Edgar Filing: TRAVELERS COMPANIES, INC.

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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, 2012

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 15, 2012 was 381,449,123.

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The Travelers Companies, Inc.

Quarterly Report on Form 10-Q

For Quarterly Period Ended September 30, 2012

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, 2012 and 2011	3

	Consolidated Statement of Comprehensive Income (Unaudited) — Three Months and Nine Months Ended September 30, 2012 and 2011	4

	Consolidated Balance Sheet — September 30, 2012 (Unaudited) and December 31, 2011	5

	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Nine Months Ended September 30, 2012 and 2011	6

	Consolidated Statement of Cash Flows (Unaudited) — Nine Months Ended September 30, 2012 and 2011	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	82

Item 4.	Controls and Procedures	82

	Part II — Other Information

Item 1.	Legal Proceedings	82

Item 1A.	Risk Factors	83

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83

Item 5.	Other Information	83

Item 6.	Exhibits	84

	SIGNATURES	84

	EXHIBIT INDEX	85

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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,
	2012			2011			2012		2011

Revenues
Premiums	$	5,666		$	5,605		$	16,718	$	16,479
Net investment income	722			690			2,200		2,227
Fee income	92			79			233		227
Net realized investment gains (losses)	(2		)	2			12		41
Other revenues	34			31			100		99

Total revenues	6,512			6,407			19,263		19,073

Claims and expenses
Claims and claim adjustment expenses	3,359			4,136			10,509		12,659
Amortization of deferred acquisition costs	986			982			2,933		2,900
General and administrative expenses	904			860			2,681		2,650
Interest expense	93			97			285		290

Total claims and expenses	5,342			6,075			16,408		18,499

Income before income taxes	1,170			332			2,855		574
Income tax expense (benefit)	306			(1		)	686		(234		)

Net income	$	864		$	333		$	2,169	$	808

Net income per share
Basic	$	2.23		$	0.80		$	5.55	$	1.90

Diluted	$	2.21		$	0.79		$	5.50	$	1.88

Weighted average number of common shares outstanding
Basic	384.0			415.0			388.0		420.4

Diluted	387.9			418.5			391.5		425.6

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011

Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total gains	$	17		$	9		$	28		$	16
Non-credit component of impairments recognized in accumulated other comprehensive income	(20		)	(21		)	(39		)	(36		)

Other-than-temporary impairment losses	(3		)	(12		)	(11		)	(20		)
Other net realized investment gains	1			14			23			61

Net realized investment gains (losses)	$	(2	)	$	2		$	12		$	41

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

(in millions)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011

Net income	$	864	$	333		$	2,169	$	808

Other comprehensive income:
Change in net unrealized gains on investment securities:
Having no credit losses recognized in the consolidated statement of income	470		687			609		1,226
Having credit losses recognized in the consolidated statement of income	41		(9		)	71		9
Net changes in benefit plan assets and obligations	22		20			64		57
Net changes in unrealized foreign currency translation and other changes	65		(180		)	43		(94		)

Other comprehensive income before income taxes	598		518			787		1,198
Income tax expense	192		197			256		421

Other comprehensive income, net of taxes	406		321			531		777

Comprehensive income	$	1,270	$	654		$	2,700	$	1,585

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

	September 30, 2012			December 31, 2011
	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost $61,003 and $59,994)	$	65,873		$	64,232
Equity securities, available for sale, at fair value (cost $439 and $414)	629			559
Real estate investments	893			865
Short-term securities	3,641			3,594
Other investments	3,454			3,451

Total investments	74,490			72,701

Cash	220			214
Investment income accrued	705			768
Premiums receivable	6,040			5,730
Reinsurance recoverables	10,240			11,155
Ceded unearned premiums	987			828
Deferred acquisition costs	1,860			1,786
Deferred taxes	—			7
Contractholder receivables	4,886			5,186
Goodwill	3,365			3,365
Other intangible assets	393			433
Other assets	2,259			2,402

Total assets	$	105,445		$	104,575

Liabilities
Claims and claim adjustment expense reserves	$	50,258		$	51,392
Unearned premium reserves	11,624			11,102
Contractholder payables	4,886			5,186
Payables for reinsurance premiums	479			389
Deferred taxes	487			—
Debt	6,350			6,605
Other liabilities	5,456			5,424

Total liabilities	79,540			80,098

Shareholders’ equity
Common stock (1,750.0 shares authorized; 382.0 and 392.8 shares issued and outstanding)	21,085			20,732
Retained earnings	21,226			19,579
Accumulated other comprehensive income	2,536			2,005
Treasury stock, at cost (366.8 and 349.0 shares)	(18,942		)	(17,839		)

Total shareholders’ equity	25,905			24,477

Total liabilities and shareholders’ equity	$	105,445		$	104,575

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)

For the nine months ended September 30,	2012			2011
Convertible preferred stock—savings plan
Balance, beginning of year	$	—		$	68
Redemptions during period	—			(5		)
Conversion to common stock	—			(63		)

Balance, end of period	—			—

Common stock
Balance, beginning of year	20,732			20,162
Employee share-based compensation	219			286
Common shares issued — conversion of preferred stock	—			93
Compensation amortization under share-based plans and other changes	134			123

Balance, end of period	21,085			20,664

Retained earnings
Balance, beginning of year	19,579			18,847
Net income	2,169			808
Dividends	(522		)	(503		)
Premium on preferred stock converted to common stock	—			(30		)
Other	—			5

Balance, end of period	21,226			19,127

Accumulated other comprehensive income, net of tax
Balance, beginning of year	2,005			1,255
Other comprehensive income	531			777

Balance, end of period	2,536			2,032

Treasury stock (at cost)
Balance, beginning of year	(17,839		)	(14,857		)
Treasury shares acquired — share repurchase authorization	(1,050		)	(1,712		)
Net shares acquired related to employee share-based compensation plans	(53		)	(82		)

Balance, end of period	(18,942		)	(16,651		)

Total common shareholders’ equity	25,905			25,172

Total shareholders’ equity	$	25,905		$	25,172

Common shares outstanding
Balance, beginning of year	392.8			434.6
Treasury shares acquired — share repurchase authorization	(17.0		)	(30.1		)
Net shares issued under employee share-based compensation plans	6.2			6.8
Common shares issued — conversion of preferred stock	—			1.5

Balance, end of period	382.0			412.8

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(in millions)

For the nine months ended September 30,	2012			2011
Cash flows from operating activities
Net income	$	2,169		$	808
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains	(12		)	(41		)
Depreciation and amortization	618			599
Deferred federal income tax expense	221			159
Amortization of deferred acquisition costs	2,933			2,900
Equity in income from other investments	(271		)	(279		)
Premiums receivable	(307		)	(439		)
Reinsurance recoverables	926			246
Deferred acquisition costs	(3,005		)	(2,988		)
Claims and claim adjustment expense reserves	(1,196		)	740
Unearned premium reserves	506			612
Other	184			(499		)

Net cash provided by operating activities	2,766			1,818

Cash flows from investing activities
Proceeds from maturities of fixed maturities	5,855			5,241
Proceeds from sales of investments:
Fixed maturities	724			842
Equity securities	31			51
Real estate investments	3			1
Other investments	516			482
Purchases of investments:
Fixed maturities	(7,677		)	(6,224		)
Equity securities	(39		)	(118		)
Real estate investments	(62		)	(41		)
Other investments	(292		)	(758		)
Net sales (purchases) of short-term securities	(41		)	813
Securities transactions in course of settlement	53			196
Other	(229		)	(248		)

Net cash provided by (used in) investing activities	(1,158		)	237


Cash flows from financing activities
Payment of debt	(258		)	(8		)
Dividends paid to shareholders	(519		)	(500		)
Issuance of common stock — employee share options	247			270
Treasury stock acquired — share repurchase authorization	(1,056		)	(1,755		)
Treasury stock acquired — net employee share-based compensation	(52		)	(46		)
Excess tax benefits from share-based payment arrangements	32			17

Net cash used in financing activities	(1,606		)	(2,022		)

Effect of exchange rate changes on cash	4			(2		)

Net increase in cash	6			31
Cash at beginning of year	214			200

Cash at end of period	$	220		$	231

Supplemental disclosure of cash flow information
Income taxes paid	$	310		$	277
Interest paid	$	226		$	226

See notes to consolidated financial statements (unaudited).

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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 2011 consolidated financial statements and notes to conform to the 2012 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 2011 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

Testing Goodwill for Impairment

In September 2011, the Financial Accounting Standards Board (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 was effective for the quarter ended March 31, 2012. The adoption of this guidance did not have any effect on the Company’s results of operations, financial position or liquidity.

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 shareholders’ equity. The updated guidance requires that all nonowner changes in shareholders’ equity be presented either as a single continuous statement of comprehensive income or in two separate but consecutive statements.

The updated guidance was effective for the quarter ended March 31, 2012 and was applied retrospectively. The Company’s adoption of this guidance resulted in a change in the presentation of the Company’s consolidated financial statements but did not have any 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 (Unaudited), Continued

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

Reconsideration of Effective Control for Repurchase Agreements

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 is required to 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 was effective for the quarter ended 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 did not have any effect on the Company’s results of operations, financial position or liquidity.

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.

Accounting Standards Not Yet Adopted

Testing Indefinite-Lived Intangible Assets for Impairment

In July 2012, the FASB issued updated guidance regarding the impairment test applicable to indefinite-lived intangible assets that is similar to the impairment guidance applicable to goodwill. 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 the fair value of the indefinite-lived intangible asset and lead to the determination that it is more likely than not that the fair value of the asset is less than its carrying value. If an entity determines that it is more likely than not that the fair value of the intangible asset is less than its carrying value, an impairment test must be performed. The impairment test requires an entity to calculate the estimated fair value of the indefinite-lived intangible asset. If the carrying value of the indefinite-lived intangible asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to the excess.

The updated guidance is effective for the quarter ending March 31, 2013. Early adoption is permitted. 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.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

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.

Personal Insurance

The Personal Insurance segment writes a broad range of property and casualty insurance covering individuals’ personal risks. The primary products of automobile and homeowners insurance are complemented by a broad suite of related coverages.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION

The following tables summarize the components of the Company’s revenues, operating income (loss) 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
2012
Premiums	$	2,982	$	772	$	1,912		$	5,666
Net investment income	524		97		101			722
Fee income	92		—		—			92
Other revenues	9		8		17			34

Total operating revenues (1)	$	3,607	$	877	$	2,030		$	6,514

Operating income (1)	$	543	$	180	$	206		$	929

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

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

(for the nine months ended September 30, in millions)	Business Insurance		Financial, Professional & International Insurance		Personal Insurance			Total Reportable Segments
2012
Premiums	$	8,718	$	2,275	$	5,725		$	16,718
Net investment income	1,592		300		308			2,200
Fee income	232		1		—			233
Other revenues	31		21		52			104

Total operating revenues (1)	$	10,573	$	2,597	$	6,085		$	19,255

Operating income (1)	$	1,517	$	511	$	331		$	2,359

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

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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)	2012			2011			2012			2011
Revenue reconciliation
Earned premiums
Business Insurance:
Workers’ compensation	$	841		$	750		$	2,378		$	2,142
Commercial automobile	488			491			1,462			1,444
Property	414			405			1,207			1,207
General liability	444			442			1,313			1,299
Commercial multi-peril	785			796			2,333			2,336
Other	10			6			25			9

Total Business Insurance	2,982			2,890			8,718			8,437

Financial, Professional & International Insurance:
Fidelity and surety	240			241			699			724
General liability	216			208			633			623
International	274			311			818			920
Other	42			39			125			115

Total Financial, Professional & International Insurance	772			799			2,275			2,382

Personal Insurance:
Automobile	916			935			2,762			2,781
Homeowners and other	996			981			2,963			2,879

Total Personal Insurance	1,912			1,916			5,725			5,660

Total earned premiums	5,666			5,605			16,718			16,479
Net investment income	722			690			2,200			2,227
Fee income	92			79			233			227
Other revenues	34			31			104			99

Total operating revenues for reportable segments	6,514			6,405			19,255			19,032
Other revenues	—			—			(4		)	—
Net realized investment gains (losses)	(2		)	2			12			41

Total consolidated revenues	$	6,512		$	6,407		$	19,263		$	19,073

Income reconciliation, net of tax
Total operating income for reportable segments	$	929		$	397		$	2,359		$	995
Interest Expense and Other (1)	(62		)	(65		)	(196		)	(214		)

Total operating income	867			332			2,163			781
Net realized investment gains (losses)	(3		)	1			6			27

Total consolidated net income	$	864		$	333		$	2,169		$	808

(1) The primary component of Interest Expense and Other was after-tax interest expense of $60 million and $63 million for the three months ended September 30, 2012 and 2011, respectively, and $185 million and $189 million for the nine months ended September 30, 2012 and 2011, respectively.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued

(in millions)	September 30, 2012		December 31, 2011

Asset reconciliation:
Business Insurance	$	77,634	$	76,909
Financial, Professional & International Insurance	13,620		13,355
Personal Insurance	13,681		13,614

Total assets for reportable segments	104,935		103,878
Other assets (1)	510		697

Total consolidated assets	$	105,445	$	104,575

(1) The primary components of other assets at both dates were other intangible assets. The December 31, 2011 total also included 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, 2012, in millions)

Cost

Gains

Losses

Value

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

2,088

—

2,171

Obligations of states, municipalities and political subdivisions:

Pre-refunded

8,199

599

—

8,798

All other

28,042

2,415

30,454

Total obligations of states, municipalities and political subdivisions

36,241

3,014

39,252

Debt securities issued by foreign governments

2,281

—

2,366

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

2,872

284

3,154

All other corporate bonds

17,495

1,419

18,897

Redeemable preferred stock

—

Total

61,003

4,892

65,873

	Amortized		Gross Unrealized				Fair
(at December 31, 2011, in millions)	Cost		Gains		Losses		Value

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,396	$	101	$	—	$	2,497
Obligations of states, municipalities and political subdivisions:
Pre-refunded	6,820		513		1		7,332
All other	29,391		2,303		4		31,690

Total obligations of states, municipalities and political subdivisions	36,211		2,816		5		39,022
Debt securities issued by foreign governments	2,228		91		1		2,318
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	3,288		249		22		3,515
All other corporate bonds	15,845		1,066		61		16,850
Redeemable preferred stock	26		4		—		30

Total	$	59,994	$	4,327	$	89	$	64,232

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

Pre-refunded bonds of $8.80 billion and $7.33 billion at September 30, 2012 and December 31, 2011, 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, 2012, in millions)	Cost		Gains		Losses		Value

Common stock	$	343	$	155	$	2	$	496
Non-redeemable preferred stock	96		37		—		133

Total	$	439	$	192	$	2	$	629

			Gross Unrealized				Fair
(at December 31, 2011, in millions)	Cost		Gains		Losses		Value

Common stock	$	311	$	120	$	3	$	428
Non-redeemable preferred stock	103		29		1		131

Total	$	414	$	149	$	4	$	559

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at September 30, 2012 and December 31, 2011, the aggregate fair value and gross unrealized loss 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, 2012, 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	$	51	$	—	$	—	$	—	$	51	$	—
Obligations of states, municipalities and political subdivisions	228		—		45		3		273		3
Debt securities issued by foreign governments	37		—		—		—		37		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	8		—		37		2		45		2
All other corporate bonds	468		8		113		9		581		17

Total fixed maturities	792		8		195		14		987		22

Equity securities
Common stock	26		2		—		—		26		2
Non-redeemable preferred stock	17		—		—		—		17		—

Total equity securities	43		2		—		—		43		2

Total	$	835	$	10	$	195	$	14	$	1,030	$	24

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, 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	$	356	$	—	$	—	$	—	$	356	$	—
Obligations of states, municipalities and political subdivisions	27		—		191		5		218		5
Debt securities issued by foreign governments	96		1		2		—		98		1
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	362		12		155		10		517		22
All other corporate bonds	1,295		42		105		19		1,400		61

Total fixed maturities	2,136		55		453		34		2,589		89

Equity securities
Common stock	64		3		—		—		64		3
Non-redeemable preferred stock	37		1		7		—		44		1

Total equity securities	101		4		7		—		108		4

Total	$	2,237	$	59	$	460	$	34	$	2,697	$	93

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, 2012, 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