Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2011

 

or

 

o         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

 

41-0518860

(State or other jurisdiction of
incorporation or organization)

 

(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)

 


 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

The number of shares of the Registrant’s Common Stock, without par value, outstanding at October 14, 2011 was 412,773,299.

 

 

 



Table of Contents

 

The Travelers Companies, Inc.

 

Quarterly Report on Form 10-Q

 

For Quarterly Period Ended September 30, 2011

 


 

TABLE OF CONTENTS

 

 

 

Page

 

Part I — Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Consolidated Statement of Income (Unaudited) — Three Months and Nine Months Ended September 30, 2011 and 2010

3

 

 

 

 

Consolidated Balance Sheet — September 30, 2011 (Unaudited) and December 31, 2010

4

 

 

 

 

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Nine Months Ended September 30, 2011 and 2010

5

 

 

 

 

Consolidated Statement of Cash Flows (Unaudited) — Nine Months Ended September 30, 2011 and 2010

6

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

40

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

77

 

 

 

Item 4.

Controls and Procedures

77

 

 

 

 

Part II — Other Information

 

 

 

 

Item 1.

Legal Proceedings

77

 

 

 

Item 1A.

Risk Factors

78

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

 

 

 

Item 5.

Other Information

78

 

 

 

Item 6.

Exhibits

79

 

 

 

 

SIGNATURES

79

 

 

 

 

EXHIBIT INDEX

80

 

2



Table of Contents

 

PART 1 — FINANCIAL INFORMATION

 

Item 1.  FINANCIAL STATEMENTS

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

(in millions, except per share amounts)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Premiums

 

$

5,605

 

$

5,422

 

$

16,479

 

$

15,992

 

Net investment income

 

690

 

735

 

2,227

 

2,250

 

Fee income

 

79

 

64

 

227

 

219

 

Net realized investment gains

 

2

 

226

 

41

 

220

 

Other revenues

 

31

 

35

 

99

 

99

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

6,407

 

6,482

 

19,073

 

18,780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Claims and expenses

 

 

 

 

 

 

 

 

 

Claims and claim adjustment expenses

 

4,136

 

3,213

 

12,659

 

10,020

 

Amortization of deferred acquisition costs

 

982

 

966

 

2,900

 

2,845

 

General and administrative expenses

 

860

 

837

 

2,650

 

2,516

 

Interest expense

 

97

 

95

 

290

 

290

 

 

 

 

 

 

 

 

 

 

 

Total claims and expenses

 

6,075

 

5,111

 

18,499

 

15,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

332

 

1,371

 

574

 

3,109

 

Income tax expense (benefit)

 

(1

)

366

 

(234

)

787

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

333

 

$

1,005

 

$

808

 

$

2,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.80

 

$

2.14

 

$

1.90

 

$

4.73

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.79

 

$

2.11

 

$

1.88

 

$

4.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

415.0

 

465.9

 

420.4

 

486.1

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

418.5

 

472.0

 

425.6

 

492.3

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net Realized Investment Gains (Losses)

 

 

 

 

 

 

 

 

 

Other-than-temporary impairment losses:

 

 

 

 

 

 

 

 

 

Total gains

 

$

9

 

$

8

 

$

16

 

$

9

 

Non-credit component of impairments recognized in accumulated other changes in equity from nonowner sources

 

(21

)

(14

)

(36

)

(29

)

 

 

 

 

 

 

 

 

 

 

Other-than-temporary impairment losses

 

(12

)

(6

)

(20

)

(20

)

Other net realized investment gains

 

14

 

232

 

61

 

240

 

 

 

 

 

 

 

 

 

 

 

Net realized investment gains

 

$

2

 

$

226

 

$

41

 

$

220

 

 

See notes to consolidated financial statements (unaudited).

 

3



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

 

 

 

September 30,
2011

 

December 31,
 2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Fixed maturities, available for sale, at fair value (including $149 and $186 subject to securities lending) (amortized cost $60,056 and $60,170)

 

$

64,000

 

$

62,820

 

Equity securities, available for sale, at fair value (cost $467 and $372)

 

570

 

519

 

Real estate

 

851

 

838

 

Short-term securities

 

4,797

 

5,616

 

Other investments

 

3,434

 

2,929

 

 

 

 

 

 

 

Total investments

 

73,652

 

72,722

 

 

 

 

 

 

 

Cash

 

231

 

200

 

Investment income accrued

 

737

 

791

 

Premiums receivable

 

5,932

 

5,497

 

Reinsurance recoverables

 

11,743

 

11,994

 

Ceded unearned premiums

 

922

 

813

 

Deferred acquisition costs

 

1,869

 

1,782

 

Deferred taxes

 

 

493

 

Contractholder receivables

 

5,375

 

5,343

 

Goodwill

 

3,365

 

3,365

 

Other intangible assets

 

449

 

502

 

Other assets

 

2,658

 

2,154

 

 

 

 

 

 

 

Total assets

 

$

106,933

 

$

105,656

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Claims and claim adjustment expense reserves

 

$

52,315

 

$

51,606

 

Unearned premium reserves

 

11,524

 

10,921

 

Contractholder payables

 

5,375

 

5,343

 

Payables for reinsurance premiums

 

519

 

407

 

Deferred taxes

 

91

 

 

Debt

 

6,604

 

6,611

 

Other liabilities

 

5,333

 

5,293

 

 

 

 

 

 

 

Total liabilities

 

81,761

 

80,181

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Preferred Stock Savings Plan—convertible preferred stock (0.0 and 0.2 shares issued and outstanding)

 

 

68

 

Common stock (1,750.0 and 1,748.6 shares authorized; 412.8 and 434.6 shares issued and outstanding)

 

20,664

 

20,162

 

Retained earnings

 

19,127

 

18,847

 

Accumulated other changes in equity from nonowner sources

 

2,032

 

1,255

 

Treasury stock, at cost (328.1 and 296.6 shares)

 

(16,651

)

(14,857

)

 

 

 

 

 

 

Total shareholders’ equity

 

25,172

 

25,475

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

106,933

 

$

105,656

 

 

See notes to consolidated financial statements (unaudited).

 

4



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)

 

For the nine months ended September 30,

 

2011

 

2010

 

Convertible preferred stock—savings plan

 

 

 

 

 

Balance, beginning of year

 

$

68

 

$

79

 

Redemptions

 

(5

)

(9

)

Conversion to common stock

 

(63

)

 

 

 

 

 

 

 

Balance, end of period

 

 

70

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

Balance, beginning of year

 

20,162

 

19,593

 

Employee share-based compensation

 

286

 

276

 

Common shares issued — conversion of preferred stock

 

93

 

 

Compensation amortization under share-based plans and other changes

 

123

 

111

 

 

 

 

 

 

 

Balance, end of period

 

20,664

 

19,980

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

Balance, beginning of year

 

18,847

 

16,315

 

Net income

 

808

 

2,322

 

Dividends

 

(503

)

(515

)

Premium on preferred stock converted to common stock

 

(30

)

 

Other

 

5

 

(4

)

 

 

 

 

 

 

Balance, end of period

 

19,127

 

18,118

 

 

 

 

 

 

 

Accumulated other changes in equity from nonowner sources, net of tax

 

 

 

 

 

Balance, beginning of year

 

1,255

 

1,219

 

Change in net unrealized gain on investment securities:

 

 

 

 

 

Having no credit losses recognized in the consolidated statement of income

 

758

 

1,061

 

Having credit losses recognized in the consolidated statement of income

 

6

 

68

 

Net change in unrealized foreign currency translation and other changes

 

13

 

24

 

 

 

 

 

 

 

Balance, end of period

 

2,032

 

2,372

 

 

 

 

 

 

 

Treasury stock (at cost)

 

 

 

 

 

Balance, beginning of year

 

(14,857

)

(9,791

)

Treasury shares acquired — share repurchase authorization

 

(1,712

)

(3,400

)

Net shares acquired related to employee share-based compensation plans

 

(82

)

(54

)

 

 

 

 

 

 

Balance, end of period

 

(16,651

)

(13,245

)

 

 

 

 

 

 

Total common shareholders’ equity

 

25,172

 

27,225

 

 

 

 

 

 

 

Total shareholders’ equity

 

$

25,172

 

$

27,295

 

 

 

 

 

 

 

Common shares outstanding

 

 

 

 

 

Balance, beginning of year

 

434.6

 

520.3

 

Treasury shares acquired — share repurchase authorization

 

(30.1

)

(66.8

)

Common shares issued — conversion of preferred stock

 

1.5

 

 

Net shares issued under employee share-based compensation plans

 

6.8

 

7.0

 

 

 

 

 

 

 

Balance, end of period

 

412.8

 

460.5

 

 

 

 

 

 

 

Summary of changes in equity from nonowner sources

 

 

 

 

 

Net income

 

$

808

 

$

2,322

 

Other changes in equity from nonowner sources, net of tax

 

777

 

1,153

 

 

 

 

 

 

 

Total changes in equity from nonowner sources

 

$

1,585

 

$

3,475

 

 

See notes to consolidated financial statements (unaudited).

 

5



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(in millions)

 

For the nine months ended September 30,

 

2011

 

2010

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

808

 

$

2,322

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Net realized investment gains

 

(41

)

(220

)

Depreciation and amortization

 

599

 

608

 

Deferred federal income tax expense

 

159

 

149

 

Amortization of deferred acquisition costs

 

2,900

 

2,845

 

Equity in income from other investments

 

(279

)

(161

)

Premiums receivable

 

(439

)

(228

)

Reinsurance recoverables

 

244

 

754

 

Deferred acquisition costs

 

(2,988

)

(2,928

)

Claims and claim adjustment expense reserves

 

742

 

(1,112

)

Unearned premium reserves

 

612

 

418

 

Other

 

(499

)

(55

)

 

 

 

 

 

 

Net cash provided by operating activities

 

1,818

 

2,392

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from maturities of fixed maturities

 

5,241

 

3,881

 

Proceeds from sales of investments:

 

 

 

 

 

Fixed maturities

 

842

 

3,281

 

Equity securities

 

51

 

157

 

Real estate

 

1

 

10

 

Other investments

 

482

 

426

 

Purchases of investments:

 

 

 

 

 

Fixed maturities

 

(6,224

)

(5,167

)

Equity securities

 

(118

)

(29

)

Real estate

 

(41

)

(15

)

Other investments

 

(758

)

(373

)

Net sales (purchases) of short-term securities

 

813

 

(66

)

Securities transactions in course of settlement

 

196

 

(240

)

Other

 

(248

)

(220

)

 

 

 

 

 

 

Net cash provided by investing activities

 

237

 

1,645

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Payment of debt

 

(8

)

(275

)

Dividends paid to shareholders

 

(500

)

(512

)

Issuance of common stock — employee share options

 

270

 

267

 

Treasury stock acquired — share repurchase authorization

 

(1,755

)

(3,441

)

Treasury stock acquired — net employee share-based compensation

 

(46

)

(40

)

Excess tax benefits from share-based payment arrangements

 

17

 

6

 

 

 

 

 

 

 

Net cash used in financing activities

 

(2,022

)

(3,995

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(2

)

1

 

 

 

 

 

 

 

Net increase in cash

 

31

 

43

 

Cash at beginning of year

 

200

 

255

 

 

 

 

 

 

 

Cash at end of period

 

$

231

 

$

298

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Income taxes paid

 

$

277

 

$

511

 

Interest paid

 

$

226

 

$

263

 

 

See notes to consolidated financial statements (unaudited).

 

6



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

Basis of Presentation

 

The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited.  In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  All material intercompany transactions and balances have been eliminated.  Certain reclassifications have been made to the 2010 consolidated financial statements and notes to conform to the 2011 presentation.  The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s 2010 Annual Report on Form 10-K.

 

The preparation of the interim consolidated financial statements in conformity with 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 interim consolidated financial statements and the reported amounts of revenues and claims and expenses during the reporting period.  Actual results could differ from those estimates.

 

Adoption of Accounting Standards Updates

 

Creditors’ Evaluation of Whether a Restructuring is a Troubled Debt Restructuring

 

In April 2011, the FASB issued updated guidance to clarify whether a modification or restructuring of a receivable is considered a troubled debt restructuring, i.e., whether the creditor has granted a concession and whether the debtor is experiencing financial difficulties.  A modification or restructuring that is considered a troubled debt restructuring will result in the creditor having to account for the receivable as being impaired and will also result in additional disclosure of the creditors’ troubled debt restructuring activities.  The provisions of the guidance were effective for the quarter ended September 30, 2011 on a retrospective basis to the beginning of the year.  The adoption of this guidance did not have any effect on the Company’s results of operations, financial position or liquidity.

 

Accounting Standards Not Yet Adopted

 

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

 

In October 2010, the FASB issued updated guidance to address diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts.  This guidance modifies the definition of acquisition costs to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred.  If application of this guidance would result in the capitalization of acquisition costs that had not previously been capitalized by a reporting entity, the entity may elect not to capitalize those costs.

 

The updated guidance is effective for the quarter ending March 31, 2012.  The adoption of this guidance is not expected to have any impact on the Company’s results of operations, financial position or liquidity.

 

Transfers and Servicing

 

In April 2011, the FASB issued updated guidance related to the accounting for repurchase agreements and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.  The updated guidance eliminates the criteria to assess whether a transferor must have the ability to repurchase or redeem the financial assets in order to demonstrate effective control over the transferred asset.  Transferors that maintain effective control over a transferred asset are required to account for the transaction as a secured borrowing rather than a sale.

 

The updated guidance is effective for the quarter ending March 31, 2012.  The updated guidance applies to transactions or modifications of existing transactions that occur on or after the effective date.  The adoption of this guidance is not expected to have any impact on the Company’s results of operations, financial position or liquidity.

 

7



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), (Continued)

 

1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

 

Presentation of Comprehensive Income

 

In June 2011, the FASB issued updated guidance to increase the prominence of items reported in other comprehensive income by eliminating the option of presenting components of comprehensive income as part of the statement of changes in stockholders’ equity.  The updated guidance requires that all nonowner changes in stockholders’ equity be presented either as a single continuous statement of comprehensive income or in two separate but consecutive statements.  The updated guidance is to be applied retrospectively and is effective for the quarter ending March 31, 2012.  Early adoption is permitted.

 

The updated guidance will result in a change in the presentation of the Company’s financial statements but will not have any impact on the Company’s results of operations, financial position or liquidity.

 

Intangibles - Goodwill and Other

 

In September 2011, the FASB issued updated guidance that modifies the manner in which the two-step impairment test of goodwill is applied.  Under the updated guidance, an entity may assess qualitative factors (such as changes in management, key personnel, strategy, key technology, or customers) that may impact a reporting unit’s fair value and lead to the determination that it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill.  If an entity determines that it is more likely than not, it must perform an impairment test.

 

The first step of the impairment test involves comparing the estimated fair value of a reporting unit to its carrying value, including goodwill.  If the carrying value of a reporting unit exceeds the estimated fair value, a second step must be performed to measure the amount of goodwill impairment, if any.  In the second step, the implied fair value of the reporting unit’s goodwill is determined in the same manner as goodwill is measured in a business combination (i.e., by measuring the fair value of the reporting unit’s assets, liabilities and unrecognized intangible assets and determining the remaining amount ascribed to goodwill) and comparing the amount of the implied goodwill to the carrying amount of the goodwill.  If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

 

The updated guidance is effective for the quarter ending March 31, 2012.  The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

Nature of Operations

 

The Company is organized into three reportable business segments: Business Insurance; Financial, Professional & International Insurance; and Personal Insurance.  These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on type of customer, how the business is marketed and the manner in which risks are underwritten.  The specific business segments are as follows:

 

Business Insurance

 

The Business Insurance segment offers a broad array of property and casualty insurance and insurance-related services to its clients primarily in the United States. Business Insurance is organized into the following six groups, which collectively comprise Business Insurance Core operations: Select Accounts; Commercial Accounts; National Accounts; Industry-Focused Underwriting; Target Risk Underwriting; and Specialized Distribution.

 

Business Insurance also includes the Special Liability Group (which manages the Company’s asbestos and environmental liabilities) and the assumed reinsurance and certain international and other runoff operations, which collectively are referred to as Business Insurance Other.

 

Financial, Professional & International Insurance

 

The Financial, Professional & International Insurance segment includes surety and financial liability coverages, which primarily use credit-based underwriting processes, as well as property and casualty products that are primarily marketed on a domestic basis in the United Kingdom, Canada and the Republic of Ireland, and on an international basis through Lloyd’s.  The segment includes Bond & Financial Products as well as International.

 

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Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), (Continued)

 

1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

 

On June 17, 2011, the Company acquired 43% of the common stock of J. Malucelli Participações em Seguros e Resseguros S.A, a Brazilian company (“JMalucelli”).  JMalucelli is currently the market leader in surety in Brazil based on market share.  The Company’s investment in JMalucelli is accounted for using the equity method and is included in “other investments” on the consolidated balance sheet.

 

Personal Insurance

 

The Personal Insurance segment writes virtually all types of property and casualty insurance covering personal risks. The primary coverages in Personal Insurance are automobile and homeowners insurance sold to individuals.

 

2.             SEGMENT INFORMATION

 

The following tables summarize the components of the Company’s revenues, operating income and total assets by reportable business segments:

 

(for the three months
ended September 30,
in millions)

 

Business
Insurance

 

Financial,
Professional &
International
Insurance

 

Personal
Insurance

 

Total
Reportable
Segments

 

2011

 

 

 

 

 

 

 

 

 

Premiums

 

$

2,890

 

$

799

 

$

1,916

 

$

5,605

 

Net investment income

 

487

 

101

 

102

 

690

 

Fee income

 

78

 

1

 

 

79

 

Other revenues

 

8

 

6

 

17

 

31

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues (1)

 

$

3,463

 

$

907

 

$

2,035

 

$

6,405

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) (1)

 

$

294

 

$

211

 

$

(108

)

$

397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

 

 

 

 

 

Premiums

 

$

2,736

 

$

820

 

$

1,866

 

$

5,422

 

Net investment income

 

514

 

110

 

111

 

735

 

Fee income

 

64

 

 

 

64

 

Other revenues

 

10

 

7

 

18

 

35

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues (1)

 

$

3,324

 

$

937

 

$

1,995

 

$

6,256

 

 

 

 

 

 

 

 

 

 

 

Operating income (1)

 

$

543

 

$

212

 

$

168

 

$

923

 

 


(1)      Operating revenues for reportable business segments exclude net realized investment gains (losses). Operating income (loss) for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).

 

9



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), (Continued)

 

2.             SEGMENT INFORMATION, Continued

 

(for the nine months
ended September 30,
in millions)

 

Business
Insurance

 

Financial,
Professional &
International
Insurance

 

Personal
Insurance

 

Total
Reportable
Segments

 

2011

 

 

 

 

 

 

 

 

 

Premiums

 

$

8,437

 

$

2,382

 

$

5,660

 

$

16,479

 

Net investment income

 

1,584

 

312

 

331

 

2,227

 

Fee income

 

226

 

1

 

 

227

 

Other revenues

 

27

 

19

 

53

 

99

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues (1)

 

$

10,274

 

$

2,714

 

$

6,044

 

$

19,032

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) (1)

 

$

909

 

$

495

 

$

(409

)

$

995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

 

 

 

 

 

Premiums

 

$

8,027

 

$

2,499

 

$

5,466

 

$

15,992

 

Net investment income

 

1,579

 

331

 

340

 

2,250

 

Fee income

 

219

 

 

 

219

 

Other revenues

 

23

 

20

 

56

 

99

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues (1)

 

$

9,848

 

$

2,850

 

$

5,862

 

$

18,560

 

 

 

 

 

 

 

 

 

 

 

Operating income (1)

 

$

1,677

 

$

470

 

$

246

 

$

2,393

 

 


(1)      Operating revenues for reportable business segments exclude net realized investment gains (losses). Operating income (loss) for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).

 

10



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

2.                       SEGMENT INFORMATION, Continued

 

Business Segment Reconciliations

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in millions)

 

2011

 

2010

 

2011

 

2010

 

Revenue reconciliation

 

 

 

 

 

 

 

 

 

Earned premiums

 

 

 

 

 

 

 

 

 

Business Insurance:

 

 

 

 

 

 

 

 

 

Workers’ compensation

 

$

750

 

$

642

 

$

2,142

 

$

1,847

 

Commercial automobile

 

491

 

488

 

1,444

 

1,430

 

Property

 

405

 

411

 

1,207

 

1,257

 

General liability

 

442

 

435

 

1,299

 

1,293

 

Commercial multi-peril

 

796

 

760

 

2,336

 

2,200

 

Other

 

6

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

Total Business Insurance

 

2,890

 

2,736

 

8,437

 

8,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial, Professional & International Insurance:

 

 

 

 

 

 

 

 

 

Fidelity and surety

 

242

 

247

 

726

 

780

 

General liability

 

213

 

220

 

637

 

668

 

International

 

310

 

319

 

919

 

950

 

Other

 

34

 

34

 

100

 

101

 

 

 

 

 

 

 

 

 

 

 

Total Financial, Professional & International Insurance

 

799

 

820

 

2,382

 

2,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Insurance:

 

 

 

 

 

 

 

 

 

Automobile

 

935

 

932

 

2,781

 

2,757

 

Homeowners and other

 

981

 

934

 

2,879

 

2,709

 

 

 

 

 

 

 

 

 

 

 

Total Personal Insurance

 

1,916

 

1,866

 

5,660

 

5,466

 

 

 

 

 

 

 

 

 

 

 

Total earned premiums

 

5,605

 

5,422

 

16,479

 

15,992

 

Net investment income

 

690

 

735

 

2,227

 

2,250

 

Fee income

 

79

 

64

 

227

 

219

 

Other revenues

 

31

 

35

 

99

 

99

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues for reportable segments

 

6,405

 

6,256

 

19,032

 

18,560

 

Net realized investment gains

 

2

 

226

 

41

 

220

 

 

 

 

 

 

 

 

 

 

 

Total consolidated revenues

 

$

6,407

 

$

6,482

 

$

19,073

 

$

18,780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income reconciliation, net of tax

 

 

 

 

 

 

 

 

 

Total operating income for reportable segments

 

$

397

 

$

923

 

$

995

 

$

2,393

 

Interest Expense and Other (1)

 

(65

)

(65

)

(214

)

(214

)

 

 

 

 

 

 

 

 

 

 

Total operating income

 

332

 

858

 

781

 

2,179

 

Net realized investment gains

 

1

 

147

 

27

 

143

 

 

 

 

 

 

 

 

 

 

 

Total consolidated net income

 

$

333

 

$

1,005

 

$

808

 

$

2,322

 

 


(1)   The primary component of Interest Expense and Other is after-tax interest expense of $63 million and $62 million for the three months ended September 30, 2011 and 2010, respectively, and $189 million for each of the nine months ended September 30, 2011 and 2010.

 

11



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

2.                       SEGMENT INFORMATION, Continued

 

(in millions) 

 

September 30,
2011

 

December 31,
2010

 

Asset reconciliation:

 

 

 

 

 

Business Insurance

 

$

78,434

 

$

78,165

 

Financial, Professional & International Insurance

 

13,721

 

13,461

 

Personal Insurance

 

14,211

 

13,423

 

 

 

 

 

 

 

Total assets for reportable segments

 

106,366

 

105,049

 

Other assets (1)

 

567

 

607

 

 

 

 

 

 

 

Total consolidated assets

 

$

106,933

 

$

105,656

 

 


(1)               The primary component of other assets at September 30, 2011 was other intangible assets.  The primary components of other assets at December 31, 2010 were other intangible assets and deferred taxes.

 

3.                       INVESTMENTS

 

Fixed Maturities

 

The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

(at September 30, 2011, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities

 

$

2,125

 

$

106

 

$

 

$

2,231

 

Obligations of states, municipalities and political subdivisions:

 

 

 

 

 

 

 

 

 

Pre-refunded

 

6,599

 

533

 

1

 

7,131

 

All other

 

30,131

 

2,022

 

9

 

32,144

 

 

 

 

 

 

 

 

 

 

 

Total obligations of states, municipalities and political subdivisions

 

36,730

 

2,555

 

10

 

39,275

 

Debt securities issued by foreign governments

 

1,921

 

81

 

 

2,002

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

3,367

 

270

 

19

 

3,618

 

All other corporate bonds

 

15,880

 

1,026

 

69

 

16,837

 

Redeemable preferred stock

 

33

 

4

 

 

37

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

60,056

 

$

4,042

 

$

98

 

$

64,000

 

 

12



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

3.                       INVESTMENTS, Continued

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

(at December 31, 2010, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities

 

$

1,914

 

$

94

 

$

 

$

2,008

 

Obligations of states, municipalities and political subdivisions:

 

 

 

 

 

 

 

 

 

Pre-refunded

 

6,787

 

505

 

1

 

7,291

 

All other

 

31,277

 

1,121

 

154

 

32,244

 

 

 

 

 

 

 

 

 

 

 

Total obligations of states, municipalities and political subdivisions

 

38,064

 

1,626

 

155

 

39,535

 

Debt securities issued by foreign governments

 

2,156

 

50

 

4

 

2,202

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

3,952

 

248

 

36

 

4,164

 

All other corporate bonds

 

14,051

 

876

 

51

 

14,876

 

Redeemable preferred stock

 

33

 

2

 

 

35

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

60,170

 

$

2,896

 

$

246

 

$

62,820

 

 

Pre-refunded bonds of $7.13 billion and $7.29 billion at September 30, 2011 and December 31, 2010, respectively, were bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest.

 

Equity Securities

 

The cost and fair value of investments in equity securities were as follows:

 

 

 

 

 

Gross Unrealized

 

Fair

 

(at September 30, 2011, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

Common stock

 

$

300

 

$

83

 

$

7

 

$

376

 

Non-redeemable preferred stock

 

167

 

30

 

3

 

194

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

467

 

$

113

 

$

10

 

$

570

 

 

 

 

 

 

Gross Unrealized

 

Fair

 

(at December 31, 2010, in millions)

 

Cost

 

Gains

 

Losses

 

Value

 

Common stock

 

$

198

 

$

106

 

$

 

$

304

 

Non-redeemable preferred stock

 

174

 

46

 

5

 

215

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

372

 

$

152

 

$

5

 

$

519

 

 

13



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

3.                       INVESTMENTS, Continued

 

Unrealized Investment Losses

 

The following tables summarize, for all investments in an unrealized loss position at September 30, 2011 and December 31, 2010, the aggregate fair value and gross unrealized losses by length of time those securities have been continuously in an unrealized loss position.

 

 

 

Less than 12 months

 

12 months or longer

 

Total

 

(at September 30, 2011, in millions)

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fixed maturities

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities

 

$

520

 

$

 

$

 

$

 

$

520

 

$

 

Obligations of states, municipalities and political subdivisions

 

731

 

5

 

115

 

5

 

846

 

10

 

Debt securities issued by foreign governments

 

54

 

 

 

 

54

 

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

292

 

8

 

137

 

11

 

429

 

19

 

All other corporate bonds

 

1,794

 

52

 

73

 

17

 

1,867

 

69

 

Redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed maturities

 

3,391

 

65

 

325

 

33

 

3,716

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

79

 

7

 

 

 

79

 

7

 

Non-redeemable preferred stock

 

58

 

1

 

35

 

2

 

93

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity securities

 

137

 

8

 

35

 

2

 

172

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

3,528

 

$

73

 

$

360

 

$

35

 

$

3,888

 

$

108

 

 

14



Table of Contents

 

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

 

3.                       INVESTMENTS, Continued

 

 

 

Less than 12 months

 

12 months or longer

 

Total

 

(at December 31, 2010, in millions)

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fixed maturities

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities

 

$

155

 

$

 

$

 

$

 

$

155

 

$

 

Obligations of states, municipalities and political subdivisions

 

5,854

 

149

 

139

 

6

 

5,993

 

155

 

Debt securities issued by foreign governments

 

419

 

4

 

13

 

 

432

 

4

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

 

77

 

1

 

420

 

35

 

497

 

36

 

All other corporate bonds

 

1,255

 

32

 

185

 

19

 

1,440

 

51

 

Redeemable preferred stock

 

 

 

3

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed maturities

 

7,760

 

186

 

760

 

60

 

8,520

 

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

3

 

 

3

 

 

6

 

 

Non-redeemable preferred stock

 

45

 

1

 

49

 

4

 

94

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity securities

 

48

 

1

 

52

 

4

 

100

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

7,808

 

$

187

 

$

812

 

$

64

 

$

8,620

 

$

251

 

 

The following table summarizes, for all fixed maturities and equity securities reported at fair value for which fair value is less than 80% of amortized cost at September 30, 2011, the gross unrealized investment loss by length of time those securities have continuously been in an unrealized loss position of greater than 20% of amortized cost:

 

 

 

Period For Which Fair Value Is Less Than 80% of Amortized Cost

 

(in millions)

 

3 Months
or Less

 

Greater Than 3
Months, 6 Months
or Less

 

Greater Than 6
Months, 12 Months
or Less

 

Greater Than
12 Months

 

Total

 

Fixed maturities

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

 

$

 

$

 

$

 

$

 

Other

 

5

 

2

 

4

 

9

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed maturities

 

5

 

2

 

4

 

9

 

20

 

Equity securities