THE TRAVELERS COMPANIES The following is a discussion and analysis of the Company's financial condition and results of operations.
FINANCIAL HIGHLIGHTS
2022 First Quarter Consolidated Results of Operations
•Net income of$1.02 billion , or$4.20 per share basic and$4.15 per share diluted •Net earned premiums of$8.01 billion •Catastrophe losses of$160 million ($127 million after-tax) •Net favorable prior year reserve development of$153 million ($122 million after-tax) •Combined ratio of 91.3% •Net investment income of$637 million ($539 million after-tax) •Net realized investment losses of$23 million ($19 million after-tax) •Operating cash flows of$1.27 billion
2022 First Quarter Consolidated Financial Condition
•Total investments of$83.66 billion ; fixed maturities and short-term securities comprised 93% of total investments •Total assets of$118.59 billion •Total debt of$7.29 billion , resulting in a debt-to-total capital ratio of 22.2% (21.3% excluding net unrealized investment gains, net of tax) •Total capital returned to shareholders of$773 million , comprising$559 million of share repurchases and$214 million of dividends •Shareholders' equity of$25.53 billion •Net unrealized investment losses of$1.77 billion ($1.39 billion after-tax) •Book value per common share of$106.40 •Holding company liquidity of$1.55 billion 28 --------------------------------------------------------------------------------THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
CONSOLIDATED OVERVIEW
Consolidated Results of Operations
Three Months Ended
March 31,
(in millions, except ratio and per share amounts) 2022 2021
Revenues
Premiums $ 8,014 $ 7,386
Net investment income 637 701
Fee income 103 101
Net realized investment gains (losses) (23) 44
Other revenues 78 81
Total revenues 8,809 8,313
Claims and expenses
Claims and claim adjustment expenses 5,039 4,970
Amortization of deferred acquisition costs 1,310
1,207
General and administrative expenses 1,191 1,163 Interest expense 87 82 Total claims and expenses 7,627 7,422 Income before income taxes 1,182 891 Income tax expense 164 158 Net income$ 1,018 $ 733 Net income per share Basic$ 4.20 $ 2.89 Diluted$ 4.15 $ 2.87 Combined ratio Loss and loss adjustment expense ratio 62.3 % 66.7 % Underwriting expense ratio 29.0 29.9 Combined ratio 91.3 % 96.6 % The following discussions of the Company's net income and segment income are presented on an after-tax basis. Discussions of the components of net income and segment income are presented on a pre-tax basis, unless otherwise noted. Discussions of net income per common share are presented on a diluted basis.
Overview
Diluted net income per share of$4.15 in the first quarter of 2022 increased by 45% over diluted net income per share of$2.87 in the same period of 2021. Net income of$1.02 billion in the first quarter of 2022 increased by 39% over net income of$733 million in the same period of 2021. The higher rate of increase in diluted net income per share reflected the impact of share repurchases in recent periods. The increase in income before income taxes in the first quarter of 2022 primarily reflected the pre-tax impacts of (i) lower catastrophe losses, partially offset by (ii) lower net favorable prior year reserve development, (iii) lower underwriting margins excluding catastrophe losses and prior year reserve development ("underlying underwriting margins"), (iv) net realized investment losses compared to net realized investment gains in the same period of 2021 and (v) lower net investment income. Catastrophe losses in the first quarters of 2022 and 2021 were$160 million and$835 million , respectively. Net favorable prior year reserve development in the first quarters of 2022 and 2021 was$153 million and$317 million , respectively. The lower underlying underwriting margins in the first quarter of 2022 were driven byPersonal Insurance , partially offset byBusiness Insurance andBond & Specialty Insurance . Underlying underwriting margins in the first quarter of 2021 included a net favorable impact from COVID-19 and related economic conditions. Income tax expense in the first quarter of 2022 was higher than in the same period of 2021, primarily reflecting the impact of the increase in income before income taxes, partially offset by a$47 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters. 29 --------------------------------------------------------------------------------
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued For discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company, see "Outlook" herein and "The ongoing impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity" included in "Part I-Item 1A-Risk Factors" in the Company's 2021 Annual Report. The Company has insurance operations inCanada , theUnited Kingdom , theRepublic of Ireland and throughout other parts of the world as a corporate member of Lloyd's, as well as inBrazil andColombia through joint ventures. Because these operations are conducted in local currencies other than theU.S. dollar, the Company is subject to changes in foreign currency exchange rates. For the three months endedMarch 31, 2022 and 2021, changes in foreign currency exchange rates impacted reported line items in the statement of income by insignificant amounts. The impact of these changes was not material to the Company's net income or segment income for the periods reported.
Revenues
Earned Premiums Earned premiums in the first quarter of 2022 were$8.01 billion ,$628 million or 9% higher than in the same period of 2021. InBusiness Insurance , earned premiums in the first quarter of 2022 increased by 7% over the same period of 2021. Earned premiums inBusiness Insurance in the first quarter of 2021 were negatively impacted by lower net written premiums in the preceding twelve months due to a modest reduction in exposures and a decrease in new business volume, in each case impacted by COVID-19 and related economic conditions. InBond & Specialty Insurance , earned premiums in the first quarter of 2022 increased by 10% over the same period of 2021. InPersonal Insurance , earned premiums in the first quarter of 2022 increased by 10% over the same period of 2021. Earned premiums inBond & Specialty Insurance andPersonal Insurance in the first quarter of 2021 were not materially impacted by COVID-19 and related economic conditions. Factors contributing to the changes in earned premiums in each segment are discussed in more detail in the segment discussions that follow. Net Investment Income The following table sets forth information regarding the Company's investments. Three Months Ended March 31, (dollars in millions) 2022 2021 Average investments (1)$ 86,345 $ 81,209 Pre-tax net investment income 637 701 After-tax net investment income 539 590 Average pre-tax yield (2) 2.9 % 3.5 % Average after-tax yield (2) 2.5 % 2.9 %
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(1)Excludes net unrealized investment gains and losses and reflects cash, receivables for investment sales, payables on investment purchases and accrued investment income. (2)Excludes net realized and net unrealized investment gains and losses. Net investment income in the first quarter of 2022 was$637 million ,$64 million or 9% lower than in the same period of 2021. Net investment income from fixed maturity investments in the first quarter of 2022 was$505 million ,$14 million higher than in the same period of 2021. The increase primarily resulted from a higher average level of fixed maturity investments, partially offset by lower long-term interest rates. Net investment income from short-term securities in the first quarter of 2022 was$2 million ,$1 million lower than in the same period of 2021, primarily resulting from a lower level of short-term investments, partially offset by higher short-term interest rates. The Company's remaining investment portfolios had net investment income of$142 million in the first quarter of 2022,$76 million lower than in the same period of 2021. The decline in net investment income from these portfolios in the first quarter of 2022 compared with the same period of 2021 primarily reflected the impact of lower returns from private equity partnerships as compared to strong returns in the same period of 2021. Included in other investments are private equity, hedge fund and real estate partnerships that are accounted for under the equity method of accounting and typically report their financial statement information to the Company one month to three months following the end of the reporting period. Accordingly, net investment income from these other investments is generally reflected in the Company's financial statements on a quarter lag basis. 30 --------------------------------------------------------------------------------
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued
Fee Income
Fee income in the first quarter of 2022 was $103 million , $2 million higher than
in the same period of 2021. The National Accounts market in Business Insurance
is the primary source of the Company's fee-based business and is discussed in
the Business Insurance segment discussion that follows.
Net Realized Investment Gains (Losses)
The following table sets forth information regarding the Company's net realized
investment gains (losses).
Three Months Ended
March 31,
(in millions) 2022 2021
Credit impairment gains (losses):
Fixed maturities $ (1) $ -
Other investments - -
Net realized investment gains (losses) on equity securities still held
(14) 23
Other net realized investment gains (losses), including from sales
(8) 21
Total $ (23) $ 44
Net realized investment gains (losses) on equity securities still held of $(14)
million in the first quarter of 2022 were driven by the impact of changes in
fair value attributable to unfavorable equity markets. Net realized investment
gains on equity securities still held of $23 million in the first quarter of
2021 were driven by the impact of changes in fair value attributable to
favorable equity markets.
Other Revenues
Other revenues in the first quarters of 2022 and 2021 included revenues from
Simply Business and installment premium charges.
Claims and Expenses
Claims and Claim Adjustment Expenses Claims and claim adjustment expenses in the first quarter of 2022 were$5.04 billion ,$69 million or 1% higher than in the same period of 2021, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, including elevated severity in the current quarter in both the automobile and homeowners and other product lines inPersonal Insurance , (iii) lower net favorable prior year reserve development and (iv) a comparison to a low level of loss activity in the prior year quarter in the automobile product line inPersonal Insurance , partially offset by (v) lower catastrophe losses. Catastrophe losses in the first quarter of 2022 primarily resulted from wind storms in multiple states. Catastrophe losses in the first quarter of 2021 primarily resulted from winter storms and wind storms in several regions ofthe United States . The impacts of COVID-19 and related economic conditions on claims and claim adjustment expenses in the first quarter of 2021 are discussed in more detail in the segment discussions that follow. Factors contributing to net favorable prior year reserve development during the first quarters of 2022 and 2021 are discussed in more detail in note 7 of notes to the unaudited consolidated financial statements. Significant Catastrophe Losses There were no significant catastrophes incurred during the three months endedMarch 31, 2022 . The following table presents the amount of losses recorded by the Company for significant catastrophes that occurred in the three months endedMarch 31, 2021 , the amount of net unfavorable (favorable) prior year reserve development recognized in the three months endedMarch 31, 2022 and 2021 for significant catastrophes that occurred in 2021 and 2020, and the estimate of ultimate losses for those catastrophes atMarch 31, 2022 andDecember 31, 2021 . For purposes of the table, a significant catastrophe is an event for which the Company estimates its ultimate losses will be$100 million or more after reinsurance and before taxes. The Company's threshold for disclosing catastrophes is primarily determined at the reportable segment level and for 2022 ranged from$20 million to$30 million of losses before reinsurance and taxes. For the Company's definition of a catastrophe, refer to "Part II-Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations- Consolidated Overview" in the Company's 2021 Annual Report. 31
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