XBUE:TRVV Travelers Companies, Inc. ADR Quarterly Report 10-Q Filing - 9/30/2012

Effective Date 9/30/2012

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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, 2012

 

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 15, 2012 was 381,449,123.

 

 

 



Table of Contents

 

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

 

 

 

 

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,

 

 

 

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).

 

3



Table of Contents

 

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).

 

4



Table of Contents

 

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).

 

5



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,

 

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).

 

6



Table of Contents

 

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).

 

7



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 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.

 

8



Table of Contents

 

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.

 

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.

 

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

 

 


(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).

 

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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

 

$

83

 

$

 

$

2,171

 

Obligations of states, municipalities and political subdivisions:

 

 

 

 

 

 

 

 

 

Pre-refunded

 

8,199

 

599

 

 

8,798

 

All other

 

28,042

 

2,415

 

3

 

30,454

 

 

 

 

 

 

 

 

 

 

 

Total obligations of states, municipalities and political subdivisions

 

36,241

 

3,014

 

3

 

39,252

 

Debt securities issued by foreign governments

 

2,281

 

85

 

 

2,366

 

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

 

2,872

 

284

 

2

 

3,154

 

All other corporate bonds

 

17,495

 

1,419

 

17

 

18,897

 

Redeemable preferred stock

 

26

 

7

 

 

33

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

61,003

 

$

4,892

 

$

22

 

$

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

 

 

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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

 

 

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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