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 June 30, 2015

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 July 17, 2015 was 311,205,624.

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The Travelers Companies, Inc.

Quarterly Report on Form 10-Q

For Quarterly Period Ended June 30, 2015

TABLE OF CONTENTS

		Page
	Part I — Financial Information

Item 1.	Financial Statements:

	Consolidated Statement of Income (Unaudited) — Three Months and Six Months Ended June 30, 2015 and 2014	3

	Consolidated Statement of Comprehensive Income (Unaudited) — Three Months and Six Months Ended June 30, 2015 and 2014	4

	Consolidated Balance Sheet — June 30, 2015 (Unaudited) and December 31, 2014	5

	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Six Months Ended June 30, 2015 and 2014	6

	Consolidated Statement of Cash Flows (Unaudited) — Six Months Ended June 30, 2015 and 2014	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73

Item 4.	Controls and Procedures	73

	Part II — Other Information

Item 1.	Legal Proceedings	74

Item 1A.	Risk Factors	74

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 5.	Other Information	75

Item 6.	Exhibits	75

	SIGNATURES	75

	EXHIBIT INDEX	76

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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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014

Revenues
Premiums	$	5,931	$	5,928	$	11,819	$	11,751
Net investment income	632		695		1,224		1,431
Fee income	111		112		222		219
Net realized investment gains (1)	10		16		20		17
Other revenues	22		34		47		75
Total revenues	6,706		6,785		13,332		13,493

Claims and expenses
Claims and claim adjustment expenses	3,547		3,826		6,978		7,141
Amortization of deferred acquisition costs	963		965		1,926		1,915
General and administrative expenses	1,028		1,001		2,020		1,882
Interest expense	92		92		184		184
Total claims and expenses	5,630		5,884		11,108		11,122

Income before income taxes	1,076		901		2,224		2,371
Income tax expense	264		218		579		636
Net income	$	812	$	683	$	1,645	$	1,735

Net income per share
Basic	$	2.56	$	1.98	$	5.14	$	4.97
Diluted	$	2.53	$	1.95	$	5.08	$	4.91

Weighted average number of common shares outstanding
Basic	314.8		343.0		317.7		346.9
Diluted	318.0		346.7		321.2		350.5
Cash dividends declared per common share	$	0.61	$	0.55	$	1.16	$	1.05

(1) Total other-than-temporary impairment (OTTI) losses were $(8) million and $(1) million for the three months ended June 30, 2015 and 2014, respectively, and $(12) million and $(8) million for the six months ended June 30, 2015 and 2014, respectively. Of total OTTI, credit losses of $(6) million and $(1) million for the three months ended June 30, 2015 and 2014, respectively, and $(9) million and $(10) million for the six months ended June 30, 2015 and 2014, respectively, were recognized in net realized investment gains. In addition, unrealized gains (losses) from other changes in total OTTI of $(2) million and $0 million for the three months ended June 30, 2015 and 2014, respectively, and $(3) million and $2 million for the six months ended June 30, 2015 and 2014, respectively, were recognized in other comprehensive income (loss) as part of changes in net unrealized gains on investment securities having credit losses recognized in the consolidated statement of income.

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 (Unaudited)

(in millions)

	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015			2014

Net income	$	812		$	683	$	1,645		$	1,735

Other comprehensive income (loss):
Changes in net unrealized gains on investment securities:
Having no credit losses recognized in the consolidated statement of income	(1,065		)	518		(896		)	1,055
Having credit losses recognized in the consolidated statement of income	(5		)	1		(10		)	3
Net changes in benefit plan assets and obligations	23			15		47			30
Net changes in unrealized foreign currency translation	94			97		(180		)	54
Other comprehensive income (loss) before income taxes	(953		)	631		(1,039		)	1,142
Income tax expense (benefit)	(353		)	196		(328		)	390
Other comprehensive income (loss), net of taxes	(600		)	435		(711		)	752
Comprehensive income	$	212		$	1,118	$	934		$	2,487

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)

	June 30, 2015			December 31, 2014
	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost $60,103 and $60,801)	$	61,933		$	63,474
Equity securities, available for sale, at fair value (cost $573 and $579)	828			899
Real estate investments	980			938
Short-term securities	3,924			4,364
Other investments	3,565			3,586
Total investments	71,230			73,261

Cash	317			374
Investment income accrued	655			685
Premiums receivable	6,764			6,298
Reinsurance recoverables	8,965			9,260
Ceded unearned premiums	782			678
Deferred acquisition costs	1,891			1,835
Deferred taxes	216			33
Contractholder receivables	4,473			4,362
Goodwill	3,594			3,611
Other intangible assets	284			304
Other assets	2,493			2,377
Total assets	$	101,664		$	103,078

Liabilities
Claims and claim adjustment expense reserves	$	48,833		$	49,850
Unearned premium reserves	12,153			11,839
Contractholder payables	4,473			4,362
Payables for reinsurance premiums	428			336
Debt	6,350			6,349
Other liabilities	5,306			5,506
Total liabilities	77,543			78,242

Shareholders’ equity
Common stock (1,750.0 shares authorized; 311.2 and 322.2 shares issued and outstanding)	22,039			21,843
Retained earnings	28,524			27,251
Accumulated other comprehensive income	169			880
Treasury stock, at cost (451.5 and 437.3 shares)	(26,611		)	(25,138		)
Total shareholders’ equity	24,121			24,836
Total liabilities and shareholders’ equity	$	101,664		$	103,078

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 CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)

For the six months ended June 30,	2015			2014
Common stock
Balance, beginning of year	$	21,843		$	21,500
Employee share-based compensation	87			94
Compensation amortization under share-based plans and other changes	109			100
Balance, end of period	22,039			21,694

Retained earnings
Balance, beginning of year	27,251			24,291
Net income	1,645			1,735
Dividends	(372		)	(367		)
Other	—			3
Balance, end of period	28,524			25,662

Accumulated other comprehensive income, net of tax
Balance, beginning of year	880			810
Other comprehensive income (loss)	(711		)	752
Balance, end of period	169			1,562

Treasury stock, at cost
Balance, beginning of year	(25,138		)	(21,805		)
Treasury stock acquired — share repurchase authorization	(1,400		)	(1,525		)
Net shares acquired related to employee share-based compensation plans	(73		)	(56		)
Balance, end of period	(26,611		)	(23,386		)
Total shareholders’ equity	$	24,121		$	25,532

Common shares outstanding
Balance, beginning of year	322.2			353.5
Treasury stock acquired — share repurchase authorization	(13.5		)	(17.3		)
Net shares issued under employee share-based compensation plans	2.5			2.8
Balance, end of period	311.2			339.0

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 (Unaudited)

(in millions)

For the six months ended June 30,	2015			2014
Cash flows from operating activities
Net income	$	1,645		$	1,735
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains	(20		)	(17		)
Depreciation and amortization	429			442
Deferred federal income tax expense	142			131
Amortization of deferred acquisition costs	1,926			1,915
Equity in income from other investments	(134		)	(257		)
Premiums receivable	(486		)	(463		)
Reinsurance recoverables	263			206
Deferred acquisition costs	(1,991		)	(1,989		)
Claims and claim adjustment expense reserves	(826		)	(60		)
Unearned premium reserves	362			235
Other	(435		)	(550		)
Net cash provided by operating activities	875			1,328

Cash flows from investing activities
Proceeds from maturities of fixed maturities	5,314			4,915
Proceeds from sales of investments:
Fixed maturities	1,226			785
Equity securities	28			95
Real estate investments	10			5
Other investments	354			338
Purchases of investments:
Fixed maturities	(6,239		)	(5,449		)
Equity securities	(22		)	(40		)
Real estate investments	(69		)	(36		)
Other investments	(275		)	(226		)
Net sales of short-term securities	433			60
Securities transactions in course of settlement	183			204
Acquisition, net of cash acquired	—			(12		)
Other	(178		)	(152		)
Net cash provided by investing activities	765			487

Cash flows from financing activities
Treasury stock acquired — share repurchase authorization	(1,400		)	(1,525		)
Treasury stock acquired — net employee share-based compensation	(72		)	(55		)
Dividends paid to shareholders	(369		)	(365		)
Issuance of common stock — employee share options	117			122
Excess tax benefits from share-based payment arrangements	31			24
Net cash used in financing activities	(1,693		)	(1,799		)
Effect of exchange rate changes on cash	(4		)	1
Net increase (decrease) in cash	(57		)	17
Cash at beginning of year	374			294
Cash at end of period	$	317		$	311

Supplemental disclosure of cash flow information
Income taxes paid	$	597		$	727
Interest paid	$	183		$	183

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 (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. 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 Annual Report on Form 10-K for the year ended December 31, 2014 (the Company’s 2014 Annual Report).

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. Certain reclassifications have been made to the 2014 financial statements to conform to the 2015 presentation.

Adoption of Accounting Standards Updates

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the Financial Accounting Standards Board (FASB) issued revised guidance to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary or an asset group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The updated guidance was effective for the quarter ending March 31, 2015. 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

Amendments to the Consolidation Analysis

In February 2015, the FASB issued updated guidance that makes targeted amendments to the current consolidation accounting guidance. The update is in response to accounting complexity concerns, particularly from the asset management industry. The guidance simplifies consolidation accounting by reducing the number of approaches to consolidation, provides a scope exception to registered money market funds and similar unregistered money market funds and ends the indefinite deferral granted to investment companies from applying the variable interest entity guidance.

The updated guidance is effective for annual and interim periods beginning after December 15, 2015. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued updated guidance to clarify the required presentation of debt issuance costs. The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying amount of the recognized debt liability, consistent with the treatment of debt discounts. Amortization of debt issuance costs is to be

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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

reported as interest expense. The recognition and measurement guidance for debt issuance costs are not affected by the updated guidance.

The updated guidance is effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. The adoption of this guidance will not have any effect on the Company’s results of operations, financial position or liquidity.

Additional Accounting Standards Not Yet Adopted

Revenue from Contracts with Customers

In July 2015, the FASB deferred the effective date of the updated guidance on revenue recognition by one year to the quarter ending March 31, 2018. The adoption of this guidance is not expected to have a material effect on the Company’s result of operations, financial position or liquidity.

For additional information regarding Revenue from Contracts with Customers and other accounting standards that the Company has not yet adopted, see the “Accounting Standards Not Yet Adopted” section of note 1 of notes to the consolidated financial statements in the Company’s 2014 Annual Report.

Nature of Operations

The Company is organized into three reportable business segments: Business and International Insurance; Bond & Specialty 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. For more information regarding the Company’s nature of operations, see the “Nature of Operations” section of note 1 of notes to the consolidated financial statements in the Company’s 2014 Annual Report.

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 June 30, in millions)	Business and International Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments
2015
Premiums	$	3,609	$	524	$	1,798	$	5,931
Net investment income	487		57		88		632
Fee income	111		—		—		111
Other revenues	5		5		12		22
Total operating revenues (1)	$	4,212	$	586	$	1,898	$	6,696
Operating income (1)	$	543	$	151	$	174	$	868

2014
Premiums	$	3,631	$	524	$	1,773	$	5,928
Net investment income	539		62		94		695
Fee income	112		—		—		112
Other revenues	10		6		17		33
Total operating revenues (1)	$	4,292	$	592	$	1,884	$	6,768
Operating income (1)	$	471	$	192	$	75	$	738

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

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued

(for the six months ended June 30, in millions)	Business and International Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments
2015
Premiums	$	7,229	$	1,028	$	3,562	$	11,819
Net investment income	941		113		170		1,224
Fee income	222		—		—		222
Other revenues	13		10		24		47
Total operating revenues (1)	$	8,405	$	1,151	$	3,756	$	13,312
Operating income (1)	$	1,058	$	275	$	426	$	1,759

2014
Premiums	$	7,189	$	1,027	$	3,535	$	11,751
Net investment income	1,109		128		194		1,431
Fee income	219		—		—		219
Other revenues	22		10		43		75
Total operating revenues (1)	$	8,539	$	1,165	$	3,772	$	13,476
Operating income (1)	$	1,165	$	346	$	343	$	1,854

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

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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 June 30,						Six Months Ended June 30,
(in millions)	2015			2014			2015			2014
Revenue reconciliation
Earned premiums
Business and International Insurance:
Domestic:
Workers’ compensation	$	957		$	923		$	1,919		$	1,831
Commercial automobile	477			473			946			941
Commercial property	442			440			883			868
General liability	473			457			945			904
Commercial multi-peril	779			763			1,554			1,518
Other	10			11			20			21
Total Domestic	3,138			3,067			6,267			6,083
International	471			564			962			1,106
Total Business and International Insurance	3,609			3,631			7,229			7,189

Bond & Specialty Insurance:
Fidelity and surety	240			238			465			460
General liability	240			241			476			478
Other	44			45			87			89
Total Bond & Specialty Insurance	524			524			1,028			1,027

Personal Insurance:
Automobile	863			821			1,699			1,636
Homeowners and other	935			952			1,863			1,899
Total Personal Insurance	1,798			1,773			3,562			3,535
Total earned premiums	5,931			5,928			11,819			11,751
Net investment income	632			695			1,224			1,431
Fee income	111			112			222			219
Other revenues	22			33			47			75
Total operating revenues for reportable segments	6,696			6,768			13,312			13,476
Other revenues	—			1			—			—
Net realized investment gains	10			16			20			17
Total consolidated revenues	$	6,706		$	6,785		$	13,332		$	13,493

Income reconciliation, net of tax
Total operating income for reportable segments	$	868		$	738		$	1,759		$	1,854
Interest Expense and Other (1)	(62		)	(65		)	(126		)	(129		)
Total operating income	806			673			1,633			1,725
Net realized investment gains	6			10			12			10
Total consolidated net income	$	812		$	683		$	1,645		$	1,735

(1) The primary component of Interest Expense and Other was after-tax interest expense of $60 million in each of the three months ended June 30, 2015 and 2014, and $120 million in each of the six months ended June 30, 2015 and 2014.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued

(in millions)	June 30, 2015		December 31, 2014
Asset reconciliation:
Business and International Insurance	$	80,839	$	82,309
Bond & Specialty Insurance	7,585		7,525
Personal Insurance	12,692		12,798
Total assets for reportable segments	101,116		102,632
Other assets (1)	548		446
Total consolidated assets	$	101,664	$	103,078

(1) The primary components of other assets at June 30, 2015 and December 31, 2014 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 June 30, 2015, in millions)

Cost

Gains

Losses

Value

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

2,025

2,046

Obligations of states, municipalities and political subdivisions:

Pre-refunded

6,966

306

7,271

All other

24,704

888

153

25,439

Total obligations of states, municipalities and political subdivisions

31,670

1,194

154

32,710

Debt securities issued by foreign governments

2,049

2,100

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

1,905

147

2,046

All other corporate bonds

22,341

714

147

22,908

Redeemable preferred stock

113

—

123

Total

60,103

2,145

315

61,933

	Amortized		Gross Unrealized				Fair
(at December 31, 2014, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,022	$	36	$	5	$	2,053
Obligations of states, municipalities and political subdivisions:
Pre-refunded	7,229		332		—		7,561
All other	24,666		1,356		10		26,012
Total obligations of states, municipalities and political subdivisions	31,895		1,688		10		33,573
Debt securities issued by foreign governments	2,320		48		—		2,368
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,052		165		4		2,213
All other corporate bonds	22,390		844		99		23,135
Redeemable preferred stock	122		10		—		132
Total	$	60,801	$	2,791	$	118	$	63,474

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

Pre-refunded bonds of $7.27 billion and $7.56 billion at June 30, 2015 and December 31, 2014, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities, which were created to satisfy their responsibility for payments of principal and interest.

Proceeds from sales of fixed maturities classified as available for sale were $1.23 billion and $785 million during the six months ended June 30, 2015 and 2014, respectively. Gross gains of $40 million and $23 million and gross losses of $3 million and $4 million were realized on those sales during the six months ended June 30, 2015 and 2014, respectively.

Equity Securities

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

			Gross Unrealized				Fair
(at June 30, 2015, in millions)	Cost		Gains		Losses		Value
Public common stock	$	410	$	235	$	6	$	639
Non-redeemable preferred stock	163		29		3		189
Total	$	573	$	264	$	9	$	828

			Gross Unrealized				Fair
(at December 31, 2014, in millions)	Cost		Gains		Losses		Value
Public common stock	$	400	$	295	$	4	$	691
Non-redeemable preferred stock	179		31		2		208
Total	$	579	$	326	$	6	$	899

Proceeds from sales of equity securities were $28 million and $95 million during the six months ended June 30, 2015 and 2014, respectively. Gross gains of $5 million and $19 million and gross losses of $3 million and $3 million were realized on those sales during the six months ended June 30, 2015 and 2014, respectively.

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at June 30, 2015 and December 31, 2014, 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 herein and in note 4 of notes to the consolidated financial statements in the Company’s 2014 Annual Report.

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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 June 30, 2015, 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	$	507	$	7	$	24	$	—	$	531	$	7
Obligations of states, municipalities and political subdivisions	7,737		147		135		7		7,872		154
Debt securities issued by foreign governments	154		1		—		—		154		1
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	274		2		126		4		400		6
All other corporate bonds	5,509		114		570		33		6,079		147
Redeemable preferred stock	2		—		—		—		2		—
Total fixed maturities	14,183		271		855		44		15,038		315

Equity securities
Public common stock	51		6		29		—		80		6
Non-redeemable preferred stock	55		1		50		2		105		3
Total equity securities	106		7		79		2		185		9
Total	$	14,289	$	278	$	934	$	46	$	15,223	$	324

	Less than 12 months				12 months or longer				Total
(at December 31, 2014, 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	$	180	$	2	$	125	$	3	$	305	$	5
Obligations of states, municipalities and political subdivisions	173		1		797		9		970		10
Debt securities issued by foreign governments	50		—		24		—		74		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	68		—		192		4		260		4
All other corporate bonds	2,148		38		2,355		61		4,503		99
Total fixed maturities	2,619		41		3,493		77		6,112		118

Equity securities
Public common stock	81		4		1		—		82		4
Non-redeemable preferred stock	44		1		42		1		86		2
Total equity securities	125		5		43		1		168		6
Total	$	2,744	$	46	$	3,536	$	78	$	6,280	$	124

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

Unrealized losses for all fixed maturities and equity securities reported at fair value for which fair value is less than 80% of amortized cost at June 30, 2015 totaled $9 million, representing less than 1% of the combined fixed maturity and equity security portfolios on a pretax basis and less than 1% of shareholders’ equity on an after-tax basis.

Impairment Charges

Impairment charges included in net realized investment gains in the consolidated statement of income were $6 million and $1 million for the three months ended June 30, 2015 and 2014, respectively, and $9 million and $10 million for the six months ended June 30, 2015 and 2014, respectively.

The cumulative credit component of other-than-temporary impairments (OTTI) on fixed maturities recognized in the consolidated statement of income for which a portion of the OTTI was recognized in other comprehensive income for fixed maturities held at June 30, 2015 and 2014 totaled $88 million and $109 million, respectively, representing less than 1% of the fixed maturity portfolio on a pretax basis and less than 1% of shareholders’ equity on an after-tax basis at both dates. There were no significant changes in the credit component of OTTI during the three months and six months ended June 30, 2015 and 2014 from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2014 Annual Report.

Derivative Financial Instruments

From time to time, the Company enters into U.S. Treasury note futures contracts to modify the effective duration of specific assets within the investment portfolio. U.S. Treasury futures contracts require a daily mark-to-market and settlement with the broker. At June 30, 2015 and December 31, 2014, the Company had $450 million and $350 million notional value of open U.S. Treasury futures contracts, respectively. Net realized investment gains in the three months ended June 30, 2015 and 2014 and the six months ended June 30, 2015 and 2014 related to U.S. Treasury futures contracts were not significant.

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.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued

Valuation of Investments Reported at Fair Value in Financial Statements

The Company utilized a pricing service to estimate fair value measurements for approximately 98% of its fixed maturities at both June 30, 2015 and December 31, 2014.

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 an internal pricing matrix with some unobservable inputs that are significant to the valuation. Due to the limited amount of observable market information, the Company includes the fair value estimates for these particular bonds in Level 3. The fair value of the fixed maturities for which the Company used an internal pricing matrix was $103 million and $92 million at June 30, 2015 and December 31, 2014, respectively. Additionally, the Company holds a small amount of other fixed maturity investments that have characteristics that make them unsuitable for matrix pricing. For these fixed maturities, the Company obtains a quote from a broker (primarily the market maker). The fair value of the fixed maturities for which the Company received a broker quote was $111 million and $140 million at June 30, 2015 and December 31, 2014, respectively. Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.

For more information regarding the valuation of the Company’s fixed maturities, equity securities and other investments, see note 4 of notes to the consolidated financial statements in the Company’s 2014 Annual Report.

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 June 30, 2015 and December 31, 2014. An investment transferred between levels during a period is transferred at its fair value as of the beginning of that period.

(at June 30, 2015, in millions)

Total

Level 1

Level 2

Level 3

Invested assets:

Fixed maturities

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

2,046

2,043

—

Obligations of states, municipalities and political subdivisions

32,710

32,689

Debt securities issued by foreign governments

2,100

—

2,100

—

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

2,046

—

2,010

All other corporate bonds

22,908

—

22,751

157

Redeemable preferred stock

123

113

Total fixed maturities

61,933

2,053

59,666

214

Equity securities

Public common stock

639

637

—

Non-redeemable preferred stock

189

118

—

Total equity securities

828

708

118

Other investments

—

Total

62,819

2,779

59,784

256

During the six months ended June 30, 2015, the Company’s transfers between Level 1 and Level 2 were not significant.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued

(at December 31, 2014, in millions)	Total		Level 1		Level 2		Level 3

Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,053	$	2,049	$	4	$	—
Obligations of states, municipalities and political subdivisions	33,573		—		33,560		13
Debt securities issued by foreign governments	2,368		—		2,368		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,213		—		2,203		10
All other corporate bonds	23,135		—		22,934		201
Redeemable preferred stock	132		2		122		8
Total fixed maturities	63,474		2,051		61,191		232

Equity securities
Public common stock	691		691		—		—
Non-redeemable preferred stock	208		82		126		—
Total equity securities	899		773		126		—

Other investments	55		19		—		36
Total	$	64,428	$	2,843	$	61,317	$	268

During the year ended December 31, 2014, the Company’s transfers between Level 1 and Level 2 were not significant.

There was no significant activity in Level 3 of the hierarchy during the six months ended June 30, 2015 or the year ended December 31, 2014.

Financial Instruments Disclosed, But Not Carried, At Fair Value

The Company uses various financial instruments in the normal course of its business. 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 at June 30, 2015 and December 31, 2014, and the level within the fair value hierarchy at which such assets and liabilities are categorized.

(at June 30, 2015, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Short-term securities	$	3,924	$	3,924	$	1,387	$	2,497	$	40

Financial liabilities:
Debt	$	6,250	$	7,237	$	—	$	7,237	$	—
Commercial paper	$	100	$	100	$	—	$	100	$	—

(at December 31, 2014, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Short-term securities	$	4,364	$	4,364	$	1,283	$	3,042	$	39

Financial liabilities:
Debt	$	6,249	$	7,522	$	—	$	7,522	$	—
Commercial paper	$	100	$	100	$	—	$	100	$	—

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued

The Company utilized a pricing service to estimate fair value for approximately 98% of short-term securities at both June 30, 2015 and December 31, 2014. For a description of the process and inputs used by the pricing service to estimate fair value, see the “Fixed Maturities” section in note 4 of notes to the consolidated financial statements in the Company’s 2014 Annual Report.

The Company utilized a pricing service to estimate fair value for 100% of its debt, including commercial paper, at June 30, 2015 and December 31, 2014.

The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the six months ended June 30, 2015 or twelve months ended December 31, 2014.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table presents the carrying amount of the Company’s goodwill by segment at June 30, 2015 and December 31, 2014:

(in millions)	June 30, 2015		December 31, 2014
Business and International Insurance (1)	$	2,459	$	2,476
Bond & Specialty Insurance	495		495
Personal Insurance	613		613
Other	27		27
Total	$	3,594	$	3,611

(1) Includes goodwill associated with the Company’s international business which is subject to the impact of changes in foreign currency exchange rates.

Other Intangible Assets

The following tables present a summary of the Company’s other intangible assets by major asset class at June 30, 2015 and December 31, 2014:

(at June 30, 2015, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Intangibles subject to amortization
Customer-related (1)	$	5	$	4	$	1
Fair value adjustment on claims and claim adjustment expense reserves, reinsurance recoverables and other contract-related intangibles (2)	208		142		66
Total intangible assets subject to amortization	213		146		67
Intangible assets not subject to amortization	217		—		217
Total other intangible assets	$	430	$	146	$	284

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5. GOODWILL AND OTHER INTANGIBLE ASSETS, Continued

(at December 31, 2014, in millions)

Gross
Carrying
Amount

Accumulated
Amortization