMA, FNMA or FHLMC. The weighted average credit rating of the $511
million and $396 million of non-guaranteed CMO holdings at December 31, 2021 and 2020, respectively, was “Aaa/Aa1” and
“Aa1,” respectively. The weighted average credit rating of all of the above securities was "Aaa/Aa1” at both December 31,
2021 and 2020.
At December 31, 2021 and 2020, the Company held commercial mortgage-backed securities (CMBS, including FHA project
loans) of $1.30 billion and $1.42 billion, respectively, which are included in “All other corporate bonds” in the tables above. At
December 31, 2021 and 2020, approximately $207 million and $392 million of these securities, respectively, or the loans
backing such securities, contained guarantees by the U.S. government or a government-sponsored enterprise. The weighted
average credit rating of the $1.09 billion and $1.03 billion of non-guaranteed securities at December 31, 2021 and 2020,
respectively, was “Aaa” at both dates. The CMBS portfolio is supported by loans that are diversified across economic sectors
and geographical areas. The weighted average credit rating of the CMBS portfolio was “Aaa” at both December 31, 2021 and
2020.
At December 31, 2021 and 2020, the Company had $253 million and $139 million, respectively, of securities on loan as part of
a tri-party lending agreement.
Proceeds from sales of fixed maturities classified as available for sale were $3.17 billion, $3.06 billion and $2.19 billion in
2021, 2020 and 2019, respectively. Gross gains of $74 million, $70 million and $67 million and gross losses of $5 million, $3
million and $8 million were realized on those sales in 2021, 2020 and 2019, respectively.
institutions in certain states pursuant
At December 31, 2021 and 2020, the Company’s insurance subsidiaries had $4.32 billion and $4.45 billion, respectively, of
securities on deposit at financial
to the respective states’ insurance regulatory
requirements. Funds deposited with third parties to be used as collateral to secure various liabilities on behalf of insureds,
cedants and other creditors had a fair value of $58 million and $52 million at December 31, 2021 and 2020, respectively. Other
investments pledged as collateral securing outstanding letters of credit had a fair value of $1 million at both December 31, 2021
and 2020.
the Company utilizes Lloyd’s trust deposits, whereby owned securities with a fair value of
approximately $33 million and $119 million held by a wholly-owned subsidiary at December 31, 2021 and 2020, respectively,
and $34 million and $35 million held by TRV at December 31, 2021 and 2020, respectively, were pledged into Lloyd’s trust
accounts to provide a portion of the capital needed to support the Company’s obligations at Lloyd’s.
In addition,
Equity Securities
The cost and fair value of investments in equity securities were as follows:
(at December 31, 2021, in millions)
Common stock.................................................................... $
Non-redeemable preferred stock ........................................
Total ................................................................................. $
(at December 31, 2020, in millions)
Common stock.................................................................... $
Non-redeemable preferred stock ........................................
Cost
Total ................................................................................. $
Cost
Gross Gains
Gross Losses
Fair Value
694
55
749
356
59
415
$
$
$
$
137
11
148
Gross Gains
72
9
81
$
$
$
$
4
—
4
Gross Losses
12
—
12
$
$
$
$
827
66
893
Fair Value
416
68
484
The Company reclassified non-public common and preferred equities into equity securities on the consolidated balance sheet in
the fourth quarter of 2021. Previously, these equities were reported in other investments. The reclassification has been made to
the 2020 financial statements to conform to the 2021 presentation.
The Company recognized $78 million and $27 million of net gains on equity securities still held as of December 31, 2021 and
2020, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
Real Estate
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The Company’s real estate investments include warehouses, office buildings and other commercial land and properties that are
directly owned. The Company negotiates commercial leases with individual tenants through unrelated, licensed real estate
brokers. Negotiated terms and conditions include, among others, rental rates, length of lease period and improvements to the
premises to be provided by the landlord.
Proceeds from the sale of real estate investments were $31 million in 2021 and $0 million in both 2020 and 2019. Gains of
$8 million were realized on those sales in 2021. Accumulated depreciation on real estate held for investment purposes was
$497 million and $462 million at December 31, 2021 and 2020, respectively.
Future minimum rental income on operating leases relating to the Company’s real estate properties is expected to be $117
million, $93 million, $75 million, $51 million and $36 million for 2022, 2023, 2024, 2025 and 2026, respectively, and $67
million for 2027 and thereafter.
Short-term Securities
The Company’s short-term securities consist of Aaa-rated registered money market funds, U.S. Treasury securities, high-quality
commercial paper (primarily A1/P1) and high-quality corporate securities purchased within a year to their maturity with a
combined average of 29 days to maturity at December 31, 2021. The amortized cost of these securities, which totaled $3.84
billion and $5.51 billion at December 31, 2021 and 2020, respectively, approximated their fair value.
Other Investments
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, the impact of any volatility in global financial markets on net
investment income from these other investments is generally reflected in the Company's financial statements on a quarter lag
basis.
Variable Interest Entities
Entities which do not have sufficient equity at risk to allow the entity to finance its activities without additional financial
support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred
to as variable interest entities (VIE). A VIE is consolidated by the variable interest holder that is determined to have the
controlling financial interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that most
significantly impact the VIE’s economic performance and the obligation to absorb losses or right to receive benefits from the
VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity
subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s
operations and purpose and the Company’s relative exposure to the related risks of the VIE on the date it becomes initially
involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis.
The Company is a passive investor in limited partner equity interests issued by third party VIEs. These include certain of the
Company’s investments in private equity limited partnerships, hedge funds and real estate partnerships where the Company is
not related to the general partner. These investments are generally accounted for under the equity method and reported in the
Company’s consolidated balance sheet as other investments unless the Company is deemed the primary beneficiary. These
equity interests generally cannot be redeemed. Distributions from these investments are received by the Company as a result of
liquidation of the underlying investments of the funds and/or as income distribution. The Company’s maximum exposure to
loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated
balance sheet and any unfunded commitment. The Company considers an investment in a VIE in which it has a 20% or greater
equity interest as a significant VIE. Neither the Company’s carrying amounts nor the unfunded commitments related to these
significant VIE’s are material individually or in the aggregate.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
Unrealized Investment Losses
The following tables summarize, for all fixed maturities classified as available for sale in an unrealized loss position at
December 31, 2021 and 2020, the aggregate fair value and gross unrealized loss by length of time those securities have been
continuously in an unrealized loss position. The fair value amounts reported in the tables are estimates that are prepared using
the process described in note 4. The Company also relies upon estimates of several factors in its review and evaluation of
individual investments, using the process described in note 1, in determining whether a credit loss impairment exists.
Less than 12 months
12 months or longer
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
(at December 31, 2021, in millions)
Fixed maturities
U.S. Treasury securities and
obligations of U.S. government and
government agencies and
authorities......................................... $
Obligations of states, municipalities
and political subdivisions.................
Debt securities issued by foreign
governments.....................................
Mortgage-backed securities,
collateralized mortgage obligations
and pass-through securities..............
All other corporate bonds ....................
Total fixed maturities........................ $
14,495
$
2,438
$
32
$
5
$
— $
2,443
$
69
7
5
153
7
1
153
266
$
436
602
$
6
—
—
22
28
4,026
459
427
7,742
$
15,097
$
Less than 12 months
12 months or longer
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
(at December 31, 2020, in millions)
Fixed maturities
U.S. Treasury securities and
obligations of U.S. government and
government agencies and
authorities......................................... $
Obligations of states, municipalities
and political subdivisions.................
Debt securities issued by foreign
governments.....................................
Mortgage-backed securities,
collateralized mortgage obligations
and pass-through securities..............
All other corporate bonds ....................
Total fixed maturities........................ $
1,045
$
92
$
— $
— $
— $
92
$
2
—
—
6
8
$
—
—
1
97
98
$
—
—
—
3
3
245
7
21
778
$
1,143
$
3,873
452
426
7,306
245
7
20
681
32
75
7
5
175
294
—
2
—
—
9
11
At December 31, 2021, the Company had no fixed maturity investments reported at fair value for which fair value was less than
80% of amortized cost.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
Credit Impairment Charges
Credit impairment charges included in net realized investment gains in the consolidated statement of income were as follows:
(for the year ended December 31, in millions)
Fixed maturities
2021
2020
2019
U.S. Treasury securities and obligations of U.S. government and
government agencies and authorities ....................................................... $
— $
— $
Obligations of states, municipalities and political subdivisions..................
Debt securities issued by foreign governments ...........................................
Mortgage-backed securities, collateralized mortgage obligations and
pass-through securities.............................................................................
All other corporate bonds ............................................................................
Redeemable preferred stock ........................................................................
Total fixed maturities ..............................................................................
Other investments ........................................................................................
Total ........................................................................................................ $
—
—
—
2
—
2
—
2
$
—
—
—
15
—
15
40
55
$
—
—
—
—
4
—
4
—
4
Net realized investment gains in 2020 included $40 million of realized losses related to the other-than-temporary impairment of
the carrying value of an equity method investment included in other investments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
The following table presents changes in the allowance for expected credit losses on fixed maturities classified as available for
sale for the category of All Other Corporate Bonds (no other categories of fixed maturities currently have an allowance for
expected credit losses):
(in millions)
Fixed Maturities
All Other Corporate Bonds
At and For the
Twelve Months
Ended December
31, 2021
At and For the
Twelve Months
Ended December
31, 2020
Balance, beginning of period ................................................................................................... $
2 $
Additions for expected credit losses on securities where no credit losses were previously
recognized ............................................................................................................................
Additions (reductions) for expected credit losses on securities where credit losses were
previously recognized ..........................................................................................................
Reductions due to sales/defaults of credit-impaired securities ................................................
Reductions for impairments of securities which the Company intends to sell or more likely
than not will be required to sell (1)........................................................................................
Balance, end of period.............................................................................................................. $
_________________________________________________________
1
1
(1)
—
3 $
—
10
(6)
(2)
—
2
(1) Credit impairment charges recognized in net realized investment gains included $0 million and $13 million for the twelve months ended
December 31, 2021 and 2020, respectively, of credit losses on fixed maturity securities which the Company intends to sell. An
allowance for expected credit losses was not previously recorded for these securities.
Credit losses related to the fixed maturity portfolio for 2021 and 2020 represented less than 1% of the fixed maturity portfolio
on a pre-tax basis and less than 1% of shareholders' equity on an after-tax basis at both December 31, 2021 and 2020.
Concentrations and Credit Quality
Concentrations of credit risk arise from exposure to counterparties that are engaged in similar activities and have similar
economic characteristics that could cause their ability to meet contractual obligations to be similarly affected by changes in
economic or other conditions. The Company seeks to mitigate credit risk by actively monitoring the creditworthiness of
counterparties, obtaining collateral as deemed appropriate and applying controls that include credit approvals, limits of credit
exposure and other monitoring procedures.
At December 31, 2021 and 2020, other than U.S. Treasury securities and obligations of U.S. government and government
agencies and authorities, the Company was not exposed to any concentration of credit risk of a single issuer greater than 5% of
the Company’s shareholders’ equity.
Included in fixed maturities are below investment grade securities totaling $1.11 billion and $1.34 billion at December 31, 2021
and 2020, respectively. The Company defines its below investment grade securities as those securities rated below investment
grade by external rating agencies, or the equivalent by the Company when a public rating does not exist. Such securities
include below investment grade bonds that are publicly traded and certain other privately issued bonds that are classified as
below investment grade loans.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
Net Investment Income
(for the year ended December 31, in millions)
Gross investment income
Fixed maturities.............................................................................................. $
Equity securities .............................................................................................
Short-term securities ......................................................................................
Real estate investments ..................................................................................
Other investments...........................................................................................
Gross investment income ............................................................................
Investment expenses.......................................................................................
2021
2020
2019
1,989
$
2,011
$
2,070
19
7
59
999
3,073
40
15
44
48
146
2,264
37
Net investment income ................................................................................ $
3,033
$
2,227
$
Changes in net unrealized gains (losses) on investment securities that are included as a separate component of other
comprehensive income (loss) were as follows:
2021
2020
2019
(at and for the year ended December 31, in millions)
Changes in net unrealized investment gains (losses)
Fixed maturities.............................................................................................. $
Other investments...........................................................................................
Change in net pre-tax unrealized gains (losses) on investment securities...
Related tax expense (benefit) .........................................................................
Change in net unrealized gains (losses) on investment securities ...............
Balance, beginning of year.............................................................................
(2,113) $
2,322
$
(2)
(2,115)
(456)
(1,659)
4,074
—
2,322
494
1,828
2,246
Balance, end of year .................................................................................... $
2,415
$
4,074
$
15
105
55
263
2,508
40
2,468
2,990
—
2,990
631
2,359
(113)
2,246
Derivative Financial Instruments
From time to time, the Company enters into certain derivative financial instruments that are reported on the balance sheet at fair
value. The change in fair value of these investments is reported in net realized investment gains and losses.
The Company uses U.S. Treasury note futures contracts to modify the effective duration of specific assets within the investment
portfolio. The U.S. Treasury futures contracts require a daily mark-to-market and are settled daily with the broker. At
December 31, 2021 and 2020, the Company had no open U.S. Treasury futures contracts. Net realized investment gains and
losses related to U.S. Treasury futures contracts in 2021, 2020 and 2019 were not significant.
The Company has a put/call option that was entered into in connection with a business acquisition that allows the Company to
acquire the remaining shares of the acquired company at a future date. Net realized investment gains and losses related to this
put/call option in 2021, 2020 and 2019 were not significant.
The Company also sells a small amount of U.S. equity index put option contracts that are settled for cash upon their expiration
or when they are rolled over. Net realized investment gains and losses related to these derivatives in 2021, 2020 and 2019 were
not significant.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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4. FAIR VALUE MEASUREMENTS
The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the
fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted
prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair
value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are
observable.
In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to
unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant
market assumptions. The level in the fair value hierarchy within which the fair value measurement is reported is based on the
lowest level input that is significant to the measurement in its entirety. The three levels of the hierarchy are as follows:
•
•
•
Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company
has the ability to access.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in inactive markets; or valuations based on models where the significant inputs are
observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be
corroborated by observable market data.
Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs
reflect the Company’s own assumptions about the inputs that market participants would use.
Valuation of Investments Reported at Fair Value in Financial Statements
The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in an orderly
transaction between knowledgeable, unrelated, willing parties, i.e., not in a forced transaction. The estimated fair value of a
financial instrument may differ from the amount that could be realized if the security was sold in an immediate sale, e.g., a
forced transaction. Additionally, the valuation of investments is more subjective when markets are less liquid due to the lack of
market based inputs, which may increase the potential that the estimated fair value of an investment is not reflective of the price
at which an actual transaction would occur.
For investments that have quoted market prices in active markets, the Company uses the unadjusted quoted market prices as fair
value and includes these prices in the amounts disclosed in Level 1 of the hierarchy. The Company receives the quoted market
prices from third party, nationally recognized pricing services. When quoted market prices are unavailable, the Company
utilizes these pricing services to determine an estimate of fair value. The fair value estimates provided from these pricing
services are included in the amount disclosed in Level 2 of the hierarchy.
If quoted market prices and an estimate from a
pricing service are unavailable, the Company produces an estimate of fair value based on internally developed valuation
techniques, which, depending on the level of observable market inputs, will render the fair value estimate as Level 2 or Level
3. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third-party market
participant would be willing to pay in an arm’s length transaction.
Fixed Maturities
The Company utilized a pricing service to estimate fair value measurements for approximately 99% of its fixed maturities at
both December 31, 2021 and 2020. The pricing service utilizes market quotations for fixed maturity securities that have quoted
prices in active markets. Since fixed maturities other than U.S. Treasury securities generally do not trade on a daily basis, the
pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications,
which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and
matrix pricing. Additionally, the pricing service uses an Option Adjusted Spread model to develop prepayment and interest rate
scenarios.
The pricing service evaluates each asset class based on relevant market information, relevant credit information, perceived
market movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of
priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FAIR VALUE MEASUREMENTS (Continued)
securities, bids, offers, reference data, and industry and economic events. The extent of the use of each market input depends
on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some
market inputs may not be relevant. For some securities, additional inputs may be necessary.
The pricing service utilized by the Company has indicated that it will only produce an estimate of fair value if there is
objectively verifiable information to produce a valuation. If the pricing service discontinues pricing an investment, the
Company would be required to produce an estimate of fair value using some of the same methodologies as the pricing service
but would have to make assumptions for any market-based inputs that were unavailable due to market conditions. The
Company reviews the estimates of fair value provided by the pricing service and compares the estimates to the Company’s
knowledge of the market to determine if the estimates obtained are representative of the prices in the market. In addition, the
Company has periodic discussions with the pricing service to discuss and understand any changes in process and their
responsiveness to changes occurring in the markets. The Company also monitors all monthly price changes and further
evaluates any securities whose value changed more than 10% from the prior month. The Company has implemented various
other processes including randomly selecting purchased or sold securities and comparing execution prices to the estimates from
the pricing service as well as reviewing securities whose valuation did not change from their previous valuation (stale price
review). The Company also uses a second independent pricing service to further test the primary pricing service’s valuation of
the Company’s fixed maturity portfolio. These processes have not highlighted any significant issues with the fair value
estimates received from the primary pricing service.
The fair value estimates of most fixed maturity investments are based on observable market information rather than market
quotes. Accordingly, the estimates of fair value for such fixed maturities, other than U.S. Treasury securities, provided by the
pricing service are included in the amount disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury
securities is included in the amount disclosed in Level 1 as the estimates are based on unadjusted market prices.
The Company also holds certain fixed maturity investments which are not priced by the pricing service and, accordingly,
estimates the fair value of such fixed maturities using an internal matrix that is based on market information regarding interest
rates, credit spreads and liquidity. The underlying source data for calculating the matrix of credit spreads relative to the U.S.
Treasury curve are observable market-based indices that relate to corporate and high-yield fixed maturity investments. The
Company includes the fair value estimates of these corporate bonds in Level 2, since all significant inputs are market
observable.
While the vast majority of the Company’s fixed maturities are included in Level 2, the Company holds a number of municipal
bonds and corporate bonds which are not valued by the pricing service and estimates the fair value of these bonds using either
another internal pricing matrix, a present value income approach, or a broker quote (collectively, the other methodologies). The
other methodologies include some unobservable inputs that are significant to the valuation. Due to the limited amount of
observable market information available in the estimation of fair value, the Company includes the fair value estimates for bonds
that are valued using the other methodologies in Level 3.
Equity Securities — Common Stock and Non-Redeemable Preferred Stock
For public common stock and non-redeemable preferred stocks, the Company receives prices from pricing services that are
based on observable market transactions and includes these estimates in the amount disclosed in Level 1. When current market
quotes in active markets are unavailable for certain non-redeemable preferred stocks held by the Company, the Company
receives an estimate of fair value from the pricing services. The services utilize similar methodologies to price the non-
redeemable preferred stocks as they do for the fixed maturities. The Company includes the fair value estimate for these non-
redeemable preferred stocks in the amount disclosed in Level 2.
For certain investments in non-public common and preferred equity securities, the fair value estimate is determined either
internally or by an external fund manager based on the impact of recent observable transactions on the investment’s equity,
recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the
significant unobservable inputs in these valuations, the Company included the fair value estimate of $343 million and
$31 million for these investments at December 31, 2021 and 2020, respectively, in the amounts disclosed in Level 3.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FAIR VALUE MEASUREMENTS (Continued)
Other Investments
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The Company holds investments in various publicly-traded securities which are reported in other investments. These
investments include mutual funds and other small holdings. The $18 million and $17 million fair value of these investments at
December 31, 2021 and 2020, respectively, was disclosed in Level 1. Due to the significant unobservable inputs in these
valuations, the Company includes the total fair value estimate for all of these investments at December 31, 2021 and 2020 in the
amount disclosed in Level 3.
Other Liabilities
The Company has a put/call option that was entered into in connection with a business acquisition that allows the Company to
acquire the remaining shares of the acquired company at a future date. The fair value of the put/call at December 31, 2021 and
2020 was $3 million and $5 million, respectively, and was determined using an internal model and is based on the acquired
company's financial performance, adjusted for a risk margin and discounted to present value. The Company includes the fair
value estimate of the put/call in Level 3.
Fair Value Hierarchy
The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial
liabilities are measured on a recurring basis.
(at December 31, 2021, in millions)
Invested assets:
Fixed maturities
Total
Level 1
Level 2
Level 3
U.S. Treasury securities and obligations of U.S.
government and government agencies and authorities. $
3,562
$
3,562
$
— $
Obligations of states, municipalities and political
subdivisions..................................................................
Debt securities issued by foreign governments ...............
Mortgage-backed securities, collateralized mortgage
obligations and pass-through securities........................
All other corporate bonds.................................................
Redeemable preferred stock.............................................
Total fixed maturities ..................................................
Equity securities
Common stock....................................................................
Non-redeemable preferred stock ........................................
Total equity securities .................................................
Other investments.............................................................
Total ....................................................................... $
36,862
1,041
1,817
34,514
14
77,810
827
66
893
23
78,726
Other liabilities ................................................................. $
3
$
$
—
—
—
—
—
3,562
509
21
530
18
4,110
36,858
1,041
1,762
34,325
14
74,000
—
20
20
—
74,020
$
$
— $
— $
—
4
—
55
189
—
248
318
25
343
5
596
3
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FAIR VALUE MEASUREMENTS (Continued)
(at December 31, 2020, in millions)
Invested assets:
Fixed maturities
Total
Level 1
Level 2
Level 3
U.S. Treasury securities and obligations of U.S.
government and government agencies and authorities. $
2,149
$
2,149
$
— $
Obligations of states, municipalities and political
subdivisions..................................................................
Debt securities issued by foreign governments ...............
Mortgage-backed securities, collateralized mortgage
obligations and pass-through securities........................
All other corporate bonds.................................................
Redeemable preferred stock.............................................
Total fixed maturities ..................................................
Equity securities
Common stock....................................................................
Non-redeemable preferred stock ........................................
Total equity securities .................................................
Other investments.............................................................
36,360
1,054
2,361
32,054
25
74,003
416
68
484
21
—
—
—
—
3
2,152
410
18
428
17
36,349
1,054
2,361
31,899
22
71,685
—
25
25
—
Total ....................................................................... $
74,508
Other liabilities ................................................................. $
5
$
$
2,597
$
71,710
$
— $
— $
—
11
—
—
155
—
166
6
25
31
4
201
5
The following tables present the changes in the Level 3 fair value category for the years ended December 31, 2021 and 2020.
Fixed
Maturities
Equity
Securities
Other
Investments
(in millions)
Balance at December 31, 2020 ........................................... $
Total realized and unrealized investment gains (losses):
Reported in net realized investment gains (1)....................
Reported in increases in other comprehensive income
(loss).................................................................................
Purchases, sales and settlements/maturities:
Purchases..........................................................................
Sales .................................................................................
Settlements/maturities ......................................................
Gross transfers into Level 3 ................................................
Gross transfers out of Level 3.............................................
166
$
31 $
(1)
(3)
227
—
(48)
—
(93)
5
—
307
—
—
—
—
Total
$
201
5
(3)
534
—
(48)
—
(93)
596
$
4
1
—
—
—
—
—
—
5
Balance at December 31, 2021 .................................... $
248
$
343 $
Amount of total realized investment gains (losses) for the
period included in the consolidated statement of
income attributable to changes in the fair value of
assets still held at the reporting date................................ $
___________________________________________
— $
5 $
1
$
6
(1)
Includes impairments on investments held at the end of the period as well as amortization on fixed maturities.
The Company also includes in Level 3 the put/call option entered into in connection with a business acquisition that is reported
in other liabilities and had a fair value of $3 million at December 31, 2021.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FAIR VALUE MEASUREMENTS (Continued)
(in millions)
Balance at December 31, 2019 ........................................... $
Total realized and unrealized investment gains (losses):
Reported in net realized investment gains (1)....................
Reported in increases in other comprehensive income
(loss).................................................................................
Purchases, sales and settlements/maturities:
Purchases..........................................................................
Sales .................................................................................
Settlements/maturities ......................................................
Gross transfers into Level 3 ................................................
Gross transfers out of Level 3.............................................
Fixed
Maturities
Equity
Securities
Other
Investments
Total
101
$
13 $
7
$
121
(1)
2
79
—
(15)
3
(3)
2
—
16
—
—
—
—
(2)
—
—
(1)
—
—
—
4
$
(1)
2
95
(1)
(15)
3
(3)
201
Balance at December 31, 2020 .................................... $
166
$
31 $
Amount of total realized investment gains (losses) for the
period included in the consolidated statement of
income attributable to changes in the fair value of
assets still held at the reporting date................................ $
___________________________________________
— $
2 $
(2) $
—
(1)
Includes impairments on investments held at the end of the period as well as amortization on fixed maturities.
The Company also includes in Level 3 the put/call option entered into in connection with a business acquisition that is reported
in other liabilities and had a fair value of $5 million at December 31, 2020.
Financial Instruments Disclosed, But Not Carried, At Fair Value
The following tables present the carrying value and fair value of the Company’s financial assets and financial liabilities
disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such assets and liabilities are
categorized.
(at December 31, 2021, in millions)
Financial assets:
Short-term securities ............................... $
Financial liabilities:
Debt......................................................... $
Commercial paper ...................................
(at December 31, 2020, in millions)
Financial assets:
Short-term securities ............................... $
Financial liabilities:
Debt......................................................... $
Commercial paper ...................................
Carrying
Value
Fair
Value
Level 1
Level 2
Level 3
3,836
7,190
100
Carrying
Value
5,511
6,450
100
$
$
$
$
3,836
9,085
100
Fair
Value
5,511
8,976
100
$
$
$
$
1,163
$
2,615
— $
—
9,085
100
$
$
Level 1
Level 2
Level 3
630
$
4,829
— $
—
8,976
100
$
$
58
—
—
52
—
—
The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the years
ended December 31, 2021 and 2020.
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5.
ALLOWANCE FOR EXPECTED CREDIT LOSSES
Premiums Receivable
The following table presents the balances of premiums receivable, net of the allowance for expected credit losses, at
December 31, 2021 and 2020, and the changes in the allowance for expected credit losses for the twelve months ended
December 31, 2021 and 2020.
(in millions)
At and For the Twelve Months
Ended December 31, 2021
At and For the Twelve Months
Ended December 31, 2020
Premiums
Receivable, Net
of Allowance
for Expected
Credit Losses
Allowance for
Expected
Credit Losses
Premiums
Receivable, Net
of Allowance
for Expected
Credit Losses
Allowance for
Expected
Credit Losses
Balance, beginning of period...................................................... $
7,829 $
105 $
7,909 $
Current period change for expected credit losses .........................
Write-offs of uncollectible premiums receivable .........................
Balance, end of period ................................................................ $
8,085 $
65
63
107 $
7,829 $
49
103
47
105
Reinsurance Recoverables
The following table presents the balances of reinsurance recoverables, net of the allowance for estimated uncollectible
reinsurance, at December 31, 2021 and 2020, and the changes in the allowance for estimated uncollectible reinsurance for the
twelve months ended December 31, 2021 and 2020.
(in millions)
At and For the Twelve Months
Ended December 31, 2021
At and For the Twelve Months
Ended December 31, 2020
Reinsurance
Recoverables,
Net of
Allowance for
Estimated
Uncollectible
Reinsurance
Allowance for
Estimated
Uncollectible
Reinsurance
Reinsurance
Recoverables,
Net of
Allowance for
Estimated
Uncollectible
Reinsurance
Allowance for
Estimated
Uncollectible
Reinsurance
Balance, beginning of period ..................................................... $
8,350 $
146 $
8,235 $
92
Cumulative effect of adoption of updated accounting guidance
for credit losses at January 1, 2020.........................................
Current period change for estimated uncollectible reinsurance ...
Write-offs of uncollectible reinsurance recoverables...................
Balance, end of period................................................................ $
8,452 $
—
(5)
—
141 $
8,350 $
53
1
—
146
Of the total reinsurance recoverables at December 31, 2021, after deducting mandatory pools and associations and before
allowances for estimated uncollectible reinsurance, $5.93 billion, or 87%, were rated by A.M. Best Company. The Company
utilizes updated A.M. Best credit ratings on a quarterly basis when determining the allowance. Of the total rated by A.M. Best
Company, 94% were rated A- or better. The remaining 13% of reinsurance recoverables were comprised of the following: 6%
related to captive insurance companies, 1% related to the Company’s participation in voluntary pools, and 6% were balances
from other companies not rated by A.M. Best Company. Certain of the Company's reinsurance recoverables are collateralized
by letters of credit, funds held or trust agreements.
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5.
ALLOWANCE FOR EXPECTED CREDIT LOSSES (Continued)
Contractholder Receivables
The following table presents the balances of contractholder receivables, net of the allowance for expected credit losses, at
December 31, 2021 and 2020, and the changes in the allowance for expected credit losses for the twelve months ended
December 31, 2021 and 2020.
(in millions)
At and For the Twelve Months
Ended December 31, 2021
At and For the Twelve Months
Ended December 31, 2020
Contractholder
Receivables,
Net of
Allowance for
Expected
Credit Losses
Contractholder
Receivables,
Net of
Allowance for
Expected
Credit Losses
Allowance for
Expected
Credit Losses
Allowance for
Expected
Credit Losses
Balance, beginning of period ..................................................... $
4,242 $
19 $
4,599 $
Current period change for expected credit losses.........................
Write-offs of uncollectible contractholder receivables ................
Balance, end of period................................................................ $
3,890 $
2
—
21 $
4,242 $
20
1
2
19
6.
REINSURANCE
The Company’s consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed
reinsurance refers to the acceptance of certain insurance risks that other insurance companies have underwritten. Ceded
reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) the Company has
underwritten to other insurance companies who agree to share these risks. The primary purpose of ceded reinsurance is to
protect the Company, at a cost, from losses in excess of the amount it is prepared to accept and to protect the Company’s
capital. Reinsurance is placed on both a quota-share and excess-of-loss basis. Ceded reinsurance arrangements do not discharge
the Company as the primary insurer, except for instances where the primary policy or policies have been novated, such as in
certain structured settlement agreements.
The Company utilizes a corporate catastrophe excess-of-loss reinsurance treaty with unaffiliated reinsurers to manage its
exposure to losses resulting from catastrophes and to protect its capital. In addition to the coverage provided under this treaty,
the Company also utilizes a reinsurance agreement entered into in connection with catastrophe bonds issued by Long Point Re
III to protect against certain weather-related and earthquake losses in the Northeastern United States, a Northeast property
catastrophe excess-of-loss reinsurance treaty to protect against
losses resulting from weather-related and earthquake
catastrophes in the Northeastern United States and an underlying property aggregate catastrophe excess-of-loss reinsurance
treaty to protect against the accumulation of certain property losses in North America. The Company also utilizes excess-of-
loss treaties to protect against earthquake losses up to a certain threshold in Business Insurance (for certain markets) and for
Personal Insurance, and several reinsurance treaties specific to its international operations.
The Company monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to evaluate the
collectability of amounts due from reinsurers and as a basis for determining the reinsurers with which the Company conducts
ongoing business.
In addition, in the ordinary course of business, the Company may become involved in coverage disputes
with its reinsurers. Some of these disputes could result in lawsuits and arbitrations brought by or against the reinsurers to
determine the Company’s rights and obligations under the various reinsurance agreements. The Company employs dedicated
specialists and strategies to manage reinsurance collections and disputes.
Included in reinsurance recoverables are amounts related to involuntary reinsurance arrangements. The Company is required to
participate in various involuntary reinsurance arrangements through assumed reinsurance, principally with regard to residual
market mechanisms in workers’ compensation and automobile insurance, as well as homeowners’ insurance in certain coastal
areas. In addition, the Company provides services for several of these involuntary arrangements (mandatory pools and
associations) under which it writes such residual market business directly, then cedes 100% of this business to the mandatory
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6. REINSURANCE (Continued)
pool. Such participations and servicing arrangements are arranged to mitigate credit risk to the Company, as any ceded
balances are jointly backed by all the pool members.
Also included in reinsurance recoverables are amounts related to certain structured settlements. Structured settlements are
annuities purchased from various life insurance companies to settle certain personal physical injury claims, of which workers’
compensation claims comprise a significant portion. In cases where the Company did not receive a release from the claimant,
the structured settlement is included in reinsurance recoverables and the related claim cost is included in the liability for claims
and claim adjustment expense reserves, as the Company retains the contingent liability to the claimant. If it is expected that the
life insurance company is not able to pay, the Company would recognize an impairment of the related reinsurance recoverable
if, and to the extent, the purchased annuities are not covered by state guaranty associations. In the event that the life insurance
company fails to make the required annuity payments, the Company would be required to make such payments.
The following is a summary of reinsurance financial data reflected in the consolidated statement of income:
2021
2020
2019
(for the year ended December 31, in millions)
Written premiums
Direct.............................................................................................................. $
Assumed.........................................................................................................
Ceded..............................................................................................................
33,180
1,064
(2,285)
Total net written premiums ......................................................................... $
31,959
Earned premiums
Direct.............................................................................................................. $
Assumed.........................................................................................................
Ceded..............................................................................................................
31,977
1,032
(2,154)
Total net earned premiums .......................................................................... $
30,855
Percentage of assumed earned premiums to net earned premiums ........
Ceded claims and claim adjustment expenses incurred ........................... $
3.3 %
1,184
$
$
$
$
$
30,762
1,001
(2,031)
29,732
29,978
1,010
(1,944)
29,044
3.5 %
1,030
$
$
$
$
$
30,022
1,041
(1,912)
29,151
28,994
1,076
(1,798)
28,272
3.8 %
1,089
Ceded premiums include the premiums paid for coverage provided by the Company’s catastrophe bonds.
Reinsurance recoverables include amounts recoverable on both paid and unpaid claims and claim adjustment expenses and were
as follows:
(at December 31, in millions)
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses.... $
Gross structured settlements ......................................................................................................
Mandatory pools and associations .............................................................................................
Gross reinsurance recoverables ............................................................................................
Allowance for estimated uncollectible reinsurance ...................................................................
2021
2020
3,931
$
2,900
1,762
8,593
(141)
3,731
2,964
1,801
8,496
(146)
8,350
Net reinsurance recoverables ................................................................................................. $
8,452
$
Terrorism Risk Insurance Program
The Terrorism Risk Insurance Program is a Federal program administered by the Department of the Treasury authorized
through December 31, 2027 that provides for a system of shared public and private compensation for certain insured losses
resulting from certified acts of terrorism.
In order for a loss to be covered under the program (subject losses), the loss must meet certain aggregate industry loss
minimums and must be the result of an event that is certified as an act of terrorism by the U.S. Secretary of the Treasury, in
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6. REINSURANCE (Continued)
consultation with the Secretary of Homeland Security and the Attorney General of the United States. The annual aggregate
industry loss minimum under the program is $200 million. The program excludes from participation the following types of
insurance: Federal crop insurance, private mortgage insurance, financial guaranty insurance, medical malpractice insurance,
health or life insurance, flood insurance, reinsurance, commercial automobile, professional liability (other than directors' and
In the case of a war declared by Congress, only workers’
officers’), surety, burglary and theft, and farm-owners multi-peril.
compensation losses are covered by the program. All commercial property and casualty insurers licensed in the United States
are generally required to participate in the program. Under the program, a participating insurer, in exchange for making
terrorism insurance available, is entitled to be reimbursed by the Federal Government for 80% of subject losses, after an insurer
deductible, subject to an annual cap.
The deductible for any calendar year is equal to 20% of the insurer’s direct earned premiums for covered lines for the preceding
calendar year. The Company’s estimated deductible under the program is $2.71 billion for 2022. The annual cap limits the
amount of aggregate subject losses for all participating insurers to $100 billion. Once subject losses have reached the $100
billion aggregate during a program year, participating insurers will not be liable under the program for additional covered
terrorism losses for that program year. There have been no terrorism-related losses that have triggered program coverage since
the program was established. Given that the law establishing the program remains untested, there is substantial uncertainty as
to how it will be applied if an act of terrorism is certified under the program.
In addition, application of the program to a
specific event will depend upon whether the government has designated such event as a covered event. It is also possible that
future legislative action could change or eliminate the program. Further, given the unpredictable frequency and severity of
terrorism losses, as well as the limited terrorism coverage in the Company’s own reinsurance program, future losses from acts
of terrorism, particularly involving nuclear, biological, chemical or radiological events, could be material to the Company’s
operating results, financial position and/or liquidity in future periods. In addition, the Company may not have sufficient
resources to respond to claims arising from a high frequency of high severity natural catastrophes and/or of man-made
catastrophic events involving conventional means. While the Company seeks to manage its exposure to man-made catastrophic
events involving conventional means, the Company may not have sufficient resources to respond to claims arising out of one or
more man-made catastrophic events involving nuclear, biological, chemical or radiological means.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table presents the carrying amount of the Company’s goodwill by segment. Each reportable segment includes
goodwill associated with the Company’s international business which is subject to the impact of changes in foreign currency
exchange rates.
(at December 31, in millions)
Business Insurance..................................................................................................................... $
Bond & Specialty Insurance ......................................................................................................
Personal Insurance(1) ..................................................................................................................
Other ..........................................................................................................................................
2021
2020
2,610
$
2,613
550
822
26
550
787
26
Total ........................................................................................................................................ $
4,008
$
3,976
_________________________________________________________
(1)
Goodwill at December 31, 2021 included approximately $33 million associated with a business acquired in the first quarter of 2021,
which is deductible for tax purposes.
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7. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Other Intangible Assets
The following tables present a summary of the Company’s other intangible assets by major asset class:
(at December 31, 2021, in millions)
Subject to amortization
Gross
Carrying
Amount
Accumulated
Amortization
Net
Customer-related ......................................................................................... $
Contract-based (1).........................................................................................
Total subject to amortization .....................................................................
Not subject to amortization .........................................................................
Total............................................................................................................. $
104
205
309
226
535
(at December 31, 2020, in millions)
Subject to amortization
Gross
Carrying
Amount
Customer-related ......................................................................................... $
Contract-based (1).........................................................................................
Total subject to amortization .....................................................................
Not subject to amortization .........................................................................
Total............................................................................................................. $
101
205
306
226
532
___________________________________________
$
$
$
$
$
41
188
229
—
229
$
Accumulated
Amortization
Net
$
31
184
215
—
215
$
63
17
80
226
306
70
21
91
226
317
(1)
Contract-based intangible assets subject to amortization are comprised of fair value adjustments on claims and claim adjustment
expense reserves, reinsurance recoverables and other contract-related intangible assets. Fair value adjustments recorded in
connection with insurance acquisitions were based on management’s estimate of nominal claims and claim adjustment expense
reserves and reinsurance recoverables. The method used calculated a risk adjustment to a risk-free discounted reserve that would, if
reserves ran off as expected, produce results that yielded the assumed cost-of-capital on the capital supporting the loss reserves.
The fair value adjustments are reported as other intangible assets on the consolidated balance sheet, and the amounts measured in
accordance with the acquirer’s accounting policies for insurance contracts have been reported as part of the claims and claim
adjustment expense reserves and reinsurance recoverables. The intangible assets are being recognized into income over the
expected payment pattern. Because the time value of money and the risk adjustment (cost of capital) components of the intangible
assets run off at different rates, the amount recognized in income may be a net benefit in some periods and a net expense in other
periods.
Amortization expense of intangible assets was $14 million, $14 million and $15 million for the years ended December 31,
2021, 2020 and 2019, respectively. Amortization expense for all intangible assets subject to amortization is estimated to be $14
million in 2022, $13 million in 2023, $12 million in 2024, $12 million in 2025 and $11 million in 2026. Amortization expense
for intangible assets arising from insurance contracts acquired in a business combination is estimated to be $3 million in 2022,
$3 million in 2023, $2 million in 2024, $2 million in 2025 and $1 million in 2026.
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8. INSURANCE CLAIM RESERVES
Claims and claim adjustment expense reserves were as follows:
(at December 31, in millions)
Property-casualty ....................................................................................................................... $
Accident and health ...................................................................................................................
Total ........................................................................................................................................ $
56,907
2021
2020
56,897
10
$
$
54,510
11
54,521
The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim
adjustment expenses:
(at and for the year ended December 31, in millions)
Claims and claim adjustment expense reserves at beginning of year ............ $
Less reinsurance recoverables on unpaid losses ............................................
Cumulative effect of adoption of updated accounting guidance for credit
losses at January 1, 2020 ............................................................................
Net reserves at beginning of year............................................................
Estimated claims and claim adjustment expenses for claims arising in the
current year .................................................................................................
Estimated increase (decrease) in claims and claim adjustment expenses for
claims arising in prior years........................................................................
Total increases.........................................................................................
Claims and claim adjustment expense payments for claims arising in:
Current year .................................................................................................
Prior years....................................................................................................
Total payments........................................................................................
Unrealized foreign exchange loss (gain)........................................................
Net reserves at end of year......................................................................
Plus reinsurance recoverables on unpaid losses.............................................
Claims and claim adjustment expense reserves at end of year ...................... $
2021
2020
2019
54,510
$
51,836
$
8,153
—
46,357
20,698
(484)
20,214
8,401
9,470
17,871
(12)
48,688
8,209
8,035
53
43,854
19,285
(267)
19,018
7,497
9,092
16,589
74
46,357
8,153
56,897
$
54,510
$
50,653
8,182
—
42,471
18,854
164
19,018
7,734
10,060
17,794
106
43,801
8,035
51,836
Gross claims and claim adjustment expense reserves at December 31, 2021 increased by $2.39 billion over December 31, 2020,
primarily reflecting the impacts of (i) higher volumes of insured exposures, (ii) catastrophe losses in 2021, (iii) loss cost trends
for the current accident year and (iv) reduced claim settlement activity largely due to continued disruptions in the judicial
system related to COVID-19. Gross claims and claim adjustment expense reserves at December 31, 2020 increased by $2.67
billion over December 31, 2019, primarily reflecting the impacts of (i) reduced judicial system and claim settlement activity
largely related to COVID-19 and (ii) catastrophe losses in 2020.
Reinsurance recoverables on unpaid losses at December 31, 2021 increased by $56 million over December 31, 2020, primarily
reflecting the impacts of catastrophe losses in 2021, partially offset by a lower level of structured settlements and recoverables
from mandatory pools and associations. Reinsurance recoverables on unpaid losses at December 31, 2020 increased by $118
million over December 31, 2019, primarily reflecting the impacts of catastrophe losses in 2020, partially offset by a lower level
of recoverables from mandatory pools and associations and the $53 million increase in the allowance for estimated uncollectible
reinsurance from the cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020.
Beginning in late March 2020, in response to COVID-19, a number of states have enacted changes designed to effectively
expand workers’ compensation coverage by creating a presumption of compensability for certain types of workers. In addition,
other states are considering similar changes. Depending on the number of states that institute such changes and the terms of the
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8. INSURANCE CLAIM RESERVES (Continued)
changes, the Company could experience elevated claims frequency and severity for its workers' compensation line, which could
have a material adverse effect on its results of operations.
PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) emerged from bankruptcy on July 1, 2020, the
date the Debtors' and Shareholder Proponents' Joint Chapter 11 Plan of Reorganization Dated June 19, 2020 (the Plan) became
effective.
In accordance with the terms of the Plan, PG&E funded a trust from which the Company and other subrogation
claimants have received, and/or will receive, recoveries related to the 2017 and 2018 California wildfires. In 2020, the
Company recognized a subrogation benefit related to these claims of $403 million.
Included in the claims and claim adjustment expense reserves are reserves for long-term disability and annuity claim payments,
primarily arising from workers’ compensation insurance and workers’ compensation excess insurance policies, that are
discounted to the present value of the estimated future payments. The discount rates used were a range of 3.5% to 5.0% at both
December 31, 2021 and 2020. Total reserves net of the discount were $2.74 billion and $2.69 billion, and the related amount of
discount was $1.15 billion and $1.14 billion, at December 31, 2021 and 2020, respectively. Accretion of the discount is
reported as part of “claims and claim adjustment expenses” in the consolidated statement of income and was $48 million, $49
million and $49 million for the years ended December 31, 2021, 2020 and 2019.
Prior Year Reserve Development
The following disclosures regarding reserve development are on a “net of reinsurance” basis.
2021
In 2021, estimated claims and claim adjustment expenses incurred included $484 million of net favorable development for
claims arising in prior years, including $538 million of net favorable prior year reserve development and $48 million of
accretion of discount that impacted the Company's results of operations.
Business Insurance. Net favorable prior year reserve development in 2021 totaled $173 million, primarily driven by the
following:
• Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple
accident years;
• Commercial property - better than expected loss experience in the segment's domestic operations for recent accident
years;
•
International - better than expected loss experience for recent accident years; and
• Commercial automobile - better than expected loss experience in the segment's domestic operations for recent accident
years.
Partially offset by:
• Asbestos reserves - an increase of $225 million, primarily in the segment's domestic general liability product line;
• Other reserves - an increase related to run-off operations; and
• Environmental reserves - an increase primarily in the segment's domestic general liability product line.
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8. INSURANCE CLAIM RESERVES (Continued)
Bond & Specialty Insurance. Net favorable prior year reserve development in 2021 totaled $105 million, primarily driven by
better than expected loss experience in the segment's domestic operations in the fidelity and surety product lines for multiple
accident years, partially offset by higher than expected loss experience in the general liability product line for management
liability coverages for multiple accident years.
Personal Insurance. Net favorable prior year reserve development in 2021 totaled $260 million, primarily driven by better than
expected loss experience in the segment's domestic operations in both the homeowners and other and automobile product lines
for recent accident years.
2020
In 2020, estimated claims and claim adjustment expenses incurred included $267 million of net favorable development for
claims arising in prior years, including $351 million of net favorable prior year reserve development and $49 million of
accretion of discount that impacted the Company's results of operations.
Business Insurance. Net unfavorable prior year reserve development in 2020 totaled $91 million, primarily driven by the
following:
•
•
•
•
Asbestos reserves - an increase of $295 million, primarily in the segment's domestic general liability product line;
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 the Company's run-off operations 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 described above.
Bond & Specialty Insurance. Net unfavorable prior year reserve development in 2020 totaled $1 million, as higher than
expected loss experience in the domestic general liability product line for management liability coverages for recent accident
years was largely offset by better than expected loss experience in the surety product line for multiple accident years.
Personal Insurance. Net favorable prior year reserve development in 2020 totaled $443 million, primarily 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.
2019
In 2019, estimated claims and claim adjustment expenses incurred included $164 million of net unfavorable development for
claims arising in prior years, including $60 million of net unfavorable prior year reserve development and $49 million of
accretion of discount that impacted the Company's results of operations.
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163
1
6
3
9
2
6
2
4
1
0
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Business Insurance. Net unfavorable prior year reserve development in 2019 totaled $258 million, primarily driven by the
following:
•
•
•
•
•
General liability (excluding asbestos and environmental) - higher than expected loss experience in the segment's
domestic operations for primary and excess coverages for multiple accident years, including the impact for accident
years 2009 and prior related to the enactment of legislation by a number of states that extended the statute of
limitations for childhood sexual molestation claims;
Commercial automobile - higher than expected loss experience in the segment's domestic operations for recent
accident years;
Asbestos reserves - an increase of $220 million, primarily in the segment's domestic general liability product line;
Commercial multi-peril - higher than expected loss experience in the segment's domestic operations for recent accident
years; and
Environmental reserves - an increase of $76 million, primarily in the segment's domestic general liability product line,
Partially offset by:
• Workers' compensation - better than expected loss experience in the segment's domestic operations for multiple
accident years; and
•
Commercial property - better than expected loss experience in the segment's domestic operations for recent accident
years.
Bond & Specialty Insurance. Net favorable prior year reserve development in 2019 totaled $65 million, primarily driven by
better than expected loss experience in the segment’s domestic operations in the general liability product line for management
liability coverages and in the fidelity and surety product line for multiple accident years.
Personal Insurance. Net favorable prior year reserve development in 2019 totaled $133 million, primarily driven by better than
expected loss experience in the segment's domestic operations in both the automobile and homeowners and other product lines
for recent accident years.
Claims Development
The following is a summary of claims and claim adjustment expense reserves, including certain components, for the
Company’s major product lines by reporting segment at December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
92624 10K
164
(at December 31, 2021, in millions)
Business Insurance
Net Undiscounted
Claims and Claim
Adjustment Expense
Reserves
Discount
(Net of
Reinsurance)
Subtotal:
Net Claims and
Claim Adjustment
Expense Reserves
Reinsurance
Recoverables on
Unpaid Losses
(4)
Claims and Claim
Adjustment
Expense
Reserves
General liability............................ $
Commercial property....................
Commercial multi-peril ................
Commercial automobile ...............
Workers’ compensation (1) ...........
Bond & Specialty Insurance
General liability............................
Fidelity and surety........................
Personal Insurance
Automobile...................................
Homeowners (excluding Other) ...
International - Canada ..................
Subtotal — claims and allocated
claim adjustment expenses for
the products presented in the
development tables below ........
Other insurance contracts (2)............
Unallocated loss adjustment
expense reserves..........................
Structured settlements (3).................
Other ...............................................
Total property-casualty .............
Accident and health ......................
8,893
$
(139) $
8,754
$
997
4,427
3,740
16,623
2,297
527
3,155
1,661
745
43,065
4,231
2,383
—
100
49,779
—
—
—
—
(948)
—
—
—
—
—
(1,087)
(4)
—
—
—
(1,091)
—
997
4,427
3,740
15,675
2,297
527
3,155
1,661
745
41,978
4,227
2,383
—
100
48,688
—
$
978
513
225
303
665
173
6
442
210
21
3,536
1,825
15
2,856
(23)
8,209
10
Total ............................................. $
49,779
$
(1,091) $
48,688
$
8,219
$
___________________________________________
9,732
1,510
4,652
4,043
16,340
2,470
533
3,597
1,871
766
45,514
6,052
2,398
2,856
77
56,897
10
56,907
(1)
(2)
(3)
(4)
Net discount amount includes discount of $55 million on reinsurance recoverables for long-term disability and annuity claim
payments.
Primarily includes residual market, international (other than operations in Canada within the Personal Insurance segment) and
runoff assumed reinsurance business.
Includes structured settlements in cases where the Company did not receive a release from the claimant.
Total reinsurance recoverables (on paid and unpaid losses) at December 31, 2021 were $8.45 billion.
The claim development tables that follow present, by accident year, incurred and cumulative paid claims and allocated claim
adjustment expense on a historical basis. This claim development information is presented on an undiscounted, net of
reinsurance basis for ten years, or the number of years for which claims incurred typically remain outstanding if less than ten
years. The claim development tables also provide the historical average annual percentage payout of incurred claims (including
the impact of subrogation recoveries from PG&E for accident years 2017 and 2018 in the commercial property, commercial
multi-peril and homeowners and other product lines) by age, net of reinsurance, as supplementary information (identified as
unaudited in the tables below). For Personal Insurance - International - Canada, the claim development information reflects the
acquisition of The Dominion of Canada General Insurance Company (Dominion) in November 2013 on a retrospective basis
(includes Dominion data for years prior to the Company’s acquisition of Dominion).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Business Insurance
General Liability
(dollars in millions)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Years
$ 989
$ 985
$ 935
$ 913
$ 892
$ 905
$ 917
$ 920
$ 941
$
965
975
976
958
989
998
940
983
956
1,075
927
948
923
1,058
1,133
933
956
967
1,087
1,143
1,253
975
1,013
1,057
1,187
1,196
1,312
1,447
975
988
1,087
1,204
1,234
1,344
1,486
1,467
IBNR
Reserves
Dec 31,
2021
$
59
72
100
113
189
266
407
682
1,013
1,365
Cumulative
Number of
Reported
Claims
25,061
22,775
22,576
21,689
20,556
19,262
19,135
17,717
12,141
9,119
927
963
979
1,072
1,179
1,226
1,395
1,498
1,493
1,591
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
$
32
$ 150
$ 295
$ 489
$ 589
$ 699
$ 754
$ 811
$ 831
$ 837
Unaudited
Total $12,323
35
175
37
363
163
36
498
321
137
35
639
515
336
191
40
745
640
558
421
180
42
816
750
740
649
378
202
51
836
805
828
758
552
441
233
61
853
832
875
858
724
709
482
244
67
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
2012 -
2021
Before
2012
Total $ 6,481
$ 5,842
Total net liability
$
$
3,051
8,893
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Unaudited
1
3.5 % 12.2 % 17.4 % 18.3 % 13.1 % 10.2 %
6
5
2
4
3
7
5.8 %
8
3.6 %
9
2.0 %
10
0.6 %
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Commercial Property
(dollars in millions)
For the Years Ended December 31,
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
Unaudited
Accident Year
2017
2018
2019
2020
2021
$
1,209
$
1,177
$
1,151
$
1,128
$
1,117
$
1,093
1,079
1,069
1,070
1,034
1,107
Total $
1,068
1,031
1,025
1,236
5,477
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Unaudited
IBNR
Reserves
December
31, 2021
Cumulative
Number of
Reported
Claims
3
20
(12)
38
94
25,143
25,077
25,376
25,434
21,996
Accident Year
2017
$
618
$
1,003
$
1,073
$
1,094
$
561
928
610
981
957
580
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
2017 -
2021
Before
2017
1,103
1,005
1,001
857
645
Total $
4,611
$
866
$
Total net liability $
131
997
Average Annual Percentage Payout of Incurred
Claims by Age, Net of Reinsurance
1
55.2 %
2
32.4 %
Unaudited
3
4
5
5.2 %
2.0 %
0.8 %
2018
2019
2020
2021
Years
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Commercial Multi-Peril
(dollars in millions)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
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IBNR
Reserves
December
31, 2021
21
$
Cumulative
Number of
Reported
Claims
105,054
26
32
46
63
104
163
294
575
892
83,991
78,465
71,922
69,368
72,318
72,853
66,484
67,796
47,190
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Years
$1,885 $1,883 $1,903 $1,888 $1,888 $1,867 $1,859 $1,854 $1,853 $ 1,851
1,615
1,623
1,663
1,620
1,627
1,568
1,609
1,625
1,625
1,662
1,591
1,617
1,593
1,623
1,872
1,600
1,626
1,597
1,598
1,928
1,976
1,599
1,627
1,606
1,590
1,956
2,114
2,017
1,598
1,627
1,593
1,601
1,919
2,092
2,087
2,142
1,593
1,622
1,584
1,587
1,935
2,112
2,089
2,141
2,164
Total
$18,678
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
$ 795
$1,246 $1,424 $1,590 $1,699 $1,752 $1,780 $1,804 $1,811 $ 1,818
Unaudited
644
987
628
1,167
956
595
1,304
1,154
970
585
1,410
1,328
1,144
950
716
1,475
1,448
1,310
1,133
1,199
792
1,516
1,512
1,409
1,278
1,388
1,302
707
1,532
1,544
1,452
1,373
1,531
1,500
1,187
791
Total
1,544
1,560
1,489
1,437
1,674
1,669
1,423
1,180
744
2012 -
2021
Before
2012
287
4,427
$14,538
$ 4,140
$
Total net liability $
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Unaudited
1
2
37.6 % 22.6 % 10.8 %
3
4
9.0 %
5
6.6 %
6
3.5 %
7
2.1 %
8
1.1 %
9
0.6 %
10
0.4 %
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Commercial Automobile
(dollars in millions)
For the Years Ended December 31,
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claims Adjustment
Expenses, Net of Reinsurance
Unaudited
Accident Year
2017
2018
2019
2020
2021
Accident Year
2017
2018
2019
2020
2021
Years
$
1,386
$
$
1,501
1,645
$
1,524
1,742
1,835
IBNR
Reserves
December
31, 2021
53
130
321
640
941
Cumulative
Number of
Reported Claims
192,155
204,588
206,533
141,722
132,893
$
1,522
1,745
1,951
1,788
Total $
$
1,533
1,761
1,976
1,677
1,741
8,688
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Unaudited
$
456
$
746
515
$
1,027
$
1,226
$
848
539
1,159
934
437
1,361
1,404
1,269
696
453
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
Total $
5,183
$
3,505
$
Total net liability $
2017 -
2021
Before
2017
235
3,740
Average Annual Percentage Payout of Incurred
Claims by Age, Net of Reinsurance
1
27.6 %
2
18.3 %
Unaudited
3
17.6 %
4
13.4 %
5
8.8 %
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8. INSURANCE CLAIM RESERVES (Continued)
Workers’ Compensation
(dollars in millions)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Years
$2,447 $2,456 $2,457 $2,456 $2,445 $2,453 $2,416 $2,387 $2,377 $ 2,375
2,553
2,545
2,554
2,540
2,553
2,644
2,506
2,547
2,585
2,768
2,463
2,476
2,505
2,690
2,779
2,423
2,430
2,441
2,569
2,681
2,744
2,354
2,393
2,372
2,473
2,584
2,687
2,680
2,321
2,352
2,279
2,372
2,483
2,599
2,714
2,559
2,304
2,336
2,220
2,300
2,439
2,503
2,699
2,530
2,356
Total $24,062
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
$ 443
$ 940
$1,217 $1,394 $1,536 $1,629 $1,689 $1,735 $1,768 $ 1,793
Unaudited
IBNR
Reserves
December
31, 2021
347
$
Cumulative
Number of
Reported
Claims
138,454
344
393
462
456
638
737
844
1,249
1,420
134,573
131,465
130,920
130,036
122,110
122,931
119,678
95,611
83,546
458
954
455
1,237
944
430
1,413
1,224
893
421
1,525
1,399
1,154
873
433
1,604
1,505
1,310
1,118
890
440
1,659
1,581
1,411
1,272
1,154
919
466
1,700
1,634
1,470
1,367
1,314
1,169
951
389
1,729
1,672
1,520
1,433
1,418
1,330
1,229
794
427
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
2012 -
2021
Before
2012
Total $ 13,345
$ 10,717
$ 5,906
Total net liability $ 16,623
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Unaudited
1
2
18.2 % 19.5 % 11.2 %
3
4
7.0 %
5
4.7 %
6
3.2 %
7
2.4 %
8
1.8 %
9
1.3 %
10
1.1 %
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Bond & Specialty Insurance
General Liability
(dollars in millions)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Years
$ 538
$ 591
$ 614
$ 605
$ 601
$ 599
$ 605
$ 593
$ 581
$
510
565
549
606
571
528
630
563
524
512
654
518
486
511
534
607
473
437
504
517
530
586
452
395
520
526
548
588
575
450
414
514
493
585
653
772
IBNR
Reserves
December
31, 2021
14
$
(4)
15
21
34
65
99
214
399
613
Cumulative
Number of
Reported
Claims
4,872
4,467
4,375
4,226
4,398
4,585
4,795
5,290
5,004
3,847
605
564
449
413
510
524
595
665
753
812
Total $ 5,890
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
$
38
$ 160
$ 255
$ 342
$ 383
$ 419
$ 436
$ 453
$ 459
$
Unaudited
34
154
38
252
150
38
352
239
141
30
400
312
234
141
38
434
367
310
233
155
49
451
407
338
313
262
182
51
462
418
348
378
340
290
189
52
493
482
426
381
446
404
383
323
210
78
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
2012 -
Before
2021
2012
Total $ 3,626
$ 2,264
$
33
Total net liability $ 2,297
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
1
7.5 % 22.1 % 19.0 % 16.1 %
4
3
2
Unaudited
5
9.9 %
6
7.3 %
7
4.1 %
8
2.2 %
9
2.2 %
10
5.6 %
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Fidelity and Surety
(dollars in millions)
For the Years Ended December 31,
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claims Adjustment
Expenses, Net of Reinsurance
Accident Year
2017
2018
2019
2020
2021
$
244
$
Unaudited
271
220
$
$
240
235
203
IBNR Reserves
December 31,
2021
$
241
220
193
274
Total $
$
226
220
200
203
284
1,133
1
2
37
93
253
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Cumulative
Number of
Reported Claims
940
907
871
754
421
Accident Year
Unaudited
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
2017
2018
2019
2020
2021
$
70
$
166
$
64
$
194
171
49
$
205
202
121
50
210
206
147
79
25
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
2017 -
2021
Before
2017
Total $
667
$
466
$
Total net liability $
61
527
Average Annual Percentage Payout of Incurred
Claims by Age, Net of Reinsurance
Unaudited
Years
1
23.6 %
2
35.4 %
3
13.2 %
4
3.4 %
5
2.1 %
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Personal Insurance
Automobile
(dollars in millions)
For the Years Ended December 31,
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claims Adjustment
Expenses, Net of Reinsurance
$
3,323
$
Unaudited
$
3,256
3,281
$
3,221
3,269
3,362
IBNR Reserves
December 31,
2021
$
$
3,206
3,233
3,361
2,829
Total $
3,199
3,220
3,333
2,764
3,716
16,232
24
60
153
353
1,028
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Cumulative
Number of
Reported Claims
1,062,811
1,051,415
1,032,740
808,338
894,499
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
$
1,912
$
Unaudited
$
2,575
1,889
$
2,887
2,582
1,933
$
3,046
2,880
2,650
1,571
Total $
3,121
3,040
2,958
2,126
2,062
13,307
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
2017 -
2021
$
$
Total net liability $
2,925
Before
2017
230
3,155
Average Annual Percentage Payout of Incurred
Claims by Age, Net of Reinsurance
1
57.8 %
2
21.0 %
Unaudited
3
4
5
9.4 %
5.0 %
2.4 %
Accident Year
2017
2018
2019
2020
2021
Accident Year
2017
2018
2019
2020
2021
Years
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Homeowners (excluding Other)
(dollars in millions)
For the Years Ended December 31,
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claims Adjustment
Expenses, Net of Reinsurance
Accident Year
2017
2018
2019
2020
2021
$
2,312
$
Unaudited
$
2,340
2,610
$
2,343
2,574
2,297
IBNR Reserves
December 31,
2021
$
$
2,170
2,381
2,344
3,019
Total $
2,160
2,325
2,343
2,967
3,463
13,258
14
21
26
170
774
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Cumulative
Number of
Reported Claims
170,198
187,306
181,209
219,786
203,280
Accident Year
Unaudited
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
2017
2018
2019
2020
2021
$
1,471
$
2,059
$
2,197
$
2,089
$
1,657
2,298
1,613
2,255
2,179
2,019
2,103
2,239
2,269
2,673
2,334
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
Total $
11,618
$
1,640
$
Total net liability $
2017 -
2021
Before
2017
21
1,661
Years
Average Annual Percentage Payout of Incurred
Claims by Age, Net of Reinsurance
1
68.7 %
2
25.2 %
Unaudited
3
4
5
2.8 %
(2.8)%
0.7 %
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
International - Canada
(dollars in millions)
For the Years Ended December 31,
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
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IBNR
Reserves
December
31, 2021
Cumulative
Number of
Reported
Claims
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$ 446
$ 423
$ 425
$ 408
497
490
440
481
456
370
Unaudited
$ 407
469
456
369
370
$ 390
$ 383
$ 371
$ 372
$ 372
$
456
444
369
419
355
454
437
366
420
391
451
444
434
367
429
414
474
456
439
433
366
429
414
475
451
356
436
430
361
428
413
480
473
342
357
Total $4,092
—
(7)
(10)
(2)
2
5
17
53
88
136
51,245
54,268
52,300
45,220
45,764
46,825
50,599
48,179
30,098
26,606
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Unaudited
$ 170
$ 237
$ 268
$ 295
$ 324
$ 342
$ 351
$ 356
$ 362
$ 365
199
278
194
311
272
166
345
309
232
217
378
339
260
291
187
397
371
290
317
263
224
415
394
315
352
304
312
221
423
411
330
377
328
349
296
148
430
426
344
395
356
389
333
199
131
Liability for Claims
And Allocated Claim
Adjustment Expenses,
Net of Reinsurance
2012 -
Before
2021
2012
Total $3,368 $
724
Total net liability
$
$
21
745
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Unaudited
Years
1
2
45.1 % 17.5 %
3
8.0 %
4
7.5 %
5
7.1 %
6
4.6 %
7
3.6 %
8
2.3 %
9
1.6 %
10
0.7 %
The incurred and paid amounts have been translated from the local currency to U.S. dollars using the December 31, 2021 spot
rate for all years presented in the table above in order to isolate changes in foreign exchange rates from loss development.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
Methodology for Estimating Incurred But Not Reported (IBNR) Reserves
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Claims and claim adjustment expense reserves represent management’s estimate of the ultimate liability for unpaid losses and
loss adjustment expenses for claims that have been reported and claims that have been incurred but not yet reported (IBNR) as
of the balance sheet date. Claims and claim adjustment expense reserves do not represent an exact calculation of the liability,
but instead represent management estimates, primarily utilizing actuarial expertise and projection methods that develop
estimates for the ultimate cost of claims and claim adjustment expenses. Because the establishment of claims and claim
adjustment expense reserves is an inherently uncertain process involving estimates and judgment, currently estimated claims
and claim adjustment expense reserves may change. The Company reflects changes to the reserves in the results of operations
in the period the estimates are changed.
Cumulative amounts paid and case reserves held as of the balance sheet date are subtracted from the estimate of the ultimate
cost of claims and claim adjustment expenses to derive incurred but not reported (IBNR) reserves. Accordingly, IBNR reserves
include the cost of unreported claims, development on known claims and re-opened claims. This approach to estimating IBNR
reserves has been in place for many years, with no material changes in methodology in the past year.
Detailed claim data is typically insufficient to produce a reliable indication of the initial estimate for ultimate claims and claim
adjustment expenses for an accident year. As a result, the initial estimate for an accident year is generally based on an
exposure-based method using either the loss ratio projection or the expected loss method. The loss ratio projection method,
which is typically used for guaranteed-cost business, develops an initial estimate of ultimate claims and claim adjustment
expenses for an accident year by multiplying earned premium for the accident year by a projected loss ratio. The projected loss
ratio is determined by analyzing prior period experience, and adjusting for loss cost trends, rate level differences, mix of
business changes and other known or observed factors influencing the accident year relative to prior accident years. The
expected loss method, which is typically used for loss sensitive business, develops an initial estimate of ultimate claims and
claim adjustment expenses for an accident year by analyzing exposures by account.
For prior accident years, the following estimation and analysis methods are principally used by the Company’s actuaries to
estimate the ultimate cost of claims and claim adjustment expenses. These estimation and analysis methods are typically
referred to as conventional actuarial methods.
•
•
•
•
The paid loss development method assumes that the future change (positive or negative) in cumulative paid losses
for a given cohort of claims will occur in a stable, predictable pattern from year-to-year, consistent with the
pattern observed in past cohorts.
The case incurred development method is the same as the paid loss development method but is based on
cumulative case-incurred losses rather than paid losses.
The Bornhuetter-Ferguson method uses an initial estimate of ultimate losses for a given product line reserve
component, typically expressed as a ratio to earned premium. The method assumes that the ratio of additional
claim activity to earned premium for that component is relatively stable and predictable over time and that actual
claim activity to date is not a credible predictor of further activity for that component. The method is used most
often for more recent accident years where claim data is sparse and/or volatile, with a transition to other methods
as the underlying claim data becomes more voluminous and therefore more credible.
The average value analysis combined with the reported claim development method assumes that average claim
values are stable and predictable over time for a particular cohort of claims. It is typically limited to analysis at
more granular levels, such as coverage or hazard/peril, where a more homogeneous subset of claims produce a
more stable and fairly predictable average value. The reported claim development method is the same as the paid
loss development method but uses changes in cumulative claim counts to produce estimates of ultimate claim
counts rather than ultimate dollars. The resulting estimate of ultimate claim counts by cohort is multiplied by an
average value per claim from an average value analysis to obtain estimated ultimate claims and claim adjustment
expenses.
While these are the principal methods utilized, the Company’s actuaries have available to them the full range of actuarial
methods developed by the casualty actuarial profession. The Company’s actuaries are also regularly monitoring developments
within the profession for advances in existing techniques or the creation of new techniques that might improve current and
future estimates. Most actuarial methods assume that past patterns demonstrated in the data will repeat themselves in the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
future. For certain reserve components where this assumption may not hold, such as asbestos and environmental reserves,
conventional actuarial methods are not utilized by the Company.
Methodology for Determining Cumulative Number of Reported Claims
A claim file is created when the Company is notified of an actual demand for payment, notified of an event that may lead to a
demand for payment or when it is determined that a demand for payment could possibly lead to a future demand for payment on
another coverage on the same policy or on another policy. Claim files are generally created for a policy at the claimant by
coverage level, depending on the particular facts and circumstances of the underlying event.
For Business Insurance and for Personal Insurance, claim file information is summarized such that the Company generally
recognizes one count for each policy claim event by internal regulatory line of business, regardless of the number of claimants
or coverages involved. The claims counts are then accumulated and reported by product line. While the methodology is
generally consistent within each segment for the product lines displayed, there are some minor differences between and within
segments. For Bond & Specialty Insurance, the Company generally recognizes one count per coverage per policy claim event
and one count per bond per surety claim event.
For purposes of the claims development tables above, claims reported for direct business are counted even if they eventually
close with no loss payment, except in the case of (i) deductible business, where the claim is not counted until the case incurred
claim estimate is above the deductible and (ii) International-Canada reported claim counts where claims closed with no loss
payment are not counted. Note that claims with zero claim dollars may still generate some level of claim adjustment expenses.
Claim counts for assumed business are included only to the extent such counts are available. The Company generally does not
receive claim count information for which the underlying claim activity is handled by others, including pools and associations.
The Company does not generate claim counts for ceded business. The methods used to summarize claim counts have not
changed significantly over the time periods reported in the tables above.
The Company cautions against using the summarized claim count information provided in this disclosure in attempting to
project ultimate loss payouts by product line. The Company generally finds claim count data to be useful only on a more
granular basis than the aggregated basis disclosed in the claim development tables above, as the risks, average values and other
dynamics of the claim process can vary materially by the cause of loss and coverage within product line. For example, in
Personal Automobile, the introduction of roadside assistance coverage resulted in a significant increase in claim counts with a
low average claim cost. For this reason the Company varies its approach to, and in many cases the level of aggregation for,
counting claims for internal analysis purposes depending on the particular granular analysis performed.
Asbestos and Environmental Reserves
At December 31, 2021 and 2020, the Company’s claims and claim adjustment expense reserves included $1.66 billion and
$1.65 billion, respectively, for asbestos and environmental-related claims, net of reinsurance.
It is difficult to estimate the reserves for asbestos and environmental-related claims due to the vagaries of court coverage
decisions, plaintiffs’ expanded theories of liability, the risks inherent in complex litigation and other uncertainties, including,
without limitation, those which are set forth below.
Asbestos Reserves. Because each policyholder presents different liability and coverage issues, the Company generally reviews
the exposure presented by each policyholder with open claims at least annually. Among the factors the Company may consider
in the course of this review are: available insurance coverage, including the role of any umbrella or excess insurance the
Company has issued to the policyholder; limits and deductibles; an analysis of the policyholder’s potential liability; the
jurisdictions involved; past and anticipated future claim activity and loss development on pending claims; past settlement values
of similar claims; allocated claim adjustment expense; the potential role of other insurance; the role, if any, of non-asbestos
claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any,
including the determination as to whether or not an asbestos claim is a products/completed operation claim subject to an
aggregate limit and the available coverage, if any, for that claim.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
In the third quarter of 2021, the Company completed its annual in-depth asbestos claim review, including a review of
policyholders with open claims and litigation cases for potential product and "non-product" liability, and noted the continuation
of the following trends:
•
•
•
a high level of litigation activity in certain jurisdictions involving individuals alleging serious asbestos-related illness,
primarily involving mesothelioma claims;
while overall payment patterns have been generally stable, there has been an increase in severity for certain
policyholders due to the high level of litigation activity; and
a moderate level of asbestos-related bankruptcy activity.
Both the number of policyholders with open asbestos claims and net asbestos-related payments decreased slightly when
compared to 2020. Payments on behalf of these policyholders continue to be influenced by a high level of litigation activity in
a limited number of jurisdictions where individuals alleging serious asbestos-related injury, primarily mesothelioma, continue
to target defendants who were not traditionally primary targets of asbestos litigation.
The Company’s quarterly asbestos reserve reviews include an analysis of exposure and claim payment patterns by policyholder,
as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative actions. The Company also analyzes
developing payment patterns among policyholders and the assumed reinsurance component of reserves, as well as projected
reinsurance billings and recoveries. In addition, the Company reviews its historical gross and net loss and expense paid
experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid
activity. Conventional actuarial methods are not utilized to establish asbestos reserves, and the Company’s evaluations have not
resulted in a reliable method to determine a meaningful average asbestos defense or indemnity payment.
The completion of these reviews and analyses in 2021, 2020 and 2019 resulted in $225 million, $295 million and $220 million
increases, respectively, to the Company’s net asbestos reserves.
In each year, the reserve increases were primarily driven by
increases in the Company’s estimate of projected settlement and defense costs related to a broad number of policyholders. The
increase in the estimate of projected settlement and defense costs primarily resulted from payment trends that continue to be
higher than previously anticipated due to the continued high level of mesothelioma claim filings and the impact of the current
litigation environment surrounding those claims discussed above. Over the past decade, the property and casualty insurance
industry, including the Company, has experienced net unfavorable prior year reserve development with regard to asbestos
reserves, but the Company believes that over that period there has been a reduction in the volatility associated with the
Company’s overall asbestos exposure as the overall asbestos environment has evolved from one dominated by exposure to
significant litigation risks, particularly coverage disputes relating to policyholders in bankruptcy who were asserting that their
claims were not subject to the aggregate limits contained in their policies, to an environment primarily driven by a frequency of
litigation related to individuals with mesothelioma. The Company’s overall view of the current underlying asbestos
environment is essentially unchanged from recent periods, and there remains a high degree of uncertainty with respect to future
exposure to asbestos claims.
Net asbestos paid loss and loss expenses in 2021, 2020 and 2019 were $221 million, $237 million and $224 million,
respectively. Approximately 9%, 1% and 4% of total net paid losses in 2021, 2020 and 2019, respectively, related to
policyholders with whom the Company entered into settlement agreements that limit those policyholders' ability to present
future claims to the Company.
Environmental Reserves.
In establishing environmental reserves, the Company evaluates the exposure presented by each
policyholder and the anticipated cost of resolution, if any. These claims are mainly brought pursuant to various state or federal
statutes that require a liable party to undertake or pay for environmental remediation. Liability under these statutes may be joint
and several with other responsible parties. In the course of its analysis, the Company generally considers the probable liability,
available coverage and relevant judicial interpretations. In addition, the Company considers the many variables presented, such
as: the nature of the alleged activities of the policyholder at each site; the number of sites; the total number of potentially
responsible parties at each site; the nature of the alleged environmental harm and the corresponding remedy at each site; the
nature of government enforcement activities at each site; the ownership and general use of each site; the overall nature of the
insurance relationship between the Company and the policyholder, including the role of any umbrella or excess insurance the
Company has issued to the policyholder; the involvement of other insurers; the potential for other available coverage, including
the number of years of coverage; the role, if any, of non-environmental claims or potential non-environmental claims in any
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
resolution process; and the applicable law in each jurisdiction. The evaluation of the exposure presented by a policyholder can
change as information concerning that policyholder and the many variables presented is developed. Conventional actuarial
methods are not used to estimate these reserves.
Over the past several years, the Company has experienced generally favorable trends in the number of new policyholders
tendering environmental claims for the first time and in the number of pending declaratory judgment actions relating to
environmental matters. These policyholders continue to present smaller exposures, are involved in fewer hazardous waste sites
and are lower tier defendants than policyholders presenting such claims in the past. Further, in many instances, clean-up costs
have been reduced because regulatory agencies are willing to accept risk-based site analyses and more efficient clean-up
technologies. However, the degree to which those favorable trends have continued has been less than anticipated. In addition,
reserve development on existing environmental claims as well as the costs associated with coverage litigation on environmental
matters has been greater than anticipated, driven by claims and legal developments in a limited number of jurisdictions. As a
result of these factors, in 2021, 2020 and 2019, the Company increased its net environmental reserves by $89 million,
$54 million and $76 million, respectively.
Asbestos and Environmental Reserves. As a result of the processes and procedures discussed above, management believes that
the reserves carried for asbestos and environmental claims are appropriately established based upon known facts, current law
and management’s judgment. However, the uncertainties surrounding the final resolution of these claims continue, and it is
difficult to determine the ultimate exposure for asbestos and environmental claims and related litigation. As a result, these
reserves are subject to revision as new information becomes available and as claims develop. Changes in the legal, regulatory
and legislative environment may impact the future resolution of asbestos and environmental claims and result in adverse loss
reserve development. The emergence of a greater number of asbestos or environmental claims beyond that which is anticipated
may result in adverse loss reserve development. Changes in applicable legislation and future court and regulatory decisions and
interpretations, including the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for
the pursuit of asbestos claims, could affect the settlement of asbestos and environmental claims. It is also difficult to predict the
ultimate outcome of complex coverage disputes until settlement negotiations near completion and significant legal questions are
resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case with policyholders in bankruptcy
where negotiations often involve a large number of claimants and other parties and require court approval to be effective. As
part of its continuing analysis of asbestos and environmental reserves, the Company continues to study the implications of these
and other developments.
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the Company’s current
reserves.
In addition, the Company’s estimate of claims and claim adjustment expenses may change. These additional
liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income
statement charges that could be material to the Company’s operating results in future periods.
Catastrophe Exposure
The Company has geographic exposure to catastrophe losses, which include hurricanes, tornadoes and other windstorms,
earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions, solar flares and other naturally-
occurring events. Catastrophes can also result from terrorist attacks and other intentionally destructive acts including those
involving cyber events, nuclear, biological, chemical and radiological events, civil unrest, explosions and destruction of
infrastructure. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe
is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most
catastrophes are restricted to small geographic areas; however, hurricanes, earthquakes, wildfires and cyber attacks may
produce significant damage in larger areas, especially those that are heavily populated. The Company generally seeks to
mitigate its exposure to catastrophes through individual risk selection and the purchase of catastrophe reinsurance.
There are also risks which impact the estimation of ultimate costs for catastrophes. For example, the estimation of reserves
related to hurricanes can be affected by the inability of the Company and its insureds to access portions of the impacted areas,
the complexity of factors contributing to the losses, the legal and regulatory uncertainties and the nature of the information
available to establish the reserves. Complex factors include, but are not limited to: determining whether damage was caused by
flooding versus wind; evaluating general liability and pollution exposures; estimating additional living expenses; the impact of
demand surge; the potential impact of changing climate conditions, including higher frequency and severity of weather-related
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INSURANCE CLAIM RESERVES (Continued)
events; infrastructure disruption; fraud; the effect of mold damage and business income interruption costs; and reinsurance
collectibility. The timing of a catastrophe’s occurrence, such as at or near the end of a reporting period, can also affect the
information available to the Company in estimating reserves for that reporting period. The estimates related to catastrophes are
adjusted as actual claims emerge.
9. DEBT
Debt outstanding was as follows:
(at December 31, in millions)
Short-term:
Commercial paper...................................................................................................................... $
Total short-term debt
Long-term:
7.75% Senior notes due April 15, 2026
7.625% Junior subordinated debentures due December 15, 2027.............................................
6.375% Senior notes due March 15, 2033 .................................................................................
6.75% Senior notes due June 20, 2036 ......................................................................................
6.25% Senior notes due June 15, 2037 ......................................................................................
5.35% Senior notes due November 1, 2040...............................................................................
4.60% Senior notes due August 1, 2043....................................................................................
4.30% Senior notes due August 25, 2045..................................................................................
8.50% Junior subordinated debentures due December 15, 2045...............................................
3.75% Senior notes due May 15, 2046 ......................................................................................
8.312% Junior subordinated debentures due July 1, 2046.........................................................
4.00% Senior notes due May 30, 2047 ......................................................................................
4.05% Senior notes due March 7, 2048 .....................................................................................
4.10% Senior notes due March 4, 2049 .....................................................................................
2.55% Senior notes due April 27, 2050 .....................................................................................
3.05% Senior notes due June 8, 2051 ........................................................................................
Total long-term debt
Total debt principal .................................................................................................................
Unamortized fair value adjustment............................................................................................
Unamortized debt issuance costs ...............................................................................................
2021
2020
$
100
100
200
125
500
400
800
750
500
400
56
500
73
700
500
500
500
750
100
100
200
125
500
400
800
750
500
400
56
500
73
700
500
500
500
—
7,254
7,354
39
(103)
6,504
6,604
41
(95)
Total debt ................................................................................................................................ $
7,290
$
6,550
2021 Debt Issuance. On June 8, 2021, the Company issued $750 million aggregate principal amount of 3.05% senior notes that
will mature on June 8, 2051. The net proceeds of the issuance, after the deduction of the underwriting discount and expenses
payable by the Company, totaled approximately $739 million. Interest on the senior notes is payable semi-annually in arrears on
June 8 and December 8. Prior to December 8, 2050, the senior notes may be redeemed, in whole or in part, at the Company’s
option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any
senior notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest
to but excluding December 8, 2050 on any senior notes to be redeemed (exclusive of interest accrued to the date of redemption)
discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at
the then current Treasury rate (as defined in the senior notes), plus 15 basis points. On or after December 8, 2050, the senior
notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price
equal to 100% of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to, but excluding,
the redemption date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DEBT (Continued)
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2020 Debt Issuance. On April 27, 2020, the Company issued $500 million aggregate principal amount of 2.55% senior notes
that will mature on April 27, 2050. The net proceeds of the issuance, after the deduction of the underwriting discount and
expenses payable by the Company, totaled approximately $490 million. Interest on the senior notes is payable semi-annually in
arrears on April 27 and October 27. Prior to October 27, 2049, the senior notes may be redeemed, in whole or in part, at the
Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal
amount of any senior notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of
principal and interest to but excluding October 27, 2049 on any senior notes to be redeemed (exclusive of interest accrued to the
date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve
30-day months) at the then current Treasury rate (as defined in the senior notes), plus 25 basis points. On or after October 27,
2049, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a
redemption price equal to 100% of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to,
but excluding, the redemption date.
2020 Debt Repayment. On November 1, 2020, the Company's $500 million, 3.90% notes matured and were fully paid.
2019 Debt Issuance. On March 4, 2019, the Company issued $500 million aggregate principal amount of 4.10% senior notes
that will mature on March 4, 2049. The net proceeds of the issuance, after the deduction of the underwriting discount and
expenses payable by the Company, totaled approximately $492 million. Interest on the senior notes is payable semi-annually in
arrears on March 4 and September 4. Prior to September 4, 2048, the senior notes may be redeemed, in whole or in part, at the
Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal
amount of any senior notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of
principal and interest to but excluding September 4, 2048 on any senior notes to be redeemed (exclusive of interest accrued to
the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the then current Treasury rate (as defined in the senior notes), plus 20 basis points. On or after
September 4, 2048, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to
time, at a redemption price equal to 100% of the principal amount of any senior notes to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date.
2019 Debt Repayment. On June 2, 2019, the Company's $500 million, 5.90% senior notes matured and were fully paid.
Description of Debt
Commercial Paper—The Company maintains an $800 million commercial paper program. Interest rates on commercial paper
issued in 2021 ranged from 0.09% to 0.12%, and in 2020 ranged from 0.12% to 1.62%.
Senior Notes—The Company’s various senior debt issues are unsecured obligations that rank equally with one another. Interest
payments are made semi-annually. The Company generally may redeem some or all of the notes prior to maturity in
accordance with terms unique to each debt instrument.
Junior Subordinated Debentures—The Company’s three junior subordinated debenture instruments are all similar in nature to
each other. Three separate business trusts issued preferred securities to investors and used the proceeds to purchase the
Company’s junior subordinated debentures. Interest on each of the instruments is paid semi-annually.
The Company’s consolidated balance sheet includes the debt instruments acquired in a business acquisition, which were
recorded at fair value as of the acquisition date. The resulting fair value adjustment is being amortized over the remaining life of
the respective debt instruments using the effective-interest method. The amortization of the fair value adjustment reduced
interest expense by $2 million for both of the years ended December 31, 2021 and 2020.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DEBT (Continued)
The following table presents merger-related unamortized fair value adjustments and the related effective interest rate:
(in millions)
Junior subordinated debentures
Total
Unamortized Fair Value
Purchase Adjustment at December 31,
Issue Rate
Maturity Date
2021
2020
7.625 %
8.500 %
8.312 %
Dec. 2027 $
Dec. 2045
Jul. 2046
$
8
14
17
39
$
$
10
14
17
41
Effective
Interest Rate to
Maturity
6.147 %
6.362 %
6.362 %
The Travelers Companies, Inc. fully and unconditionally guarantees the payment of all principal, premiums, if any, and interest
on certain debt obligations of its subsidiaries Travelers Property Casualty Corp. (TPC) and Travelers Insurance Group Holdings
Inc. (TIGHI). The guarantees pertain to the $200 million 7.75% notes due 2026 and the $500 million 6.375% notes due 2033.
Maturities—Other than commercial paper and $200 million of senior notes coming due in 2026, the Company has no senior or
junior subordinated debentures that become due during the years 2022 through 2026.
Credit Agreement
The Company is party to a five-year, $1.0 billion revolving credit agreement with a syndicate of financial institutions that
expires on June 4, 2023. Pursuant to the credit agreement covenants, the Company must maintain a minimum consolidated net
worth, defined as shareholders’ equity determined in accordance with GAAP (excluding accumulated other comprehensive
income (loss)) plus (a) trust preferred securities (not to exceed 15% of total capital) and (b) mandatorily convertible securities
(combined with trust preferred securities, not to exceed 25% of total capital) less goodwill and other intangible assets, of
$12.494 billion. In addition, the credit agreement contains other customary restrictive covenants as well as certain customary
events of default, including with respect to a change in control, which is defined to include the acquisition of 35% or more of
the Company’s voting stock and certain changes in the composition of the Company’s Board of Directors. At December 31,
2021, the Company was in compliance with these covenants. Generally, the cost of borrowing under this agreement will range
from LIBOR plus 75 basis points to LIBOR plus 137.5 basis points, depending on the Company’s credit ratings. At
December 31, 2021, that cost would have been LIBOR plus 100 basis points, had there been any amounts outstanding under the
credit agreement.
In the event that LIBOR is no longer available, the credit agreement provides that the Company and the
syndicate of financial institutions use commercially reasonable efforts to jointly agree upon an alternate rate of interest.
The Company has uncollateralized letters of credit with an aggregate limit of $319 million at December 31, 2021, including
$279 million that provides a portion of the capital needed to support the Company's obligations at Lloyd's.
Shelf Registration
The Company has a shelf registration statement filed with the Securities and Exchange Commission that expires on June 10,
2022 which permits it to issue securities from time to time at prices and on other terms to be determined at the time of offering.
10. SHAREHOLDERS’ EQUITY AND DIVIDEND AVAILABILITY
Authorized Shares
The number of authorized shares of the Company is 1.755 billion, consisting of five million shares of preferred stock, 1.745
billion shares of voting common stock and five million undesignated shares. The Company’s Articles of Incorporation
authorize the Board of Directors to establish, from the undesignated shares, one or more classes and series of shares, and to
further designate the type of shares and terms thereof.
Preferred Stock
The Company’s Articles of Incorporation provide authority to issue up to five million shares of preferred stock.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDERS’ EQUITY AND DIVIDEND AVAILABILITY (Continued)
Common Stock
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The Company is governed by the Minnesota Business Corporation Act. All authorized shares of voting common stock have no
par value. Shares of common stock reacquired are considered authorized and unissued shares.
Restricted Stock
In August 2020, 41,997 shares of restricted stock issued by the Company in August 2017 to certain employees of an acquired
business vested and were distributed. The value of the shares was recognized over the vesting period and was included with the
share-based compensation cost of awards that are issued under the Company’s share-based incentive compensation plan (see
note 14).
Treasury Stock
The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be
made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the
Securities Exchange Act of 1934, in private transactions or otherwise. The authorizations do not have a stated expiration date.
The timing and actual number of shares to be repurchased in the future will 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. In April 2021, the Board of Directors approved a share repurchase authorization that added an additional $5.0 billion of
repurchase capacity. During 2021, the Company repurchased 13.9 million shares under its share repurchase authorization, for a
total of $2.16 billion. The average cost per share repurchased was $154.79. At December 31, 2021, the Company had $4.01
billion of capacity remaining under its share repurchase authorization.
The Company’s Amended and Restated 2004 Stock Incentive Plan and the Amended and Restated 2014 Stock Incentive Plan
provide settlement alternatives to employees in which the Company retains shares to cover payroll withholding taxes in
connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to
cover the price of certain stock options that were exercised. During the years ended December 31, 2021 and 2020, the
Company acquired $44 million and $47 million, respectively, of its common stock under these plans.
Common shares acquired are reported as treasury stock in the consolidated balance sheet.
Dividend Availability
The Company’s U.S. insurance subsidiaries, domiciled principally in the State of Connecticut, are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be paid by each insurance subsidiary to its respective
parent company without prior approval of insurance regulatory authorities. A maximum of $3.08 billion is available by the end
of 2022 for such dividends to the holding company, TRV, without prior approval of the Connecticut Insurance Department.
The Company may choose to accelerate the timing within 2022 and/or increase the amount of dividends from its insurance
subsidiaries in 2022, which could result
to approval by the Connecticut Insurance
in certain dividends being subject
Department.
In addition to the regulatory restrictions on the availability of dividends that can be paid by the Company’s U.S. insurance
subsidiaries, the maximum amount of dividends that may be paid to the Company’s shareholders is limited, to a lesser degree,
by certain covenants contained in its line of credit agreement with a syndicate of financial institutions that require the Company
to maintain a minimum consolidated net worth as described in note 9.
TRV is not dependent on dividends or other forms of repatriation from its foreign operations to support its liquidity needs. The
undistributed earnings of the Company’s foreign operations are intended to be permanently reinvested in those operations, and
such earnings were not material to the Company's financial position or liquidity at December 31, 2021.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDERS’ EQUITY AND DIVIDEND AVAILABILITY (Continued)
TRV and its two non-insurance holding company subsidiaries received dividends of $2.18 billion, $2.00 billion and $2.50
billion from their U.S. insurance subsidiaries in 2021, 2020 and 2019, respectively.
For the years ended December 31, 2021, 2020 and 2019, TRV declared cash dividends per common share of $3.49, $3.37 and
$3.23, respectively, and paid cash dividends of $869 million, $861 million and $844 million, respectively.
Statutory Net Income and Statutory Capital and Surplus
Statutory net income of the Company’s domestic and international insurance subsidiaries was $3.41 billion, $2.98 billion and
$2.74 billion for the years ended December 31, 2021, 2020 and 2019, respectively. Statutory capital and surplus of the
Company’s domestic and international insurance subsidiaries was $23.91 billion and $22.18 billion at December 31, 2021 and
2020, respectively.
11. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents the changes in the Company’s accumulated other comprehensive income (AOCI) for the years
ended December 31, 2021, 2020 and 2019.
Changes in Net Unrealized Gains (Losses) on
Investment Securities
(in millions)
Having No Credit
Losses Recognized in
the Consolidated
Statement of Income
Having Credit Losses
Recognized in the
Consolidated
Statement of Income
Net Benefit Plan
Assets and
Obligations
Recognized in
Shareholders’ Equity
Net Unrealized
Foreign Currency
Translation
Total Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2018 ...
$
(306) $
193
$
(873) $
(873) $
(1,859)
Other comprehensive income
(loss) (OCI) before
reclassifications, net of tax....
Amounts reclassified from
AOCI, net of tax....................
Net OCI, current period..........
Balance, December 31, 2019 ...
OCI before reclassifications, net
of tax......................................
Amounts reclassified from
AOCI, net of tax....................
Net OCI, current period..........
Balance, December 31, 2020 ...
OCI before reclassifications, net
of tax......................................
Amounts reclassified from
AOCI, net of tax....................
Net OCI, current period..........
2,406
(43)
2,363
2,057
1,876
(41)
1,835
3,892
(1,606)
(53)
(1,659)
(4)
—
(4)
189
(7)
—
(7)
182
—
—
—
(14)
41
27
(846)
(53)
67
14
(832)
278
81
359
106
7
113
(760)
21
(1)
20
(740)
(9)
—
(9)
Balance, December 31, 2021 ...
$
2,233
$
182
$
(473) $
(749) $
2,494
5
2,499
640
1,837
25
1,862
2,502
(1,337)
28
(1,309)
1,193
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
(Continued)
The following table presents the pre-tax components of the Company’s other comprehensive income (loss) and the related
income tax expense (benefit).
(for the year ended December 31, in millions)
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of
2021
2020
2019
income...................................................................................................... $
(2,115) $
2,331
$
Income tax expense (benefit).......................................................................
Net of taxes .............................................................................................
Having credit losses recognized in the consolidated statement of income..
Income tax benefit .......................................................................................
Net of taxes .............................................................................................
Net changes in benefit plan assets and obligations ........................................
Income tax expense ........................................................................................
Net of taxes .............................................................................................
Net changes in unrealized foreign currency translation .................................
Income tax expense (benefit) .........................................................................
Net of taxes .............................................................................................
Total other comprehensive income (loss) ...............................................
Total income tax expense (benefit).........................................................
(456)
(1,659)
496
1,835
—
—
—
455
96
359
(11)
(2)
(9)
(9)
(2)
(7)
18
4
14
12
(8)
20
(1,671)
(362)
2,352
490
Total other comprehensive income (loss), net of taxes .................. $
(1,309) $
1,862
$
2,994
631
2,363
(4)
—
(4)
33
6
27
117
4
113
3,140
641
2,499
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
(Continued)
The following table presents the pre-tax and related income tax (expense) benefit components of the amounts reclassified from
the Company’s AOCI to the Company’s consolidated statement of income.
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(for the year ended December 31, in millions)
Reclassification adjustments related to unrealized gains (losses) on
investment securities:
Having no credit losses recognized in the consolidated statement of
income (1).................................................................................................. $
Income tax expense (2) .................................................................................
Net of taxes .............................................................................................
Having credit losses recognized in the consolidated
statement of income (1) .............................................................................
Income tax benefit (2) ...................................................................................
Net of taxes .............................................................................................
Reclassification adjustment related to benefit plan
assets and obligations: ..............................................................................
Claims and claim adjustment expenses (3) ..................................................
General and administrative expenses (3) .....................................................
Total ........................................................................................................
Income tax benefit (2)......................................................................................
Net of taxes .............................................................................................
Reclassification adjustment related to foreign currency translation (1) ..........
Income tax benefit (2)......................................................................................
Net of taxes .............................................................................................
Total reclassifications .............................................................................
Total income tax (expense) benefit.........................................................
Total reclassifications, net of taxes.................................................. $
___________________________________________
2021
2020
2019
(67) $
(52) $
(14)
(53)
—
—
—
41
61
102
21
81
—
—
—
35
7
28
$
(11)
(41)
—
—
—
35
50
85
18
67
(1)
—
(1)
32
7
25
$
(55)
(12)
(43)
—
—
—
21
31
52
11
41
7
—
7
4
(1)
5
(1)
(2)
(3)
(Increases) decreases net realized investment gains on the consolidated statement of income.
(Increases) decreases income tax expense on the consolidated statement of income.
Increases (decreases) expenses on the consolidated statement of income.
12. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income available to common shareholders by the weighted average
number of common shares outstanding during the period. The computation of diluted earnings per share reflected the effect of
potentially dilutive securities and excludes the effect of any anti-dilutive shares.
Potentially dilutive securities include restricted stock units, deferred stock units, stock options and performance share awards
related to the employee share-based incentive compensation programs. The restricted stock units and deferred stock units
contain non-forfeitable rights to dividends and are included as participating securities in the calculation of basic and diluted
earnings per share using the two-class method. Stock option and performance share awards are included in the calculation of
diluted earnings per share using the treasury stock method.
The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations:
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EARNINGS PER SHARE (Continued)
(for the year ended December 31, in millions, except per share amounts)
Basic and Diluted
Net income, as reported.................................................................................. $
Participating securities — allocated income ..................................................
Net income available to common shareholders — basic and diluted ..... $
Common Shares
Basic
Weighted average shares outstanding ............................................................
Diluted
Weighted average shares outstanding ............................................................
Weighted average effects of dilutive securities:
Stock options and performance shares ........................................................
Total....................................................................................................
Net income Per Common Share
Basic............................................................................................................... $
Diluted............................................................................................................ $
2021
2020
2019
3,662
(27)
3,635
$
$
2,697
(19)
2,678
$
$
2,622
(19)
2,603
248.5
248.5
2.3
250.8
253.5
253.5
1.1
254.6
0
14.63
14.49
$
$
10.56
10.52
$
$
260.0
260.0
2.3
262.3
10.01
9.92
13. INCOME TAXES
Components of Income Tax Expense
The following table presents the components of income tax expense included in the amounts reported in the Company’s
consolidated financial statements:
(for the year ended December 31, in millions)
Composition of income tax expense included in the consolidated
2021
2020
2019
statement of income
Current expense:
Federal ......................................................................................................... $
Foreign.........................................................................................................
State .............................................................................................................
Total current tax expense ........................................................................
Deferred expense (benefit):
Federal .........................................................................................................
Foreign.........................................................................................................
Total deferred tax expense (benefit) .......................................................
Total income tax expense included in the consolidated
statement of income...................................................................................
Composition of income tax expense (benefit) included
in shareholders’ equity
Expense (benefit) relating to changes in the unrealized gain (loss) on
investments, unrealized loss on foreign exchange and other items in
other comprehensive income (loss) ............................................................
Total income tax expense included in the
659
$
532
$
67
6
732
62
2
64
796
35
4
571
(29)
(2)
(31)
540
546
7
6
559
(33)
(10)
(43)
516
(362)
490
641
consolidated financial statements ............................................................ $
434
$
1,030
$
1,157
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. INCOME TAXES (Continued)
The following is a reconciliation of income tax expense at the U.S. federal statutory income tax rate to the income tax expense
reported in the Company’s consolidated statement of income:
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(for the year ended December 31, in millions)
Income (loss) before income taxes
U.S.................................................................................................................. $
Foreign ...........................................................................................................
Total income before income taxes...............................................................
Effective tax rate
Statutory tax rate ............................................................................................
Expected federal income tax expense ............................................................
Tax effect of:
Nontaxable investment income ...................................................................
Other, net .....................................................................................................
Total income tax expense............................................................................... $
Effective tax rate ............................................................................................
2021
2020
2019
4,107
351
4,458
21 %
936
(147)
7
796
$
$
3,095
142
3,237
$
3,211
(73)
3,138
21 %
680
(147)
7
540
$
21 %
659
(149)
6
516
18 %
17 %
16 %
The Company paid income taxes of $707 million, $578 million and $428 million during the years ended December 31, 2021,
2020 and 2019, respectively. The current income tax payable was $119 million and $131 million at December 31, 2021 and
2020, respectively, and was included in other liabilities in the consolidated balance sheet.
Deferred Tax Liability
The net deferred tax liability comprises the tax effects of temporary differences related to the following assets and liabilities:
2021
2020
(at December 31, in millions)
Deferred tax assets
Claims and claim adjustment expense reserves......................................................................... $
Unearned premium reserves ......................................................................................................
Compensation-related liabilities ................................................................................................
Net operating losses ...................................................................................................................
Other ..........................................................................................................................................
Total gross deferred tax assets ................................................................................................
Less: valuation allowance .......................................................................................................
Adjusted gross deferred tax assets ..........................................................................................
Deferred tax liabilities
Deferred acquisition costs..........................................................................................................
Investments ................................................................................................................................
Depreciation...............................................................................................................................
Other ..........................................................................................................................................
Total gross deferred tax liabilities...........................................................................................
Net deferred tax liability ......................................................................................................... $
1,758
289
$
$
601
603
35
101
152
1,492
23
1,469
479
940
112
227
575
560
110
87
180
1,512
21
1,491
445
1,225
130
249
2,049
558
If the Company determines that any of its deferred tax assets will not result in future tax benefits, a valuation allowance must be
established for the portion of these assets that are not expected to be realized. The net change in the valuation allowance for
deferred tax assets was an increase of $2 million in 2021, primarily driven by a $3 million increase in the Company's Canadian
subsidiary, partially offset by a decrease of $1 million in the Company's Republic of Ireland subsidiary. Based upon a review
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. INCOME TAXES (Continued)
of the Company’s anticipated future taxable income, and also including all other available evidence, both positive and negative,
the Company’s management concluded that it is more likely than not that the net deferred tax assets will be realized.
U.S. income taxes have not been recognized on any undistributed earnings that are intended to be permanently reinvested. Any
potential U.S. income tax on these amounts is immaterial.
Net Operating Losses
For tax return purposes, as of December 31, 2021, the Company had net operating loss (NOL) carryforwards in the United
States, Canada, the Republic of Ireland and the United Kingdom. The amount and timing of realizing the benefits of NOL
carryforwards depend on future taxable income and limitations imposed by tax laws. Only the benefits of the United Kingdom
NOL carryforwards have been recognized in the consolidated financial statements and are included in net deferred tax assets.
The NOL amounts by jurisdiction and year of expiration are as follows:
(in millions)
United States .............................................................................................................................. $
Canada ....................................................................................................................................... $
Republic of Ireland .................................................................................................................... $
United Kingdom ........................................................................................................................ $
Amount
2
25
127
328
Year of
expiration
2035 - 2036
2035 - 2041
None
None
Uncertain Tax Positions
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended
December 31, 2021 and 2020:
(in millions)
Balance at January 1 .................................................................................................................. $
Additions for tax positions of prior years ..................................................................................
Reductions for tax positions of prior years................................................................................
Reductions based on tax positions related to current year.........................................................
Expiration of statute of limitations ............................................................................................
Balance at December 31.......................................................................................................... $
2021
2020
49
2
(3)
—
—
48
$
$
37
16
—
—
(4)
49
Included in the balances at both December 31, 2021 and 2020 were $48 million of unrecognized tax benefits that, if recognized,
would affect the annual effective tax rate. Also included in the balances at those dates were $0 million and $1 million,
respectively, of tax positions for which the ultimate deductibility is certain, but for which there is uncertainty about the timing
of deductibility. The timing of such deductibility could affect the annual effective tax rate depending on the year of deduction
and tax rate at the time.
The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income taxes. During
the years ended December 31, 2021, 2020 and 2019, the Company recognized approximately $3 million, $0 million and $(1)
million in interest, respectively. The Company had approximately $16 million and $13 million accrued for the payment of
interest at December 31, 2021 and 2020, respectively.
The IRS is conducting an examination of the Company’s U.S. income tax returns for 2017 and 2018. The Company believes
that it is reasonably possible the liability for unrecognized tax benefits will decrease by approximately $40 million to
$50 million within the next twelve months due to the expected completion of the examination of the Company’s U.S. income
tax returns for 2017 and 2018. The decrease primarily pertains to temporary differences that originated in periods prior to the
Tax Cuts and Jobs Act of 2017.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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14. SHARE-BASED INCENTIVE COMPENSATION
The Company has a share-based incentive compensation plan, The Travelers Companies, Inc. Amended and Restated 2014
Stock Incentive Plan (the 2014 Incentive Plan), the purposes of which are to align the interests of the Company’s non-employee
directors, executive officers and other employees with those of the Company’s shareholders and to attract and retain personnel
by providing incentives in the form of share-based awards. The 2014 Incentive Plan permits grants of nonqualified stock
options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock, deferred stock
units, performance awards and other share-based or share-denominated awards with respect to the Company’s common stock.
The Company has a policy of issuing new shares to settle the exercise of stock option awards and the vesting of other equity
awards.
In connection with the adoption of the 2014 Incentive Plan, The Travelers Companies, Inc. Amended and Restated 2004 Stock
Incentive Plan, as amended (the 2004 Incentive Plan) was terminated, joining several other legacy share-based incentive
compensation plans that had been terminated in prior years (together, the legacy plans). Outstanding grants were not affected by
the termination of the legacy plans. The 2014 Incentive Plan is currently the only plan pursuant to which future stock-based
awards may be granted.
The number of shares of the Company’s common stock initially authorized for grant under the 2014 Incentive Plan was 10
million shares.
In May 2021, 2019, 2017 and 2016, the Company’s shareholders authorized an additional 2.4 million, 3.1
million, 2.5 million and 4.4 million shares of the Company’s common stock, respectively, for grant under the 2014 Incentive
Plan. The following are not counted towards the combined 22.4 million shares available and will be available for future grants
under the 2014 Incentive Plan: (i) shares of common stock subject to awards that expire unexercised, that are forfeited,
terminated or canceled, that are settled in cash or other forms of property, or otherwise do not result in the issuance of shares of
common stock, in whole or in part; (ii) shares that are used to pay the exercise price of stock options and shares used to pay
withholding taxes on awards generally; and (iii) shares purchased by the Company on the open market using cash option
exercise proceeds; provided, however, that the increase in the number of shares of common stock available for grant pursuant to
such market purchases shall not be greater than the number that could be repurchased at fair market value on the date of
exercise of the stock option giving rise to such option proceeds. In addition, the 22.4 million shares authorized by shareholders
for issuance under the 2014 Incentive Plan will be increased by any shares subject to awards under the 2004 Incentive Plan that
were outstanding as of May 27, 2014 and subsequently expire, are forfeited, canceled, settled in cash or otherwise terminate
without the issuance of shares.
The Company also has a compensation program for non-employee directors (the Director Compensation Program). Under the
Director Compensation Program, non-employee directors’ compensation consists of an annual retainer, a deferred stock award,
committee chair fees and a lead director fee. Each non-employee director may choose to receive all or a portion of his or her
annual retainer, committee chair fee and lead director fee, as applicable, in the form of cash or deferred stock units which vest
upon grant. The annual deferred stock awards vest in full one day prior to the date of the Company’s annual meeting of
shareholders occurring in the year following the year of the grant date, subject to continued service. The annual deferred stock
awards, including dividend equivalents, accumulate until distribution either in a lump sum or, if the director so elects, in annual
installments, in each case beginning at least six months following termination of service as a director. The deferred stock units
issued under the Director Compensation Program are awarded under the 2014 Incentive Plan.
Stock Option Awards
Stock option awards granted to eligible officers and key employees have a ten-year term. All stock options are granted with an
exercise price equal to the closing price of the Company’s common stock on the date of grant. The stock options granted
generally vest upon meeting certain years of service criteria. Except as the Compensation Committee of the Board of Directors
may allow in the future, stock options cannot be sold or transferred by the participant. Stock options outstanding under the
2014 Incentive Plan and the 2004 Incentive Plan generally vest three years after grant date (cliff vest).
The fair value of each option award is estimated on the date of grant by application of a variation of the Black-Scholes option
pricing model using the assumptions noted in the following table. The expected term of newly granted stock options is the time
to vest plus half the remaining time to expiration. This considers the vesting restriction and represents an even pattern of
exercise behavior over the remaining term. The expected volatility assumption is based on the historical volatility of the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SHARE-BASED INCENTIVE COMPENSATION (Continued)
Company’s common stock for the same period as the estimated option term generally using the volatility of the week prior to
the stock option grant. The expected dividend is based upon the Company’s current quarter dividend annualized and assumed
to be constant over the expected option term. The risk-free interest rate for each option is the interpolated market yield of a U.S.
Treasury bill with a term comparable to the expected option term for the same week used for measuring volatility. The
following table provides information about options granted:
2021
2020
2019
(for the year ended December 31,)
Assumptions used in estimating fair value of options
on grant date
Expected term of stock options............................................
6 years
Expected volatility of Company’s stock..............................
24.22% - 24.53%
Weighted average volatility .................................................
Expected annual dividend per share ....................................
Risk-free rate........................................................................
Additional information
Weighted average grant-date fair value of
24.22 %
$3.40 - $3.52
0.59% - 1.08%
6 years
15.73 %
15.73 %
$3.28
1.37 %
6 years
15.47% - 15.91%
15.48 %
$3.08 - $3.28
1.70% - 2.54%
options granted (per share).............................................. $
23.32
Total intrinsic value of options exercised
during the year (in millions)............................................ $
94
$
$
14.41
47
$
$
16.64
88
A summary of stock option activity under the 2014 Incentive Plan and the legacy plans as of and for the year ended
December 31, 2021 is as follows:
Stock Options
Outstanding, beginning of year ..............................................
Number
10,075,758
$
Original grants ........................................................................
Exercised ................................................................................
Forfeited or expired ................................................................
Outstanding, end of year.........................................................
Vested at end of year (1) ..........................................................
Exercisable at end of year.......................................................
___________________________________________
1,599,841
(2,181,586)
(74,128)
9,419,885
7,225,469
4,081,500
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Contractual
Life
Remaining
Aggregate
Intrinsic
Value
($ in millions)
121.03
139.88
110.39
131.29
126.62
124.73
118.75
6.5 years
6.0 years
4.4 years
$
$
$
281
229
154
(1)
Represents awards for which the requisite service has been rendered, including those that are retirement eligible.
On February 8, 2022, the Company, under the 2014 Incentive Plan, granted 1,104,483 stock option awards with an exercise
price of $172.50 per share. The fair value attributable to the stock option awards on the date of grant was $35.70 per share.
Restricted Stock Units, Deferred Stock Units and Performance Share Award Programs
The Company issues restricted stock unit awards to eligible officers and key employees under the Equity Awards program
established pursuant to the 2014 Incentive Plan. A restricted stock unit represents the right to receive a share of common
stock. These restricted stock unit awards are granted at market price, generally vest three years from the date of grant, do not
have voting rights and the underlying shares of common stock are not issued until the vesting criteria is satisfied. In addition,
members of the Company’s Board of Directors can be issued deferred stock units from (i) an annual award; (ii) deferred
compensation (in lieu of cash retainer, committee chair fees and lead director fees); and (iii) dividend equivalents earned on
outstanding deferred compensation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SHARE-BASED INCENTIVE COMPENSATION (Continued)
The Company also has a Performance Share Awards Program established pursuant to the 2004 Incentive Plan and which
continues pursuant to the 2014 Incentive Plan. Under the program, the Company may issue performance share awards to certain
employees of the Company who hold positions of Vice President (or its equivalent) or above. The performance share awards
provide the recipient the right to earn shares of the Company’s common stock based upon the Company’s attainment of certain
performance goals and the recipient meeting certain years of service criteria. The performance goals for performance share
awards are based on the Company’s adjusted return on equity over a three-year performance period. Vesting of performance
shares is contingent upon the Company attaining the relevant performance period minimum threshold return on equity and the
recipient meeting certain years of service criteria, generally three years for full vesting. If the performance period return on
If performance meets or exceeds the
equity is below the minimum threshold, none of the performance shares will vest.
minimum performance threshold, a range of performance shares will vest (50% to 150% for awards granted in 2020, 50% to
200% for awards granted in 2021 and 2022), depending on the actual return on equity attained.
The fair value of restricted stock units, deferred stock units and performance shares is measured at the market price of the
Company stock at date of grant. Under terms of the 2014 Incentive Plan, holders of deferred stock units and performance
shares may receive dividend equivalents.
The total fair value of shares that vested during the years ended December 31, 2021, 2020 and 2019 was $124 million, $127
million and $130 million, respectively.
A summary of restricted stock units, deferred stock units and performance share activity under the 2014 Incentive Plan and the
legacy plans as of and for the year ended December 31, 2021 is as follows:
Restricted and Deferred Stock
Units
Performance Shares
Other Equity Instruments
Nonvested, beginning of year ..............................
Number
1,086,784
$
Granted..............................................................
Vested................................................................
Forfeited ............................................................
Performance-based adjustment .........................
605,188
(513,226) (1)
(69,921)
—
Weighted
Average
Grant-Date
Fair Value
132.12
141.22
138.57
132.93
—
Number
723,991
367,299
(359,925) (2)
(24,828)
224,020 (3)
Nonvested, end of year ........................................
1,108,825
$
134.05
930,557
$
___________________________________________
Weighted Average
Grant-Date Fair
Value
$
129.45
139.83
126.18
131.20
138.56
136.96
(1)
(2)
(3)
Represents awards for which the requisite service has been rendered.
Reflects the number of performance shares attributable to the performance goals attained over the completed performance period
(three years) and for which service conditions have been met.
Represents the current year change in estimated performance shares to reflect the attainment of performance goals for the awards
that were granted in each of the years 2019 through 2021.
In addition to the nonvested shares presented in the above table, there are related nonvested dividend equivalent shares. The
number of nonvested dividend equivalent shares related to deferred stock units was 394 at the beginning of the year and 280 at
the end of the year and the number of nonvested dividend equivalent shares related to performance shares was 29,751 at the
beginning of the year and 32,670 at the end of the year. The dividend equivalent shares are subject to the same vesting terms as
the deferred stock units and performance shares.
On February 8, 2022, the Company, under the 2014 Incentive Plan, granted 788,058 common stock awards in the form of
restricted stock units, deferred stock units and performance share awards to participating officers, non-employee directors and
other key employees. The restricted stock units and deferred stock units totaled 470,716 shares and the performance share
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SHARE-BASED INCENTIVE COMPENSATION (Continued)
awards totaled 317,342 shares. The fair value per share attributable to the common stock awards on the date of grant was
$172.50.
Share-Based Compensation Cost Recognition
The amount of compensation cost for awards subject to a service condition is based on the number of shares expected to be
issued and is recognized over the time period for which service is to be provided (requisite service period), generally the vesting
period. Awards granted to retiree-eligible employees or to employees who become retiree-eligible before an award’s vesting
date are considered to have met the requisite service condition if the vesting terms are accelerated upon retirement. The
compensation cost for awards subject to a performance condition is based upon the probable outcome of the performance
condition, which on the grant date reflects an estimate of attaining 100% of the performance shares granted. The compensation
cost reflects an estimated annual forfeiture rate from 3.5% to 4.5% over the requisite service period of the awards. That estimate
is revised if subsequent information indicates that the actual number of instruments expected to vest is likely to differ from
previous estimates. Compensation costs for awards are recognized on a straight-line basis over the requisite service period. For
awards that have graded vesting terms, the compensation cost is recognized on a straight-line basis over the requisite service
period for each separate vesting portion of the award as if the award was, in substance, multiple awards. The total compensation
cost for all share-based incentive compensation awards recognized in earnings for the years ended December 31, 2021, 2020
and 2019 was $162 million, $148 million and $142 million, respectively. Included in these amounts are compensation cost
adjustments of $12 million, $3 million and $2 million, for the years ended December 31, 2021, 2020 and 2019, respectively,
that reflected the cost associated with the updated estimate of performance shares due to attaining certain performance levels
from the date of the initial grant of the performance awards. The related tax benefits recognized in earnings were $28 million,
$25 million and $26 million for the years ended December 31, 2021, 2020 and 2019, respectively.
At December 31, 2021, there was $158 million of total unrecognized compensation cost related to all nonvested share-based
incentive compensation awards. This includes stock options, restricted and deferred stock units and performance shares granted
under the 2014 Incentive Plan. The unrecognized compensation cost is expected to be recognized over a weighted-average
period of 1.8 years. Cash received from the exercise of employee stock options under share-based compensation plans totaled
$293 million, $127 million and $213 million in 2021, 2020 and 2019, respectively. The tax benefit for tax deductions from
employee stock options exercised during 2021, 2020 and 2019 totaled $19 million, $10 million and $18 million, respectively.
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS
The Company sponsors a qualified non-contributory defined benefit pension plan (the qualified domestic pension plan), which
covers substantially all U.S. domestic employees and provides benefits under a cash balance formula, except that certain limited
groups of legacy participants are covered by a prior traditional final average pay formula. In addition, the Company sponsors a
nonqualified defined benefit pension plan which covers certain highly-compensated employees, pension plans for employees of
its foreign subsidiaries, and a postretirement health and life insurance benefit plan for employees satisfying certain age and
service requirements and for certain retirees.
Obligations and Funded Status
The following tables summarize the funded status, obligations and amounts recognized in the consolidated balance sheet for the
Company’s benefit plans. The Company uses a December 31 measurement date for its pension and postretirement benefit plans.
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file://sanjfs5.sa1.com/Sandy2/92624
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
92624 10K
193
(at and for the year ended December 31,
in millions)
Change in projected benefit
obligation:
Benefit obligation at beginning of
Qualified Domestic
Pension Plan
Nonqualified and Foreign
Pension Plans
Total
2021
2020
2021
2020
2021
2020
year................................................... $
4,326
$
3,954
$
265
$
241
$
4,591
$
4,195
Benefits earned ....................................
Interest cost on benefit obligation .......
Actuarial (gain) loss ............................
Benefits paid........................................
Amendment .........................................
Foreign currency exchange rate
change ..............................................
Benefit obligation at end of year ...... $
Change in plan assets:
Fair value of plan assets at beginning
135
79
(73)
(255)
—
—
128
109
336
(201)
—
—
6
4
(2)
(13)
—
(1)
5
5
20
(11)
1
4
141
83
(75)
(268)
—
(1)
133
114
356
(212)
1
4
4,212
$
4,326
$
259
$
265
$
4,471
$
4,591
of year .............................................. $
4,631
$
4,270
$
125
$
115
$
4,756
$
4,385
Actual return on plan assets.................
Company contributions .......................
Benefits paid........................................
Foreign currency exchange rate
change ..............................................
Fair value of plan assets at end
of year ...............................................
Funded status of plan at end
of year .............................................. $
Amounts recognized in the
consolidated balance sheet consist
of:
Accrued over-funded benefit plan
526
—
(255)
—
562
—
(201)
—
11
12
(13)
(1)
8
9
(11)
4
537
12
(268)
(1)
570
9
(212)
4
4,902
4,631
134
125
5,036
4,756
690
$
305
$
(125) $
(140) $
565
$
165
assets ................................................ $
690
$
305
$
6
$
1
$
696
$
306
Accrued under-funded benefit plan
liabilities...........................................
Total ................................................. $
Amounts recognized in
accumulated other
comprehensive income consist of:
Net actuarial loss ................................. $
Prior service cost (benefit) ..................
Total ................................................. $
—
690
618
(2)
616
$
$
$
—
305
1,050
(2)
1,048
$
$
$
(131)
(125) $
(141)
(140) $
(131)
565
49
1
50
$
$
63
1
64
$
$
667
(1)
666
(141)
165
1,113
(1)
1,112
$
$
$
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
92624 10K
194
(at and for the year ended December 31, in millions)
Change in accumulated benefit obligation:
Benefit obligation at beginning of year ..................................................................................... $
Benefits earned ..........................................................................................................................
Interest cost on benefit obligation..............................................................................................
Actuarial (gain) loss...................................................................................................................
Benefits paid ..............................................................................................................................
Foreign currency exchange rate change.....................................................................................
Benefit obligation at end of year............................................................................................. $
Change in plan assets:
Fair value of plan assets at beginning of year............................................................................ $
Actual return on plan assets .......................................................................................................
Company contributions..............................................................................................................
Benefits paid ..............................................................................................................................
Fair value of plan assets at end of year ...................................................................................
Funded status of plan at end of year ................................................................................... $
Amounts recognized in the consolidated balance sheet consist of:
Postretirement
Benefit Plans
2021
2020
171
$
—
3
(16)
(9)
—
149
11
—
7
(9)
9
$
$
(140) $
171
—
4
5
(10)
1
171
12
1
8
(10)
11
(160)
Accrued under-funded benefit plan liability ........................................................................... $
(140) $
(160)
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial gain .................................................................................................................... $
Prior service benefit ................................................................................................................
Total........................................................................................................................................ $
(54) $
(14)
(68) $
(41)
(18)
(59)
The total accumulated benefit obligation for the Company’s defined benefit pension plans was $4.25 billion and $4.40 billion at
December 31, 2021 and 2020, respectively. The qualified domestic pension plan accounted for $4.00 billion and $4.15 billion
of the total accumulated benefit obligation at December 31, 2021 and 2020, respectively, whereas the nonqualified and foreign
plans accounted for $246 million and $253 million of the total accumulated benefit obligation at December 31, 2021 and 2020,
respectively.
For pension plans with a projected benefit obligation in excess of plan assets, the aggregate projected benefit obligation was
$131 million and $250 million at December 31, 2021 and 2020, respectively, and the aggregate plan assets were $0 million and
$109 million at December 31, 2021 and 2020, respectively. For pension plans with an accumulated benefit obligation in excess
of plan assets, the aggregate accumulated benefit obligation was $118 million and $239 million at December 31, 2021 and
2020, respectively, and the aggregate plan assets were $0 million and $109 million at December 31, 2021 and 2020,
respectively. For postretirement benefit plans with an accumulated benefit obligation in excess of plan assets, the aggregate
accumulated benefit obligation was $149 million and $171 million at December 31, 2021 and 2020, respectively, and the
aggregate plan assets were $9 million and $11 million at December 31, 2021 and 2020, respectively.
The $73 million actuarial gain experienced in 2021 for the qualified domestic pension plan was largely driven by the increase in
the assumed discount rate from the prior year that was used to determine the projected benefit obligation at December 31, 2021.
The $336 million actuarial loss experienced in 2020 for the qualified domestic pension plan was largely driven by the decrease
in the assumed discount rate from the prior year that was used to determine the projected benefit obligation at December 31,
2020.
The Company has discretion regarding whether to provide additional funding and when to provide such funding to its qualified
domestic pension plan.
In 2021, 2020 and 2019, there were no required or voluntary contributions to the qualified domestic
pension plan. There is no required contribution to the qualified domestic pension plan during 2022, and the Company has not
194
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2
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9
4
9
1
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195
1
9
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9
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6
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4
1
0
K
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
determined whether additional funding will be made during 2022. With respect to the Company’s foreign pension plans, there
are no significant required contributions in 2022.
The following table summarizes the components of net periodic benefit cost (benefit) and other amounts recognized in other
comprehensive income (loss) related to the benefit plans.
(for the year ended December 31, in millions)
Net Periodic Benefit Cost (Benefit):
Service cost...................................................... $
Non-service cost (benefit):
Interest cost on benefit obligation .................
Expected return on plan assets.......................
Amortization of unrecognized:
Prior service benefit ....................................
Net actuarial (gain) loss ..............................
Total non-service cost (benefit)................
Net periodic benefit cost (benefit)............
Other Changes in Benefit Plan Assets and
Benefit Obligations Recognized in Other
Comprehensive Income:
Prior service benefit.........................................
Net actuarial (gain) loss...................................
Foreign currency exchange rate change ..........
Amortization of prior service benefit ..............
Amortization of net actuarial gain (loss) .........
Total other changes recognized in
other comprehensive income .............
Total other changes recognized in net
periodic benefit cost and other
comprehensive income ....................... $
Pension Plans
Postretirement Benefit
Plans
2021
2020
2019
2021
2020
2019
141
$
133
$
118
$
— $
— $
—
83
(274)
(1)
109
(83)
58
—
(338)
—
1
(109)
(446)
114
(275)
(1)
93
(69)
64
1
61
1
1
(93)
(29)
141
(275)
(1)
56
(79)
39
——
49
1
14
(56)
(5)
3
—
(4)
(2)
(3)
(3)
(16)
—
2
(10)
4
—
(3)
(4)
(3)
(3)
—
4
—
3
4
11
7
(1)
(3)
—
3
3
—
(31)
—
3
—
(28)
(388) $
35
$
34
$
(13) $
8
$
(25)
The following table indicates the line items in which the respective service costs and non-service cost (benefit) are presented in
the consolidated statement of income for the years ended December 31, 2021, 2020 and 2019.
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K
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
92624 10K
196
(for the year ended December 31, in millions)
Service Cost:
Net investment income.................................... $
Claims and claim adjustment expenses...........
General and administrative expenses ..............
Total service cost..........................................
Non-Service Cost (Benefit):
Claims and claim adjustment expenses...........
General and administrative expenses ..............
Total non-service cost (benefit)....................
Net periodic benefit cost (benefit)................ $
Assumptions
1
57
83
141
(34)
(49)
(83)
58
$
$
Pension Plans
Postretirement Benefit
Plans
2021
2020
2019
2021
2020
2019
$
1$
—
$
1
55
77
133
48
69
118
(29)
(40)
(69)
64
$
(33)
(46)
(79)
39
$
—
—
—
(1)
(2)
(3)
(3) $
— $
—
—
—
(1)
(2)
(3)
(3) $
—
—
—
—
1
2
3
3
The following table summarizes assumptions used with regard to the Company’s qualified and nonqualified domestic pension
plans and the domestic postretirement benefit plans.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
92624 10K
197
(at and for the year ended December 31,)
Assumptions used to determine benefit obligations
Discount rate:
Qualified domestic pension plan.............................................................................................
Nonqualified domestic pension plan.......................................................................................
Domestic postretirement benefit plan .....................................................................................
Cash balance interest crediting rate ...........................................................................................
Future compensation increase rate.............................................................................................
Assumptions used to determine net periodic benefit cost
Discount rate:
Qualified domestic pension plan:
Service cost.........................................................................................................................
Interest cost.........................................................................................................................
Nonqualified domestic pension plan:
Service cost.........................................................................................................................
Interest cost.........................................................................................................................
Domestic postretirement benefit plan:
2021
2020
2.96 %
2.82 %
2.62 %
4.01 %
4.00 %
2.96 %
1.88 %
2.58 %
1.69 %
2.60 %
2.44 %
2.27 %
4.01 %
4.00 %
3.50 %
2.84 %
3.30 %
2.73 %
Interest cost.........................................................................................................................
1.57 %
2.67 %
Expected long-term rate of return on assets:
Pension plan ............................................................................................................................
Postretirement benefit plan .....................................................................................................
6.50 %
4.00 %
6.75 %
4.00 %
Assumed health care cost trend rates
Following year:
Medical (before age 65) ..........................................................................................................
Medical (age 65 and older) .....................................................................................................
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)............................
Year that the rate reaches the ultimate trend rate:
Medical (before age 65) ..........................................................................................................
Medical (age 65 and older) .....................................................................................................
6.50 %
8.00 %
4.50 %
2029
2031
6.75 %
7.75 %
4.50 %
2026
2027
The discount rate assumption used to determine the benefit obligation is based on a yield-curve approach. Under this approach,
individual spot rates from the yield curve of a hypothetical portfolio of high quality fixed maturity corporate bonds (rated Aa)
available at the year-end valuation date, for which the timing and amount of cash outflows correspond with the timing and
amount of the estimated benefit payouts of the Company’s benefit plan, are applied to expected future benefits payments in
measuring the projected benefit obligation. The discount rate assumption used to determine benefit obligations disclosed above
represents the weighted average of the individual spot rates.
The discount rate assumption used to determine the net periodic benefit cost is the single weighted average discount rate
derived from the yield curve used to measure the benefit obligation at the beginning of the year.
In choosing the expected long-term rate of return on plan assets, the Company selected the rate that was set as the return
objective by the Company’s Benefit Plans Investment Committee, which had considered the historical returns of equity and
fixed maturity markets in conjunction with prevailing economic and financial market conditions.
The assumptions made for the Company’s foreign pension and foreign postretirement benefit plans are not materially different
from those of the Company’s qualified domestic pension plan and the domestic postretirement benefit plan.
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9
7
9
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9
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
Plan Assets
92624 10K
198
The qualified domestic pension plan assets are invested for the exclusive benefit of the plan participants and beneficiaries and
are intended, over time, to satisfy the benefit obligations under the plan. Risk tolerance is established through consideration of
plan liabilities, plan funded status and corporate financial position. The asset mix guidelines have been established and are
reviewed quarterly. These guidelines are intended to serve as tools to facilitate the investment of plan assets to maximize long-
term total return and the ongoing oversight of the plan’s investment performance. Investment risk is measured and monitored
on an ongoing basis through daily and monthly investment portfolio reviews, annual liability measurements and periodic asset/
liability studies.
The Company’s overall investment strategy for the qualified domestic pension plan is to achieve a mix of approximately 85%
to 90% of investments for long-term growth and 10% to 15% for near-term benefit payments with a diversification of asset
types, fund strategies and fund managers. The current target allocations for plan assets are 55% to 65% equity securities and
20% to 40% fixed income securities, with the remainder allocated to short-term securities. Equity securities primarily include
investments in large, medium and small-cap companies primarily located in the United States. Fixed income securities include
corporate bonds of companies from diversified industries, mortgage-backed securities, U.S. Treasury securities and debt
securities issued by foreign governments.
Assets of the Company’s foreign pension plans are not significant.
Fair Value Measurement — Pension Plans and Other Postretirement Benefit Assets
For a discussion of the methods employed by the Company to measure the fair value of invested assets, see note 4. The
following discussion of fair value measurements applies exclusively to the Company’s pension plans and other postretirement
benefit assets.
Fair value estimates for equity and bond mutual funds held by the pension plans reflect prices received from an external pricing
service that are based on observable market transactions. These estimates are primarily included in Level 1.
Short-term securities are carried at fair value which approximates cost plus accrued interest or amortized discount. The fair
value or market value of these is periodically compared to this amortized cost and is based on significant observable inputs as
determined by an external pricing service. Accordingly, the estimates of fair value for such short-term securities, other than
U.S. Treasury securities and money market mutual funds, provided by an external pricing service are included in the amount
disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury securities and money market mutual funds is
included in the amount disclosed in Level 1 as the estimates are based on unadjusted market prices.
Fair Value Hierarchy — Pension Plans
The following tables present the level within the fair value hierarchy at which the financial assets of the Company’s pension
plans are measured on a recurring basis.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
92624 10K
199
Total
Level 1
Level 2
Level 3
(at December 31, 2021, in millions)
Invested assets:
Fixed maturities
Obligations of states, municipalities and political
subdivisions.................................................................. $
Debt securities issued by foreign governments ...............
Mortgage-backed securities, collateralized mortgage
obligations and pass-through securities........................
All other corporate bonds.................................................
Total fixed maturities..............................................
Mutual funds
Equity mutual funds.........................................................
Bond mutual funds...........................................................
Total mutual funds.......................................................
Equity securities................................................................
Other investments ............................................................
Cash and short-term securities
U.S. Treasury securities ...................................................
Other ................................................................................
Total cash and short-term securities .......................
Total..................................................................... $
(at December 31, 2020, in millions)
Invested assets:
Fixed maturities
Obligations of states, municipalities and political
subdivisions.................................................................. $
Debt securities issued by foreign governments ...............
Mortgage-backed securities, collateralized mortgage
obligations and pass-through securities........................
All other corporate bonds.................................................
Total fixed maturities..............................................
Mutual funds
Equity mutual funds.........................................................
Bond mutual funds...........................................................
Total mutual funds.......................................................
Equity securities................................................................
Other investments ............................................................
Cash and short-term securities
U.S. Treasury securities ...................................................
Other ................................................................................
Total cash and short-term securities .......................
Total..................................................................... $
Total
Level 1
Level 2
Level 3
— $
—
—
—
—
1,638
1,111
2,749
1,384
—
—
106
106
4,239
$
26
38
6
678
748
7
3
10
1
—
—
37
$
37
796
$
$
26
38
6
678
748
1,645
1,114
2,759
1,385
1
—
143
143
5,036
$
$
27
30
— $
—
—
—
—
1,699
946
2,645
1,171
—
—
54
$
27
30
14
712
783
7
3
10
—
—
—
92
54
3,870
$
$
92
885
$
14
712
783
1,706
949
2,655
1,171
1
—
146
146
4,756
199
—
—
—
—
—
—
—
—
—
1
—
—
—
1
—
—
—
—
—
—
—
—
—
1
—
—
—
1
K
0
1
4
2
6
2
9
9
9
1
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0
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K
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
Other Postretirement Benefit Plans
92624 10K
200
The Company’s overall investment strategy is to achieve a mix of approximately 35% to 65% of investments for long-term
growth and 35% to 65% for near-term insurance payments with a wide diversification of asset types, fund strategies and fund
managers. The current target allocations for plan assets are 25% to 75% fixed income securities, with the remainder allocated
to short-term securities. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-
backed securities and U.S. Treasuries.
Fair Value — Other Postretirement Benefit Plans
The Company’s other postretirement benefit plans had financial assets of $9 million and $11 million at December 31, 2021 and
2020, respectively, which are measured at fair value on a recurring basis. The assets are primarily corporate bonds, which are
categorized as level 2 in the fair value hierarchy.
Estimated Future Benefit Payments
The following table presents the estimated benefits expected to be paid by the Company’s pension and postretirement benefit
plans for the next ten years (reflecting estimated future employee service).
(in millions)
2022 ........................................................................................................................................... $
2023 ...........................................................................................................................................
2024 ...........................................................................................................................................
2025 ...........................................................................................................................................
2026 ...........................................................................................................................................
2027 through 2031 .....................................................................................................................
Pension Plans
270
273
273
272
279
1,372
Postretirement
Benefit Plans
$
10
11
11
11
11
49
Benefits Expected to be Paid
Savings Plan
Substantially all U.S. domestic Company employees are eligible to participate in The Travelers 401(k) Savings Plan (the
Savings Plan). Eligible employees can contribute to the Savings Plan, and the Company makes a matching contribution into the
In addition, starting on January 1, 2020, when an
employee's Savings Plan account, subject to limitations described below.
eligible U.S. employee makes a payment toward their student loans, the Company makes a contribution of that amount into the
employee’s Savings Plan account, subject to limitations described below. The total annual amount of the Company's matching
contributions, student loan repayment contributions or a combination of both is the lesser of 5% of eligible pay or $7,000,
which becomes 100% vested after three years of service. All Company contributions to the Savings Plan are made in cash and
invested according to the employee’s current investment elections and can be reinvested into other investment options in
accordance with the terms of the Savings Plan. The Company’s non-U.S. employees and certain domestic employees participate
in separate savings plans. The total expense related to all of the savings plans was $133 million, $132 million and $123 million
for the years ended December 31, 2021, 2020 and 2019, respectively.
All common shares held by the Savings Plan are considered outstanding for basic and diluted EPS computations and dividends
paid on all shares are charged to retained earnings.
16. LEASES
The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of
business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over
the term of the lease, and a right-of-use asset and lease liability is recognized as part of other assets and other liabilities,
respectively, in the consolidated balance sheet.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. LEASES (Continued)
Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's
discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the
Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments,
utilizes either the rate implicit in the lease, if that rate is readily determinable, or the Company’s incremental secured borrowing
rate commensurate with the term of the underlying lease.
Lease expense is included in general and administrative expenses in the consolidated statement of income. Additional
information regarding the Company’s real estate operating leases is as follows:
(for the year ended December 31, in millions)
2021
2020
Lease cost
Operating leases ......................................................................................................................... $
Short-term leases (1)....................................................................................................................
Lease expense.........................................................................................................................
Less: sublease income (2) ............................................................................................................
Net lease cost.......................................................................................................................... $
Other information on operating leases
Cash payments to settle a lease liability reported in cash flows.................................................... $
Right-of-use assets obtained in exchange for new lease liabilities................................................ $
Weighted average discount rate.....................................................................................................
89
1
90
—
90
104
59
$
$
$
$
95
2
97
—
97
109
67
2.25 %
2.51 %
Weighted average remaining lease term........................................................................................
4.9 years
5.0 years
_________________________________________________________
(1) Leases with a term of twelve months or less are not recorded on the consolidated balance sheet.
(2) Sublease income consists of rent from third parties of office space and is recognized as part of other revenues in the consolidated
statement of income.
The following table presents the contractual maturities of the Company's lease liabilities:
(in millions)
Real Estate Lease
Liability
2022................................................................................................................................................................ $
2023................................................................................................................................................................
2024................................................................................................................................................................
2025................................................................................................................................................................
2026................................................................................................................................................................
Thereafter .......................................................................................................................................................
Total undiscounted lease payments ............................................................................................................
Less: present value adjustment.......................................................................................................................
Operating lease liability.............................................................................................................................. $
93
78
63
43
37
43
357
26
331
17. CONTINGENCIES, COMMITMENTS AND GUARANTEES
Contingencies
The major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or
any of its subsidiaries is a party or to which any of the Company’s properties is subject are described below.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
Asbestos and Environmental Claims and Litigation
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In the ordinary course of its insurance business, the Company has received and continues to receive claims for insurance arising
under policies issued by the Company asserting alleged injuries and damages from asbestos- and environmental-related
exposures that are the subject of related coverage litigation. The Company is defending asbestos- and environmental-related
litigation vigorously and believes that it has meritorious defenses; however, the outcomes of these disputes are uncertain.
In
this regard, the Company employs dedicated specialists and comprehensive resolution strategies to manage asbestos and
environmental loss exposure, including settling litigation under appropriate circumstances. Currently, it is not possible to
predict legal outcomes and their impact on future loss development for claims and litigation relating to asbestos and
environmental claims. Any such development could be affected by future court decisions and interpretations, as well as future
changes, if any, in applicable legislation. Because of these uncertainties, additional liabilities may arise for amounts in excess of
the Company’s current insurance reserves. In addition, the Company’s estimate of ultimate claims and claim adjustment
expenses may change. These additional liabilities or changes in estimates, or a range of either, cannot now be reasonably
estimated and could result in income statement charges that could be material to the Company’s results of operations in future
periods.
Other Proceedings Not Arising Under Insurance Contracts or Reinsurance Agreements
The Company is involved in other lawsuits, including lawsuits alleging extra-contractual damages relating to insurance
contracts or reinsurance agreements, that do not arise under insurance contracts or reinsurance agreements. The legal costs
associated with such lawsuits are expensed in the period in which the costs are incurred. Based upon currently available
information, the Company does not believe it is reasonably possible that any such lawsuit or related lawsuits would be material
to the Company’s results of operations or would have a material adverse effect on the Company’s financial position or liquidity.
Other Commitments and Guarantees
Commitments
Investment Commitments — The Company has unfunded commitments to private equity limited partnerships, real estate
partnerships and others. These commitments totaled $1.70 billion and $1.76 billion at December 31, 2021 and 2020,
respectively.
Guarantees
In the ordinary course of selling businesses to third parties, the Company has agreed to indemnify purchasers for losses arising
out of breaches of representations and warranties, obligations arising from certain liabilities and any breach or failure to
perform certain covenants with respect to the businesses being sold. Such indemnification provisions generally are applicable
from the closing date to the expiration of the relevant statutes of limitations, although, in some cases, there may be agreed upon
term limitations or no term limitations. Certain of these contingent obligations are subject to deductibles which have to be
incurred by the obligee before the Company is obligated to make payments. The maximum amount of the Company’s
contingent obligation for indemnifications related to the sale of businesses that are quantifiable was $351 million at
December 31, 2021.
The Company also has contingent obligations for guarantees related to certain investments, certain insurance policy obligations
of former insurance subsidiaries and various other indemnifications. The Company also provides standard indemnifications
that it utilizes with service providers in the normal course of business. The indemnification clauses are often standard
contractual terms. The maximum amount of the Company’s obligation related to the guarantee of certain insurance policy
obligations of a former insurance subsidiary was $480 million at December 31, 2021, all of which is indemnified by a third
party.
Certain of the guarantees and indemnifications described above have no stated or notional amounts or limitation to the
maximum potential future payments, and, accordingly, the Company is unable to provide an estimate of the maximum potential
payments for such arrangements.
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. NONCASH INVESTING AND FINANCING ACTIVITIES
There were no material noncash financing or investing activities during the years ended December 31, 2021, 2020 and 2019.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
Item 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to ensure that information required to be
disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of
the Company’s disclosure controls and procedures as of December 31, 2021. Based upon that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, the design and operation of the
Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
In addition, there was no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2021 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over financial reporting.
The Company regularly seeks to identify, develop and implement improvements to its technology systems and business
processes, some of which may affect its internal control over financial reporting. These changes may include such activities as
implementing new, more efficient systems, updating existing systems or platforms, automating manual processes or utilizing
technology developed by third parties. These systems changes are often phased in over multiple periods in order to limit the
implementation risk in any one period, and as each change is implemented the Company monitors its effectiveness as part of its
internal control over financial reporting.
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Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting is designed to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of the consolidated financial statements of the Company in accordance with U.S.
generally accepted accounting principles. The Company’s accounting policies and internal controls over financial reporting,
established and maintained by management, are under the general oversight of the Company’s Audit Committee.
The Company’s internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made
only in accordance with authorizations of the Company’s management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the Company’s internal control over financial reporting as of December 31, 2021. The standard
measures adopted by management in making its evaluation are the measures in the Internal Control ‑ Integrated Framework
(2013) published by the Committee of Sponsoring Organizations of the Treadway Commission.
Based upon its assessment, management has concluded that the Company’s internal control over financial reporting was
effective at December 31, 2021, and that there were no material weaknesses in the Company’s internal control over financial
reporting as of that date.
KPMG LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial
statements contained in this Form 10-K, has issued its report on the effectiveness of the Company’s internal control over
financial reporting which follows this report.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
The Travelers Companies, Inc.:
Opinion on Internal Control Over Financial Reporting
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We have audited The Travelers Companies, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheet of the Company as of December 31, 2021 and 2020, the related consolidated
statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-
year period ended December 31, 2021, and the related notes and financial statement schedules as listed in the index to
consolidated financial statements and schedules (collectively, the consolidated financial statements), and our report dated
February 17, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
the degree of compliance with the policies or procedures may deteriorate.
because of changes in conditions, or that
/s/ KPMG LLP
KPMG LLP
New York, New York
February 17, 2022
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Item 9B. OTHER INFORMATION
Executive Ownership and Sales. All of the Company’s executive officers are subject to the Company’s executive stock
ownership policy. For a summary of this policy as currently in effect, see “Compensation Discussion and Analysis - Additional
Compensation Information - Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading
Restrictions” in the Company’s proxy statement filed with the SEC on April 2, 2021. From time to time, some of the
Company’s executives may determine that it is advisable to diversify their investments for personal financial planning reasons,
or may seek liquidity for other reasons, and may, in compliance with the stock ownership policy, sell shares of common stock
of the Company on the open market, in private transactions or to the Company. To effect such sales, from time to time, some of
the Company’s executives may enter into trading plans designed to comply with the Company’s securities trading policy and
the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934. The trading plans will not reduce any of the
executives’ ownership of the Company’s shares below the applicable executive stock ownership guidelines. The Company does
not undertake any obligation to report Rule 10b5-1 plans that may be adopted by any employee or director of the Company in
the future, or to report any modifications or termination of any publicly announced plan. As of the date of this report, none of
the Company's "named executive officers" (i.e. an executive officer included in the compensation disclosures in the Company's
most recent proxy statement) has entered into a Rule 105b-1 trading plan that remains in effect.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers of the Company
Set forth below is information concerning the Company’s executive officers as of February 17, 2022.
Name
Alan D. Schnitzer .................
William H. Heyman .............
Age
Office
56 Chairman of the Board of Directors and Chief Executive Officer
73 Vice Chairman and Chairman of the Investment Policy Committee
Avrohom J. Kess ..................
53 Vice Chairman and Chief Legal Officer
Daniel S. Frey ......................
57 Executive Vice President and Chief Financial Officer
Andy F. Bessette ..................
Michael F. Klein...................
Jeffrey P. Klenk....................
Diane Kurtzman ...................
Mojgan M. Lefebvre ............
Maria Olivo ..........................
David D. Rowland................
Gregory C. Toczydlowski ....
Daniel T.H. Yin....................
68 Executive Vice President and Chief Administrative Officer
54 Executive Vice President and President, Personal Insurance
52 Executive Vice President and President, Bond & Specialty Insurance
52 Executive Vice President and Chief Human Resources Officer
56 Executive Vice President and Chief Technology & Operations Officer
57 Executive Vice President, Strategic Development and President, International
56 Executive Vice President and Co-Chief Investment Officer
55 Executive Vice President and President, Business Insurance
56 Executive Vice President and Co-Chief Investment Officer
Alan D. Schnitzer, 56, has been Chairman of the Board of Directors since August 2017 and Chief Executive Officer and
Director since December 2015. He previously served as Vice Chairman and Chief Executive Officer, Business and
International Insurance from July 2014. Mr. Schnitzer was Vice Chairman - Financial, Professional & International Insurance
and Field Management; Chief Legal Officer from May 2012 until July 2014 and Vice Chairman and Chief Legal Officer and
Executive Vice President - Financial, Professional and International Insurance from May 2008 until May 2012. He was Vice
Chairman and Chief Legal Officer from April 2007 until May 2008. Prior to joining the Company, he was a partner at the law
firm of Simpson Thacher & Bartlett LLP.
William H. Heyman, 73, has been Vice Chairman and Chairman of the Investment Policy Committee since August 2019.
Prior to that, Mr. Heyman was Vice Chairman and Chief Investment Officer since May 2005. He previously served as
Executive Vice President and Chief Investment Officer from May 2002. Mr. Heyman held various positions with Citigroup
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from 1995 until 2002, including the position of chairman of Citigroup Investments from 2000 until 2002. Prior to joining
Citigroup in 1995, Mr. Heyman was, successively: a managing director of Salomon Brothers; Director of the Division of
Market Regulation of the U.S. Securities and Exchange Commission; and a managing director of Smith Barney.
Avrohom J. Kess, 53, has been Vice Chairman and Chief Legal Officer since December 2016. Prior to that, Mr. Kess was a
partner, member of the Corporate Department and Head of the Public Company Advisory Practice at the law firm of Simpson
Thacher & Bartlett LLP, which he joined in 1995.
Daniel S. Frey, 57, has been Executive Vice President and Chief Financial Officer since September 2018. Mr. Frey has held
various financial management roles since joining a predecessor to the Company in 2003, including Senior Vice President and
Chief Financial Officer, Personal Insurance from September 2014, Senior Vice President Finance, Business Insurance from
August 2010 and Senior Vice President and Chief Financial Officer, Claim Services from June 2006. Prior to that, Mr. Frey
held the position of Chief Financial Officer at Spalding Sports Worldwide from 1999 to 2003 and held various financial
management positions at Duracell International, Inc. from 1994 to 1999. Mr. Frey began his career at Deloitte in 1986.
Andy F. Bessette, 68, has been Executive Vice President and Chief Administrative Officer since January 2002. Mr. Bessette
previously held various management positions with predecessors of the Company since 1980, including Vice President,
Corporate Real Estate and Services at Travelers Property Casualty Corp.
Michael F. Klein, 54, has been Executive Vice President and President, Personal Insurance since July 2015, and was also Head
of Enterprise Business Intelligence & Analytics from May 2016 to May 2018. He previously served as Executive Vice
President and Co-President, Business Insurance from July 2014, Executive Vice President, Middle Market from November
2012, President of Middle Market from March 2010, President of Commercial Accounts from September 2007, and Senior Vice
President, Industry and Product Group from June 2006. Prior to that, Mr. Klein held various positions with the Company since
1990.
Jeffrey P. Klenk, 52, has been Executive Vice President and President, Bond & Specialty Insurance since September 2021.
Mr. Klenk joined the Company in 1999 and previously since 2016, he served as Executive Vice President, Management
Liability, Bond & Specialty Insurance.
Diane Kurtzman, 52, has been Executive Vice President and Chief Human Resources Officer since August 2020. She was
previously Senior Vice President, Human Resources from July 2018 and Vice President, Human Resources, International &
Corporate from July 2014. Prior to that, Ms. Kurtzman held various positions with the Company or its predecessors since 1991.
Mojgan M. Lefebvre, 56, has been Executive Vice President and Chief Technology & Operations Officer since May 2019.
Prior to that, Ms. Lefebvre was Executive Vice President and Chief Information Officer, Enterprise Operations and eBusiness
since joining the Company in September 2018. Ms. Lefebvre previously held various information technology roles at Liberty
Mutual, where she was most recently Senior Vice President and Chief Information Officer for the Global Risk Solutions
business, from 2010 to 2018, at bioMerieux from 2007 to 2010 and at TeleTech Holdings from 2004 to 2007.
Maria Olivo, 57, has been Executive Vice President, Strategic Development and President, International since October 2018.
Prior to that, she was Executive Vice President, Strategic Development and Corporate Treasurer since July 2010. She
previously served as Executive Vice President and Treasurer from June 2009 and Executive Vice President, Market
Development from October 2007. Prior to that Ms. Olivo held various positions with the Company or its predecessors since
2002, including leading Corporate Development, Investor Relations and Corporate Communications. Ms. Olivo was deputy
head of Strategic Investments at Swiss Re Capital Partners from April 2000 until June 2002. Prior to joining Swiss Re Capital
Partners, she was a director in Salomon Smith Barney’s Investment Bank.
David D. Rowland, 56, has been Executive Vice President and Co-Chief Investment Officer since August 2019. He previously
served as Executive Vice President and Deputy Chief Investment Officer since October 2017 and prior to that he was Executive
Vice President, Fixed Income. Mr. Rowland joined the Company in 1996 from Piper Jaffray Companies, where he was Vice
President in the fixed income group.
Gregory C. Toczydlowski, 55, has been Executive Vice President and President, Business Insurance since June 2016. He
previously served as Executive Vice President and President, Small Commercial and Business Insurance Technology and
Operations from July 2015 and Executive Vice President and President, Personal Insurance from July 2009. Prior to that, Mr.
Toczydlowski held various positions with the Company or its predecessors since 1990, including Chief Operating Officer of
Personal Insurance and Chief Financial Officer for the independent agency distribution channel within Personal Insurance.
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Daniel T.H. Yin, 56, has been Executive Vice President and Co-Chief Investment Officer since August 2019. He previously
served as Executive Vice President and Deputy Chief Investment Officer since October 2017 and prior to that he was Executive
Vice President, Alternative Investments. Mr. Yin joined the Company in 2002 from ACE Asset Management, the investment
arm of what is now Chubb, Ltd., where he was responsible for implementing investment strategies across a global portfolio.
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Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics (Code of Ethics) that applies to all employees, including
executive officers, and to directors. The Code of Ethics is available on the Corporate Governance page of the Company’s
website at www.travelers.com. If the Company ever were to amend or waive any provision of its Code of Ethics that applies to
the Company’s principal executive officer, principal financial officer, principal accounting officer or any person performing
similar functions, the Company intends to satisfy its disclosure obligations, if any, with respect to any such waiver or
amendment by posting such information on its website set forth above rather than by filing a Current Report on Form 8-K.
Other
The following sections of the Company’s definitive Proxy Statement relating to its 2022 Annual Meeting of Shareholders,
which will be filed with the SEC no later than 120 days after the end of the Company’s fiscal year on December 31, 2021 (the
Proxy Statement), are incorporated herein by reference: “Nominees for Election of Directors,” “Governance of Your Company
- Specific Considerations Regarding the 2022 Nominees,” “Governance of Your Company - Committees of the Board and
Meetings - Audit Committee” and “Share Ownership Information - Delinquent Section 16(a) Reports.”
Item 11. EXECUTIVE COMPENSATION
The following sections of the Proxy Statement are incorporated herein by reference: “Compensation Discussion and Analysis,”
“Compensation Committee Report,” “Summary Compensation Table,” “Grants of Plan-Based Awards in 2021,” “Narrative
Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2021,” “Option Exercises and Stock Vested
in 2021,” “Outstanding Equity Awards at December 31, 2021,” “Post-Employment Compensation,” “Potential Payments to
Named Executive Officers Upon Termination of Employment or Change in Control,” “Non-Employee Director
Compensation,” “Governance of Your Company - Risk Management and Compensation” and “CEO Pay Ratio.”
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The “Share Ownership Information - 5% Owners” and “Share Ownership Information - Directors and Executive Officers”
sections of the Proxy Statement are incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2021 regarding the Company’s equity compensation plans. The
only plan pursuant to which the Company may currently make additional equity grants is The Travelers Companies, Inc.
Amended and Restated 2014 Stock Incentive Plan (the 2014 Incentive Plan).
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected in
column (a))
(c)
12,500,664 (2)
$126.29 per share (3)
7,671,756 (4)
Plan Category
Equity compensation plans approved by security
holders (1)................................................................
___________________________________________
(1)
In addition to the 2014 Incentive Plan, also included are The Travelers Companies, Inc. Amended and Restated 2004 Stock
Incentive Plan, as amended (the 2004 Incentive Plan), which was replaced by the 2014 Incentive Plan, and certain plans for
employees in the United Kingdom and the Republic of Ireland and The Travelers Deferred Compensation Plan for Non-Employee
Directors. Shares delivered under these plans are issued pursuant to the 2004 Incentive Plan and the 2014 Incentive Plan.
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(3)
(4)
Total includes (i) 9,530,424 stock options, (ii) 1,089,063 performance shares and dividend equivalents accrued thereon (assuming
issuance of 100% of performance shares granted), (iii) 1,607,244 restricted stock units, (iv) 251,060 director deferred stock awards
and dividend equivalents accrued thereon and (v) 22,873 common stock units credited to the deferred compensation accounts of
certain non-employee directors in lieu of cash compensation, at the election of such directors.
The weighted average exercise prices for both the 2004 Incentive Plan and the 2014 Incentive Plan relate only to stock options. The
calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no
consideration and also does not include common stock units credited to the deferred compensation accounts of certain non-
employee directors at fair market value in lieu of cash compensation at the election of such directors.
These shares are available for grant as of December 31, 2021 under the 2014 Incentive Plan pursuant to which the Compensation
Committee of the Board of Directors may make various stock-based awards including nonqualified stock options, incentive stock
options, stock appreciation rights, restricted stock, restricted stock units, deferred stock, deferred stock units, performance awards
and other stock-based or stock-denominated awards with respect to the Company’s common stock. This includes 10 million shares
initially authorized for issuance under the 2014 Incentive Plan and an additional 2.4 million shares, 3.1 million shares, 2.5 million
shares and 4.4 million shares authorized by shareholders in May 2021, May 2019, May 2017 and May 2016, respectively, and
shares subject to awards under the 2004 Incentive Plan and the 2014 Incentive Plan that expired, were cancelled, forfeited, settled in
cash or otherwise terminated without the issuance of shares.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The “Governance of Your Company—Transactions with Related Persons,” “Nominees for Election of Directors” and
“Governance of Your Company—Director Independence and Independence Determinations” sections of the Proxy Statement
are incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The “Audit and Non-Audit Fees” section of the Proxy Statement is incorporated herein by reference.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as a part of the report:
(1)
(2)
Financial Statements and Schedules. See Index to Consolidated Financial Statements and Schedules on page 119
hereof.
Exhibits:
Exhibit
Number
3.1
3.2
4.1
10.1
10.2*
10.3*
10.4*
Description of Exhibit
Amended and Restated Articles of Incorporation of The Travelers Companies, Inc. (the “Company”), as
amended and restated May 23, 2013, were filed as Exhibit 3.1 to the Company's current report on Form 8-K
filed on May 24, 2013, and are incorporated herein by reference.
Bylaws of The Travelers Companies, Inc. as Amended and Restated October 22, 2019 were filed as Exhibit
3.2 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2019, and
are incorporated herein by reference.
Description of Common Stock was filed as Exhibit 4.1 to the Company's annual report on Form 10-K for
the fiscal year ended December 31, 2019, and is incorporated herein by reference.
Revolving Credit Agreement, dated June 4, 2018, between the Company and a syndicate of financial
institutions, was filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on June 6, 2018,
and is incorporated herein by reference.
The Travelers Companies, Inc. Policy Regarding Executive Incentive Compensation Recoupment was filed
as Exhibit 10.42 to the Company's annual report on Form 10-K for the fiscal year ended December 31,
2009, and is incorporated herein by reference.
Letter Agreement between Alan D. Schnitzer and the Company, dated April 15, 2007, was filed as Exhibit
10.1 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2007, and is
incorporated herein by reference.
Letter Agreement between Alan D. Schnitzer and the Company, dated August 4, 2015, was filed as Exhibit
10.2 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2015, and
is incorporated herein by reference.
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10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
Time Sharing Agreement, dated September 2, 2015, by and between the Company and Alan D. Schnitzer,
was filed as Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 2015, and is incorporated herein by reference.
Letter Agreement between Avrohom J. Kess and the Company, dated December 19, 2016, was filed as
Exhibit 10.49 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2016,
and is incorporated by reference.
The Travelers Companies, Inc. Amended and Restated 2014 Stock Incentive Plan was filed as Exhibit 10.1
to the Company's current report on Form 8-K filed on May 25, 2021, and is incorporated herein by
reference.
The Travelers Companies, Inc. Amended and Restated 2004 Stock Incentive Plan was filed as Exhibit
10.28 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008, and is
incorporated herein by reference.
Amendment to The Travelers Companies, Inc. Amended and Restated 2004 Stock Incentive Plan was filed
as Exhibit 10.7 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2012,
and is incorporated herein by reference.
Travelers Property Casualty Corp. (“TPC”) 2002 Stock Incentive Plan, as amended effective January 23,
2003, was filed as Exhibit 10.22 to TPC's annual report on Form 10-K for the fiscal year ended December
31, 2002, and is incorporated herein by reference.
Amendment to the TPC 2002 Stock Incentive Plan, as amended effective January 23, 2003, was filed as
Exhibit 10.9 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2012,
and is incorporated herein by reference.
Current Director Compensation Program, effective as of May 20, 2021, was filed as Exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2021, and is incorporated
herein by reference.
The Company's Amended and Restated Deferred Compensation Plan for Non-Employee Directors was filed
as Exhibit 10.29 to the Company's annual report on Form 10-K for the fiscal year ended December 31,
2008, and is incorporated herein by reference.
TPC Compensation Plan for Non-Employee Directors, as amended on January 22, 2004, was filed as
Exhibit 10.16 to TPC's annual report on Form 10-K for the fiscal year ended December 31, 2003, and is
incorporated herein by reference.
The St. Paul Companies, Inc. Directors' Deferred Compensation Plan was filed as Exhibit 10(b) to the
Company's annual report on Form 10-K for the fiscal year ended December 31, 1997, and is incorporated
herein by reference.
The St. Paul Companies, Inc. Deferred Stock Plan for Non-Employee Directors was filed as Exhibit 10(a)
to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2000, and is
incorporated herein by reference.
The Travelers Severance Plan (as Amended and Restated, effective January 1, 2015) was filed as Exhibit
10.20 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2014, and is
incorporated herein by reference.
The Company's Senior Executive Performance Plan was filed as Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended March 31, 2005, and is incorporated herein by reference.
First Amendment to the Company's Senior Executive Performance Plan was filed as Exhibit 10.40 to the
Company's annual report on Form 10-K for the fiscal year ended December 31, 2009, and is incorporated
herein by reference.
The Travelers Deferred Compensation Plan, as Amended and Restated, effective January 1, 2009, was filed
as Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-157091) dated
February 4, 2009, and is incorporated herein by reference.
to The Travelers Deferred Compensation Plan was filed as Exhibit 10.37 to the
First Amendment
Company's annual report on Form 10-K for the fiscal year ended December 31, 2009, and is incorporated
herein by reference.
TPC Deferred Compensation Plan was filed as Exhibit 10.23 to TPC's annual report on Form 10-K for the
fiscal year ended December 31, 2002, and is incorporated herein by reference.
The Travelers Benefit Equalization Plan, as Amended and Restated effective as of January 1, 2016, was
filed as Exhibit 10.29 to the Company's annual report on Form 10-K for the fiscal year ended December 31,
2015, and is incorporated herein by reference.
10.24*
TPC Benefit Equalization Plan was filed as Exhibit 10.24 to TPC's annual report on Form 10-K for the
fiscal year ended December 31, 2002, and is incorporated herein by reference.
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10.25*
10.26*
10.27*
10.28*
10.29†*
10.30†*
10.31*
10.32*
10.33*
10.34†*
10.35†*
21.1†
23.1†
24.1†
31.1†
31.2†
32.1†
32.2†
101.1†
104.1
The St. Paul Companies, Inc. Benefit Equalization Plan-2001 Revision and the first and second
amendments thereto were filed as Exhibit 10.27 to the Company's annual report on Form 10-K for the fiscal
year ended December 31, 2004, and are incorporated herein by reference.
Form of Non-Competition Agreement was filed as Exhibit 10.43 to the Company's annual report on Form
10-K for the fiscal year ended December 31, 2009, and is incorporated herein by reference.
Form of Amended and Restated Non-Solicitation and Non-Disclosure Agreement for Executive Officers
was filed as Exhibit 10.35 to the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2016, and is incorporated herein by reference.
Form of Restricted Stock Unit Award Notification and Agreement (For Management Committee Member
Executing Non-Compete) was filed as Exhibit 10.37 to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2014, and is incorporated herein by reference.
Form of Stock Option Grant Notification and Agreement.
Form of Restricted Stock Unit Award Notification and Agreement.
Form of Performance Share Award Notification and Agreement (2019) was filed as Exhibit 10.36 to the
Company's annual report on Form 10-K for the fiscal year ended December 31, 2018, and is incorporated
herein by reference.
Form of Performance Share Award Notification and Agreement (2020) was filed as Exhibit 10.35 to the
Company's annual report on Form 10-K for the fiscal year ended December 31, 2019, and is incorporated
herein by reference.
Form of Performance Share Award Notification and Agreement (2021) was filed as Exhibit 10.35 to the
Company's annual report on Form 10-K for the fiscal year ended December 31, 2020, and is incorporated
herein by reference.
Form of Performance Share Award Notification and Agreement (2022).
Form of Non-Employee Director Notification and Agreement of Annual Deferred Stock Award.
A list of the subsidiaries of the Company.
Consent of KPMG LLP, Independent Registered Public Accounting Firm, with respect to the incorporation
by reference of KPMG LLP’s audit reports into Registration Statements of the Company on Form S-8 and
Form S-3.
Power of Attorney.
Certification of Alan D. Schnitzer, Chairman and Chief Executive Officer of the Company, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Daniel S. Frey, Chief Financial Officer of the Company, as required by Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Alan D. Schnitzer, Chairman and Chief Executive Officer of the Company, as required by
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Daniel S. Frey, Chief Financial Officer of the Company, as required by Section 906 of the
Sarbanes-Oxley Act of 2002.
The following information from The Travelers Companies, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2021 formatted in Inline XBRL: (i) Consolidated Statement of Income for the years
ended December 31, 2021, 2020 and 2019; (ii) Consolidated Statement of Comprehensive Income for the
years ended December 31, 2021, 2020 and 2019; (iii) Consolidated Balance Sheet at December 31, 2021
and 2020;
the years ended
December 31, 2021, 2020 and 2019; (v) Consolidated Statement of Cash Flows for the years ended
December 31, 2021, 2020 and 2019; (vi) Notes to Consolidated Financial Statements; (vii) Financial
Statement Schedules; and (viii) the cover page.
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit
101.1).
(iv) Consolidated Statement of Changes in Shareholders' Equity for
_________________________________________
†
*
Filed herewith.
Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the
Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. Therefore, the Company is
not filing any instruments evidencing long-term debt. However, the Company will furnish copies of any such instrument to the
Securities and Exchange Commission upon request.
Copies of any of the exhibits referred to above will be furnished to security holders who make written request therefor to The
Travelers Companies, Inc., 385 Washington Street, Saint Paul, MN, 55102, Attention: Corporate Secretary.
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The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that
purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were
made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at
the date they were made or at any other time.
Item 16. FORM 10-K SUMMARY
None.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, The Travelers Companies, Inc. has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 17, 2022 By
THE TRAVELERS COMPANIES, INC.
(Registrant)
/s/ CHRISTINE K. KALLA
Christine K. Kalla
Executive Vice President and General Counsel
(Authorized Signatory)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of The Travelers Companies, Inc. and in the capacities and on the dates indicated.
By
By
By
By
By
By
By
By
By
By
By
By
By
By
By
/s/ ALAN D. SCHNITZER
Alan D. Schnitzer
/s/ DANIEL S. FREY
Daniel S. Frey
/s/ DOUGLAS K. RUSSELL
Douglas K. Russell
Director, Chairman and Chief Executive Officer (Principal
Executive Officer)
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
Senior Vice President and Corporate Controller (Principal
Accounting Officer)
*
Alan L. Beller
*
Janet M. Dolan
*
Patricia L. Higgins
*
William J. Kane
*
Thomas B. Leonardi
*
Clarence Otis Jr.
*
Elizabeth E. Robinson
*
Philip T. Ruegger III
*
Rafael Santana
*
Todd C. Schermerhorn
*
Laurie J. Thomsen
*
Bridget van Kralingen
/s/ CHRISTINE K. KALLA
Christine K. Kalla,
Attorney-in-fact
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
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Date
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
K
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FINANCIAL STATEMENT SCHEDULES
THE TRAVELERS COMPANIES, INC.
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in millions)
CONDENSED STATEMENT OF INCOME
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SCHEDULE II
For the year ended December 31,
Revenues
Net investment income .................................................................................. $
Net realized investment gains ........................................................................
Total revenues............................................................................................
Expenses
Interest............................................................................................................
Other ..............................................................................................................
Total expenses............................................................................................
Loss before income taxes and net income of subsidiaries.....................
Income tax benefit..........................................................................................
Loss before net income of subsidiaries ...................................................
Net income of subsidiaries.............................................................................
2021
2020
2019
$
13
28
41
292
13
305
(264)
(59)
(205)
3,867
$
19
27
46
292
18
310
(264)
(61)
(203)
2,900
41
33
74
297
21
318
(244)
(77)
(167)
2,789
2,622
Net income................................................................................................. $
3,662
$
2,697
$
The condensed financial statements should be read in conjunction with the notes to the condensed financial information of the
registrant, as well as the consolidated financial statements and notes thereto.
See the Report of Independent Registered Public Accounting Firm.
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SCHEDULE II
THE TRAVELERS COMPANIES, INC.
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in millions)
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the year ended December 31,
Net income .................................................................................................... $
Other comprehensive income (loss)—parent company:
Changes in net unrealized gains (losses) on investment securities having
no credit losses recognized in the consolidated statement of income .....
Net changes in benefit plan assets and obligations .....................................
Other comprehensive income before income taxes and other
comprehensive income (loss) of subsidiaries.................................
Income tax expense........................................................................................
Other comprehensive income, net of taxes, before other
comprehensive income (loss) of subsidiaries.................................
Other comprehensive income (loss) of subsidiaries ...............................
Other comprehensive income (loss) ....................................................
Comprehensive income ........................................................................ $
2021
2020
2019
3,662
$
2,697
$
2,622
(4)
444
440
87
353
3
25
28
9
19
(1,662)
(1,309)
1,843
1,862
2,353
$
4,559
$
4
35
39
12
27
2,472
2,499
5,121
The condensed financial statements should be read in conjunction with the notes to the condensed financial information of the
registrant, as well as the consolidated financial statements and notes thereto.
See the Report of Independent Registered Public Accounting Firm.
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SCHEDULE II
THE TRAVELERS COMPANIES, INC.
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in millions)
CONDENSED BALANCE SHEET
At December 31,
Assets
Fixed maturities ......................................................................................................................... $
Equity securities ........................................................................................................................
Short-term securities..................................................................................................................
Investment in subsidiaries .........................................................................................................
Other assets................................................................................................................................
Total assets............................................................................................................................. $
Liabilities
Debt ........................................................................................................................................... $
Other liabilities ..........................................................................................................................
Total liabilities.......................................................................................................................
Shareholders’ equity
Common stock (1,750.0 shares authorized; 241.2 and 252.4 shares issued and outstanding) ..
Retained earnings ......................................................................................................................
Accumulated other comprehensive income...............................................................................
Treasury stock, at cost (541.5 and 527.3 shares).......................................................................
Total shareholders’ equity ...................................................................................................
Total liabilities and shareholders’ equity ........................................................................... $
2021
2020
95
$
279
1,479
33,298
704
35,855
6,596
366
6,962
$
$
24,154
41,561
1,193
(38,015)
28,893
35,855
$
94
241
1,646
33,015
330
35,326
5,856
262
6,118
23,743
38,778
2,502
(35,815)
29,208
35,326
The condensed financial statements should be read in conjunction with the notes to the condensed financial information of the
registrant, as well as the consolidated financial statements and notes thereto.
See the Report of Independent Registered Public Accounting Firm.
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SCHEDULE II
THE TRAVELERS COMPANIES, INC.
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in millions)
CONDENSED STATEMENT OF CASH FLOWS
For the year ended December 31,
Cash flows from operating activities
Net income ..................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in net income of subsidiaries ...........................................................
Dividends received from consolidated subsidiaries ....................................
Deferred federal income tax expense (benefit) ...........................................
Change in income taxes payable .................................................................
Other............................................................................................................
Net cash provided by operating activities ...............................................
Cash flows from investing activities
Net sales (purchases) of short-term securities ...............................................
Other investments, net ...................................................................................
Net cash provided by (used in) investing activities.................................
Cash flows from financing activities
Treasury stock acquired—share repurchase authorization ............................
Treasury stock acquired—net employee share-based compensation.............
Dividends paid to shareholders......................................................................
Payment of debt .............................................................................................
Issuance of debt..............................................................................................
Issuance of common stock—employee share options ...................................
Net cash used in financing activities ........................................................
Net increase in cash .......................................................................................
Cash at beginning of year ..............................................................................
Cash at end of year ...................................................................................... $
Supplemental disclosure of cash flow information
Cash received during the year for taxes......................................................... $
Cash paid during the year for interest ............................................................ $
2021
2020
2019
3,662
$
2,697
$
2,622
(3,867)
2,149
7
—
(69)
(2,900)
1,964
3
(6)
(79)
(2,789)
2,459
(2)
3
(79)
1,882
1,679
2,214
167
(11)
156
(2,156)
(44)
(869)
—
739
293
(256)
(7)
(263)
(625)
(47)
(861)
(500)
490
127
(19)
(8)
(27)
(1,500)
(48)
(844)
(500)
492
213
(2,037)
(1,416)
(2,187)
1
—
1
66
289
$
$
$
—
—
— $
81
291
$
$
—
—
—
78
291
The condensed financial statements should be read in conjunction with the notes to the condensed financial information of the
registrant, as well as the consolidated financial statements and notes thereto.
See the Report of Independent Registered Public Accounting Firm.
218
92624 10K
92624_10K.indd 218
218
K
8.250 in x 10.750 in
Travelers
02.23.2022 12:58PM
92624
karenl (sa1) (sa1)
92624 10K
tmurray
file://sanjfs5.sa1.com/Sandy2/92624
K
0
1
4
2
6
2
9
8
1
2
2/23/22 7:49 AM
2
1
9
9
2
6
2
4
1
0
K
92624 10K
219
SCHEDULE II
THE TRAVELERS COMPANIES, INC.
(Parent Company Only)
NOTES TO THE CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1. GUARANTEES
The Travelers Companies, Inc. (TRV) fully and unconditionally guarantees the payment of all principal, premiums, if any, and
interest on certain debt obligations of its subsidiaries TPC and TIGHI. The guarantees pertain to the $200 million 7.75% notes
due 2026 and the $500 million 6.375% notes due 2033.
TRV also has contingent obligations for guarantees in connection with the selling of businesses to third parties, certain
insurance obligations of a subsidiary and various indemnifications including indemnifications that it utilizes with service
providers in the normal course of business. The guarantees and indemnification clauses are often standard contractual terms
and include indemnifications for breaches of representations and warranties and in some cases obligations arising from certain
liabilities. The terms of these provisions vary in duration and nature.
Certain of the guarantees and indemnifications described above have no stated or notional amounts or limitation to the
maximum potential future payments. Accordingly, TRV is unable to provide an estimate of the maximum potential payments
for such arrangements, and the likelihood for any payment under these guarantees is remote.
219
92624 10K
92624_10K.indd 219
219
K
8.250 in x 10.750 in
Travelers
02.23.2022 12:58PM
92624
karenl (sa1) (sa1)
92624 10K
tmurray
file://sanjfs5.sa1.com/Sandy2/92624
K
0
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6
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SCHEDULE V
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in millions)
2021
Reinsurance recoverables ....................... $
Allowance for uncollectible:
Premiums receivable from
underwriting activities........................ $
Deductibles........................................... $
2020
Reinsurance recoverables (2) ................... $
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Premiums receivable from
underwriting activities........................ $
Deductibles........................................... $
2019
Reinsurance recoverables ....................... $
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underwriting activities........................ $
Deductibles........................................... $
Balance at
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___________________________________________
(1)
(2)
Credited to the related asset account
The $53 million represents the cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020.
See the Report of Independent Registered Public Accounting Firm.
221
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92624 10K
223
Exhibit 31.1
I, Alan D. Schnitzer, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2021 of The Travelers
Companies, Inc. (the Company);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the Company's internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Company's auditors and the audit committee of the Company's Board of Directors (or
persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Company's ability to record, process,
summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company's internal control over financial reporting.
Date: February 17, 2022
By:
/s/ ALAN D. SCHNITZER
Alan D. Schnitzer
Chairman and Chief Executive Officer
223
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92624 10K
224
Exhibit 31.2
I, Daniel S. Frey, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2021 of The Travelers
Companies, Inc. (the Company);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the Company's internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Company's auditors and the audit committee of the Company's Board of Directors (or
persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Company's ability to record, process,
summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company's internal control over financial reporting.
Date: February 17, 2022
By:
/s/ DANIEL S. FREY
Daniel S. Frey
Executive Vice President and Chief Financial
Officer
224
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92624 10K
225
Exhibit 32.1
THE TRAVELERS COMPANIES, INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. Section 1350, the
undersigned officer of The Travelers Companies, Inc. (the "Company") hereby certifies that the Company's Annual Report on
Form 10-K for the year ended December 31, 2021 (the "Report") fully complies with the requirements of Section 13(a) or 15(d)
of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: February 17, 2022
By:
/s/ ALAN D. SCHNITZER
Name: Alan D. Schnitzer
Title: Chairman and Chief Executive Officer
225
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92624 10K
226
Exhibit 32.2
THE TRAVELERS COMPANIES, INC.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. Section 1350, the
undersigned officer of The Travelers Companies, Inc. (the "Company") hereby certifies that the Company's Annual Report on
Form 10-K for the year ended December 31, 2021 (the "Report") fully complies with the requirements of Section 13(a) or 15(d)
of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: February 17, 2022
By:
/s/ DANIEL S. FREY
Name: Daniel S. Frey
Title: Executive Vice President and Chief Financial
Officer
226
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Shareholders’ Information
Your dividends
The Travelers Companies, Inc. has paid cash dividends without
interruption for 150 years. Our most recent quarterly dividend of $0.88
per share was declared on January 20, 2022, payable March 31, 2022,
to shareholders of record as of March 10, 2022.
Automatic dividend reinvestment program
This program provides a convenient opportunity for our shareholders
to increase their holding of Travelers common stock. An explanatory
brochure and enrollment card may be obtained by calling our stock
transfer agent, Equiniti Trust Company, at 888-326-5102, or by mailing a
request to the address below.
Stock transfer agent
and registrar
For address changes, dividend
checks, direct deposits of
dividends, account consolidations,
registration changes, lost stock
certificates and general stock
holding questions, please contact:
Equiniti Trust Company
EQ Shareowner Services
P.O. Box 64854
Saint Paul, MN 55164-0854
Toll Free: 888-326-5102
Outside U.S. and Canada:
651-450-4064
shareowneronline.com
Financial information
available
Travelers makes available, free
of charge on its website, all of its
filings that are made electronically
to the SEC, including Forms 10-K,
10-Q and 8-K. To access these
filings, go to travelers.com >
Investors > Financial Information
> SEC Filings.
Requests for additional
information may be directed to:
The Travelers Companies, Inc.
485 Lexington Avenue
New York, NY 10017-2630
Investor Relations, NY08EX
Attn: Abbe Goldstein
917-778-6824
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will be held on May 25, 2022, at
Hartford Marriott Downtown, 200 Columbus Boulevard, Hartford,
CT 06103-2807.
On or about April 8, 2022, we plan to send proxy materials, or a notice
of internet availability of proxy materials, to shareholders of record as of
the close of business on March 29, 2022. The notice will provide instruc-
tions on where to access our Proxy Statement and Annual Report as
well as how to vote your shares electronically. The notice also includes
instructions on how to request a printed copy of our proxy materials.
Stock price and dividends declared
The Travelers Companies, Inc. common stock is listed on the New York Stock
Exchange (NYSE) and is publicly traded under the ticker symbol “TRV”.
The following tables set forth the quarterly high and low closing sales prices
of The Travelers Companies, Inc. common stock, as well as the amount of
quarterly cash dividends declared per share for 2021 and 2020.
2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$157.92
161.67
146.82
162.37
High
$141.34
128.00
122.24
140.37
Low
$134.53
144.76
162.58
145.48
Low
$ 81.69
89.86
107.44
107.81
Cash Dividend
Declared
$0.85
0.88
0.88
0.88
Cash Dividend
Declared
$0.82
0.85
0.85
0.85
Additional information
We have included the tables below and on the next page to provide reconcili-
ations of certain GAAP financial measures to non-GAAP financial measures as
follows: (i) a reconciliation of net income per share to core income per share
on a diluted basis, (ii) a reconciliation of shareholders’ equity to adjusted
shareholders’ equity, which are components of the return on equity and core
return on equity ratios, (iii) a calculation of return on equity and core return
on equity, (iv) a calculation of book value per share and adjusted book value
per share, (v) a reconciliation of after-tax underlying underwriting income
(also known as underlying underwriting gain) to net income, and core
income to net income and (vi) a reconciliation of invested assets to
invested assets excluding net unrealized investment gains (losses).
For the year ended December 31,
(Dollars in millions, after-tax)
2021
2020
Reconciliation of net income per share to core income per share
on a diluted basis
Net income
Adjustments:
Net realized investment gains, after-tax
Impact of changes in tax laws and/or tax rates 1
Core income
$14.49
$10.52
(0.52)
(0.03)
(0.04)
–
$13.94
$10.48
(Dollars in millions)
2021
2020
2019
2018
2017
2016
Reconciliation of shareholders’ equity to adjusted shareholders’ equity
As of December 31,
Shareholders’ equity
Adjustments:
Net unrealized investment (gains) losses,
net of tax, included in shareholders’ equity
Net realized investment gains, net of tax
Impact of changes in tax laws and/or tax rates 1, 2
Adjusted shareholders’ equity
$28,887 $29,201 $25,943 $22,894 $23,731 $23,221
(2,415) (4,074) (2,246)
(85)
–
(11)
–
(8)
(132)
113
(93)
-
(1,112)
(142)
287
(730)
(47)
–
$26,332 $25,116 $23,612 $22,914 $22,764 $22,444
(Dollars in millions, after-tax)
Calculation of return on equity and core return on equity
Net income
Average shareholders’ equity
Return on equity
Core income
Adjusted average shareholders’ equity
Core return on equity
For the year ended December 31,
2021
2020
2019
2018
2017
$ 3,662
$28,735
$ 2,697
$26,892
$ 2,622
$24,922
$ 2,523
$22,843
$ 2,056
$23,671
12.7%
10.0%
10.5%
11.0%
8.7%
$ 3,522
$25,718
$ 2,686
$23,790
$ 2,537
$23,335
$ 2,430
$22,814
$ 2,043
$22,743
13.7%
11.3%
10.9%
10.7%
9.0%
As of December 31,
(Dollars in millions, except per share amounts)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Calculation of book value per share and adjusted book value per share
Shareholders’ equity
Less: Net unrealized investment gains (losses),
net of tax, included in shareholders’ equity
Shareholders’ equity, excluding net unrealized
investment gains (losses), net of tax, included
in shareholders’ equity
Common shares outstanding
Book value per share
Adjusted book value per share
$28,887 $29,201 $25,943 $22,894 $23,731 $23,221 $23,598 $24,836 $24,796 $25,405
2,415
4,074
2,246
(113) 1,112
730
1,289
1,966
1,322 3,103
$26,472 $25,127 $23,697 $23,007 $22,619 $22,491 $22,309 $22,870 $23,474 $22,302
241.2
252.4
255.5 263.6 271.4
279.6
295.9
322.2
353.5 377.4
$119.77 $115.68 $101.55 $ 86.84 $ 87.46 $ 83.05 $ 79.75 $ 77.08 $ 70.15 $ 67.31
66.41 59.09
109.76 99.54
80.44
75.39
92.76
87.27
83.36
70.98
(Dollars in millions, after-tax)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Reconciliation of after-tax underlying underwriting income (also known as underlying underwriting gain) to net income,
and reconciliation of core income to net income
For the year ended December 31,
Underlying underwriting income
Impact of catastrophes
Impact of net favorable (unfavorable) prior
year reserve development
Underwriting income
Net investment income
Other, including interest expense
Core income
Net realized investment gains
Impact of changes in tax laws and/or tax rates 1, 2
Net income
$2,251 $2,008 $1,400 $1,522 $1,239 $1,265 $1,446 $1,430 $1,277 $ 888
(387) (1,214)
(1,459) (1,274) (699) (1,355) (1,267)
(338) (462)
(576)
424
276
(47)
409
378
510
617
616
552
622
1,216
2,541
(235)
3,522
132
8
654
2,097
576
2,102
350
1,010
1,908
1,872
(232) (214) (248) (179)
2,043
2,686
142
11
(129)
–
1,199
1,846
(78)
2,967
47
–
1,725
1,905
(193)
3,437
2
–
1,584
2,216
(159)
3,641
51
–
2,441
32
–
$3,662 $2,697 $2,622 $2,523 $2,056 $3,014 $3,439 $3,692 $3,673 $2,473
3,567
106
–
2,430
93
–
2,537
85
–
1,442
2,186
296
2,316
(61) (171)
As of December 31,
(Dollars in millions)
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Reconciliation of invested assets to invested assets excluding net unrealized investment gains (losses)
Invested assets
Less: Net unrealized investment
gains (losses), pre-tax
Invested assets excluding net unrealized
investment gains (losses)
$87,375 $84,423 $77,884 $72,278 $72,502 $70,488 $70,470 $73,261 $73,160 $73,838
3,060
5,175
2,853
(137) 1,414
1,112
1,974 3,008
2,030 4,761
$84,315 $79,248 $75,031 $72,415 $71,088 $69,376 $68,496 $70,253 $71,130 $69,077
1 Impact is recognized in the accounting period in which the change is enacted.
2 2017 reflects impact of Tax Cuts and Jobs Act of 2017 (TCJA).
Underlying underwriting income is net earned premiums and fee income less claims and claim adjustment expenses (excluding catastrophe losses and prior year reserve
development) and insurance-related expenses.
Average shareholders’ equity is (a) the sum of total 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.
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 and the effect of a change in tax laws and tax rates at enactment (excluding the portion related to net
unrealized investment gains (losses)). Adjusted average shareholders’ equity is (a) the sum of adjusted shareholders’ equity at the beginning and end of each of the
quarters for the period presented divided by (b) the number of quarters in the period presented times two.
Return on equity is the ratio of (a) net income for the period presented to (b) average shareholders’ equity for the period presented. Core return on equity is the ratio
of (a) core income for the period presented to (b) adjusted average shareholders’ equity for the period presented.
Definitions of other terms used in this Annual Report are included in the Glossary of Selected Insurance Terms portion of the Form 10-K.
MIX
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© 2022 The Travelers Indemnity Company. All rights reserved. 18599
The Travelers Companies, Inc.
485 Lexington Avenue
New York, NY 10017-2630
800-328-2189
NYSE: TRV
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@travelers
@TravelersInsurance
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