Annual Statements Open main menu

TRAVELERS COMPANIES, INC. - Quarter Report: 2018 September (Form 10-Q)

Table of Contents


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
FORM 10-Q
_________________________________________________________
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
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 ý    No o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).          
Yes ý    No o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
ý
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý 
The number of shares of the Registrant’s Common Stock, without par value, outstanding at October 15, 2018 was 264,882,804.




Table of Contents

The Travelers Companies, Inc.
 
Quarterly Report on Form 10-Q
 
For Quarterly Period Ended September 30, 2018
_________________________________________________________
 
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Statement of Income (Unaudited) — Three Months and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statement of Comprehensive Income (Unaudited) — Three Months and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Balance Sheet — September 30, 2018 (Unaudited) and December 31, 2017
 
 
 
 
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statement of Cash Flows (Unaudited) — Nine Months Ended September 30, 2018 and 2017
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 


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,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Premiums
 
$
6,882

 
$
6,523

 
$
20,114

 
$
19,057

Net investment income
 
646

 
588

 
1,844

 
1,796

Fee income
 
109

 
113

 
324

 
342

Net realized investment gains (1)
 
29

 
61

 
54

 
146

Other revenues
 
57

 
40

 
150

 
110

 
 
 
 
 
 
 
 
 
Total revenues
 
7,723

 
7,325

 
22,486

 
21,451

 
 
 
 
 
 
 
 
 
Claims and expenses
 
 
 
 
 
 
 
 
Claims and claim adjustment expenses
 
4,655

 
4,806

 
13,513

 
13,125

Amortization of deferred acquisition costs
 
1,117

 
1,059

 
3,259

 
3,094

General and administrative expenses
 
1,059

 
1,045

 
3,234

 
3,086

Interest expense
 
86

 
95

 
265

 
276

Total claims and expenses
 
6,917

 
7,005

 
20,271

 
19,581

 
 
 
 
 
 
 
 
 
Income before income taxes
 
806

 
320

 
2,215

 
1,870

Income tax expense
 
97

 
27

 
313

 
365

Net income
 
$
709

 
$
293

 
$
1,902

 
$
1,505

 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
Basic
 
$
2.65

 
$
1.06

 
$
7.03

 
$
5.39

Diluted
 
$
2.62

 
$
1.05

 
$
6.97

 
$
5.34

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
 
 
 
 
 
 
 
 
Basic
 
266.1

 
274.1

 
268.6

 
277.1

Diluted
 
268.4

 
276.6

 
271.1

 
279.6

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.77

 
$
0.72

 
$
2.26

 
$
2.11


________________________________________________________
(1)
Total other-than-temporary impairment (OTTI) losses were $0 million and $(5) million for the three months ended September 30, 2018 and 2017, respectively, and $(1) million and $(11) million for the nine months ended September 30, 2018 and 2017, respectively.  Of total OTTI, credit losses of $0 million and $(5) million for the three months ended September 30, 2018 and 2017, respectively, and $(1) million and $(12) million for the nine months ended September 30, 2018 and 2017, respectively, were recognized in net realized investment gains.  In addition, unrealized gains (losses) from other changes in total OTTI of $0 million for each of the three months ended September 30, 2018 and 2017, respectively, and $0 million and $1 million for the nine months ended September 30, 2018 and 2017, respectively, were recognized in other comprehensive income (loss) as part of changes in net unrealized gains (losses) 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.

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,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net income
 
$
709

 
$
293

 
$
1,902

 
$
1,505

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Changes in net unrealized gains (losses) on investment securities:
 
 
 
 
 
 
 
 
Having no credit losses recognized in the consolidated statement of income
 
(414
)
 
(42
)
 
(1,915
)
 
429

Having credit losses recognized in the consolidated statement of income
 
(11
)
 
2

 
(25
)
 
4

Net changes in benefit plan assets and obligations
 
22

 
(9
)
 
65

 
25

Net changes in unrealized foreign currency translation
 

 
113

 
(152
)
 
202

Other comprehensive income (loss) before income taxes
 
(403
)
 
64

 
(2,027
)
 
660

Income tax expense (benefit)
 
(88
)
 
5

 
(413
)
 
190

Other comprehensive income (loss), net of taxes
 
(315
)
 
59

 
(1,614
)
 
470

Comprehensive income
 
$
394

 
$
352

 
$
288

 
$
1,975

 






























The accompanying notes are an integral part of the consolidated financial statements.


4

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
 
 
 
September 30,
2018
 
December 31,
2017
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Fixed maturities, available for sale, at fair value (amortized cost $62,985 and $61,316)
 
$
62,424

 
$
62,694

Equity securities, at fair value  (cost $408 and $440)
 
426

 
453

Real estate investments
 
951

 
932

Short-term securities
 
4,437

 
4,895

Other investments
 
3,615

 
3,528

Total investments
 
71,853

 
72,502

Cash
 
359

 
344

Investment income accrued
 
583

 
606

Premiums receivable
 
7,639

 
7,144

Reinsurance recoverables
 
8,314

 
8,309

Ceded unearned premiums
 
715

 
551

Deferred acquisition costs
 
2,186

 
2,025

Deferred taxes
 
521

 
70

Contractholder receivables
 
4,887

 
4,775

Goodwill
 
3,958

 
3,951

Other intangible assets
 
351

 
342

Other assets
 
3,024

 
2,864

Total assets
 
$
104,390

 
$
103,483

 
 
 
 
 
Liabilities
 
 

 
 

Claims and claim adjustment expense reserves
 
$
50,430

 
$
49,650

Unearned premium reserves
 
13,979

 
12,915

Contractholder payables
 
4,887

 
4,775

Payables for reinsurance premiums
 
418

 
274

Debt
 
6,564

 
6,571

Other liabilities
 
5,652

 
5,567

Total liabilities
 
81,930

 
79,752

 
 
 
 
 
Shareholders’ equity
 
 

 
 

Common stock (1,750.0 shares authorized; 264.9 and 271.5 shares issued, 264.8 and 271.4 shares outstanding)
 
23,089

 
22,886

Retained earnings
 
34,799

 
33,462

Accumulated other comprehensive loss
 
(2,003
)
 
(343
)
Treasury stock, at cost (509.5 and 500.9 shares)
 
(33,425
)
 
(32,274
)
Total shareholders’ equity
 
22,460

 
23,731

Total liabilities and shareholders’ equity
 
$
104,390

 
$
103,483





The accompanying notes are an integral part of the consolidated financial statements.


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,
 
2018
 
2017
 
 
 
 
 
Common stock
 
 

 
 

Balance, beginning of year
 
$
22,886

 
$
22,614

Employee share-based compensation
 
93

 
118

Compensation amortization under share-based plans and other changes
 
110

 
104

Balance, end of period
 
23,089

 
22,836

 
 
 
 
 
Retained earnings
 
 

 
 

Balance, beginning of year
 
33,462

 
32,196

Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
 
22

 

Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
 
24

 

Net income
 
1,902

 
1,505

Dividends
 
(613
)
 
(591
)
Other
 
2

 

Balance, end of period
 
34,799

 
33,110

 
 
 
 
 
Accumulated other comprehensive loss, net of tax
 
 

 
 

Balance, beginning of year
 
(343
)
 
(755
)
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
 
(22
)
 

Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
 
(24
)
 

Other comprehensive income (loss)
 
(1,614
)
 
470

Balance, end of period
 
(2,003
)
 
(285
)
 
 
 
 
 
Treasury stock, at cost
 
 

 
 

Balance, beginning of year
 
(32,274
)
 
(30,834
)
Treasury stock acquired — share repurchase authorization
 
(1,100
)
 
(1,028
)
Net shares acquired related to employee share-based compensation plans
 
(51
)
 
(61
)
Balance, end of period
 
(33,425
)
 
(31,923
)
 
 
 
 
 
Total shareholders’ equity
 
$
22,460

 
$
23,738

 
 
 
 
 
Common shares outstanding
 
 

 
 

Balance, beginning of year
 
271.4

 
279.6

Treasury stock acquired — share repurchase authorization
 
(8.2
)
 
(8.3
)
Net shares issued under employee share-based compensation plans
 
1.6

 
2.4

Balance, end of period
 
264.8

 
273.7

 


The accompanying notes are an integral part of the consolidated financial statements.


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,
 
2018
 
2017
Cash flows from operating activities
 
 

 
 

Net income
 
$
1,902

 
$
1,505

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

 
 

Net realized investment gains
 
(54
)
 
(146
)
Depreciation and amortization
 
609

 
611

Deferred federal income tax expense (benefit)
 
(43
)
 
88

Amortization of deferred acquisition costs
 
3,259

 
3,094

Equity in income from other investments
 
(284
)
 
(300
)
Premiums receivable
 
(508
)
 
(517
)
Reinsurance recoverables
 
(21
)
 
(19
)
Deferred acquisition costs
 
(3,425
)
 
(3,237
)
Claims and claim adjustment expense reserves
 
880

 
1,561

Unearned premium reserves
 
1,095

 
852

Other
 
22

 
(7
)
Net cash provided by operating activities
 
3,432

 
3,485

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Proceeds from maturities of fixed maturities
 
5,655

 
6,581

Proceeds from sales of investments:
 
 

 
 

Fixed maturities
 
3,185

 
860

Equity securities
 
127

 
340

Real estate investments
 
8

 
23

Other investments
 
270

 
341

Purchases of investments:
 
 

 
 

Fixed maturities
 
(10,862
)
 
(8,403
)
Equity securities
 
(86
)
 
(193
)
Real estate investments
 
(57
)
 
(40
)
Other investments
 
(392
)
 
(392
)
Net (purchases) sales of short-term securities
 
456

 
(990
)
Securities transactions in course of settlement
 
173

 
122

Acquisition, net of cash acquired
 
(4
)
 
(439
)
Other
 
(232
)
 
(186
)
Net cash used in investing activities
 
(1,759
)
 
(2,376
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Treasury stock acquired — share repurchase authorization
 
(1,100
)
 
(1,028
)
Treasury stock acquired — net employee share-based compensation
 
(51
)
 
(61
)
Dividends paid to shareholders
 
(611
)
 
(589
)
Payment of debt
 
(600
)
 
(207
)
Issuance of debt
 
591

 
689

Issuance of common stock — employee share options
 
117

 
148

Net cash used in financing activities
 
(1,654
)
 
(1,048
)
Effect of exchange rate changes on cash
 
(4
)
 
11

Net increase in cash
 
15

 
72

Cash at beginning of year
 
344

 
307

Cash at end of period
 
$
359

 
$
379

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Income taxes paid
 
$
244

 
$
467

Interest paid
 
$
225

 
$
217

 The accompanying notes are an integral part of the consolidated financial statements.

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.  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, 2017 (the Company’s 2017 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 2017 financial statements to conform to the 2018 presentation.
 
Adoption of Accounting Standards
 
Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the Financial Accounting Standards Board (FASB) issued updated guidance to address the recognition, measurement, presentation and disclosure of certain financial instruments. The updated guidance requires equity investments, except those accounted for under the equity method of accounting, that have readily determinable fair value to be measured at fair value with any changes in fair value recognized in net income. Equity securities that do not have readily determinable fair values may be measured at estimated fair value or cost less impairment, if any, adjusted for subsequent observable price changes, with changes in the carrying value recognized in net income. A qualitative assessment for impairment is required for equity investments without readily determinable fair values. The updated guidance also eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet. The updated guidance was effective for the quarter ended March 31, 2018. The adoption of this guidance resulted in the recognition of $22 million of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased accumulated other comprehensive income (AOCI) by the same amount. The Company elected to report changes in the fair value of equity investments in net realized investment gains (losses). At December 31, 2017, equity investments were classified as available-for-sale on the Company's balance sheet. However, upon adoption, the updated guidance eliminated the available-for-sale balance sheet classification for equity investments.
 
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On February 14, 2018, the FASB issued updated guidance that allows a reclassification from AOCI to retained earnings of the stranded tax effects that occurred due to the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA). The updated guidance is effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which there are items impacted by the TCJA remaining in AOCI or at the beginning of the period of adoption. Early adoption is permitted. The Company adopted the updated guidance effective January 1, 2018 and elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings as of January 1, 2018. This reclassification resulted in an increase in retained earnings of $24 million as of January 1, 2018 and a decrease in AOCI by the same amount.
 

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

Revenue from Contracts with Customers

In May 2014, the FASB issued updated guidance to clarify the principles for recognizing revenue. The updated guidance was effective for reporting periods beginning after December 15, 2017, and requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. For the nine months ended September 30, 2018, approximately $127 million, or less than 1% of the Company's total revenues, were within the scope of this updated guidance and were generated from the services described below.

While insurance contracts are not within the scope of this updated guidance, the Company’s revenue related to certain services with no underlying insurance risk is subject to the updated guidance. These services include the following: (i) insurance-related services, such as risk management services, claims administration, loss control and risk management information services on behalf of non-insureds; (ii) servicing carrier fees for various residual market pools and associations; and (iii) administrative fees related to servicing third-party insurers’ obligations to participate in the Workers' Compensation Residual Market Plans in certain states. The revenues earned from these service contracts were not impacted by the adoption of the updated guidance. These revenues are earned on a pro rata basis over the contract service period and reported in fee income in the Company’s consolidated statement of income.

Commissions earned from on-line insurance brokerage services are also subject to this updated guidance and were also not impacted by the adoption of the updated guidance. Commissions are earned upon collection of the gross premium in accordance with the contracts and an accrual is made to recognize policy cancellations, either at the policyholder’s direction or for non-payment. Commissions are reported in other revenues in the Company's consolidated statement of income.

The Company does not capitalize the costs to obtain or fulfill the contracts for which revenues are reported in fee income and other income, and has not recognized any impairment losses on the receivables related to these contracts during the nine months ended September 30, 2018.

The Company adopted the updated guidance effective January 1, 2018. The adoption did not have an effect on the Company’s results of operations, financial position or liquidity.

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued updated guidance on the classification of cash flows related to certain activities in the statement of cash flows to reduce diversity in practice. The updated guidance was effective for reporting periods beginning after December 15, 2017 and was applied retrospectively to all periods presented. Under the new guidance, distributions received on equity method investments that are considered to be a return on investment are reported as cash flows from operating activities. These distributions were previously reported as cash flows from investing activities. The adoption of this guidance had no effect on the Company’s results of operations, financial position or liquidity.

For information regarding accounting standards that the Company adopted during the years presented, see the “Adoption of Accounting Standards section of note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.

Accounting Standards Not Yet Adopted
 
Leases
 
In July 2018, the FASB amended the updated guidance on leases that was issued in February 2016 and provided an additional transition method with which to adopt the updated guidance.  Under the additional transition method, entities may elect to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. Consequently, if this transition method is elected, an entity’s reporting for the comparative periods prior to adoption presented in the financial statements would continue to be in accordance with current lease guidance. The amendments also provide lessors with a practical expedient to combine nonlease components (e.g., a fee for common area maintenance when leasing office space) with the associated lease component rather than accounting for those components separately if certain criteria are met. The updated guidance requires entities to recognize a right-of-use asset and lease liability equal to the present value of lease payments for all leases other than those that are less than one year. The Company expects to adopt the updated guidance on January 1, 2019, using the additional transition

9

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

method described above. The adoption of the updated guidance on leases is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.
 
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
                                                                                                                                             
In August 2018, the FASB issued updated guidance to align the accounting for implementation costs incurred in a software hosting arrangement (i.e., a cloud computing arrangement) that is a service contract with the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software.  Accordingly, the updated guidance requires an entity to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized.   The updated guidance also requires the entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement.  

The updated guidance is effective for reporting periods beginning after December 15, 2019.  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.
 
For additional information regarding other accounting standards that the Company has not yet adopted, see the “Other Accounting Standards Not Yet Adopted” section of note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.

Nature of Operations
 
The Company’s results are reported in the following three business segments — Business 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 the 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 2017 Annual Report.
 

10

Table of Contents
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, income and total assets by reportable business segments:
(For the three months ended September 30, in millions)
 
Business
Insurance
 
Bond & Specialty
Insurance
 
Personal
Insurance
 
Total
Reportable
Segments
 
 
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

 
 

Premiums
 
$
3,743

 
$
617

 
$
2,522

 
$
6,882

Net investment income
 
482

 
57

 
107

 
646

Fee income
 
103

 

 
6

 
109

Other revenues
 
33

 
5

 
17

 
55

Total segment revenues (1)
 
$
4,361

 
$
679

 
$
2,652

 
$
7,692

 
 
 
 
 
 
 
 
 
Segment income (1)
 
$
410

 
$
196

 
$
153

 
$
759

 
 
 
 
 
 
 
 
 
2017
 
 

 
 

 
 

 
 

Premiums
 
$
3,576

 
$
591

 
$
2,356

 
$
6,523

Net investment income
 
437

 
57

 
94

 
588

Fee income
 
108

 

 
5

 
113

Other revenues
 
19

 
5

 
14

 
38

Total segment revenues (1)
 
$
4,140

 
$
653

 
$
2,469

 
$
7,262

 
 
 
 
 
 
 
 
 
Segment income (1)
 
$
105

 
$
136

 
$
77

 
$
318

(1)
Segment revenues for reportable business segments exclude net realized investment gains (losses). Segment income for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).
(For the nine months ended September 30, in millions)
 
Business
Insurance
 
Bond & Specialty
Insurance
 
Personal
Insurance
 
Total
Reportable
Segments
2018
 
 

 
 

 
 

 
 

Premiums
 
$
10,952

 
$
1,800

 
$
7,362

 
$
20,114

Net investment income
 
1,368

 
172

 
304

 
1,844

Fee income
 
309

 

 
15

 
324

Other revenues
 
84

 
16

 
48

 
148

Total segment revenues (1)
 
$
12,713

 
$
1,988

 
$
7,729

 
$
22,430

 
 
 
 
 
 
 
 
 
Segment income (1)
 
$
1,247

 
$
573

 
$
265

 
$
2,085

 
 
 
 
 
 
 
 
 
2017
 
 

 
 

 
 

 
 

Premiums
 
$
10,509

 
$
1,721

 
$
6,827

 
$
19,057

Net investment income
 
1,337

 
174

 
285

 
1,796

Fee income
 
329

 

 
13

 
342

Other revenues
 
43

 
16

 
45

 
104

Total segment revenues (1)
 
$
12,218

 
$
1,911

 
$
7,170

 
$
21,299

 
 
 
 
 
 
 
 
 
Segment income (1)
 
$
976

 
$
444

 
$
178

 
$
1,598

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

11

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.             SEGMENT INFORMATION, Continued

Business Segment Reconciliations
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Revenue reconciliation
 
 

 
 

 
 

 
 

Earned premiums
 
 

 
 

 
 

 
 

Business Insurance:
 
 

 
 

 
 

 
 

Domestic:
 
 

 
 

 
 

 
 

Workers’ compensation
 
$
988

 
$
998

 
$
2,932

 
$
2,973

Commercial automobile
 
611

 
544

 
1,760

 
1,571

Commercial property
 
466

 
448

 
1,357

 
1,326

General liability
 
558

 
523

 
1,614

 
1,512

Commercial multi-peril
 
850

 
806

 
2,477

 
2,377

Other
 
7

 
7

 
20

 
21

Total Domestic
 
3,480

 
3,326

 
10,160

 
9,780

International
 
263

 
250

 
792

 
729

Total Business Insurance
 
3,743

 
3,576

 
10,952

 
10,509

Bond & Specialty Insurance:
 
 

 
 

 
 

 
 

Domestic:
 
 

 
 

 
 

 
 

Fidelity and surety
 
261

 
249

 
760

 
728

General liability
 
255

 
243

 
745

 
717

Other
 
50

 
48

 
146

 
139

Total Domestic
 
566

 
540

 
1,651

 
1,584

International
 
51

 
51

 
149

 
137

Total Bond & Specialty Insurance
 
617

 
591

 
1,800

 
1,721

Personal Insurance:
 
 

 
 

 
 

 
 

Domestic:
 
 

 
 

 
 

 
 

Automobile
 
1,297

 
1,192

 
3,783

 
3,431

Homeowners and Other
 
1,051

 
999

 
3,068

 
2,931

Total Domestic
 
2,348

 
2,191

 
6,851

 
6,362

International
 
174

 
165

 
511

 
465

Total Personal Insurance
 
2,522

 
2,356

 
7,362

 
6,827

Total earned premiums
 
6,882

 
6,523

 
20,114

 
19,057

Net investment income
 
646

 
588

 
1,844

 
1,796

Fee income
 
109

 
113

 
324

 
342

Other revenues
 
55

 
38

 
148

 
104

Total segment revenues
 
7,692

 
7,262

 
22,430

 
21,299

Other revenues
 
2

 
2

 
2

 
6

Net realized investment gains
 
29

 
61

 
54

 
146

Total revenues
 
$
7,723

 
$
7,325

 
$
22,486

 
$
21,451

Income reconciliation, net of tax
 
 

 
 

 
 

 
 

Total segment income
 
$
759

 
$
318

 
$
2,085

 
$
1,598

Interest Expense and Other (1)
 
(72
)
 
(65
)
 
(226
)
 
(188
)
Core income
 
687

 
253

 
1,859

 
1,410

Net realized investment gains
 
22

 
40

 
43

 
95

Net income
 
$
709

 
$
293

 
$
1,902

 
$
1,505

_________________________________________________________
(1) The primary component of Interest Expense and Other was after-tax interest expense of $68 million and $61 million in the three months ended September 30, 2018 and 2017, respectively, and $209 million and $179 million in the nine months ended September 30, 2018 and 2017, respectively.

12

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.             SEGMENT INFORMATION, Continued

(in millions)
 
September 30,
2018
 
December 31,
2017
Asset reconciliation
 
 

 
 

Business Insurance
 
$
78,665

 
$
78,082

Bond & Specialty Insurance
 
9,060

 
8,776

Personal Insurance
 
15,955

 
15,949

Total segment assets
 
103,680

 
102,807

Other assets (1)
 
710

 
676

Total consolidated assets
 
$
104,390

 
$
103,483

 _________________________________________________________
(1)
The primary components of other assets at September 30, 2018 were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan and other intangible assets, and the primary components at December 31, 2017 were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan, other intangible assets and deferred taxes.

3.                       INVESTMENTS
 
Fixed Maturities
 
The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:
 
 
Amortized
 
Gross Unrealized
 
Fair
(at September 30, 2018, in millions)
 
Cost
 
Gains
 
Losses
 
Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,045

 
$
1

 
$
29

 
$
2,017

Obligations of states, municipalities and political subdivisions:
 
 

 
 

 
 

 
 

Local general obligation
 
14,272

 
135

 
233

 
14,174

Revenue
 
9,730

 
113

 
147

 
9,696

State general obligation
 
1,328

 
13

 
21

 
1,320

Pre-refunded
 
2,911

 
81

 
1

 
2,991

Total obligations of states, municipalities and political subdivisions
 
28,241

 
342

 
402

 
28,181

Debt securities issued by foreign governments
 
1,286

 
4

 
11

 
1,279

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,502

 
51

 
62

 
2,491

All other corporate bonds
 
28,825

 
134

 
592

 
28,367

Redeemable preferred stock
 
86

 
3

 

 
89

Total
 
$
62,985

 
$
535

 
$
1,096

 
$
62,424


 

13

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3.             INVESTMENTS, Continued

 
 
Amortized
 
Gross Unrealized
 
Fair
(at December 31, 2017, in millions)
 
Cost
 
Gains
 
Losses
 
Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,080

 
$
4

 
$
8

 
$
2,076

Obligations of states, municipalities and political subdivisions:
 
 

 
 

 
 

 
 

Local general obligation
 
13,488

 
444

 
26

 
13,906

Revenue
 
11,307

 
338

 
19

 
11,626

State general obligation
 
1,443

 
44

 
3

 
1,484

Pre-refunded
 
3,758

 
142

 
1

 
3,899

Total obligations of states, municipalities and political subdivisions
 
29,996

 
968

 
49

 
30,915

Debt securities issued by foreign governments
 
1,505

 
14

 
10

 
1,509

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,334

 
87

 
11

 
2,410

All other corporate bonds
 
25,311

 
478

 
100

 
25,689

Redeemable preferred stock
 
90

 
5

 

 
95

Total
 
$
61,316

 
$
1,556

 
$
178

 
$
62,694

 
Pre-refunded bonds of $2.99 billion and $3.90 billion at September 30, 2018 and December 31, 2017, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities.  These trusts were created to fund the payment of principal and interest due under the bonds.
 
Proceeds from sales of fixed maturities classified as available for sale were $3.19 billion and $860 million during the nine months ended September 30, 2018 and 2017, respectively. Gross gains of $47 million and $28 million and gross losses of $16 million and $6 million were realized on those sales during the nine months ended September 30, 2018 and 2017, respectively.
 
Equity Securities
 
The cost and fair value of investments in equity securities were as follows:
 
 
 
 
 
 
Fair
(at September 30, 2018, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
336

 
$
19

 
$
8

 
$
347

Non-redeemable preferred stock
 
72

 
10

 
3

 
79

Total
 
$
408

 
$
29

 
$
11

 
$
426

 
 
 
 
 
 
 
Fair
(at December 31, 2017, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
332

 
$
8

 
$
1

 
$
339

Non-redeemable preferred stock
 
108

 
12

 
6

 
114

Total
 
$
440

 
$
20

 
$
7

 
$
453

 
For the nine months ended September 30, 2018, the Company recognized $5 million of net gains on equity securities still held as of September 30, 2018.



14

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3.             INVESTMENTS, Continued

Proceeds from sales of equity securities previously classified as available for sale were $340 million during the nine months ended September 30, 2017.  Gross gains of $146 million and gross losses of $1 million were realized on those sales during the nine months ended September 30, 2017.

Real Estate

At September 30, 2018, the Company had a real estate investment held for sale with a carrying value of $53 million. In October 2018, the investment was sold, resulting in a pre-tax realized investment gain of approximately $20 million that will be recognized in the fourth quarter of 2018.
 
Unrealized Investment Losses
 
The following tables summarize, for all investments in an unrealized loss position at September 30, 2018 and December 31, 2017, 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 2017 Annual Report.  The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report to determine whether such investments are other-than-temporarily impaired.
 
 
Less than 12 months
 
12 months or longer
 
Total
(at September 30, 2018, 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
 
$
1,241

 
$
20

 
$
625

 
$
9

 
$
1,866

 
$
29

Obligations of states, municipalities and political subdivisions
 
10,078

 
216

 
3,063

 
186

 
13,141

 
402

Debt securities issued by foreign governments
 
504

 
3

 
294

 
8

 
798

 
11

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
1,265

 
33

 
661

 
29

 
1,926

 
62

All other corporate bonds
 
17,490

 
398

 
3,862

 
194

 
21,352

 
592

Total fixed maturities
 
$
30,578

 
$
670

 
$
8,505

 
$
426

 
$
39,083

 
$
1,096

 

15

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, 2017, 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
 
$
1,150

 
$
5

 
$
470

 
$
3

 
$
1,620

 
$
8

Obligations of states, municipalities and political subdivisions
 
505

 
2

 
2,959

 
47

 
3,464

 
49

Debt securities issued by foreign governments
 
394

 
6

 
111

 
4

 
505

 
10

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
1,021

 
7

 
250

 
4

 
1,271

 
11

All other corporate bonds
 
6,062

 
48

 
1,990

 
52

 
8,052

 
100

Total fixed maturities
 
9,132

 
68

 
5,780

 
110

 
14,912

 
178

Equity securities
 
 
 
 

 
 

 
 

 
 

 
 

Public common stock
 
18

 

 
34

 
1

 
52

 
1

Non-redeemable preferred stock
 
3

 

 
56

 
6

 
59

 
6

Total equity securities
 
21

 

 
90

 
7

 
111

 
7

Total
 
$
9,153

 
$
68

 
$
5,870

 
$
117

 
$
15,023

 
$
185

 
At September 30, 2018, the amount of gross unrealized losses for all fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost was not significant.
 
Impairment Charges
 
Impairment charges included in net realized investment gains in the consolidated statement of income were $0 million and $5 million for the three months ended September 30, 2018 and 2017, respectively, and $1 million and $12 million for the nine months ended September 30, 2018 and 2017, respectively.
 
The cumulative amount of credit losses on fixed maturities held at September 30, 2018 and 2017 that were recognized in the consolidated statement of income from other-than-temporary impairments (OTTI) and for which a portion of the OTTI was recognized in other comprehensive income (loss) in the consolidated balance sheet was $54 million and $82 million, respectively.  These credit losses represent less than 1% of the fixed maturity portfolio on a pre-tax 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 nine months ended September 30, 2018 and 2017 from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2017 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 September 30, 2018 and December 31, 2017, the Company had $50 million and $400 million notional value of open U.S. Treasury futures contracts, respectively.  Net realized investment gains and losses related to U.S. Treasury futures contracts for the three months and nine months ended September 30, 2018 and 2017 were not significant.
 

16

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued


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.
 
Valuation of Investments Reported at Fair Value in Financial Statements
 
The Company utilized a pricing service to estimate fair value measurements for approximately 99% and 98% of its fixed maturities at September 30, 2018 and December 31, 2017, respectively.
 
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 $105 million and $127 million at September 30, 2018 and December 31, 2017, 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 $89 million and $77 million at September 30, 2018 and December 31, 2017, 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 2017 Annual Report.

Other Liabilities

The Company has a put/call option that was entered into in connection with a business acquisition that allows the Company to acquire the remaining shares of the acquired company at a future date. The fair value of the put/call at September 30, 2018 was $19 million and was determined using an internal model and is based on the acquired company's financial performance, adjusted for a risk margin and discounted to present value. The Company includes the fair value estimate of the put/call in Level 3.
 
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.  An investment transferred between levels during a period is transferred at its fair value as of the beginning of that period.
 

17

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4.     FAIR VALUE MEASUREMENTS, Continued

(at September 30, 2018, 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
 
$
2,017

 
$
2,017

 
$

 
$

Obligations of states, municipalities and political subdivisions
 
28,181

 

 
28,169

 
12

Debt securities issued by foreign governments
 
1,279

 

 
1,279

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,491

 

 
2,471

 
20

All other corporate bonds
 
28,367

 

 
28,205

 
162

Redeemable preferred stock
 
89

 
3

 
86

 

Total fixed maturities
 
62,424

 
2,020

 
60,210

 
194

Equity securities
 
 

 
 

 
 

 
 

Public common stock
 
347

 
346

 
1

 

Non-redeemable preferred stock
 
79

 
34

 
45

 

Total equity securities
 
426

 
380

 
46

 

Other investments
 
66

 
18

 

 
48

Total
 
$
62,916

 
$
2,418

 
$
60,256

 
$
242

 
 
 
 
 
 
 
 
 
Other liabilities
 
$
19

 
$

 
$

 
$
19

 
(at December 31, 2017, 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
 
$
2,076

 
$
2,076

 
$

 
$

Obligations of states, municipalities and political subdivisions
 
30,915

 

 
30,910

 
5

Debt securities issued by foreign governments
 
1,509

 

 
1,509

 

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,410

 

 
2,371

 
39

All other corporate bonds
 
25,689

 
11

 
25,518

 
160

Redeemable preferred stock
 
95

 
3

 
92

 

Total fixed maturities
 
62,694

 
2,090

 
60,400

 
204

Equity securities
 
 

 
 

 
 

 
 

Public common stock
 
339

 
339

 

 

Non-redeemable preferred stock
 
114

 
45

 
69

 

Total equity securities
 
453

 
384

 
69

 

Other investments
 
57

 
19

 

 
38

Total
 
$
63,204

 
$
2,493

 
$
60,469

 
$
242

 
During the nine months ended September 30, 2018 and the year ended December 31, 2017, the Company’s transfers between Level 1 and Level 2 were not significant.
 

18

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4.     FAIR VALUE MEASUREMENTS, Continued

There was no significant activity in Level 3 of the hierarchy during the nine months ended September 30, 2018 or the year ended December 31, 2017.
 
Financial Instruments Disclosed, But Not Carried, At Fair Value
 
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, and the level within the fair value hierarchy at which such assets and liabilities are categorized.
(at September 30, 2018, in millions)
 
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 

 
 

 
 

 
 

 
 

Short-term securities
 
$
4,437

 
$
4,437

 
$
710

 
$
3,692

 
$
35

Financial liabilities:
 
 

 
 

 
 

 
 

 
 

Debt
 
$
6,464

 
$
7,115

 
$

 
$
7,115

 
$

Commercial paper
 
$
100

 
$
100

 
$

 
$
100

 
$

 
(at December 31, 2017, in millions)
 
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 

 
 

 
 

 
 

 
 

Short-term securities
 
$
4,895

 
$
4,895

 
$
1,238

 
$
3,622

 
$
35

Financial liabilities:
 
 

 
 

 
 

 
 

 
 

Debt
 
$
6,471

 
$
7,702

 
$

 
$
7,702

 
$

Commercial paper
 
$
100

 
$
100

 
$

 
$
100

 
$

 
The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the nine months ended September 30, 2018 or year ended December 31, 2017.

5.                       GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill
 
The following table presents the carrying amount of the Company’s goodwill by segment.  Each reportable segment includes goodwill associated with the Company’s international business which is subject to the impact of changes in foreign currency exchange rates.
(in millions)
 
September 30,
2018
 
December 31,
2017
Business Insurance (1)
 
$
2,597

 
$
2,585

Bond & Specialty Insurance
 
550

 
550

Personal Insurance
 
785

 
790

Other
 
26

 
26

Total
 
$
3,958

 
$
3,951


(1) Goodwill increased $26 million during the nine months ended September 30, 2018 associated with a business acquisition, none of which will be deductible for tax purposes.


19

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
5.     GOODWILL AND OTHER INTANGIBLE ASSETS, Continued


Other Intangible Assets
 
The following tables present a summary of the Company’s other intangible assets by major asset class.
(at September 30, 2018, in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Subject to amortization
 
 
 
 
 
 
Customer-related
 
$
99

 
$
10

 
$
89

Contract-based (1)
 
209

 
173

 
36

Total subject to amortization
 
308

 
183

 
125

Not subject to amortization
 
226

 

 
226

Total
 
$
534

 
$
183

 
$
351

 
(at December 31, 2017, in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Subject to amortization
 
 
 
 
 
 
Customer-related
 
$
77

 
$
4

 
$
73

Contract-based (1)
 
209

 
167

 
42

Total subject to amortization
 
286

 
171

 
115

Not subject to amortization
 
227

 

 
227

Total
 
$
513

 
$
171

 
$
342

 _________________________________________________________
(1)
Contract-based intangible assets subject to amortization are comprised of fair value adjustments on claims and claim adjustment expense reserves, reinsurance recoverables and other contract-related intangible assets. Fair value adjustments recorded in connection with insurance acquisitions were based on management’s estimate of nominal claims and claim adjustment expense reserves and reinsurance recoverables. The method used calculated a risk adjustment to a risk-free discounted reserve that would, if reserves ran off as expected, produce results that yielded the assumed cost-of-capital on the capital supporting the loss reserves.  The fair value adjustments are reported as other intangible assets on the consolidated balance sheet, and the amounts measured in accordance with the acquirer’s accounting policies for insurance contracts have been reported as part of the claims and claim adjustment expense reserves and reinsurance recoverables. The intangible assets are being recognized into income over the expected payment pattern. Because the time value of money and the risk adjustment (cost of capital) components of the intangible assets run off at different rates, the amount recognized in income may be a net benefit in some periods and a net expense in other periods.
 
Amortization expense of intangible assets was $4 million and $4 million for the three months ended September 30, 2018 and 2017, respectively, and $12 million and $9 million for the nine months ended September 30, 2018 and 2017, respectively.  Intangible asset amortization expense is estimated to be $4 million for the remainder of 2018, $16 million in 2019, $15 million in 2020, $14 million in 2021 and $13 million in 2022.

6.             INSURANCE CLAIM RESERVES
 
Claims and claim adjustment expense reserves were as follows:
(in millions)
 
September 30,
2018
 
December 31,
2017
Property-casualty
 
$
50,415

 
$
49,633

Accident and health
 
15

 
17

Total
 
$
50,430

 
$
49,650

 

20

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
6.             INSURANCE CLAIM RESERVES, Continued

The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim adjustment expenses for the nine months ended September 30, 2018 and 2017:
 
(for the nine months ended September 30, in millions)
 
2018
 
2017
Claims and claim adjustment expense reserves at beginning of year
 
$
49,633

 
$
47,929

Less reinsurance recoverables on unpaid losses
 
8,123

 
7,981

Net reserves at beginning of year
 
41,510

 
39,948

 
 
 
 
 
Estimated claims and claim adjustment expenses for claims arising in the current year
 
13,707

 
13,261

Estimated decrease in claims and claim adjustment expenses for claims arising in prior years
 
(255
)
 
(197
)
Total increases
 
13,452

 
13,064

 
 
 
 
 
Claims and claim adjustment expense payments for claims arising in:
 
 

 
 

Current year
 
5,112

 
4,799

Prior years
 
7,419

 
6,831

Total payments
 
12,531

 
11,630

Unrealized foreign exchange (gain) loss
 
(82
)
 
215

Net reserves at end of period
 
42,349

 
41,597

Plus reinsurance recoverables on unpaid losses
 
8,066

 
8,136

Claims and claim adjustment expense reserves at end of period
 
$
50,415

 
$
49,733

 
Gross claims and claim adjustment expense reserves at September 30, 2018 increased by $782 million from December 31, 2017, primarily reflecting the impacts of (i) higher volumes of insured exposures and loss cost trends for the current accident year and (ii) catastrophe losses in the first nine months of 2018, partially offset by the impacts of (iii)  payments related to catastrophe losses incurred in 2017, (iv) net favorable prior year reserve development and (v) payments related to operations in runoff.
 
Reinsurance recoverables on unpaid losses at September 30, 2018 decreased by $57 million from December 31, 2017, primarily reflecting the impact of cash collections in the first nine months of 2018.
 
Prior Year Reserve Development
 
The following disclosures regarding reserve development are on a “net of reinsurance” basis.
 
For the nine months ended September 30, 2018 and 2017, estimated claims and claim adjustment expenses incurred included $255 million and $197 million, respectively, of net favorable development for claims arising in prior years, including $350 million and $299 million, respectively, of net favorable prior year reserve development and $37 million and $38 million, respectively, of accretion of discount that impacted the Company's results of operations.
 
Business Insurance. Net unfavorable prior year reserve development in the third quarter of 2018 totaled $56 million, primarily driven by (i) a $225 million increase to asbestos reserves and (ii) higher than expected loss experience in the segment's domestic operations in the commercial automobile product line for recent accident years, partially offset by (iii) better than expected loss experience in the segment's domestic operations in the workers’ compensation product line for multiple accident years. Net favorable prior year reserve development in the third quarter of 2017 totaled $9 million, primarily driven by better than expected loss experience in the segment's domestic operations in (i) the workers’ compensation product line for multiple accident years, (ii) the general liability product line (excluding the increase to asbestos reserves) for both primary and excess coverages for multiple accident years, largely offset by (iii) a $225 million increase to asbestos reserves and (iv) the impact of higher than expected loss experience in the commercial automobile product line for recent accident years.


21

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
6.             INSURANCE CLAIM RESERVES, Continued

Net favorable prior year reserve development in the first nine months of 2018 totaled $94 million, primarily driven by better than expected loss experience in the segment’s domestic operations in (i) the workers’ compensation product line for multiple accident years and (ii) the commercial property product line for recent accident years, partially offset by (iii) the $225 million increase to asbestos reserves, (iv) higher than expected loss experience in the segment's domestic operations in the commercial automobile product line for recent accident years and (v) a $55 million increase to environmental reserves. Net favorable prior year reserve development in the first nine months of 2017 totaled $195 million, primarily driven by better than expected loss experience in the segment's domestic operations in (i) the workers' compensation product line for multiple accident years, (ii) the general liability product line (excluding the increases to asbestos and environmental reserves) for both primary and excess coverages for multiple accident years and (iii) the commercial multi-peril product line for liability coverages for multiple accident years, partially offset by (iv) the $225 million increase to asbestos reserves, (v) a $65 million increase to environmental reserves and (vi) the impact of higher than expected loss experience in the segment’s domestic operations in the commercial automobile product line for recent accident years. The net favorable prior year reserve development in the segment's domestic operations for the first nine months of 2017 was partially offset by net unfavorable prior year reserve development in the segment's international operations in Europe due to the U.K. Ministry of Justice’s “Ogden” discount rate adjustment applied to lump sum bodily injury payouts.
 
Bond & Specialty Insurance.  Net favorable prior year reserve development in the third quarter and first nine months of 2018 totaled $53 million and $177 million, respectively, and net favorable prior year reserve development in the third quarter and first nine months of 2017 totaled $6 million and $98 million, respectively. Net favorable prior year reserve development for the third quarter of 2018 and the first nine months of 2018 and 2017 was primarily driven by better than expected loss experience in the segment’s domestic operations in the general liability product line for multiple accident years.
 
Personal Insurance.  Net favorable prior year reserve development in the third quarter and first nine months of 2018 totaled $17 million and $79 million, respectively, driven by better than expected loss experience in the segment's domestic operations in the automobile product line for recent accident years. Net favorable prior year reserve development in the third quarter and first nine months of 2017 totaled $0 and $6 million, respectively.


22

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued


7.             OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
 
The following table presents the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the nine months ended September 30, 2018.
 
 
Changes in Net Unrealized Gains (Losses) on Investment Securities
 
 
 
 
 
 
(in millions)
 
Having No Credit
Losses Recognized in
the Consolidated
Statement of Income
 
Having Credit 
Losses Recognized 
in the Consolidated
Statement of 
Income
 
Net Benefit Plan Assets and
Obligations
Recognized in
Shareholders’ 
Equity
 
Net Unrealized
Foreign Currency
Translation
 
Total Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
$
747

 
$
207

 
$
(686
)
 
$
(611
)
 
$
(343
)
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
 
(34
)
 

 

 

 
(34
)
Income tax benefit
 
(12
)
 

 

 

 
(12
)
Net of income taxes
 
(22
)
 

 

 

 
(22
)
 
 
 
 
 
 
 
 
 
 
 
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018
 
145

 
7

 
(141
)
 
(35
)
 
(24
)
Total effect of adoption of new guidance at January 1, 2018, net of tax
 
123

 
7

 
(141
)
 
(35
)
 
(46
)
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) (OCI) before reclassifications, net of tax
 
(1,488
)
 
(19
)
 

 
(134
)
 
(1,641
)
Amounts reclassified from AOCI, net of tax
 
(24
)
 

 
51

 

 
27

Net OCI, current period
 
(1,512
)
 
(19
)
 
51

 
(134
)
 
(1,614
)
Balance, September 30, 2018
 
$
(642
)
 
$
195

 
$
(776
)
 
$
(780
)
 
$
(2,003
)
 

23

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.             OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME, Continued

The following table presents the pre-tax components of the Company’s other comprehensive income (loss) and the related income tax expense (benefit).
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Changes in net unrealized gains (losses) on investment securities:
 
 

 
 

 
 

 
 

Having no credit losses recognized in the consolidated statement of income
 
$
(414
)
 
$
(42
)
 
$
(1,915
)
 
$
429

Income tax expense (benefit)
 
(87
)
 
(12
)
 
(403
)
 
155

Net of taxes
 
(327
)
 
(30
)
 
(1,512
)
 
274

 
 
 
 
 
 
 
 
 
Having credit losses recognized in the consolidated statement of income
 
(11
)
 
2

 
(25
)
 
4

Income tax expense (benefit)
 
(3
)
 
1

 
(6
)
 
2

Net of taxes
 
(8
)
 
1

 
(19
)
 
2

 
 
 
 
 
 
 
 
 
Net changes in benefit plan assets and obligations
 
22

 
(9
)
 
65

 
25

Income tax expense (benefit)
 
5

 
(3
)
 
14

 
8

Net of taxes
 
17

 
(6
)
 
51

 
17

 
 
 
 
 
 
 
 
 
Net changes in unrealized foreign currency translation
 

 
113

 
(152
)
 
202

Income tax expense (benefit)
 
(3
)
 
19

 
(18
)
 
25

Net of taxes
 
3

 
94

 
(134
)
 
177

 
 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
 
(403
)
 
64

 
(2,027
)
 
660

Total income tax expense (benefit)
 
(88
)
 
5

 
(413
)
 
190

Total other comprehensive income (loss), net of taxes
 
$
(315
)
 
$
59

 
$
(1,614
)
 
$
470

 

24

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.             OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME, Continued

The following table presents the pre-tax and related income tax (expense) benefit components of the amounts reclassified from the Company’s AOCI to the Company’s consolidated statement of income.
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Reclassification adjustments related to unrealized gains (losses) on investment securities:
 
 
 
 
 
 

 
 

Having no credit losses recognized in the consolidated statement of income (1)
 
$
(18
)
 
$
(64
)
 
$
(30
)
 
$
(158
)
Income tax expense (2)
 
(3
)
 
(22
)
 
(6
)
 
(55
)
Net of taxes
 
(15
)
 
(42
)
 
(24
)
 
(103
)
 
 
 
 
 
 
 
 
 
Having credit losses recognized in the consolidated statement of income (1)
 

 
1

 

 
1

Income tax benefit (2)
 

 

 

 

Net of taxes
 

 
1

 

 
1

 
 
 
 
 
 
 
 
 
Reclassification adjustment related to benefit plan assets and obligations:
 
 

 
 

 
 

 
 

Claims and claim adjustment expenses (3)
 
9

 
11

 
26

 
25

General and administrative expenses (3)
 
13

 
16

 
39

 
37

Total
 
22

 
27

 
65

 
62

Income tax benefit (2)
 
5

 
10

 
14

 
22

Net of taxes
 
17

 
17

 
51

 
40

 
 
 
 
 
 
 
 
 
Reclassification adjustment related to foreign currency translation (1)
 

 

 

 

Income tax benefit (2)
 

 

 

 

Net of taxes
 

 

 

 

 
 
 
 
 
 
 
 
 
Total reclassifications
 
4

 
(36
)
 
35

 
(95
)
Total income tax (expense) benefit
 
2

 
(12
)
 
8

 
(33
)
Total reclassifications, net of taxes
 
$
2

 
$
(24
)
 
$
27

 
$
(62
)
 _________________________________________________________
(1)   (Increases) decreases net realized investment gains on the consolidated statement of income.
(2)   (Increases) decreases income tax expense on the consolidated statement of income.
(3)    Increases (decreases) expenses on the consolidated statement of income.

8.                                      DEBT
 
Debt Issuance.  On March 7, 2018, the Company issued $500 million aggregate principal amount of 4.05% senior notes that will mature on March 7, 2048.  The net proceeds of the issuance, after the deduction of the underwriting discount and expenses payable by the Company, totaled approximately $491 million.  Interest on the senior notes is payable semi-annually in arrears on March 7 and September 7.  Prior to September 7, 2047, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any senior notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to but excluding September 7, 2047 on any senior notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current Treasury rate (as defined in the senior notes), plus 15 basis points.  On or after September 7, 2047, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to100% of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

25

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
8.                                      DEBT, Continued


Debt Repayment. On May 15, 2018, the Company's $500 million, 5.80% senior notes matured and were fully paid.
 
Credit Agreement. On June 4, 2018, the Company entered into a five-year, $1.0 billion revolving credit agreement with a syndicate of financial institutions, replacing its five-year $1.0 billion credit agreement that was due to expire on June 7, 2018. Pursuant to the credit agreement covenants, the Company must maintain a minimum consolidated net worth, defined as shareholders’ equity determined in accordance with GAAP (excluding accumulated other comprehensive income (loss)) plus (a) trust preferred securities (not to exceed 15% of total capital) and (b) mandatorily convertible securities (combined with trust preferred securities, not to exceed 25% of total capital), less goodwill and other intangible assets. That threshold is adjusted downward by an amount equal to 70% of the aggregate amount of common stock repurchased by the Company after March 31, 2018, up to a maximum deduction of $1.75 billion.  The threshold was $13.719 billion at September 30, 2018 and could decline to a minimum of $12.494 billion during the term of the credit agreement, subject to the Company repurchasing an additional $1.75 billion of its common stock. In addition, the credit agreement contains other customary restrictive covenants as well as certain customary events of default, including with respect to a change in control, which would occur upon the acquisition of 35% or more of the Company’s voting stock or certain changes in the composition of the Company’s Board of Directors. At September 30, 2018, the Company was in compliance with these covenants. Generally, the cost of borrowing under this agreement will range from LIBOR plus 75 basis points to LIBOR plus 137.5 basis points, depending on the Company’s credit ratings. At September 30, 2018, that cost would have been LIBOR plus 100 basis points, had there been any amounts outstanding under the credit agreement.

Commercial Paper.  The Company had $100 million of commercial paper outstanding at both September 30, 2018 and December 31, 2017.

9.                          COMMON SHARE REPURCHASES
 
During the three months and nine months ended September 30, 2018, the Company repurchased 3.0 million and 8.2 million shares, respectively, under its share repurchase authorization, for a total cost of $400 million and $1.10 billion, respectively.  The average cost per share repurchased was $130.22 and $133.52, respectively.  In addition, the Company acquired 3,205 shares and 0.4 million shares for a total cost of $0.4 million and $51 million during the three months and nine months ended September 30, 2018, respectively, that were not part of the publicly announced share repurchase authorization.  These shares consisted of shares retained to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the price of certain stock options that were exercised. At September 30, 2018, the Company had $3.46 billion of capacity remaining under its share repurchase authorization.


26

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued


10.                EARNINGS PER SHARE
 
The following is a reconciliation of the net income and share data used in the basic and diluted earnings per share computations for the periods presented:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions, except per share amounts)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
 
 
 
 
 

 
 

Net income, as reported
 
$
709

 
$
293

 
$
1,902

 
$
1,505

Participating share-based awards — allocated income
 
(5
)
 
(2
)
 
(14
)
 
(11
)
Net income available to common shareholders — basic and diluted
 
$
704

 
$
291

 
$
1,888

 
$
1,494

 
 
 
 
 
 
 
 
 
Common Shares
 
 
 
 
 
 

 
 

Basic
 
 
 
 
 
 

 
 

Weighted average shares outstanding
 
266.1

 
274.1

 
268.6

 
277.1

 
 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 

 
 

Weighted average shares outstanding
 
266.1

 
274.1

 
268.6

 
277.1

Weighted average effects of dilutive securities — stock options and performance shares
 
2.3

 
2.5

 
2.5

 
2.5

Total
 
268.4

 
276.6

 
271.1

 
279.6

 
 
 
 
 
 
 
 
 
Net Income per Common Share
 
 
 
 
 
 

 
 

Basic
 
$
2.65

 
$
1.06

 
$
7.03

 
$
5.39

Diluted
 
$
2.62

 
$
1.05

 
$
6.97

 
$
5.34


11.                INCOME TAXES

During the fourth quarter of 2017, the Company recorded provisional amounts for the tax imposed on accumulated foreign earnings and partnership investments, as well as the amount due under the transition rule relating to the change in discounting of claims incurred, based on information available at December 31, 2017. During the third quarter of 2018, the Company made minor adjustments to the provisional amounts for taxes related to accumulated foreign earnings and partnerships based upon the latest available information associated with final earnings from foreign operations and partnership investments (Form K-1's) that were received in 2018. The Company anticipates further adjustments to these amounts as additional information becomes available in future periods.


27

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued


12.                SHARE-BASED INCENTIVE COMPENSATION

The following information relates to fully vested stock option awards at September 30, 2018:
 
                                           Stock Options
 
Number
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Life
Remaining
 
Aggregate
Intrinsic
Value
($ in millions)
Vested at end of period (1)
 
5,977,343

 
$
99.02

 
5.6 years
 
$
191

Exercisable at end of period
 
3,924,932

 
$
88.09

 
4.2 years
 
$
164

_________________________________________________________
(1)
Represents awards for which the requisite service has been rendered, including those that are retirement eligible.

The total compensation cost for all share-based incentive compensation awards recognized in earnings was $33 million and $31 million for the three months ended September 30, 2018 and 2017, respectively, and $110 million and $104 million for the nine months ended September 30, 2018 and 2017, respectively.  The related tax benefits recognized in the consolidated statement of income were $6 million and $10 million for the three months ended September 30, 2018 and 2017, respectively, and $20 million and $34 million for the nine months ended September 30, 2018 and 2017, respectively.

The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at September 30, 2018 was $172 million, which is expected to be recognized over a weighted-average period of 1.9 years.

13.                PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS
 
The following table summarizes the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans recognized in the consolidated statement of income for the three months ended September 30, 2018 and 2017.
 
 
Pension Plans
 
Postretirement Benefit Plans
(for the three months ended September 30, in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net Periodic Benefit Cost:
 
 

 
 

 
 

 
 

Service cost
 
$
33

 
$
30

 
$

 
$

 
 
 
 
 
 
 
 
 
Non-service cost:
 
 

 
 

 
 

 
 

Interest cost on benefit obligation
 
32

 
35

 
1

 
2

Expected return on plan assets
 
(66
)
 
(60
)
 

 

Amortization of unrecognized:
 
 

 
 

 
 

 
 

Prior service benefit
 

 
(1
)
 
(1
)
 
(1
)
Net actuarial loss
 
22

 
29

 

 

Total non-service cost (benefit)
 
(12
)
 
3

 

 
1

Net periodic benefit cost
 
$
21

 
$
33

 
$

 
$
1

 
The following table indicates the line items in which the respective service costs and non-service benefit costs are presented in the consolidated statement of income for the three months ended September 30, 2018 and 2017.
 

28

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
13.                PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued

 
 
Pension Plans
 
Postretirement Benefit Plans
(for the three months ended September 30, in millions)
 
2018
 
2017
 
2018
 
2017
Service Cost:
 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
$
13

 
$
13

 
$

 
$

General and administrative expenses
 
20

 
17

 

 

Total service cost
 
33

 
30

 

 

 
 
 
 
 
 
 
 
 
Non-Service Cost:
 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
(4
)
 
1

 

 
1

General and administrative expenses
 
(8
)
 
2

 

 

Total non-service cost (benefit)
 
(12
)
 
3

 

 
1

Net periodic benefit cost
 
$
21

 
$
33

 
$

 
$
1



The following table summarizes the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans recognized in the consolidated statement of income for the nine months ended September 30, 2018 and 2017.
 
 
Pension Plans
 
Postretirement Benefit Plans
(for the nine months ended September 30, in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net Periodic Benefit Cost:
 
 

 
 

 
 

 
 

Service cost
 
$
99

 
$
90

 
$

 
$

 
 
 
 
 
 
 
 
 
Non-service cost:
 
 

 
 

 
 

 
 

Interest cost on benefit obligation
 
95

 
96

 
5

 
5

Expected return on plan assets
 
(198
)
 
(180
)
 

 

Amortization of unrecognized:
 
 

 
 

 
 

 
 

Prior service benefit
 
(1
)
 
(1
)
 
(3
)
 
(3
)
Net actuarial loss
 
68

 
66

 

 

Total non-service cost (benefit)
 
(36
)
 
(19
)
 
2

 
2

Net periodic benefit cost
 
$
63

 
$
71

 
$
2

 
$
2

 
The following table indicates the line items in which the respective service costs and non-service benefit costs are presented in the consolidated statement of income for the nine months ended September 30, 2018 and 2017.
 
 
Pension Plans
 
Postretirement Benefit Plans
(for the nine months ended September 30, in millions)
 
2018
 
2017
 
2018
 
2017
Service Cost:
 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
$
40

 
$
37

 
$

 
$

General and administrative expenses
 
59

 
53

 

 

Total service cost
 
99

 
90

 

 

 
 
 
 
 
 
 
 
 
Non-Service Cost:
 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
(14
)
 
(8
)
 
1

 
1

General and administrative expenses
 
(22
)
 
(11
)
 
1

 
1

Total non-service cost (benefit)
 
(36
)
 
(19
)
 
2

 
2

Net periodic benefit cost
 
$
63

 
$
71

 
$
2

 
$
2



29

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
13.                PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued

The Company has discretion regarding whether to provide additional funding and when to provide such funding to its qualified domestic pension plan. There was no required contribution to the qualified domestic pension plan in 2018. In the third quarter of 2018, the Company voluntarily made a $200 million contribution to the qualified domestic pension plan.

14.          CONTINGENCIES, COMMITMENTS AND GUARANTEES
 
Contingencies
 
The major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of the Company’s properties is subject are described below.
 
Asbestos and Environmental Claims and Litigation
 
In the ordinary course of its insurance business, the Company has received and continues to receive claims for insurance arising under policies issued by the Company asserting alleged injuries and damages from asbestos- and environmental-related exposures that are the subject of related coverage litigation. The Company is defending asbestos- and environmental-related litigation vigorously and believes that it has meritorious defenses; however, the outcomes of these disputes are uncertain. In this regard, the Company employs dedicated specialists and comprehensive resolution strategies to manage asbestos and environmental loss exposure, including settling litigation under appropriate circumstances. Currently, it is not possible to predict legal outcomes and their impact on the future development of claims and litigation relating to asbestos and environmental claims. Any such development will be affected by future court decisions and interpretations, as well as changes in applicable legislation. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current insurance reserves. In addition, the Company’s estimate of ultimate claims and claim adjustment expenses may change. These additional liabilities or changes in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s results of operations in future periods.
 
Other Proceedings Not Arising Under Insurance Contracts or Reinsurance Agreements
 
The Company is involved in other lawsuits, including lawsuits alleging extra-contractual damages relating to insurance contracts or reinsurance agreements, that do not arise under insurance contracts or reinsurance agreements. The legal costs associated with such lawsuits are expensed in the period in which the costs are incurred. Based upon currently available information, the Company does not believe it is reasonably possible that any such lawsuit or related lawsuits would be material to the Company’s results of operations or would have a material adverse effect on the Company’s financial position or liquidity.

Other Commitments and Guarantees
 
Commitments
 
Investment Commitments — The Company has unfunded commitments to private equity limited partnerships and real estate partnerships in which it invests.  These commitments totaled $1.60 billion and $1.56 billion at September 30, 2018 and December 31, 2017, respectively.
 
Guarantees
 
The maximum amount of the Company’s contingent obligation for indemnifications related to the sale of businesses that are quantifiable was $358 million at September 30, 2018, of which $2 million was recognized on the balance sheet at that date.
 
The maximum amount of the Company’s obligation for guarantees of certain investments and third-party loans related to certain investments that are quantifiable was $45 million at September 30, 2018, approximately $23 million of which is indemnified by a third party.  The maximum amount of the Company’s obligation related to the guarantee of certain insurance policy obligations of a former insurance subsidiary was $480 million at September 30, 2018, all of which is indemnified by a third party.  For more information regarding Company guarantees, see note 16 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.


30

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued


15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
The following consolidating financial statements of the Company have been prepared pursuant to Rule 3-10 of Regulation S-X. These consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the consolidated financial statements. The Travelers Companies, Inc. (excluding its subsidiaries, TRV) has fully and unconditionally guaranteed certain debt obligations of Travelers Property Casualty Corp. (TPC) and Travelers Insurance Group Holdings, Inc. (TIGHI), which totaled $700 million at September 30, 2018.
 
Prior to the merger of TPC and The St. Paul Companies, Inc. in 2004, TPC fully and unconditionally guaranteed the payment of all principal, premiums, if any, and interest on certain debt obligations of its wholly-owned subsidiary, TIGHI. Concurrent with the merger, TRV fully and unconditionally assumed such guarantee obligations of TPC. TPC is deemed to have no assets or operations independent of TIGHI. Consolidating financial information for TIGHI has not been presented herein because such financial information would be substantially the same as the financial information provided for TPC.
 

31

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the three months ended September 30, 2018
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Revenues
 
 

 
 

 
 

 
 

 
 

Premiums
 
$
4,715

 
$
2,167

 
$

 
$

 
$
6,882

Net investment income
 
444

 
193

 
9

 

 
646

Fee income
 
108

 
1

 

 

 
109

Net realized investment gains (1)
 
13

 
9

 
7

 

 
29

Other revenues
 
29

 
30

 

 
(2
)
 
57

Total revenues
 
5,309

 
2,400

 
16

 
(2
)
 
7,723

 
 
 
 
 
 
 
 
 
 
 
Claims and expenses
 
 

 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
3,149

 
1,506

 

 

 
4,655

Amortization of deferred acquisition costs
 
757

 
360

 

 

 
1,117

General and administrative expenses
 
728

 
326

 
7

 
(2
)
 
1,059

Interest expense
 
12

 

 
74

 

 
86

Total claims and expenses
 
4,646

 
2,192

 
81

 
(2
)
 
6,917

Income (loss) before income taxes
 
663

 
208

 
(65
)
 

 
806

Income tax expense (benefit)
 
104

 
36

 
(43
)
 

 
97

Net income of subsidiaries
 

 

 
731

 
(731
)
 

Net income
 
$
559

 
$
172

 
$
709

 
$
(731
)
 
$
709

____________________________________________________
(1)
Total other-than-temporary impairments (OTTI) for the three months ended September 30, 2018, and the amounts comprising total OTTI that were recognized in net realized investment gains and in other comprehensive income (loss) (OCI) were as follows:
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Total OTTI losses
 
$

 
$

 
$

 
$

 
$

OTTI losses recognized in net realized investment gains
 
$

 
$

 
$

 
$

 
$

OTTI losses recognized in OCI
 
$

 
$

 
$

 
$

 
$

 

32

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the three months ended September 30, 2017
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Revenues
 
 

 
 

 
 

 
 

 
 

Premiums
 
$
4,466

 
$
2,057

 
$

 
$

 
$
6,523

Net investment income
 
405

 
189

 
7

 
(13
)
 
588

Fee income
 
113

 

 

 

 
113

Net realized investment gains (losses) (1)
 
6

 
56

 
(1
)
 

 
61

Other revenues
 
21

 
21

 

 
(2
)
 
40

Total revenues
 
5,011

 
2,323

 
6

 
(15
)
 
7,325

 
 
 
 
 
 
 
 
 
 
 
Claims and expenses
 
 

 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
3,191

 
1,615

 

 

 
4,806

Amortization of deferred acquisition costs
 
716

 
343

 

 

 
1,059

General and administrative expenses
 
723

 
314

 
10

 
(2
)
 
1,045

Interest expense
 
12

 

 
83

 

 
95

Total claims and expenses
 
4,642

 
2,272

 
93

 
(2
)
 
7,005

Income (loss) before income taxes
 
369

 
51

 
(87
)
 
(13
)
 
320

Income tax expense (benefit)
 
74

 
17

 
(60
)
 
(4
)
 
27

Net income of subsidiaries
 

 

 
329

 
(329
)
 

Net income
 
$
295

 
$
34

 
$
302

 
$
(338
)
 
$
293

 
_________________________________________________________
(1)
Total other-than-temporary impairments (OTTI) for the three months ended September 30, 2017, and the amounts comprising total OTTI that were recognized in net realized investment gains (losses) and in other comprehensive income (OCI) were as follows:
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Total OTTI losses
 
$
(2
)
 
$
(3
)
 
$

 
$

 
$
(5
)
OTTI losses recognized in net realized investment gains (losses)
 
$
(2
)
 
$
(3
)
 
$

 
$

 
$
(5
)
OTTI losses recognized in OCI
 
$

 
$

 
$

 
$

 
$

 


33

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the nine months ended September 30, 2018
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Revenues
 
 

 
 

 
 

 
 

 
 

Premiums
 
$
13,760

 
$
6,354

 
$

 
$

 
$
20,114

Net investment income
 
1,268

 
553

 
23

 

 
1,844

Fee income
 
323

 
1

 

 

 
324

Net realized investment gains (1)
 
33

 
13

 
8

 

 
54

Other revenues
 
69

 
85

 

 
(4
)
 
150

Total revenues
 
15,453

 
7,006

 
31

 
(4
)
 
22,486

 
 
 
 
 
 
 
 
 
 
 
Claims and expenses
 
 

 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
9,123

 
4,390

 

 

 
13,513

Amortization of deferred acquisition costs
 
2,189

 
1,070

 

 

 
3,259

General and administrative expenses
 
2,223

 
997

 
18

 
(4
)
 
3,234

Interest expense
 
36

 

 
229

 

 
265

Total claims and expenses
 
13,571

 
6,457

 
247

 
(4
)
 
20,271

Income (loss) before income taxes
 
1,882

 
549

 
(216
)
 

 
2,215

Income tax expense (benefit)
 
314

 
89

 
(90
)
 

 
313

Net income of subsidiaries
 

 

 
2,028

 
(2,028
)
 

Net income
 
$
1,568

 
$
460

 
$
1,902

 
$
(2,028
)
 
$
1,902

_________________________________________________________ 
(1)
Total other-than-temporary impairments (OTTI) for the nine months ended September 30, 2018, and the amounts comprising total OTTI that were recognized in net realized investment gains and in other comprehensive income (loss) (OCI) were as follows:
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Total OTTI losses
 
$
(1
)
 
$

 
$

 
$

 
$
(1
)
OTTI losses recognized in net realized investment gains
 
$
(1
)
 
$

 
$

 
$

 
$
(1
)
OTTI gains (losses) recognized in OCI
 
$

 
$

 
$

 
$

 
$

 

34

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)
For the nine months ended September 30, 2017
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Revenues
 
 

 
 

 
 

 
 

 
 

Premiums
 
$
13,039

 
$
6,018

 
$

 
$

 
$
19,057

Net investment income
 
1,218

 
574

 
17

 
(13
)
 
1,796

Fee income
 
342

 

 

 

 
342

Net realized investment gains (losses) (1)
 
(2
)
 
90

 
58

 

 
146

Other revenues
 
75

 
42

 

 
(7
)
 
110

Total revenues
 
14,672

 
6,724

 
75

 
(20
)
 
21,451

 
 
 
 
 
 
 
 
 
 
 
Claims and expenses
 
 

 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
8,794

 
4,331

 

 

 
13,125

Amortization of deferred acquisition costs
 
2,077

 
1,017

 

 

 
3,094

General and administrative expenses
 
2,163

 
911

 
19

 
(7
)
 
3,086

Interest expense
 
36

 

 
240

 

 
276

Total claims and expenses
 
13,070

 
6,259

 
259

 
(7
)
 
19,581

Income (loss) before income taxes
 
1,602

 
465

 
(184
)
 
(13
)
 
1,870

Income tax expense (benefit)
 
361

 
125

 
(117
)
 
(4
)
 
365

Net income of subsidiaries
 

 

 
1,581

 
(1,581
)
 

Net income
 
$
1,241

 
$
340

 
$
1,514

 
$
(1,590
)
 
$
1,505

_________________________________________________________
(1)
Total other-than-temporary impairments (OTTI) for the nine months ended September 30, 2017, and the amounts comprising total OTTI that were recognized in net realized investment gains (losses) and in other comprehensive income (OCI) were as follows:
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Total OTTI losses
 
$
(4
)
 
$
(7
)
 
$

 
$

 
$
(11
)
OTTI losses recognized in net realized investment gains (losses)
 
$
(5
)
 
$
(7
)
 
$

 
$

 
$
(12
)
OTTI gains recognized in OCI
 
$
1

 
$

 
$

 
$

 
$
1


35

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued


CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the three months ended September 30, 2018
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Net income
 
$
559

 
$
172

 
$
709

 
$
(731
)
 
$
709

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

Changes in net unrealized gains (losses) on investment securities:
 
 

 
 

 
 

 
 

 
 

Having no credit losses recognized in the consolidated statement of income
 
(299
)
 
(115
)
 

 

 
(414
)
Having credit losses recognized in the consolidated statement of income
 
(8
)
 
(3
)
 

 

 
(11
)
Net changes in benefit plan assets and obligations
 

 
1

 
21

 

 
22

Net changes in unrealized foreign currency translation
 
6

 
(6
)
 

 

 

Other comprehensive income (loss) before income taxes and other comprehensive loss of subsidiaries
 
(301
)
 
(123
)
 
21

 

 
(403
)
Income tax expense (benefit)
 
(67
)
 
(24
)
 
3

 

 
(88
)
Other comprehensive income (loss), net of taxes, before other comprehensive loss of subsidiaries
 
(234
)
 
(99
)
 
18

 

 
(315
)
Other comprehensive loss of subsidiaries
 

 

 
(333
)
 
333

 

Other comprehensive loss
 
(234
)
 
(99
)
 
(315
)
 
333

 
(315
)
Comprehensive income
 
$
325

 
$
73

 
$
394

 
$
(398
)
 
$
394

 

36

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the three months ended September 30, 2017
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Net income
 
$
295

 
$
34

 
$
302

 
$
(338
)
 
$
293

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

Changes in net unrealized gains on investment securities:
 
 

 
 

 
 

 
 

 
 

Having no credit losses recognized in the consolidated statement of income
 

 
(47
)
 
5

 

 
(42
)
Having credit losses recognized in the consolidated statement of income
 
1

 
1

 

 

 
2

Net changes in benefit plan assets and obligations
 

 
(1
)
 
(8
)
 

 
(9
)
Net changes in unrealized foreign currency translation
 
61

 
52

 

 

 
113

Other comprehensive income (loss) before income taxes and other comprehensive income of subsidiaries
 
62

 
5

 
(3
)
 

 
64

Income tax expense (benefit)
 
12

 
(11
)
 
4

 

 
5

Other comprehensive income (loss), net of taxes, before other comprehensive income of subsidiaries
 
50

 
16

 
(7
)
 

 
59

Other comprehensive income of subsidiaries
 

 

 
66

 
(66
)
 

Other comprehensive income
 
50

 
16

 
59

 
(66
)
 
59

Comprehensive income
 
$
345

 
$
50

 
$
361

 
$
(404
)
 
$
352

 


37

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
For the nine months ended September 30, 2018
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Net income
 
$
1,568

 
$
460

 
$
1,902

 
$
(2,028
)
 
$
1,902

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

Changes in net unrealized gains (losses) on investment securities:
 
 

 
 

 
 

 
 

 
 

Having no credit losses recognized in the consolidated statement of income
 
(1,346
)
 
(568
)
 
(1
)
 

 
(1,915
)
Having credit losses recognized in the consolidated statement of income
 
(19
)
 
(6
)
 

 

 
(25
)
Net changes in benefit plan assets and obligations
 

 
1

 
64

 

 
65

Net changes in unrealized foreign currency translation
 
(96
)
 
(56
)
 

 

 
(152
)
Other comprehensive income (loss) before income taxes and other comprehensive loss of subsidiaries
 
(1,461
)
 
(629
)
 
63

 

 
(2,027
)
Income tax expense (benefit)
 
(300
)
 
(122
)
 
9

 

 
(413
)
Other comprehensive income (loss), net of taxes, before other comprehensive loss of subsidiaries
 
(1,161
)
 
(507
)
 
54

 

 
(1,614
)
Other comprehensive loss of subsidiaries
 

 

 
(1,668
)
 
1,668

 

Other comprehensive loss
 
(1,161
)
 
(507
)
 
(1,614
)
 
1,668

 
(1,614
)
Comprehensive income (loss)
 
$
407

 
$
(47
)
 
$
288

 
$
(360
)
 
$
288

 

38

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the nine months ended September 30, 2017
 
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Net income
 
$
1,241

 
$
340

 
$
1,514

 
$
(1,590
)
 
$
1,505

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

Changes in net unrealized gains on investment securities:
 
 

 
 

 
 

 
 

 
 

Having no credit losses recognized in the consolidated statement of income
 
389

 
82

 
(42
)
 

 
429

Having credit losses recognized in the consolidated statement of income
 
3

 
1

 

 

 
4

Net changes in benefit plan assets and obligations
 

 
(2
)
 
27

 

 
25

Net changes in unrealized foreign currency translation
 
100

 
102

 

 

 
202

Other comprehensive income (loss) before income taxes and other comprehensive income of subsidiaries
 
492

 
183

 
(15
)
 

 
660

Income tax expense
 
151

 
38

 
1

 

 
190

Other comprehensive income (loss), net of taxes, before other comprehensive income of subsidiaries
 
341

 
145

 
(16
)
 

 
470

Other comprehensive income of subsidiaries
 

 

 
486

 
(486
)
 

Other comprehensive income
 
341

 
145

 
470

 
(486
)
 
470

Comprehensive income
 
$
1,582

 
$
485

 
$
1,984

 
$
(2,076
)
 
$
1,975


39

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING BALANCE SHEET (Unaudited)
At September 30, 2018
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Assets
 
 

 
 

 
 

 
 

 
 

Fixed maturities, available for sale, at fair value (amortized cost $62,985)
 
$
42,923

 
$
19,419

 
$
82

 
$

 
$
62,424

Equity securities, at fair value (cost $408)
 
130

 
105

 
191

 

 
426

Real estate investments
 
54

 
897

 

 

 
951

Short-term securities
 
2,386

 
704

 
1,347

 

 
4,437

Other investments
 
2,779

 
835

 
1

 

 
3,615

Total investments
 
48,272

 
21,960

 
1,621

 

 
71,853

Cash
 
174

 
185

 

 

 
359

Investment income accrued
 
403

 
176

 
4

 

 
583

Premiums receivable
 
5,182

 
2,457

 

 

 
7,639

Reinsurance recoverables
 
5,812

 
2,502

 

 

 
8,314

Ceded unearned premiums
 
635

 
80

 

 

 
715

Deferred acquisition costs
 
1,986

 
200

 

 

 
2,186

Deferred taxes
 
239

 
339

 
(57
)
 

 
521

Contractholder receivables
 
3,960

 
927

 

 

 
4,887

Goodwill
 
2,586

 
1,381

 

 
(9
)
 
3,958

Other intangible assets
 
225

 
126

 

 

 
351

Investment in subsidiaries
 

 

 
26,412

 
(26,412
)
 

Other assets
 
2,068

 
452

 
525

 
(21
)
 
3,024

Total assets
 
$
71,542

 
$
30,785

 
$
28,505

 
$
(26,442
)
 
$
104,390

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Claims and claim adjustment expense reserves
 
$
33,862

 
$
16,568

 
$

 
$

 
$
50,430

Unearned premium reserves
 
9,735

 
4,244

 

 

 
13,979

Contractholder payables
 
3,960

 
927

 

 

 
4,887

Payables for reinsurance premiums
 
250

 
168

 

 

 
418

Debt
 
693

 
21

 
5,871

 
(21
)
 
6,564

Other liabilities
 
4,287

 
1,188

 
177

 

 
5,652

Total liabilities
 
52,787

 
23,116

 
6,048

 
(21
)
 
81,930

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity
 
 

 
 

 
 

 
 

 
 

Common stock (1,750.0 shares authorized; 264.9 shares issued and 264.8 shares outstanding)
 

 
390

 
23,089

 
(390
)
 
23,089

Additional paid-in capital
 
11,634

 
6,986

 

 
(18,620
)
 

Retained earnings
 
7,883

 
772

 
34,796

 
(8,652
)
 
34,799

Accumulated other comprehensive loss
 
(762
)
 
(479
)
 
(2,003
)
 
1,241

 
(2,003
)
Treasury stock, at cost (509.5 shares)
 

 

 
(33,425
)
 

 
(33,425
)
Total shareholders’ equity
 
18,755

 
7,669

 
22,457

 
(26,421
)
 
22,460

Total liabilities and shareholders’ equity
 
$
71,542

 
$
30,785

 
$
28,505

 
$
(26,442
)
 
$
104,390




40

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING BALANCE SHEET (Unaudited)
At December 31, 2017
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Assets
 
 

 
 

 
 

 
 

 
 

Fixed maturities, available for sale, at fair value (amortized cost $61,316)
 
$
43,240

 
$
19,372

 
$
82

 
$

 
$
62,694

Equity securities, available for sale, at fair value (cost $440)
 
161

 
111

 
181

 

 
453

Real estate investments
 
54

 
878

 

 

 
932

Short-term securities
 
2,751

 
914

 
1,230

 

 
4,895

Other investments
 
2,673

 
854

 
1

 

 
3,528

Total investments
 
48,879

 
22,129

 
1,494

 

 
72,502

Cash
 
157

 
187

 

 

 
344

Investment income accrued
 
418

 
183

 
5

 

 
606

Premiums receivable
 
4,852

 
2,292

 

 

 
7,144

Reinsurance recoverables
 
5,842

 
2,467

 

 

 
8,309

Ceded unearned premiums
 
493

 
58

 

 

 
551

Deferred acquisition costs
 
1,835

 
190

 

 

 
2,025

Deferred taxes
 
(89
)
 
173

 
(14
)
 

 
70

Contractholder receivables
 
3,854

 
921

 

 

 
4,775

Goodwill
 
2,592

 
1,368

 

 
(9
)
 
3,951

Other intangible assets
 
202

 
140

 

 

 
342

Investment in subsidiaries
 

 

 
27,946

 
(27,946
)
 

Other assets
 
2,181

 
(3
)
 
700

 
(14
)
 
2,864

Total assets
 
$
71,216

 
$
30,105

 
$
30,131

 
$
(27,969
)
 
$
103,483

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Claims and claim adjustment expense reserves
 
$
33,386

 
$
16,264

 
$

 
$

 
$
49,650

Unearned premium reserves
 
8,957

 
3,958

 

 

 
12,915

Contractholder payables
 
3,854

 
921

 

 

 
4,775

Payables for reinsurance premiums
 
165

 
109

 

 

 
274

Debt
 
693

 
14

 
5,878

 
(14
)
 
6,571

Other liabilities
 
4,161

 
882

 
524

 

 
5,567

Total liabilities
 
51,216

 
22,148

 
6,402

 
(14
)
 
79,752

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity
 
 

 
 

 
 

 
 

 
 

Common stock (1,750.0 shares authorized; 271.5 shares issued and 271.4 shares outstanding)
 

 
390

 
22,886

 
(390
)
 
22,886

Additional paid-in capital
 
11,634

 
6,972

 

 
(18,606
)
 

Retained earnings
 
8,036

 
594

 
33,460

 
(8,628
)
 
33,462

Accumulated other comprehensive income (loss)
 
330

 
1

 
(343
)
 
(331
)
 
(343
)
Treasury stock, at cost (500.9 shares)
 

 

 
(32,274
)
 

 
(32,274
)
Total shareholders’ equity
 
20,000

 
7,957

 
23,729

 
(27,955
)
 
23,731

Total liabilities and shareholders’ equity
 
$
71,216

 
$
30,105

 
$
30,131

 
$
(27,969
)
 
$
103,483



41

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the nine months ended September 30, 2018
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,568

 
$
460

 
$
1,902

 
$
(2,028
)
 
$
1,902

Net adjustments to reconcile net income to net cash provided by operating activities
 
1,156

 
373

 
(126
)
 
127

 
1,530

Net cash provided by operating activities
 
2,724

 
833

 
1,776

 
(1,901
)
 
3,432

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Proceeds from maturities of fixed maturities
 
4,197

 
1,439

 
19

 

 
5,655

Proceeds from sales of investments:
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
2,219

 
965

 
1

 

 
3,185

Equity securities
 
39

 
82

 
6

 

 
127

Real estate investments
 

 
8

 

 

 
8

Other investments
 
198

 
72

 

 

 
270

Purchases of investments:
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
(7,625
)
 
(3,215
)
 
(22
)
 

 
(10,862
)
Equity securities
 
(3
)
 
(74
)
 
(9
)
 

 
(86
)
Real estate investments
 
(1
)
 
(56
)
 

 

 
(57
)
Other investments
 
(329
)
 
(63
)
 

 

 
(392
)
Net sales (purchases) of short-term securities
 
364

 
209

 
(117
)
 

 
456

Securities transactions in course of settlement
 
113

 
60

 

 

 
173

Acquisition, net of cash acquired
 

 
(4
)
 

 

 
(4
)
Other
 
(225
)
 
(7
)
 

 

 
(232
)
Net cash used in investing activities
 
(1,053
)
 
(584
)
 
(122
)
 

 
(1,759
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Treasury stock acquired — share repurchase authorization
 

 

 
(1,100
)
 

 
(1,100
)
Treasury stock acquired — net employee share-based compensation
 

 

 
(51
)
 

 
(51
)
Dividends paid to shareholders
 

 

 
(611
)
 

 
(611
)
Payment of debt
 

 

 
(600
)
 

 
(600
)
Issuance of debt
 

 
7

 
591

 
(7
)
 
591

Issuance of common stock — employee share options
 

 

 
117

 

 
117

Dividends paid to parent company
 
(1,653
)
 
(255
)
 

 
1,908

 

Net cash used in financing activities
 
(1,653
)
 
(248
)
 
(1,654
)
 
1,901

 
(1,654
)
Effect of exchange rate changes on cash
 
(1
)
 
(3
)
 

 

 
(4
)
Net increase (decrease) in cash
 
17

 
(2
)
 

 

 
15

Cash at beginning of year
 
157

 
187

 

 

 
344

Cash at end of period
 
$
174

 
$
185

 
$

 
$

 
$
359

Supplemental disclosure of cash flow information
 
 
 
 
 
 
 
 
 
 
Income taxes paid (received)
 
$
198

 
$
172

 
$
(126
)
 
$

 
$
244

Interest paid
 
$
40

 
$

 
$
185

 
$

 
$
225



42

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
15.                                 CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the nine months ended September 30, 2017
(in millions)
 
TPC
 
Other
Subsidiaries
 
TRV
 
Eliminations
 
Consolidated
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,241

 
$
340

 
$
1,514

 
$
(1,590
)
 
$
1,505

Net adjustments to reconcile net income to net cash provided by operating activities
 
1,140

 
604

 
285

 
(49
)
 
1,980

Net cash provided by operating activities
 
2,381

 
944

 
1,799

 
(1,639
)
 
3,485

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Proceeds from maturities of fixed maturities
 
4,961

 
1,618

 
2

 

 
6,581

Proceeds from sales of investments:
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
463

 
397

 

 

 
860

Equity securities
 
18

 
202

 
120

 

 
340

Real estate investments
 

 
23

 

 

 
23

Other investments
 
260

 
94

 

 
(13
)
 
341

Purchases of investments:
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
(5,906
)
 
(2,493
)
 
(4
)
 

 
(8,403
)
Equity securities
 
(5
)
 
(65
)
 
(123
)
 

 
(193
)
Real estate investments
 

 
(40
)
 

 

 
(40
)
Other investments
 
(305
)
 
(87
)
 

 

 
(392
)
Net purchases of short-term securities
 
(488
)
 
(230
)
 
(272
)
 

 
(990
)
Securities transactions in course of settlement
 
18

 
103

 
1

 

 
122

Acquisition, net of cash acquired
 

 
25

 
(477
)
 
13

 
(439
)
Other
 
(191
)
 
5

 

 

 
(186
)
Net cash used in investing activities
 
(1,175
)
 
(448
)
 
(753
)
 

 
(2,376
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Treasury stock acquired — share repurchase authorization
 

 

 
(1,028
)
 

 
(1,028
)
Treasury stock acquired — net employee share-based compensation
 

 

 
(61
)
 

 
(61
)
Dividends paid to shareholders
 

 

 
(589
)
 

 
(589
)
Payment of debt
 

 

 
(207
)
 

 
(207
)
Issuance of debt
 

 

 
689

 

 
689

Issuance of common stock — employee share options
 

 

 
148

 

 
148

Dividends paid to parent company
 
(1,185
)
 
(454
)
 

 
1,639

 

Net cash used in financing activities
 
(1,185
)
 
(454
)
 
(1,048
)
 
1,639

 
(1,048
)
Effect of exchange rate changes on cash
 
3

 
8

 

 

 
11

Net increase (decrease) in cash
 
24

 
50

 
(2
)
 

 
72

Cash at beginning of year
 
141

 
164

 
2

 

 
307

Cash at end of period
 
$
165

 
$
214

 
$

 
$

 
$
379

Supplemental disclosure of cash flow information
 
 
 
 
 
 
 
 
 
 
Income taxes paid (received)
 
$
493

 
$
174

 
$
(200
)
 
$

 
$
467

Interest paid
 
$
40

 
$

 
$
177

 
$

 
$
217


43

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
Item 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following is a discussion and analysis of the Company’s financial condition and results of operations.
 
FINANCIAL HIGHLIGHTS
 
2018 Third Quarter Consolidated Results of Operations
 
Net income of $709 million, or $2.65 per share basic and $2.62 per share diluted
Net earned premiums of $6.88 billion
Catastrophe losses of $264 million ($209 million after-tax)
Net favorable prior year reserve development of $14 million ($10 million after-tax)
Combined ratio of 96.6%
Net investment income of $646 million ($547 million after-tax)
Operating cash flows of $1.73 billion
 
2018 Third Quarter Consolidated Financial Condition
 
Total investments of $71.85 billion; fixed maturities and short-term securities comprised 93% of total investments
Total assets of $104.39 billion
Total debt of $6.56 billion, resulting in a debt-to-total capital ratio of 22.6% (22.3% excluding net unrealized investment losses, net of tax)
Repurchased 3.1 million common shares for total cost of $400 million and paid $207 million of dividends to shareholders
Shareholders’ equity of $22.46 billion
Net unrealized investment losses of $560 million ($447 million after-tax)
Book value per common share of $84.82
Holding company liquidity of $1.39 billion

 

44

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


CONSOLIDATED OVERVIEW
 
Consolidated Results of Operations
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions, except ratio and per share amounts)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Revenues
 
 

 
 

 
 

 
 

Premiums
 
$
6,882

 
$
6,523

 
$
20,114

 
$
19,057

Net investment income
 
646

 
588

 
1,844

 
1,796

Fee income
 
109

 
113

 
324

 
342

Net realized investment gains
 
29

 
61

 
54

 
146

Other revenues
 
57

 
40

 
150

 
110

Total revenues
 
7,723

 
7,325

 
22,486

 
21,451

 
 
 
 
 
 
 
 
 
Claims and expenses
 
 

 
 

 
 

 
 

Claims and claim adjustment expenses
 
4,655

 
4,806

 
13,513

 
13,125

Amortization of deferred acquisition costs
 
1,117

 
1,059

 
3,259

 
3,094

General and administrative expenses
 
1,059

 
1,045

 
3,234

 
3,086

Interest expense
 
86

 
95

 
265

 
276

Total claims and expenses
 
6,917

 
7,005

 
20,271

 
19,581

Income before income taxes
 
806

 
320

 
2,215

 
1,870

Income tax expense
 
97

 
27

 
313

 
365

Net income
 
$
709

 
$
293

 
$
1,902

 
$
1,505

 
 
 
 
 
 
 
 
 
Net income per share
 
 

 
 

 
 

 
 

Basic
 
$
2.65

 
$
1.06

 
$
7.03

 
$
5.39

Diluted
 
$
2.62

 
$
1.05

 
$
6.97

 
$
5.34

 
 
 
 
 
 
 
 
 
Combined ratio
 
 

 
 

 
 

 
 

Loss and loss adjustment expense ratio
 
66.9
%
 
72.8
%
 
66.5
%
 
68.0
%
Underwriting expense ratio
 
29.7

 
30.4

 
30.3

 
30.7

Combined ratio
 
96.6
%
 
103.2
%
 
96.8
%
 
98.7
%
 
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 $2.62 in the third quarter of 2018 increased by 150% over diluted net income per share of $1.05 in the same period of 2017.  Net income of $709 million in the third quarter of 2018 increased by 142% over net income of $293 million in the same period of 2017.  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 primarily reflected the pre-tax impacts of (i) significantly lower catastrophe losses and (ii) higher net investment income, partially offset by (iii) lower net realized investment gains. Catastrophe losses in the third quarters of 2018 and 2017 were $264 million and $700 million, respectively.  Net favorable prior year reserve development in the third quarters of 2018 and 2017 was $14 million and $15 million, respectively.  Income tax expense in the third quarter of 2018 was higher than in the same period of 2017, reflecting the impacts of (i) the increase in income before income taxes, partially offset by (ii) the lower U.S. corporate income tax rate resulting from the Tax Cuts and Jobs Act of 2017 (TCJA).

Diluted net income per share of $6.97 in the first nine months of 2018 increased by 31% over diluted net income per share of $5.34 in the same period of 2017.  Net income of $1.90 billion in the first nine months of 2018 increased by 26% over net income of

45

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


$1.51 billion in the same period of 2017.  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 primarily reflected the pre-tax impacts of (i) significantly lower catastrophe losses, (ii) higher net favorable prior year reserve development and (iii) higher net investment income, partially offset by (iv) lower net realized investment gains. Catastrophe losses in the first nine months of 2018 and 2017 were $1.11 billion and $1.45 billion, respectively.  Net favorable prior year reserve development in the first nine months of 2018 and 2017 was $350 million and $299 million, respectively.  Income tax expense in the first nine months of 2018 was lower than in the same period of 2017, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by (ii) the increase in income before income taxes and (iii) the $39 million reduction in income tax expense in the first quarter of 2017 as a result of the resolution of prior year tax matters.

The Company has insurance operations in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world as a corporate member of Lloyd’s, as well as in Brazil and Colombia, primarily through joint ventures.  Because these operations are conducted in local currencies other than the U.S. dollar, the Company is subject to changes in foreign currency exchange rates.  For the three months and nine months ended September 30, 2018 and 2017, 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 third quarter of 2018 were $6.88 billion, $359 million or 6% higher than in the same period of 2017.  Earned premiums in the first nine months of 2018 were $20.11 billion, $1.06 billion or 6% higher than in the same period of 2017. In Business Insurance, earned premiums in the third quarter and first nine months of 2018 increased by 5% and 4%, respectively, over the same periods of 2017.  In Bond & Specialty Insurance, earned premiums in the third quarter and first nine months of 2018 increased by 4% and 5%, respectively, over the same periods of 2017.  In Personal Insurance, earned premiums in the third quarter and first nine months of 2018 increased by 7% and 8%, respectively, over the same periods of 2017.  Factors contributing to the increases 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
September 30,
 
Nine Months Ended
September 30,
(dollars in millions)
 
2018
 
2017
 
2018
 
2017
Average investments (1)
 
$
73,059

 
$
72,363

 
$
72,787

 
$
71,577

Pre-tax net investment income
 
646

 
588

 
1,844

 
1,796

After-tax net investment income
 
547

 
457

 
1,567

 
1,405

Average pre-tax yield (2)
 
3.5
%
 
3.2
%
 
3.4
%
 
3.3
%
Average after-tax yield (2)
 
3.0
%
 
2.5
%
 
2.9
%
 
2.6
%
_________________________________________________________ 
(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 third quarter of 2018 was $646 million, $58 million or 10% higher than in the same period of 2017.  Net investment income in the first nine months of 2018 was $1.84 billion, $48 million or 3% higher than in the same period of 2017. Net investment income from fixed maturity investments in the third quarter and first nine months of 2018 was $498 million and $1.47 billion, respectively, $29 million and $51 million higher, respectively, than in the same periods of 2017. The increase in the third quarter of 2018 primarily resulted from a higher average level of fixed maturity investments and higher long-term reinvestment rates available in the market. The increase in the first nine months of 2018 primarily resulted from a higher average level of fixed maturity investments. Net investment income from short-term securities in the third quarter and first nine months of 2018 was $25 million and $65 million, respectively, $6 million and $22 million higher, respectively, than in the same periods of 2017. The increases primarily resulted from higher short-term interest rates. Net investment income generated by the Company's remaining investment portfolios in the third quarter of 2018 was $134 million, $26 million higher than in the same period of 2017, primarily due to higher returns from private equity limited partnerships. Net investment income generated by the Company's

46

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


remaining investment portfolios in the first nine months of 2018 was $341 million, $22 million lower than in the same period of 2017, primarily reflecting lower returns from private equity limited partnerships and lower dividend income due to a lower level of investments in equity securities.
 
Fee Income
The National Accounts market in Business Insurance is the primary source of the Company’s fee-based business.  The $4 million and $18 million decreases in fee income in the third quarter and first nine months of 2018 compared with the same periods of 2017 are discussed in the Business Insurance segment discussion that follows.
 
Net Realized Investment Gains
The following table sets forth information regarding the Company’s net realized investment gains.
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Net Realized Investment Gains
 
 
 
 
 
 

 
 

Other-than-temporary impairment losses
 
$

 
$
(5
)
 
$
(1
)
 
$
(12
)
Net realized investment gains on equity securities still held
 
2

 

 
5

 

Other net realized investment gains, including from sales
 
27

 
66

 
50

 
158

Net realized investment gains
 
$
29

 
$
61

 
$
54

 
$
146

 
Net realized investment gains from sales of fixed maturity investments accounted for the majority of net realized investment gains in the third quarter and first nine months of 2018. Net realized investment gains from sales of equity securities accounted for the majority of net realized investment gains in the third quarter and first nine months of 2017.

Other Revenues
Other revenues in the third quarters and first nine months of 2018 and 2017 included installment premium charges.  Other revenues in the third quarters and the first nine months of 2018 and 2017 also included revenues from Simply Business, which was acquired in August 2017. Other revenues in the first nine months of 2017 included a gain related to the settlement of a reinsurance dispute in the second quarter of 2017.
 
Claims and Expenses
 
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the third quarter of 2018 were $4.66 billion, $151 million or 3% lower than in the same period of 2017, primarily reflecting the impacts of (i) significantly lower catastrophe losses, partially offset by (ii) higher business volumes and (iii) loss cost trends.  Catastrophe losses in the third quarter of 2018 primarily resulted from Hurricane Florence, wind and hail storms in several regions of the United States and a wildfire in California. Catastrophe losses in the third quarter of 2017 primarily resulted from Hurricanes Harvey, Irma and Maria, as well as wind and hail storms in the Southeastern region of the United States.

Claims and claim adjustment expenses in the first nine months of 2018 were $13.51 billion, $388 million or 3% higher than in the same period of 2017, primarily reflecting the impacts of (i) higher business volumes and (ii) loss cost trends, partially offset by (iii) significantly lower catastrophe losses and (iv) higher net favorable prior year reserve development.  Catastrophe losses in the first nine months of 2018 and 2017 included the third quarter events described above, as well as winter storms in the eastern United States, wind and hail storms in several regions of the United States and mudslides in California in the first half of 2018, and wind and hail storms in several regions of the United States and a winter storm in the eastern United States in the first half of 2017.

Factors contributing to net favorable prior year reserve development during the third quarters and first nine months of 2018 and 2017 are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
 

47

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued



Significant Catastrophe Losses
The following table presents the amount of losses recorded by the Company for significant catastrophes that occurred in the three months and nine months ended September 30, 2018 and 2017, the amount of net unfavorable (favorable) prior year reserve development recognized in the three months and nine months ended September 30, 2018 and 2017 for significant catastrophes that occurred in 2017 and 2016, and the estimate of ultimate losses for those catastrophes at September 30, 2018 and December 31, 2017.  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 2018 ranged from approximately $18 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 2017 Annual Report.
 
 
Losses Incurred/Unfavorable (Favorable)
Prior Year Reserve Development
 
 
 
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
Estimated Ultimate Losses
(in millions, pre-tax and net of reinsurance)
2018
 
2017
 
2018
 
2017
September 30, 2018
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 

 
 

 
 

 
 

 
 

 
 

PCS Serial Number:
 
 

 
 

 
 

 
 

 
 

 
 

21 — Severe wind and hail storms
 
$
(1
)
 
$
(3
)
 
$
(2
)
 
$
(1
)
 
$
146

 
$
148

25 — Severe wind and hail storms
 
(1
)
 

 
(6
)
 
9

 
172

 
178

 
 
 
 
 
 
'

 
 
 
 
 
 
2017
 
 

 
 

 
 

 
 

 
 

 
 

PCS Serial Number:
 
 

 
 

 
 

 
 

 
 

 
 

22 — Severe wind and hail storms
 

 
(2
)
 
(2
)
 
113

 
109

 
111

32 — Severe wind and hail storms
 
(2
)
 
9

 
18

 
207

 
228

 
210

43 — Hurricane Harvey
 
2

 
319

 
(23
)
 
319

 
231

 
254

44 — Hurricane Irma
 
(12
)
 
242

 
(31
)
 
242

 
156

 
187

48 — California wildfire — Tubbs fire
 
(2
)
 
n/a

 
2

 
n/a

 
509

 
507

 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

 
 

 
 

 
 

PCS Serial Number:
 
 

 
 

 
 

 
 

 
 

 
 

15 — Winter storm
 
6

 
n/a

 
144

 
n/a

 
144

 
n/a

17 — Severe wind and hail storms
 
(8
)
 
n/a

 
113

 
n/a

 
113

 
n/a

33 — Severe wind and hail storms
 
15

 
n/a

 
110

 
n/a

 
110

 
n/a

52 — Hurricane Florence
 
118

 
n/a

 
118

 
n/a

 
118

 
n/a

_________________________________________________________
n/a: not applicable.
 
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the third quarter of 2018 was $1.12 billion, $58 million or 5% higher than in the same period of 2017.  Amortization of deferred acquisition costs in the first nine months of 2018 was $3.26 billion, $165 million or 5% higher than in the same period of 2017. Amortization of deferred acquisition costs is discussed in more detail in the segment discussions that follow.
 

48

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


General and Administrative Expenses
General and administrative expenses in the third quarter of 2018 were $1.06 billion, $14 million or 1% higher than in the same period of 2017, primarily reflecting the impact of the acquisition of Simply Business in August 2017. General and administrative expenses in the first nine months of 2018 were $3.23 billion, $148 million or 5% higher than in the same period of 2017, primarily reflected the impacts of (i) the acquisition of Simply Business and (ii) variable costs associated with higher business volumes. General and administrative expenses are discussed in more detail in the segment discussions that follow.
 
Interest Expense
Interest expense in the third quarter and first nine months of 2018 was $86 million and $265 million, respectively, compared with $95 million and $276 million, respectively, in the same periods of 2017.
 
Income Tax Expense
Income tax expense in the third quarter of 2018 was $97 million, $70 million or 259% higher than in the same period of 2017, primarily reflecting the impacts of (i) the $486 million increase in income before income taxes, partially offset by (ii) the lower U.S. corporate income tax rate resulting from the TCJA. Income tax expense in the first nine months of 2018 was $313 million, $52 million or 14% lower than in the same period of 2017, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by (ii) the $345 million increase in income before income taxes and (iii) the $39 million reduction in income tax expense in the first quarter of 2017 as a result of the resolution of prior year tax matters.
 
The Company’s effective tax rate was 12% and 8% in the third quarters of 2018 and 2017, respectively.  The Company's effective tax rate was 14% and 20% in the first nine months of 2018 and 2017, respectively. The effective tax rates were lower than the statutory rates of 21% in both periods of 2018 and 35% in both periods of 2017, primarily due to the impact of tax-exempt investment income on the calculation of the Company’s income tax provision.  The effective tax rate in the third quarter and first nine months of 2018 included the impact of the reduction in income tax expense resulting from the Company's $200 million voluntary contribution to its qualified domestic pension plan in the third quarter of 2018, which provided a 35% tax benefit rather than a 21% tax benefit. The effective tax rate in the first nine months of 2017 also included the impact of the reduction in income tax expense resulting from the resolution of prior year tax matters in the first quarter of 2017.

Combined Ratio
 
The combined ratio of 96.6% in the third quarter of 2018 was 6.6 points lower than the combined ratio of 103.2% in the same period of 2017.  The loss and loss adjustment expense ratio of 66.9% in the third quarter of 2018 was 5.9 points lower than the loss and loss adjustment expense ratio of 72.8% in the same period of 2017.  The underwriting expense ratio of 29.7% for the third quarter of 2018 was 0.7 points lower than the underwriting expense ratio of 30.4% in the same period of 2017
 
Catastrophe losses in the third quarters of 2018 and 2017 accounted for 3.8 points and 10.7 points, respectively, of the combined ratio.  Net favorable prior year reserve development in the third quarters of 2018 and 2017 provided 0.2 points and 0.3 points of benefit, respectively, to the combined ratio.  The combined ratio excluding prior year reserve development and catastrophe losses (“underlying combined ratio”) in the third quarter of 2018 was 0.2 points higher than the 2017 ratio on the same basis.

The combined ratio of 96.8% in the first nine months of 2018 was 1.9 points lower than the combined ratio of 98.7% in the same period of 2017. The loss and loss adjustment expense ratio of 66.5% in the first nine months of 2018 was 1.5 points lower than the loss and loss adjustment expense ratio of 68.0% in the same period of 2017.  The underwriting expense ratio of 30.3% for the first nine months of 2018 was 0.4 points lower than the underwriting expense ratio of 30.7% in the same period of 2017.

Catastrophe losses in the first nine months of 2018 and 2017 accounted for 5.5 points and 7.6 points, respectively, of the combined ratio.  Net favorable prior year reserve development in the first nine months of 2018 and 2017 provided 1.7 points and 1.6 points of benefit, respectively, to the combined ratio.  The underlying combined ratio in the first nine months of 2018 was 0.3 points higher than the 2017 ratio on the same basis.
  

49

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Written Premiums
Consolidated gross and net written premiums were as follows:
 
 
Gross Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Business Insurance
 
$
3,992

 
$
3,787

 
$
12,501

 
$
11,852

Bond & Specialty Insurance
 
673

 
632

 
1,985

 
1,853

Personal Insurance
 
2,797

 
2,644

 
7,823

 
7,303

Total
 
$
7,462

 
$
7,063

 
$
22,309

 
$
21,008

 
 
 
Net Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Business Insurance
 
$
3,648

 
$
3,434

 
$
11,423

 
$
10,833

Bond & Specialty Insurance
 
644

 
611

 
1,871

 
1,753

Personal Insurance
 
2,770

 
2,615

 
7,723

 
7,209

Total
 
$
7,062

 
$
6,660

 
$
21,017

 
$
19,795

 
Gross and net written premiums in the third quarter of 2018 both increased by 6% over the same period of 2017.  Gross and net written premiums in the first nine months 2018 also both increased by 6% over the same period of 2017. Factors contributing to the increases in gross and net written premiums in each segment are discussed in more detail in the segment discussions that follow.

RESULTS OF OPERATIONS BY SEGMENT
 
Business Insurance

Results of Business Insurance were as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Revenues
 
 

 
 

 
 

 
 

Earned premiums
 
$
3,743

 
$
3,576

 
$
10,952

 
$
10,509

Net investment income
 
482

 
437

 
1,368

 
1,337

Fee income
 
103

 
108

 
309

 
329

Other revenues
 
33

 
19

 
84

 
43

Total revenues
 
4,361

 
4,140

 
12,713

 
12,218

 
 
 
 
 
 
 
 
 
Total claims and expenses
 
3,911

 
4,069

 
11,279

 
11,007

 
 
 
 
 
 
 
 
 
Segment income before income taxes
 
450

 
71

 
1,434

 
1,211

Income tax expense (benefit)
 
40

 
(34
)
 
187

 
235

Segment income
 
$
410

 
$
105

 
$
1,247

 
$
976

 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio
 
69.6
%
 
78.1
%
 
67.4
%
 
69.1
%
Underwriting expense ratio
 
31.0

 
31.7

 
31.6

 
31.9

Combined ratio
 
100.6
%
 
109.8
%
 
99.0
%
 
101.0
%


50

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


 
Overview
Segment income in the third quarter of 2018 was $410 million, $305 million or 290% higher than segment income of $105 million in the same period of 2017. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) significantly lower catastrophe losses, (ii) higher net investment income and (iii) higher underwriting margins excluding catastrophe losses and prior year reserve development ("underlying underwriting margins"), partially offset by (iv) net unfavorable prior year reserve development in the third quarter of 2018, versus net favorable prior year reserve development in the same period of 2017. Catastrophe losses in the third quarters of 2018 and 2017 were $136 million and $489 million, respectively.  Net unfavorable prior year reserve development in the third quarter of 2018 was $56 million, compared with net favorable prior year reserve development of $9 million in the same period of 2017.  The higher underlying underwriting margins primarily reflected the impact of normal quarterly variability in loss and expense activity, including a lower level of non-catastrophe fire-related losses, partially offset by a higher level of non-catastrophe weather-related losses. Income tax expense in the third quarter of 2018 was $40 million, compared with an income tax benefit of $(34) million in the same period of 2017, primarily reflecting the impacts of (i) the increase in segment income before income taxes, partially offset by (ii) the lower U.S. corporate income tax rate resulting from the TCJA.

Segment income in the first nine months of 2018 was $1.25 billion, $271 million or 28% higher than segment income of $976 million in the same period of 2017. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) significantly lower catastrophe losses and (ii) slightly higher net investment income, partially offset by (iii) lower net favorable prior year reserve development and (iv) slightly lower underlying underwriting margins. Catastrophe losses in the first nine months of 2018 and 2017 were $442 million and $805 million, respectively.  Net favorable prior year reserve development in the first nine months of 2018 and 2017 was $94 million and $195 million, respectively. Income tax expense in the first nine months of 2018 was lower than in the same period of 2017, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by (ii) the increase in segment income before income taxes and (iii) the $15 million reduction in income taxes as a result of the resolution of prior year tax matters in the first quarter of 2017.
 
Revenues
 
Earned Premiums
Earned premiums in the third quarter of 2018 were $3.74 billion, $167 million or 5% higher than in the same period of 2017. Earned premiums in the first nine months of 2018 were $10.95 billion, $443 million or 4% higher than in the same period of 2017. The increases in both periods of 2018 primarily reflected the increase in net written premiums over the preceding twelve months.
 
Net Investment Income
Net investment income in the third quarter of 2018 was $482 million, $45 million or 10% higher than in the same period of 2017.   Net investment income in the first nine months of 2018 was $1.37 billion, $31 million or 2% higher than in the same period of 2017. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the increases in the Company’s consolidated net investment income in the third quarter and first nine months of 2018 compared with the same periods of 2017.  In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 2017 Annual Report for a discussion of the Company’s net investment income allocation methodology.
 
Fee Income
National Accounts is the primary source of fee income due to its service businesses, which include claim and loss prevention services to large companies that choose to self-insure a portion of their insurance risks, as well as claims and policy management services to workers' compensation residual market pools.  Fee income in the third quarter of 2018 was $103 million, $5 million or 5% lower than in the same period of 2017. Fee income in the first nine months of 2018 was $309 million, $20 million or 6% lower than in the same period of 2017. The decreases in both periods of 2018 reflected lower claim volume in the large deductible business and lower serviced premium in the workers’ compensation residual market pools.
 
Other Revenues
Other revenues in the third quarters and first nine months of both 2018 and 2017 included installment premium charges and other miscellaneous policyholder service charges.  Other revenues in the third quarters and first nine months of both 2018 and 2017 also included revenues from Simply Business, which was acquired in August 2017.  Other revenues in the first nine months of 2017 also included a gain related to the settlement of a reinsurance dispute in the second quarter of 2017.
 

51

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Claims and Expenses
 
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the third quarter of 2018 were $2.65 billion, $194 million or 7% lower than in the same period of 2017, primarily reflecting the impacts of (i) significantly lower catastrophe losses, partially offset by (ii) higher business volumes, (iii) loss cost trends, (iv) net unfavorable prior year reserve development in the third quarter of 2018, versus net favorable prior year reserve development in the same period of 2017 and (v) normal variability in loss activity.

Claims and claim adjustment expenses in the first nine months of 2018 were $7.53 billion, $111 million or 1% higher than in the same period of 2017, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends and (iii) lower net favorable prior year reserve development, partially offset by (iv) significantly lower catastrophe losses.
 
Factors contributing to net prior year reserve development during the third quarters and first nine months of 2018 and 2017 are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
 
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the third quarter of 2018 was $610 million, $31 million or 5% higher than in the same period of 2017.  Amortization of deferred acquisition costs in the first nine months of 2018 was $1.78 billion, $78 million or 5% higher than in the same period of 2017. The increases in both periods of 2018 were generally consistent with the increases in earned premiums.
 
General and Administrative Expenses
General and administrative expenses in the third quarter of 2018 were $648 million, $5 million or 1% higher than in the same period of 2017. General and administrative expenses in the first nine months of 2018 were $1.97 billion, $83 million or 4% higher than in the same period of 2017. The increases in both periods of 2018 primarily reflected the impact of the acquisition of Simply Business in August 2017.
 
Income Tax Expense (Benefit)
Income tax expense in the third quarter of 2018 was $40 million, compared with an income tax benefit of $(34) million in the same period of 2017, reflecting the impacts of (i) the $379 million increase in segment income before income taxes, partially offset by (ii) the lower U.S. corporate income tax rate resulting from the TCJA. Income tax in the first nine months of 2018 was $187 million, $48 million or 20% lower than in the same period of 2017, reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by (ii) the $223 million increase in segment income before income taxes and (iii) the $15 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of 2017.

Combined Ratio
 
The combined ratio of 100.6% in the third quarter of 2018 was 9.2 points lower than the combined ratio of 109.8% in the same period of 2017.  The loss and loss adjustment expense ratio of 69.6% in the third quarter of 2018 was 8.5 points lower than the loss and loss adjustment expense ratio of 78.1% in the same period of 2017. The underwriting expense ratio of 31.0% for the third quarter of 2018 was 0.7 points lower than the underwriting expense ratio of 31.7% in the same period of 2017

Catastrophe losses in the third quarters of 2018 and 2017 accounted for 3.7 points and 13.7 points, respectively, of the combined ratio.  Net unfavorable prior year reserve development in the third quarter of 2018 accounted for 1.5 points of the combined ratio. Net favorable prior year reserve development in the third quarter of 2017 provided 0.3 points of benefit to the combined ratio. The underlying combined ratio in the third quarter of 2018 was 1.0 points lower than the 2017 ratio on the same basis, primarily reflecting the impact of normal quarterly variability in loss and expense activity, including a lower level of non-catastrophe fire-related losses, partially offset by a higher level of non-catastrophe weather-related losses.

The combined ratio of 99.0% in the first nine months of 2018 was 2.0 points lower than the combined ratio of 101.0% in the same period of 2017. The loss and loss adjustment expense ratio of 67.4% in the first nine months of 2018 was 1.7 points lower than the loss and loss adjustment expense ratio of 69.1% in the same period of 2017.  The underwriting expense ratio of 31.6% for the first nine months of 2018 was 0.3 points lower than the underwriting expense ratio of 31.9% in the same period of 2017.

Catastrophe losses in the first nine months of 2018 and 2017 accounted for 4.1 points and 7.7 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first nine months of 2018 and 2017 provided 0.9 points and 1.9 points

52

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


of benefit, respectively, to the combined ratio.  The underlying combined ratio in the first nine months of 2018 was 0.6 points higher than the 2017 ratio on the same basis.

Written Premiums
Business Insurance’s gross and net written premiums by market were as follows:
 
 
Gross Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Domestic:
 
 

 
 

 
 

 
 

Select Accounts
 
$
668

 
$
668

 
$
2,181

 
$
2,155

Middle Market
 
2,125

 
1,991

 
6,560

 
6,157

National Accounts
 
359

 
370

 
1,220

 
1,177

National Property and Other
 
580

 
517

 
1,586

 
1,499

Total Domestic
 
3,732

 
3,546

 
11,547

 
10,988

International
 
260

 
241

 
954

 
864

Total Business Insurance
 
$
3,992

 
$
3,787

 
$
12,501

 
$
11,852

 
 
 
Net Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Domestic:
 
 

 
 

 
 

 
 

Select Accounts
 
$
666

 
$
664

 
$
2,168

 
$
2,139

Middle Market
 
2,032

 
1,896

 
6,279

 
5,893

National Accounts
 
238

 
244

 
778

 
751

National Property and Other
 
485

 
428

 
1,383

 
1,310

Total Domestic
 
3,421

 
3,232

 
10,608

 
10,093

International
 
227

 
202

 
815

 
740

Total Business Insurance
 
$
3,648

 
$
3,434

 
$
11,423

 
$
10,833

 
Gross and net written premiums in the third quarter of 2018 increased by 5% and 6%, respectively, over the same period of 2017.  Gross and net written premiums in the first nine months of 2018 both increased by 5% over the same period of 2017.
 
Select Accounts.  Net written premiums of $666 million in the third quarter of 2018 were comparable with the same period of 2017. Net written premiums of $2.17 billion in the first nine months of 2018 increased by 1% over the same period of 2017.  Business retention rates remained strong in the third quarter and first nine months of 2018.  Renewal premium changes in the third quarter and first nine months of 2018 remained positive and were comparable with same periods of 2017.  New business premiums in the third quarter and first nine months of 2018 increased over the same periods of 2017.
 
Middle Market.  Net written premiums of $2.03 billion and $6.28 billion in the third quarter and first nine months of 2018, respectively, both increased by 7% over the same periods of 2017.  Business retention rates remained strong in the third quarter and first nine months of 2018.  Renewal premium changes in the third quarter and first nine months of 2018 remained positive and were higher than in the same periods of 2017.  New business premiums in the third quarter and first nine months of 2018 were comparable with the same periods of 2017.
 
National Accounts.  Net written premiums of $238 million in the third quarter of 2018 decreased by 2% from the same period of 2017.  Net written premiums of $778 million in the first nine months of 2018 increased by 4% over the same period of 2017. Business retention rates remained strong in the third quarter and first nine months of 2018.  Renewal premium changes in the third quarter of 2018 remained positive but were lower than in the same period of 2017. Renewal premium changes in the first nine

53

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


months of 2018 remained positive and were higher than in the same period of 2017. New business premiums in the third quarter and first nine months of 2018 decreased from the same periods of 2017.
 
National Property and Other.  Net written premiums of $485 million and $1.38 billion in the third quarter and first nine months of 2018, respectively, increased by 13% and 6%, respectively, over the same periods of 2017.  Business retention rates remained strong in the third quarter and first nine months of 2018.  Renewal premium changes in the third quarter and first nine months of 2018 remained positive and were higher than in the same periods of 2017. New business premiums in the third quarter and first nine months of 2018 increased over the same periods of 2017.
 
International.  Net written premiums of $227 million and $815 million in the third quarter and first nine months of 2018, respectively, increased by 12% and 10%, respectively, over the same periods of 2017. The increase in the third quarter of 2018 was primarily driven by increases in the Company’s operations at Lloyd's and in Canada, partially offset by the impact of changes in foreign currency exchange rates. The increase in the first nine months of 2018 was primarily driven by increases in the Company’s operations at Lloyd's and in Canada, as well as the impact of changes in foreign currency exchange rates.
 
Bond & Specialty Insurance
 
Results of Bond & Specialty Insurance were as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Revenues
 
 

 
 

 
 

 
 

Earned premiums
 
$
617

 
$
591

 
$
1,800

 
$
1,721

Net investment income
 
57

 
57

 
172

 
174

Other revenues
 
5

 
5

 
16

 
16

Total revenues
 
679

 
653

 
1,988

 
1,911

 
 
 
 
 
 
 
 
 
Total claims and expenses
 
435

 
462

 
1,277

 
1,303

 
 
 
 
 
 
 
 
 
Segment income before income taxes
 
244

 
191

 
711

 
608

Income tax expense
 
48

 
55

 
138

 
164

Segment income
 
$
196

 
$
136

 
$
573

 
$
444

 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio
 
33.1
%
 
39.5
%
 
32.8
%
 
36.6
%
Underwriting expense ratio
 
37.1

 
38.2

 
37.6

 
38.7

Combined ratio
 
70.2
%
 
77.7
%
 
70.4
%
 
75.3
%
 
Overview
Segment income in the third quarter of 2018 was $196 million, $60 million or 44% higher than segment income of $136 million in the same period of 2017. The increase in segment income before income taxes primarily reflected the pre-tax impact of higher net favorable prior year reserve development. Net favorable prior year reserve development in the third quarters of 2018 and 2017 was $53 million and $6 million, respectively.  Catastrophe losses in the third quarters of 2018 and 2017 were $4 million and $6 million, respectively.  Income tax expense in the third quarter of 2018 was lower than in the same period of 2017, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by (ii) the increase in segment income before income taxes.

Segment income in the first nine months of 2018 was $573 million, $129 million or 29% higher than segment income of $444 million in the same period of 2017. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher net favorable prior year reserve development and (ii) higher underlying underwriting margins.  Net favorable prior year reserve development in the first nine months of 2018 and 2017 was $177 million and $98 million, respectively.  Catastrophe losses in the first nine months of 2018 and 2017 were $9 million and $8 million, respectively.  The higher underlying underwriting margins primarily resulted from higher business volumes. Income tax expense in the first nine months of 2018 was lower than in the same period of 2017, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA,

54

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


partially offset by (ii) the $17 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of 2017 and (iii) the increase in segment income before income taxes.

Revenues
 
Earned Premiums
Earned premiums in the third quarter of 2018 were $617 million, $26 million or 4% higher than in the same period of 2017. Earned premiums in the first nine months of 2018 were $1.80 billion, $79 million or 5% higher than in the same period of 2017. The increases in both periods of 2018 primarily reflected the increase in net written premiums over the preceding twelve months.
 
Net Investment Income
Net investment income in the third quarter of 2018 was $57 million, comparable with the same period of 2017. Net investment income in the first nine months of 2018 was $172 million, $2 million or 1% lower than in the same period of 2017. Included in Bond & Specialty Insurance are certain legal entities whose invested assets and related net investment income are reported exclusively in this segment and not allocated among all business segments. Refer to the “Net Investment Income” section of “Consolidated Results of Operations” herein for a discussion of the increases in the Company’s consolidated net investment income in the third quarter and first nine months of 2018 as compared with the same periods of 2017.  In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 2017 Annual Report for a discussion of the Company’s net investment income allocation methodology.
 
Claims and Expenses
 
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the third quarter of 2018 were $205 million, $31 million or 13% lower than in the same period of 2017, primarily reflecting the impacts of (i) higher net favorable prior year reserve development, partially offset by (ii) higher business volumes.

Claims and claim adjustment expenses in the first nine months of 2018 were $596 million, $41 million or 6% lower than in the same period of 2017, primarily reflecting the impacts of (i) higher net favorable prior year reserve development, partially offset by (ii) higher business volumes.

Factors contributing to net favorable prior year reserve development during the third quarter and first nine months of 2018 and the first nine months of 2017 are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
 
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the third quarter of 2018 was $117 million, $6 million or 5% higher than in the same period of 2017.  Amortization of deferred acquisition costs in the first nine months of 2018 was $337 million, $15 million or 5% higher than in the same period of 2017. The increases in both periods of 2018 were generally consistent with the increases in earned premiums.
 
General and Administrative Expenses
General and administrative expenses in the third quarter of 2018 were $113 million, $2 million or 2% lower than in the same period of 2017.  General and administrative expenses in the first nine months of 2018 were $344 million, comparable with the same period of 2017.
 
Income Tax Expense
Income tax expense in the third quarter of 2018 was $48 million, $7 million or 13% lower than in the same period of 2017, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by (ii) the $53 million increase in segment income before income taxes. Income tax expense in the first nine months of 2018 was $138 million, $26 million or 16% lower than in the same period of 2017, primarily reflecting the impacts of (i) the lower U.S. corporate income tax rate resulting from the TCJA, partially offset by (ii) the $103 million increase in segment income before income taxes and (iii) the $17 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of 2017.


55

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Combined Ratio
 
The combined ratio of 70.2% in the third quarter of 2018 was 7.5 points lower than the combined ratio of 77.7% in the same period of 2017.  The loss and loss adjustment expense ratio of 33.1% in the third quarter of 2018 was 6.4 points lower than the loss and loss adjustment expense ratio of 39.5% in the same period of 2017. The underwriting expense ratio of 37.1% in the third quarter of 2018 was 1.1 points lower than the underwriting expense ratio of 38.2% in the same period of 2017, primarily reflecting the impact of higher levels of earned premiums.  
 
Net favorable prior year reserve development in the third quarters of 2018 and 2017 provided 8.7 points and 0.9 points of benefit, respectively, to the combined ratio.  Catastrophe losses in the third quarters of 2018 and 2017 accounted for 0.6 points and 0.9 points, respectively, of the combined ratio.  The underlying combined ratio in the third quarter of 2018 was 0.6 points higher than the 2017 ratio on the same basis.

The combined ratio of 70.4% in the first nine months of 2018 was 4.9 points lower than the combined ratio of 75.3% in the same period of 2017. The loss and loss adjustment expense ratio of 32.8% in the first nine months of 2018 was 3.8 points lower than the loss and loss adjustment expense ratio of 36.6% in the same period of 2017.  The underwriting expense ratio of 37.6% in the first nine months of 2018 was 1.1 points lower than the underwriting expense ratio of 38.7% in the same period of 2017, primarily reflecting the impact of higher levels of earned premiums.

Net favorable prior year reserve development in the first nine months of 2018 and 2017 provided 9.9 points and 5.7 points of benefit, respectively, to the combined ratio.  Catastrophe losses in each of the first nine months of 2018 and 2017 accounted for 0.5 points of the combined ratio.  The underlying combined ratio in the first nine months of 2018 was 0.7 points lower than the 2017 ratio on the same basis.

Written Premiums
The Bond & Specialty Insurance segment’s gross and net written premiums were as follows:
 
 
Gross Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Domestic:
 
 

 
 

 
 

 
 

Management Liability
 
$
398

 
$
374

 
$
1,140

 
$
1,071

Surety
 
226

 
218

 
684

 
641

Total Domestic
 
624

 
592

 
1,824

 
1,712

International
 
49

 
40

 
161

 
141

Total Bond & Specialty Insurance
 
$
673

 
$
632

 
$
1,985

 
$
1,853


 
 
Net Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Domestic:
 
 

 
 

 
 

 
 

Management Liability
 
$
379

 
$
359

 
$
1,089

 
$
1,030

Surety
 
217

 
212

 
637

 
597

Total Domestic
 
596

 
571

 
1,726

 
1,627

International
 
48

 
40

 
145

 
126

Total Bond & Specialty Insurance
 
$
644

 
$
611

 
$
1,871

 
$
1,753

 
Gross and net written premiums in the third quarter of 2018 increased by 6% and 5%, respectively, over the same period of 2017. Gross and net written premiums in the first nine months of 2018 both increased by 7% over the same period of 2017.
 

56

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Domestic.  Net written premiums of $596 million and $1.73 billion in the third quarter and first nine months of 2018, respectively, increased by 4% and 6%, respectively, over the same periods of 2017.  Excluding the surety line of business, for which the following are not relevant measures, business retention rates remained strong in the third quarter and first nine months of 2018.  Renewal premium changes in the third quarter and first nine months of 2018 remained positive but were lower than in the same periods of 2017. New business premiums in the third quarter and first nine months of 2018 increased over the same periods of 2017.
 
International.  Net written premiums of $48 million and $145 million in the third quarter and first nine months of 2018, respectively, increased by 20% and 15%, respectively, over the same periods of 2017. The increase in the third quarter of 2018 was primarily driven by increases in the United Kingdom. The increase in the first nine months of 2018 was primarily driven by increases in the United Kingdom, as well as the impact of changes in foreign currency exchange rates.
 
Personal Insurance
 
Results of Personal Insurance were as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Revenues
 
 

 
 

 
 

 
 

Earned premiums
 
$
2,522

 
$
2,356

 
$
7,362

 
$
6,827

Net investment income
 
107

 
94

 
304

 
285

Fee income
 
6

 
5

 
15

 
13

Other revenues
 
17

 
14

 
48

 
45

Total revenues
 
2,652

 
2,469

 
7,729

 
7,170

 
 
 
 
 
 
 
 
 
Total claims and expenses
 
2,477

 
2,372

 
7,426

 
6,972

 
 
 
 
 
 
 
 
 
Segment income before income taxes
 
175

 
97

 
303

 
198

Income tax expense
 
22

 
20

 
38

 
20

Segment income
 
$
153

 
$
77

 
$
265

 
$
178

 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio
 
71.2
%
 
73.1
%
 
73.2
%
 
74.2
%
Underwriting expense ratio
 
26.0

 
26.6

 
26.7

 
26.9

Combined ratio
 
97.2
%
 
99.7
%
 
99.9
%
 
101.1
%
 
Overview
Segment income in the third quarter of 2018 was $153 million, $76 million or 99% higher than segment income of $77 million in the same period of 2017. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) significantly lower catastrophe losses, (ii) higher net favorable prior year reserve development and (iii) higher net investment income, partially offset by (iv) lower underlying underwriting margins. Catastrophe losses in the third quarters of 2018 and 2017 were $124 million and $205 million, respectively.  Net favorable prior year reserve development in the third quarter of 2018 was $17 million, compared to no net prior year reserve development in the same period of 2017. The lower underlying underwriting margins primarily resulted from the impacts of (i) higher non-catastrophe weather-related losses in Agency Homeowners and Other, partially offset by (ii) earned pricing that exceeded loss cost trends in Agency Automobile. Income tax expense in the third quarter of 2018 was slightly higher than in the same period of 2017, primarily reflecting the impacts of (i) the increase in the segment income before income taxes, largely offset by (ii) the lower U.S. corporate income tax rate resulting from the TCJA.

Segment income in the first nine months of 2018 was $265 million, $87 million or 49% higher than segment income of $178 million in the same period of 2017. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher net favorable prior year reserve development, (ii) higher underlying underwriting margins and (iii) higher net investment income, partially offset by (iv) higher catastrophe losses. Catastrophe losses in the first nine months of 2018 and 2017 were $655 million and $637 million, respectively.  Net favorable prior year reserve development in the first nine months of 2018 and 2017 was $79 million and $6 million, respectively.  The higher underlying underwriting margins primarily resulted from the impacts of

57

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


(i) earned pricing that exceeded loss cost trends in Agency Automobile, partially offset by (ii) normal variability in loss activity in Agency Homeowners and Other. Income tax expense in the first nine months of 2018 was higher than in the same period of 2017, primarily reflecting the impacts of (i) the increase in segment income before income taxes and (ii) the $7 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of 2017, partially offset by (iii) the lower U.S. corporate income tax rate resulting from the TCJA.
 
Revenues
 
Earned Premiums
Earned premiums in the third quarter of 2018 were $2.52 billion, $166 million or 7% higher than in the same period of 2017.  Earned premiums in the first nine months of 2018 were $7.36 billion, $535 million or 8% higher than in the same period of 2017. The increases in both periods of 2018 primarily reflected the increase in net written premiums over the preceding twelve months.
 
Net Investment Income
Net investment income in the third quarter of 2018 was $107 million, $13 million or 14% higher than in the same period of 2017. Net investment income in the first nine months of 2018 was $304 million, $19 million or 7% higher than in the same period of 2017. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the increases in the Company’s consolidated net investment income in the third quarter and first nine months of 2018 compared with the same periods of 2017.  In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 2017 Annual Report for a discussion of the Company’s net investment income allocation methodology.
 
Other Revenues
Other revenues in the third quarters and first nine months of 2018 and 2017 primarily consisted of installment premium charges.
 
Claims and Expenses
 
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the third quarter of 2018 were $1.80 billion, $74 million or 4% higher than in the same period of 2017, primarily reflecting the impacts of (i) higher business volumes, (ii) higher non-catastrophe weather-related losses in Homeowners and Other and (iii) loss cost trends, partially offset by (iv) significantly lower catastrophe losses, and (v) higher net favorable prior year reserve development.

Claims and claim adjustment expenses in the first nine months of 2018 were $5.39 billion, $318 million or 6% higher than in the same period of 2017, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, (iii) normal variability in loss activity in Homeowners and Other and (iv) higher catastrophe losses, partially offset by (v) higher net favorable prior year reserve development.

Factors contributing to net favorable prior year reserve development during the third quarter and first nine months of 2018 are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.
 
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the third quarter of 2018 was $390 million, $21 million or 6% higher than in the same period of 2017.  Amortization of deferred acquisition costs in the first nine months of 2018 was $1.14 billion, $72 million or 7% higher than in the same period of 2017. The increases in both periods of 2018 were generally consistent with the increases in earned premiums.
 
General and Administrative Expenses
General and administrative expenses in the third quarter of 2018 were $290 million, $10 million or 4% higher than in the same period of 2017. General and administrative expenses in the first nine months of 2018 were $894 million, $64 million or 8% higher than in the same period of 2017. The increases in both periods of 2018 primarily reflected the impact of variable costs associated with higher business volumes.


58

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Income Tax Expense
Income tax expense in the third quarter of 2018 was $22 million, $2 million or 10% higher than in the same period of 2017, primarily reflecting the impacts of (i) the $78 million increase in segment income before income taxes, largely offset by (ii) the lower U.S. corporate income tax rate resulting from the TCJA. Income tax expense in the first nine months of 2018 was $38 million, $18 million or 90% higher than in the same period of 2017, primarily reflecting the impacts of (i) the $105 million increase in segment income before income taxes and (ii) the $7 million reduction in income tax expense as a result of the resolution of prior year tax matters in the first quarter of 2017, partially offset by (iii) the lower U.S. corporate income tax rate resulting from the TCJA.

Combined Ratio
 
The combined ratio of 97.2% in the third quarter of 2018 was 2.5 points lower than the combined ratio of 99.7% in the same period of 2017.  The loss and loss adjustment expense ratio of 71.2% in the third quarter of 2018 was 1.9 points lower than the loss and loss adjustment expense ratio of 73.1% in the same period of 2017.  The underwriting expense ratio of 26.0% for the third quarter of 2018 was 0.6 points lower than the underwriting expense ratio of 26.6% in the same period of 2017
 
Catastrophe losses in the third quarters of 2018 and 2017 accounted for 4.9 points and 8.7 points, respectively, of the combined ratio. Net favorable prior year reserve development in the third quarter of 2018 provided 0.6 points of benefit to the combined ratio. The underlying combined ratio in the third quarter of 2018 was 1.9 points higher than the 2017 ratio on the same basis, primarily reflecting the impacts of (i) higher non-catastrophe weather-related losses in Agency Homeowners and Other, partially offset by (ii) earned pricing that exceeded loss cost trends in Agency Automobile.

The combined ratio of 99.9% in the first nine months of 2018 was 1.2 points lower than the combined ratio of 101.1% in the same period of 2017. The loss and loss adjustment expense ratio of 73.2% in the first nine months of 2018 was 1.0 points lower than the loss and loss adjustment expense ratio of 74.2% in the same period of 2017.  The underwriting expense ratio of 26.7% in the first nine months of 2018 was 0.2 points lower than the underwriting expense ratio of 26.9% in the same period of 2017.

Catastrophe losses in the first nine months of 2018 and 2017 accounted for 8.9 points and 9.3 points, respectively, of the combined ratio.  Net favorable prior year reserve development in the first nine months of 2018 and 2017 provided 1.1 points and 0.1 points of benefit, respectively, to the combined ratio.  The underlying combined ratio in the first nine months of 2018 was 0.2 points higher than the 2017 ratio on the same basis, primarily due to the impacts of (i) normal variability in loss activity in Agency Homeowners and Other, partially offset by (ii) earned pricing that exceeded loss cost trends in Agency Automobile.
 
Written Premiums
Personal Insurance’s gross and net written premiums were as follows:
 
 
Gross Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Domestic:
 
 

 
 

 
 

 
 

Agency:
 
 

 
 

 
 

 
 

Automobile
 
$
1,310

 
$
1,234

 
$
3,767

 
$
3,492

Homeowners and Other
 
1,180

 
1,123

 
3,201

 
3,043

Total Agency
 
2,490

 
2,357

 
6,968

 
6,535

Direct-to-Consumer
 
109

 
101

 
300

 
272

Total Domestic
 
2,599

 
2,458

 
7,268

 
6,807

International
 
198

 
186

 
555

 
496

Total Personal Insurance
 
$
2,797

 
$
2,644

 
$
7,823

 
$
7,303

 

59

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


 
 
Net Written Premiums
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Domestic:
 
 

 
 

 
 

 
 

Agency:
 
 

 
 

 
 

 
 

Automobile
 
$
1,305

 
$
1,228

 
$
3,746

 
$
3,474

Homeowners and Other
 
1,168

 
1,107

 
3,137

 
2,978

Total Agency
 
2,473

 
2,335

 
6,883

 
6,452

Direct-to-Consumer
 
108

 
100

 
299

 
271

Total Domestic
 
2,581

 
2,435

 
7,182

 
6,723

International
 
189

 
180

 
541

 
486

Total Personal Insurance
 
$
2,770

 
$
2,615

 
$
7,723

 
$
7,209

 
Domestic Agency Written Premiums
Personal Insurance’s domestic Agency business comprises business written through agents, brokers and other intermediaries.
 
Domestic Agency gross and net written premiums in the third quarter of 2018 both increased by 6% over the same period of 2017. Domestic Agency gross and net written premiums in the first nine months of 2018 both increased by 7% over the same period of 2017.
 
Domestic Agency Automobile net written premiums of $1.31 billion and $3.75 billion in the third quarter and first nine months of 2018, respectively, increased by 6% and 8%, respectively, over the same periods of 2017.  Business retention rates remained strong in the third quarter and first nine months of 2018.  Renewal premium changes in the third quarter of 2018 remained positive but were lower than in the same period of 2017. Renewal premium changes in the first nine months of 2018 remained positive and were comparable with the same period of 2017.  New business premiums in the third quarter of 2018 increased over the same period of 2017. New business premiums in the first nine months of 2018 decreased from the same period of 2017.
 
Domestic Agency Homeowners and Other net written premiums of $1.17 billion and $3.14 billion in the third quarter and first nine months of 2018, respectively, increased by 6% and 5%, respectively, over the same periods of 2017.  Business retention rates remained strong in the third quarter and first nine months of 2018.  Renewal premium changes in the third quarter and first nine months of 2018 remained positive and were higher than in the same periods of 2017.  New business premiums in the third quarter and first nine months of 2018 increased over the same periods of 2017.
 
For its Domestic Agency business, the Personal Insurance segment had approximately 7.1 million and 6.9 million active policies at September 30, 2018 and 2017, respectively.

Direct-to-Consumer and International Written Premiums
Direct-to-Consumer net written premiums of $108 million and $299 million in the third quarter and first nine months of 2018, respectively, increased by 8% and 10%, respectively, over the same periods of 2017, primarily reflecting growth in both automobile and homeowners and other net written premiums in both periods of 2018.
 
International net written premiums of $189 million and $541 million in the third quarter and first nine months of 2018, respectively, increased by 5% and 11%, respectively, over the same periods of 2017. The increase in the third quarter of 2018 was primarily driven by growth in automobile net written premiums, partially offset by the impact of changes in foreign currency exchange rates. The increase in the first nine months of 2018 was primarily driven by growth in automobile net written premiums.
 
For its international and direct-to-consumer business, Personal Insurance had approximately 904,000 and 872,000 active policies at September 30, 2018 and 2017, respectively.
 

60

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Interest Expense and Other
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Income (loss)
 
$
(72
)
 
$
(65
)
 
$
(226
)
 
(188
)
 
The Income (loss) for Interest Expense and Other in the third quarters of 2018 and 2017 was $(72) million and $(65) million, respectively.  The Income (loss) for Interest Expense and Other in the first nine months of 2018 and 2017 was $(226) million and $(188) million, respectively. Pre-tax interest expense in the third quarters of 2018 and 2017 was $86 million and $95 million respectively. Pre-tax interest expense in the first nine months of 2018 and 2017 was $265 million and $276 million, respectively. After-tax interest expense in the third quarters of 2018 and 2017 was $68 million and $61 million, respectively. After-tax interest expense in the first nine months of 2018 and 2017 was $209 million and $179 million, respectively. The increase in after-tax interest expense in both periods of 2018 primarily reflected the impact of the lower U.S. corporate income tax rate in 2018 resulting from the TCJA.

ASBESTOS CLAIMS AND LITIGATION
 
The Company believes that the property and casualty insurance industry has suffered from court decisions and other trends that have expanded insurance coverage for asbestos claims far beyond the original intent of insurers and policyholders. The Company has received and continues to receive a significant number of asbestos claims from the Company’s policyholders (which includes others seeking coverage under a policy). Factors underlying these claim filings include continued intensive advertising by lawyers seeking asbestos claimants and the continued focus by plaintiffs on defendants who were not traditionally primary targets of asbestos litigation. The focus on these defendants is primarily the result of the number of traditional asbestos defendants who have sought bankruptcy protection in previous years.  In addition to contributing to the overall number of claims, bankruptcy proceedings may increase the volatility of asbestos-related losses by initially delaying the reporting of claims and later by significantly accelerating and increasing loss payments by insurers, including the Company. The bankruptcy of many traditional defendants has also caused increased settlement demands against those policyholders who are not in bankruptcy but remain in the tort system. Currently, in many jurisdictions, those who allege very serious injury and who can present credible medical evidence of their injuries are receiving priority trial settings in the courts, while those who have not shown any credible disease manifestation are having their hearing dates delayed or placed on an inactive docket. Prioritizing claims involving credible evidence of injuries, along with the focus on defendants who were not traditionally primary targets of asbestos litigation, contributes to the claims and claim adjustment expense payment patterns experienced by the Company. The Company’s asbestos-related claims and claim adjustment expense experience also has been impacted by the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers.
 
The Company continues to be involved in coverage litigation concerning a number of policyholders, some of whom have filed for bankruptcy, who in some instances have asserted that all or a portion of their asbestos-related claims are not subject to aggregate limits on coverage. In these instances, policyholders also may assert that each individual bodily injury claim should be treated as a separate occurrence under the policy. It is difficult to predict whether these policyholders will be successful on both issues. To the extent both issues are resolved in a policyholder’s favor and other Company defenses are not successful, the Company’s coverage obligations under the policies at issue would be materially increased and bounded only by the applicable per-occurrence limits and the number of asbestos bodily injury claims against the policyholders. Although the Company has seen a reduction in the overall risk associated with these lawsuits, it remains difficult to predict the ultimate cost of these claims.
 
Many coverage disputes with policyholders are only resolved through settlement agreements. Because many policyholders make exaggerated demands, it is difficult to predict the outcome of settlement negotiations. Settlements involving bankrupt policyholders may include extensive releases which are favorable to the Company but which could result in settlements for larger amounts than originally anticipated. There also may be instances where a court may not approve a proposed settlement, which may result in additional litigation and potentially less beneficial outcomes for the Company. As in the past, the Company will continue to pursue settlement opportunities.

In addition to claims against policyholders, proceedings have been launched directly against insurers, including the Company, by individuals challenging insurers’ conduct with respect to the handling of past asbestos claims and by individuals seeking damages arising from alleged asbestos-related bodily injuries.   It is possible that the filing of other direct actions against insurers, including the Company, could be made in the future.  It is difficult to predict the outcome of these proceedings, including whether the plaintiffs

61

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


would be able to sustain these actions against insurers based on novel legal theories of liability. The Company believes it has meritorious defenses to any such claims and has received favorable rulings in certain jurisdictions.

Because each policyholder presents different liability and coverage issues, the Company generally reviews the exposure presented by each policyholder at least annually.  Among the factors which the Company may consider in the course of this review are: available insurance coverage, including the role of any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles; an analysis of the policyholder’s potential liability; the jurisdictions involved; past and anticipated future claim activity and loss development on pending claims; past settlement values of similar claims; allocated claim adjustment expense; the potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether or not an asbestos claim is a products/completed operation claim subject to an aggregate limit and the available coverage, if any, for that claim.
 
In the third quarter of 2018, the Company completed its annual in-depth asbestos claim review, including a review of active policyholders and litigation cases for potential product and "non-product" liability, and noted the continuation of the following trends:

a high level of litigation activity in certain jurisdictions involving individuals alleging serious asbestos-related illness, primarily involving mesothelioma claims;
while overall payment patterns have been generally stable, there has been an increase in severity for certain policyholders due to the high level of litigation activity; and
a moderate level of asbestos-related bankruptcy activity.

In the Home Office and Field Office category, which accounts for the vast majority of policyholders with active asbestos-related claims, the number of policyholders tendering asbestos claims for the first time, the number of policyholders with open asbestos claims and net asbestos-related payments declined slightly when compared to 2017. Payments on behalf of policyholders in this category continue to be influenced by a high level of litigation activity in a limited number of jurisdictions where individuals alleging serious asbestos-related injury, primarily mesothelioma, continue to target defendants who were not traditionally primary targets of asbestos litigation.

The Company’s quarterly asbestos reserve reviews include an analysis of exposure and claim payment patterns by policyholder category, as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative actions.  The Company also analyzes developing payment patterns among policyholders in the Home Office and Field Office, and Assumed Reinsurance and Other categories as well as projected reinsurance billings and recoveries.  In addition, the Company reviews its historical gross and net loss and expense paid experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid activity. Conventional actuarial methods are not utilized to establish asbestos reserves and the Company’s evaluations have not resulted in a reliable method to determine a meaningful average asbestos defense or indemnity payment.

The completion of these reviews and analyses in the third quarters of 2018 and 2017 resulted in a $225 million increase in the Company's net asbestos reserves in each period. In both 2018 and 2017, the reserve increases were primarily driven by increases in the Company's estimate of projected settlement and defense costs related to a broad number of policyholders in the Home Office and Field Office category. The increase in the estimate of projected settlement and defense costs resulted from payment trends that continue to be higher than previously anticipated due to the impact of the current litigation environment surrounding mesothelioma claims discussed above. Over the past decade, the property and casualty insurance industry, including the Company, has experienced net unfavorable prior year reserve development with regard to asbestos reserves, but the Company believes that over that period there has been a reduction in the volatility associated with the Company’s overall asbestos exposure as the overall asbestos environment has evolved from one dominated by exposure to significant litigation risks, particularly coverage disputes relating to policyholders in bankruptcy who were asserting that their claims were not subject to the aggregate limits contained in their policies, to an environment primarily driven by a frequency of litigation related to individuals with mesothelioma. The Company’s overall view of the current underlying asbestos environment is essentially unchanged from recent periods and there remains a high degree of uncertainty with respect to future exposure to asbestos claims.

Net asbestos paid loss and loss expenses in the first nine months of 2018 and 2017 were $161 million and $193 million, respectively. Net asbestos reserves were $1.35 billion at September 30, 2018, compared with $1.36 billion at September 30, 2017.
 

62

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


The following table displays activity for asbestos losses and loss expenses and reserves:
(at and for the nine months ended September 30, in millions)
 
2018
 
2017
Beginning reserves:
 
 

 
 

Gross
 
$
1,538

 
$
1,512

Ceded
 
(257
)
 
(186
)
Net
 
1,281

 
1,326

 
 
 
 
 
Incurred losses and loss expenses:
 
 

 
 

Gross
 
343

 
340

Ceded
 
(118
)
 
(115
)
Net
 
225

 
225

 
 
 
 
 
Paid loss and loss expenses:
 
 

 
 

Gross
 
200

 
232

Ceded
 
(39
)
 
(39
)
Net
 
161

 
193

 
 
 
 
 
Foreign exchange and other:
 
 

 
 

Gross
 

 
1

Ceded
 

 

Net
 

 
1

 
 
 
 
 
Ending reserves:
 
 

 
 

Gross
 
1,681

 
1,621

Ceded
 
(336
)
 
(262
)
Net
 
$
1,345

 
$
1,359

_________________________________________________________
See “—Uncertainty Regarding Adequacy of Asbestos and Environmental Reserves.”

ENVIRONMENTAL CLAIMS AND LITIGATION
 
The Company has received and continues to receive claims from policyholders who allege that they are liable for injury or damage arising out of their alleged disposition of toxic substances. Mostly, these claims are due to various legislative as well as regulatory efforts aimed at environmental remediation. For instance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), enacted in 1980 and later modified, enables private parties as well as federal and state governments to take action with respect to releases and threatened releases of hazardous substances. This federal statute permits the recovery of response costs from some liable parties and may require liable parties to undertake their own remedial action. Liability under CERCLA may be joint and several with other responsible parties.
 
The Company has been, and continues to be, involved in litigation involving insurance coverage issues pertaining to environmental claims. The Company believes that some court decisions have interpreted the insurance coverage to be broader than the original intent of the insurers and policyholders. These decisions often pertain to insurance policies that were issued by the Company prior to the mid-1980s. These decisions continue to be inconsistent and vary from jurisdiction to jurisdiction. Environmental claims, when submitted, rarely indicate the monetary amount being sought by the claimant from the policyholder, and the Company does not keep track of the monetary amount being sought in those few claims which indicate a monetary amount.
 
The resolution of environmental exposures by the Company generally occurs through settlements with policyholders as opposed to claimants. Generally, the Company strives to extinguish any obligations it may have under any policy issued to the policyholder for past, present and future environmental liabilities and extinguish any pending coverage litigation dispute with the policyholder.  This form of settlement is commonly referred to as a “buy-back” of policies for future environmental liability. In addition, many of the agreements have also extinguished any insurance obligation which the Company may have for other claims, including, but

63

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


not limited to, asbestos and other cumulative injury claims.  The Company and its policyholders may also agree to settlements which extinguish any liability arising from known specified sites or claims.  Where appropriate, these agreements also include indemnities and hold harmless provisions to protect the Company.  The Company’s general purpose in executing these agreements is to reduce the Company’s potential environmental exposure and eliminate the risks presented by coverage litigation with the policyholder and related costs.
 
In establishing environmental reserves, the Company evaluates the exposure presented by each policyholder and the anticipated cost of resolution, if any. In the course of this analysis, the Company generally considers the probable liability, available coverage and relevant judicial interpretations. In addition, the Company considers the many variables presented, such as: the nature of the alleged activities of the policyholder at each site; the number of sites; the total number of potentially responsible parties at each site; the nature of the alleged environmental harm and the corresponding remedy at each site; the nature of government enforcement activities at each site; the ownership and general use of each site; the overall nature of the insurance relationship between the Company and the policyholder, including the role of any umbrella or excess insurance the Company has issued to the policyholder; the involvement of other insurers; the potential for other available coverage, including the number of years of coverage; the role, if any, of non-environmental claims or potential non-environmental claims in any resolution process; and the applicable law in each jurisdiction. The evaluation of the exposure presented by a policyholder can change as information concerning that policyholder and the many variables presented is developed. Conventional actuarial methods are not used to estimate these reserves.

In its review of environmental reserves, the Company considers: past settlement payments; changing judicial and legislative trends; its reserves for the costs of litigating environmental coverage matters; the potential for policyholders with smaller exposures to be named in new clean-up actions for both on- and off-site waste disposal activities; the potential for adverse development; the potential for additional new claims beyond previous expectations; and the potential higher costs for new settlements.
 
The duration of the Company’s investigation and review of these claims and the time necessary to determine an appropriate estimate, if any, of the value of the claim to the Company vary significantly and are dependent upon a number of factors. These factors include, but are not limited to, the cooperation of the policyholder in providing claim information, the pace of underlying litigation or claim processes, the pace of coverage litigation between the policyholder and the Company and the willingness of the policyholder and the Company to negotiate, if appropriate, a resolution of any dispute pertaining to these claims. Because these factors vary from claim-to-claim and policyholder-by-policyholder, the Company cannot provide a meaningful average of the duration of an environmental claim. However, based upon the Company’s experience in resolving these claims, the duration may vary from months to several years.
 
The Company continues to receive notices from policyholders tendering claims for the first time, frequently under policies issued prior to the mid-1980s. These policyholders continue to present smaller exposures, have fewer sites and are lower tier defendants.  Further, in many instances, clean-up costs have been reduced because regulatory agencies are willing to accept risk-based site analyses and more efficient clean-up technologies. Over the past several years, the Company has experienced generally favorable trends in the number of new policyholders tendering environmental claims for the first time and in the number of pending declaratory judgment actions relating to environmental matters. However, the degree to which those favorable trends have continued has been less than anticipated. In addition, reserve development on existing environmental claims has been greater than anticipated, driven by claims and legal developments in a limited number of jurisdictions. As a result of these factors, the Company increased its net environmental reserves by $55 million and $65 million in the second quarters of 2018 and 2017, respectively.
 
Net environmental paid loss and loss expenses in the first nine months of 2018 and 2017 were $43 million and $60 million, respectively. At September 30, 2018, approximately 94% of the net environmental reserve (approximately $351 million) was carried in a bulk reserve and included unresolved environmental claims, incurred but not reported environmental claims and the anticipated cost of coverage litigation disputes relating to these claims. The bulk reserve the Company carries is established and adjusted based upon the aggregate volume of in-process environmental claims and the Company’s experience in resolving those claims. The balance, approximately 6% of the net environmental reserve (approximately $21 million), consists of case reserves.
 

64

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


The following table displays activity for environmental losses and loss expenses and reserves:
(at and for the nine months ended September 30, in millions)
 
2018
 
2017
Beginning reserves:
 
 

 
 

Gross
 
$
373

 
$
395

Ceded
 
(13
)
 
(13
)
Net
 
360

 
382

 
 
 
 
 
Incurred losses and loss expenses:
 
 

 
 

Gross
 
71

 
74

Ceded
 
(16
)
 
(9
)
Net
 
55

 
65

 
 
 
 
 
Paid loss and loss expenses:
 
 

 
 

Gross
 
47

 
62

Ceded
 
(4
)
 
(2
)
Net
 
43

 
60

 
 
 
 
 
Foreign exchange and other:
 
 

 
 

Gross
 

 
1

Ceded
 

 

Net
 

 
1

 
 
 
 
 
Ending reserves:
 
 

 
 

Gross
 
397

 
408

Ceded
 
(25
)
 
(20
)
Net
 
$
372

 
$
388

 
UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES
 
As a result of the processes and procedures discussed above, management believes that the reserves carried for asbestos and environmental claims are appropriately established based upon known facts, current law and management’s judgment. However, the uncertainties surrounding the final resolution of these claims continue, and it is difficult to determine the ultimate exposure for asbestos and environmental claims and related litigation. As a result, these reserves are subject to revision as new information becomes available and as claims develop. The continuing uncertainties include, without limitation, the risks and lack of predictability inherent in complex litigation, any impact from the bankruptcy protection sought by various asbestos producers and other asbestos defendants, a further increase or decrease in the cost to resolve, and/or the number of, asbestos and environmental claims beyond that which is anticipated, the emergence of a greater number of asbestos claims than anticipated as a result of extended life expectancies resulting from medical advances and lifestyle improvements, the role of any umbrella or excess policies the Company has issued, the resolution or adjudication of disputes pertaining to the amount of available coverage for asbestos and environmental claims in a manner inconsistent with the Company’s previous assessment of these claims, the number and outcome of direct actions against the Company, future developments pertaining to the Company’s ability to recover reinsurance for asbestos and environmental claims and the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers. In addition, uncertainties arise from the insolvency or bankruptcy of policyholders and other defendants. It is also not possible to predict changes in the legal, regulatory and legislative environment and their impact on the future development of asbestos and environmental claims.  This environment could be affected by changes in applicable legislation and future court and regulatory decisions and interpretations, including the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for the pursuit of asbestos claims. It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement negotiations near completion and significant legal questions are resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case with policyholders in bankruptcy where negotiations often involve a large number of claimants and other parties and require court

65

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


approval to be effective. As part of its continuing analysis of asbestos and environmental reserves, the Company continues to study the implications of these and other developments.

Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the Company’s current insurance reserves.  In addition, the Company’s estimate of claims and claim adjustment expenses may change.  These additional liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s operating results in future periods.

INVESTMENT PORTFOLIO
 
The Company’s invested assets at September 30, 2018 were $71.85 billion, of which 93% was invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate investments and 5% in other investments.  Because the primary purpose of the investment portfolio is to fund future claims payments, the Company employs a conservative investment philosophy.  A significant majority of funds available for investment are deployed in a widely diversified portfolio of high quality, liquid, taxable U.S. government, tax-exempt U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.
 
The carrying value of the Company’s fixed maturity portfolio at September 30, 2018 was $62.42 billion.  The Company closely monitors the duration of its fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy the Company’s insurance and debt obligations.  The weighted average credit quality of the Company’s fixed maturity portfolio, both including and excluding U.S. Treasury securities, was “Aa2” at both September 30, 2018 and December 31, 2017.  Below investment grade securities represented 2.5% and 2.7% of the total fixed maturity investment portfolio at September 30, 2018 and December 31, 2017, respectively. The weighted average effective duration of fixed maturities and short-term securities was 4.5 (4.9 excluding short-term securities) at September 30, 2018 and 4.0 (4.3 excluding short-term securities) at December 31, 2017.
 
Obligations of States, Municipalities and Political Subdivisions
 
The Company’s fixed maturity investment portfolio at September 30, 2018 and December 31, 2017 included $28.18 billion and $30.92 billion, respectively, of securities which are obligations of states, municipalities and political subdivisions (collectively referred to as the municipal bond portfolio).  The municipal bond portfolio is diversified across the United States, the District of Columbia and Puerto Rico and includes general obligation and revenue bonds issued by states, cities, counties, school districts and similar issuers.  Included in the municipal bond portfolio at September 30, 2018 and December 31, 2017 were $2.99 billion and $3.90 billion, respectively, of pre-refunded bonds, which are bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities.  These trusts were created to fund the payment of principal and interest due under the bonds.  The irrevocable trusts are verified as to their sufficiency by an independent verification agent of the underwriter, issuer or trustee.  All of the Company’s holdings of securities issued by Puerto Rico and related entities have been pre-refunded and therefore are defeased by U.S. Treasury securities.
 
The Company bases its investment decision on the underlying credit characteristics of the municipal security. The weighted average credit rating of the municipal bond portfolio was “Aa1” at both September 30, 2018 and December 31, 2017.
 
Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities
 
The Company’s fixed maturity investment portfolio at September 30, 2018 and December 31, 2017 included $2.49 billion and $2.41 billion, respectively, of residential mortgage-backed securities, which include pass-through securities and collateralized mortgage obligations (CMOs), all of which are subject to prepayment risk (either shortening or lengthening of duration).  While prepayment risk for securities and its effect on income cannot be fully controlled, particularly when interest rates move dramatically, the Company’s investment strategy generally favors securities that reduce this risk within expected interest rate ranges.  Included in the totals at September 30, 2018 and December 31, 2017 were $820 million and $804 million, respectively, of GNMA, FNMA, FHLMC (excluding FHA project loans) and Canadian government guaranteed residential mortgage-backed pass-through securities classified as available for sale.  Also included in those totals were residential CMOs classified as available for sale with a fair value of $1.67 billion and $1.61 billion at September 30, 2018 and December 31, 2017, respectively. Approximately 52% and 55% of the Company’s CMO holdings at September 30, 2018 and December 31, 2017, respectively, were guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC.  The weighted average credit rating of the $803 million and $717 million of non-guaranteed CMO holdings was “Aa1” at September 30, 2018 and “A1” at December 31, 2017.  The weighted

66

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


average credit rating of all of the above securities was “Aa1” at both September 30, 2018 and December 31, 2017.  For further discussion regarding the Company’s investments in residential CMOs, see “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investment Portfolio” in the Company’s 2017 Annual Report.
 
Equity Securities, Real Estate and Short-Term Investments
 
See note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report for further information about these invested asset classes.
 
Other Investments
 
The Company also invests in private equity limited partnerships, hedge funds and real estate partnerships and joint ventures.  Also included in other investments are non-public common and preferred equities and derivatives.  These asset classes have historically provided a higher return than fixed maturities but are subject to more volatility.  At September 30, 2018 and December 31, 2017, the carrying value of the Company’s other investments was $3.62 billion and $3.53 billion, respectively.

CATASTROPHE REINSURANCE COVERAGE

The Company's normal renewals and changes to its catastrophe reinsurance coverage occur in January and July each year. The changes effective in January are discussed in the "Catastrophe Reinsurance" section of "Part I - Item 1 - Business" in the Company's 2017 Annual Report, and the changes effective in July are discussed in the “Catastrophe Reinsurance Coverage” section of “Part I - Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

The Company regularly reviews its catastrophe reinsurance coverage and may adjust such coverage in the future.

REINSURANCE RECOVERABLES
 
For a description of the Company’s reinsurance recoverables, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reinsurance Recoverables” in the Company’s 2017 Annual Report.
 
The following table summarizes the composition of the Company’s reinsurance recoverables:
(in millions)
 
September 30, 2018
 
December 31, 2017
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses
 
$
3,380

 
$
3,303

Allowance for uncollectible reinsurance
 
(107
)
 
(111
)
Net reinsurance recoverables
 
3,273

 
3,192

Mandatory pools and associations
 
2,015

 
2,011

Structured settlements
 
3,026

 
3,106

Total reinsurance recoverables
 
$
8,314

 
$
8,309

 
Net reinsurance recoverables at September 30, 2018 increased by $81 million over December 31, 2017, primarily reflecting the impacts of the asbestos reserve increase in the third quarter of 2018 and catastrophe losses in the first nine months of 2018, partially offset by cash collections in the first nine months of 2018.

OUTLOOK
 
The following discussion provides outlook information for certain key drivers of the Company’s results of operations and capital position.
 
Premiums.  The Company’s earned premiums are a function of net written premium volume.  Net written premiums comprise both renewal business and new business and are recognized as earned premium over the life of the underlying policies. When business renews, the amount of net written premiums associated with that business may increase or decrease (renewal premium change) as a result of increases or decreases in rate and/or insured exposures, which the Company considers as a measure of units of exposure

67

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


(such as the number and value of vehicles or properties insured).  Net written premiums from both renewal and new business, and therefore earned premiums, are impacted by competitive market conditions as well as general economic conditions, which, particularly in the case of Business Insurance, affect audit premium adjustments, policy endorsements and mid-term cancellations.  Property and casualty insurance market conditions are expected to remain competitive.  Net written premiums may also be impacted by the structure of reinsurance programs and related costs, as well as changes in foreign currency exchange rates.
 
Overall, the Company expects retention levels (the amount of expiring premium that renews, before the impact of renewal premium changes) will remain strong by historical standards during the remainder of 2018 and into 2019.  In Business Insurance, the Company expects that domestic renewal premium changes during the remainder of 2018 will remain positive and will be higher than the levels attained in the same period of 2017, and that domestic renewal premium changes into 2019 will remain positive and will be broadly consistent with the levels attained in the same period of 2018. In Bond & Specialty Insurance, the Company expects that renewal premium changes with respect to domestic management liability business during the remainder of 2018 and into 2019 will remain positive and will be broadly consistent with the levels attained in the same periods of 2017 and 2018. With respect to domestic surety business within Bond & Specialty Insurance, the Company expects that net written premium volume during the remainder of 2018 will be slightly lower than the level attained in the same period of 2017, primarily due to normal quarterly variability in business volumes, and into 2019 will be slightly higher than the level attained in the same period of 2018. In Personal Insurance, the Company expects that domestic Agency Auto renewal premium changes during the remainder of 2018 and into 2019 will remain positive but will be lower than the levels attained in the same periods of 2017 and 2018. The Company expects that domestic Agency Homeowners and Other renewal premium changes during the remainder of 2018 and into 2019 will remain positive and will be higher than the levels attained in the same periods of 2017 and 2018. The need for state regulatory approval for changes to personal property and casualty insurance prices, as well as competitive market conditions, may impact the timing and extent of renewal premium changes.  Given the relatively smaller amount of premium that the Company generates from outside the United States and the transactional nature of some of those markets, particularly Lloyd’s, international renewal premium changes in each segment during the remainder of 2018 and into 2019 could be somewhat higher, broadly consistent with or somewhat lower than the levels attained in the same periods of 2017 and 2018.
 
Property and casualty insurance market conditions are expected to remain competitive during the remainder of 2018 and into 2019 for new business.  In each of the Company’s business segments, new business generally has less of an impact on underwriting profitability than renewal business, given the volume of new business relative to renewal business.  However, in periods of meaningful increases in new business, despite its positive impact on underwriting gains over time, the impact of higher new business levels may negatively impact the combined ratio for a period of time.
 
Economic conditions in the United States and elsewhere could change, due to a variety of factors, including the political and regulatory environment, fluctuations in interest rates and foreign currency exchange rates, the imposition of tariffs or other barriers to international trade, the U.S. Federal budget, further changes in U.S. tax laws, the repeal, replacement or modification of the Affordable Care Act, the United Kingdom’s withdrawal from the European Union and rapid changes in commodity prices. The resulting changes in levels of economic activity could positively or negatively impact exposure changes at renewal and the Company’s ability to write business at acceptable rates. Additionally, changes in levels of economic activity could positively or negatively impact audit premium adjustments, policy endorsements and mid-term cancellations after policies are written.  All of the foregoing, in turn, could positively or negatively impact net written premiums during the remainder of 2018 and into 2019, and because earned premiums are a function of net written premiums, earned premiums could be impacted on a lagging basis.
 
Underwriting Gain/Loss. The Company’s underwriting gain/loss can be significantly impacted by catastrophe losses and net favorable or unfavorable prior year reserve development, as well as underlying underwriting margins. Underlying underwriting margins can be impacted by a number of factors, including variability in non-catastrophe weather, large loss and other loss activity; changes in current period loss estimates resulting from prior period loss development; changes in business mix; changes in reinsurance coverages and/or costs; premium adjustments; and variability in expenses and assessments.

Catastrophe losses and non-catastrophe weather-related losses are inherently unpredictable from period to period. The Company’s results of operations could be adversely impacted if significant catastrophe and non-catastrophe weather-related losses were to occur.

For a number of years, the Company’s results have included significant amounts of net favorable prior year reserve development driven by better than expected loss experience. However, given the inherent uncertainty in estimating claims and claim adjustment expense reserves, loss experience could develop such that the Company recognizes higher or lower levels of favorable prior year reserve development, no favorable prior year reserve development or unfavorable prior year reserve development in future periods.

68

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


In addition, the ongoing review of prior year claims and claim adjustment expense reserves, or other changes in current period circumstances, may result in the Company revising current year loss estimates upward or downward in future periods of the current year.
 
It is possible that changes in economic conditions, including the imposition of tariffs or other barriers to international trade, could lead to higher inflation than the Company had anticipated, which could in turn lead to an increase in the Company’s loss costs and the need to strengthen claims and claim adjustment expense reserves. These impacts of inflation on loss costs and claims and claim adjustment expense reserves could be more pronounced for those lines of business that require a relatively longer period of time to finalize and settle claims for a given accident year and, accordingly, are relatively more inflation sensitive. For a further discussion, see “Part I-Item 1A-Risk Factors-If actual claims exceed our claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal, regulatory and economic environments in which the Company operates, our financial results could be materially and adversely affected” in the Company’s 2017 Annual Report.
 
In Business Insurance, the Company expects underlying underwriting margins during the remainder of 2018 and into 2019 will be higher than in the same periods of 2017 and 2018, and the underlying combined ratio during the remainder of 2018 and into 2019 will be lower than in the same periods of 2017 and 2018, assuming large loss activity returns to lower and more normal levels.
 
In Bond & Specialty Insurance, the Company expects that underlying underwriting margins during the remainder of 2018 will be higher and the underlying combined ratio will be lower than in the same period of 2017, primarily due to a charge for a single international surety loss in the fourth quarter of 2017. The Company expects that underlying underwriting margins and the underlying combined ratio into 2019 will be broadly consistent with the same period of 2018.

In Personal Insurance, the Company expects underlying underwriting margins during the remainder of 2018 and into 2019 will be higher than in the same periods of 2017 and 2018, and the underlying combined ratio during the remainder of 2018 and into 2019 will be lower than in the same periods of 2017 and 2018. In Agency Automobile, the Company expects that underlying underwriting margins and the underlying combined ratio will improve during the remainder of 2018 compared with the same period of 2017, reflecting actions taken to improve profitability, and that the underlying underwriting margins into 2019 will be higher and the underlying combined ratio will be slightly lower than in the same period of 2018. In Agency Homeowners and Other, the Company expects that underlying underwriting margins will be slightly higher and the underlying combined ratio will be slightly lower during the remainder of 2018 compared with the same period of 2017, and underlying underwriting margins will be higher and the underlying combined ratio will be lower into 2019 compared with the same period of 2018, primarily due to a high level of non-catastrophe weather-related losses in the third quarter of 2018.

Income Taxes.  As a result of the decrease in the U.S. corporate income tax rate from 35% to 21% due to the enactment of the Tax Cuts and Jobs Act (TCJA), the Company’s effective tax rate declined in 2018.

Investment Portfolio.  The Company expects to continue to focus its investment strategy on maintaining a high-quality investment portfolio and a relatively short average effective duration.  The weighted average effective duration of fixed maturities and short-term securities was 4.5 (4.9 excluding short-term securities) at September 30, 2018.  From time to time, the Company enters into short positions in U.S. Treasury futures contracts to manage the duration of its fixed maturity portfolio.  At September 30, 2018, the Company had $50 million notional value of open U.S. Treasury futures contracts.  The Company continually evaluates its investment alternatives and mix.  Currently, the majority of the Company’s investments are comprised of a widely diversified portfolio of high-quality, liquid, taxable U.S. government, tax-exempt U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.
 
The Company also invests much smaller amounts in private equity limited partnerships, real estate, real estate partnerships and joint ventures, equity securities and hedge funds.  These investment classes have the potential for higher returns but also the potential for higher degrees of risk, including less stable rates of return and less liquidity.
 
Net investment income is a material contributor to the Company’s results of operations. Based primarily on the impacts of (i) the lower U.S. corporate income tax rate in 2018, (ii) slightly higher levels of fixed maturity investments, (iii) higher short-term investment yields and (iv) slightly higher reinvestment yields on fixed maturity investments, the Company expects that during the remainder of 2018, after-tax net investment income from the fixed maturity and short-term investment portfolios will be approximately $60 million to $65 million higher as compared to the corresponding quarter of 2017. Additionally, based on the

69

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


impacts of (i) slightly higher levels of fixed maturity investments, (ii) slightly higher reinvestment yields on fixed maturity investments and (iii) higher short-term investment yields, the Company expects that into 2019, after-tax net investment income from the fixed maturity and short-term investment portfolios will be approximately $20 million to $25 million higher on a quarterly basis as compared to the corresponding quarters of 2018. The impact of future market conditions on net investment income from the Company's remaining investment portfolios during the remainder of 2018 and into 2019 is hard to predict. If general economic conditions and/or investment market conditions change during the remainder of 2018 and into 2019, the Company could experience an increase or decrease in net investment income and/or significant realized investment gains or losses (including impairments).
 
The Company had a net pre-tax unrealized investment loss of $561 million ($448 million after-tax) in its fixed maturity investment portfolio at September 30, 2018, compared to a net pre-tax unrealized investment gain of $1.38 billion ($1.09 billion after-tax) at December 31, 2017, resulting from an increasing interest rate environment during the first nine months of 2018.  While the Company does not attempt to predict future interest rate movements, a rising interest rate environment would reduce the market value of fixed maturity investments and, therefore, reduce shareholders’ equity, and a declining interest rate environment would have the opposite effects.
 
Pursuant to updated FASB guidance and beginning January 1, 2018, the Company’s equity securities, except those accounted for under the equity method of accounting, that have readily determinable fair values are measured at fair value with changes in fair value recognized as part of net realized investment gains. At September 30, 2018, the carrying value of the Company’s equity securities was $426 million.
 
For further discussion of the Company’s investment portfolio, see “Investment Portfolio” herein.  For a discussion of the risks to the Company’s business during or following a financial market disruption and risks to the Company’s investment portfolio, see the risk factors entitled “During or following a period of financial market disruption or an economic downturn, our business could be materially and adversely affected” and “Our investment portfolio is subject to credit and interest rate risk, and may suffer reduced returns or material realized or unrealized losses” included in “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report.  For a discussion of the risks to the Company’s investments from foreign currency exchange rate fluctuations, see the risk factor entitled “We are also subject to a number of additional risks associated with our business outside the United States” included in “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate Risk” in the Company’s 2017 Annual Report.
 
Capital Position. The Company believes it has a strong capital position and, as part of its ongoing efforts to create shareholder value, expects to continue to return capital not needed to support its business operations to its shareholders.  The Company expects that, generally over time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income.  In addition, the timing and actual number of shares to be repurchased in the future will depend on a variety of additional factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.  For information regarding the Company’s common share repurchases in 2018, see “Liquidity and Capital Resources.” 

As a result of the Company’s business outside of the United States, primarily in Canada, the United Kingdom (including Lloyd’s), the Republic of Ireland and Brazil, the Company’s capital is also subject to the effects of changes in foreign currency exchange rates (including with respect to the valuation of the Company's foreign investments and interests in joint ventures).  For example, strengthening of the U.S. dollar in comparison to other currencies could result in a reduction of shareholders’ equity.  For additional discussion of the Company’s foreign exchange market risk exposure, see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 2017 Annual Report.
 
Many of the statements in this “Outlook” section are forward-looking statements, which are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control.  Actual results could differ materially from those expressed or implied by such forward-looking statements.  Further, such forward-looking statements speak only as of the date of this report and the Company undertakes no obligation to update them.  See “—Forward Looking Statements.”  For a discussion of potential risks and uncertainties that could impact the Company’s results of operations or financial position, see “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report and “Critical Accounting Estimates.”


70

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


LIQUIDITY AND CAPITAL RESOURCES
 
Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the cash requirements of its business operations and to satisfy general corporate purposes when needed.
 
Operating Company Liquidity.  The liquidity requirements of the Company’s insurance subsidiaries are met primarily by funds generated from premiums, fees, income received on investments and investment maturities.  For further discussion of operating company liquidity, see “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in the Company’s 2017 Annual Report.
 
Holding Company Liquidity.  TRV’s liquidity requirements primarily include shareholder dividends, debt servicing, common share repurchases and, from time to time, contributions to its qualified domestic pension plan.  At September 30, 2018, TRV held total cash and short-term invested assets in the United States aggregating $1.39 billion and having a weighted average maturity of 62 days.  TRV has established a holding company liquidity target equal to its estimated annual pre-tax interest expense and common shareholder dividends (currently approximately $1.16 billion).  TRV’s holding company liquidity of $1.39 billion at September 30, 2018 exceeded this target and it is the opinion of the Company’s management that these assets are sufficient to meet TRV’s current liquidity requirements.

TRV is not dependent on dividends or other forms of repatriation from its foreign operations to support its liquidity needs. The undistributed earnings of the Company’s foreign operations are intended to be permanently reinvested in those operations, and such earnings were not material to the Company’s financial position or liquidity at September 30, 2018.
 
TRV has a shelf registration statement filed with the Securities and Exchange Commission (SEC) that expires on June 17, 2019 which permits it to issue securities from time to time.  On June 4, 2018, the Company entered into a five-year, $1.0 billion revolving credit agreement with a syndicate of financial institutions, replacing its five-year $1.0 billion credit agreement that was due to expire on June 7, 2018. For additional information regarding terms and covenants in this revolving credit agreement, see note 8 of notes to the unaudited consolidated financial statements in this report.
 
The Company utilized uncollateralized letters of credit issued by major banks with an aggregate limit of approximately $342 million to provide a portion of the capital needed to support its obligations at Lloyd’s at September 30, 2018. If uncollateralized letters of credit are not available at a reasonable price or at all in the future, the Company can collateralize these letters of credit or may have to seek alternative means of supporting its obligations at Lloyd’s, which could include utilizing holding company funds on hand.
 
Operating Activities
Net cash provided by operating activities in the first nine months of 2018 and 2017 was $3.43 billion and $3.49 billion, respectively.  The slight decrease in cash flows in the first nine months of 2018 primarily reflected the impacts of higher levels of payments for (i) claims and claim adjustment expenses, (ii) general and administrative expenses and (iii) commission expenses, largely offset by (iv) higher levels of collected premiums and (v) lower income tax payments. The higher level of payments for claims and claim adjustment expenses in the first nine months of 2018 included the impact of payments related to catastrophe losses incurred in both 2018 and 2017 and increased business volumes. The higher level of payments for general and administrative expenses primarily reflected the impact of the Company's $200 million voluntary contribution to its qualified domestic pension plan.
 
Investing Activities
Net cash used in investing activities in the first nine months of 2018 and 2017 was $1.76 billion and $2.38 billion, respectively.  The Company’s consolidated total investments at September 30, 2018 decreased by $649 million, or 1% from year-end 2017, primarily reflecting the impacts of (i) net unrealized losses on investments at September 30, 2018 as compared to net unrealized gains on investments at December 31, 2017 as a result of increases in market interest rates in the first nine months of 2018, (ii) common share repurchases and (iii) dividends paid to shareholders, largely offset by (iv) net cash flows provided by operating activities.

Financing Activities
Net cash used in financing activities in the first nine months of 2018 and 2017 was $1.65 billion and $1.05 billion, respectively.  The totals in both periods reflected common share repurchases, dividends paid to shareholders and the payment of debt, partially offset by the issuance of debt and the net proceeds from employee stock option exercises. Common share repurchases in the first nine months of 2018 and 2017 were $1.15 billion and $1.09 billion, respectively. 

71

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


 
Dividends.  Dividends paid to shareholders were $611 million and $589 million in the first nine months of 2018 and 2017, respectively. The declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the Company’s Board of Directors and will depend upon many factors, including the Company’s financial position, earnings, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints and other factors as the Board of Directors deems relevant.  Dividends will be paid by the Company only if declared by its Board of Directors out of funds legally available, subject to any other restrictions that may be applicable to the Company.  On October 18, 2018, the Company announced that it declared a regular quarterly dividend of $0.77 per share, payable December 31, 2018 to shareholders of record on December 10, 2018.
 
Share Repurchase Authorization.  The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise.  The authorizations do not have a stated expiration date.  The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.  During the three months and nine months ended September 30, 2018, the Company repurchased 3.0 million and 8.2 million shares, respectively, under its share repurchase authorization, for a total cost of $400 million and $1.10 billion, respectively.  The average cost per share repurchased was $130.22 and $133.52, respectively.  At September 30, 2018, the Company had $3.46 billion of capacity remaining under the share repurchase authorization.
 
Capital Structure.  The following table summarizes the components of the Company’s capital structure at September 30, 2018 and December 31, 2017.
(in millions)
 
September 30,
2018
 
December 31,
2017
Debt:
 
 

 
 
Short-term
 
$
600

 
$
600

Long-term
 
6,004

 
6,004

Net unamortized fair value adjustments and debt issuance costs
 
(40
)
 
(33
)
Total debt
 
6,564

 
6,571

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Common stock and retained earnings, less treasury stock
 
24,463

 
24,074

Accumulated other comprehensive loss
 
(2,003
)
 
(343
)
Total shareholders’ equity
 
22,460

 
23,731

Total capitalization
 
$
29,024

 
$
30,302

 
On March 7, 2018, the Company issued $500 million aggregate principal amount of 4.05% senior notes that will mature on March 7, 2048.  The net proceeds were used to repay the Company's $500 million, 5.80% senior notes on May 15, 2018. See note 8 of notes to the unaudited consolidated financial statements for further discussion regarding the terms of the senior notes. 
 
The following table provides a reconciliation of total capitalization presented in the foregoing table to total capitalization excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity.

72

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


(dollars in millions)
 
September 30,
2018
 
December 31,
2017
Total capitalization
 
$
29,024

 
$
30,302

Less: net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity
 
(447
)
 
1,112

Total capitalization excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity
 
$
29,471

 
$
29,190

Debt-to-total capital ratio
 
22.6
%
 
21.7
%
Debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity
 
22.3
%
 
22.5
%

The debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders’ equity, is calculated by dividing (a) debt by (b) total capitalization excluding net unrealized gains and losses on investments, net of taxes, included in shareholders’ equity. Net unrealized gains and losses on investments can be significantly impacted by both interest rate movements and other economic factors. Accordingly, in the opinion of the Company’s management, the debt-to-total capital ratio calculated on this basis provides another useful metric for investors to understand the Company’s financial leverage position. The Company’s ratio of debt-to-total capital excluding after-tax net unrealized investment gains (losses) included in shareholders’ equity of 22.3% at September 30, 2018 was within the Company’s target range of 15% to 25%.

RATINGS

Ratings are an important factor in assessing the Company’s competitive position in the insurance industry.  The Company receives ratings from the following major rating agencies: A.M. Best Company (A.M. Best), Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s) and Standard & Poor’s (S&P).  There were no rating agency actions taken with respect to the Company since July 19, 2018, the date on which the Company’s Form 10-Q for the quarter ended June 30, 2018 was filed with the SEC.   For additional discussion of ratings, see “Part I—Item 1—Business—Ratings” in the Company’s 2017 Annual Report.
 
CRITICAL ACCOUNTING ESTIMATES
 
For a description of the Company’s critical accounting estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in the Company’s 2017 Annual Report.  The Company considers its most significant accounting estimates to be those applied to claims and claim adjustment expense reserves and related reinsurance recoverables, investment valuation and impairments, and goodwill and other intangible assets impairments. Except as shown in the table below, there have been no material changes to the Company’s critical accounting estimates since December 31, 2017.
 
Claims and Claim Adjustment Expense Reserves
The table below displays the Company’s gross claims and claim adjustment expense reserves by product line.  Because the establishment of claims and claim adjustment expense reserves is an inherently uncertain process involving estimates, currently established claims and claim adjustment expense reserves may change.  The Company reflects adjustments to the reserves in the results of operations in the period the estimates are changed.  These changes in estimates could result in income statement charges that could be material to the Company’s operating results in future periods.  In particular, a portion of the Company’s gross claims and claim adjustment expense reserves (totaling $2.08 billion at September 30, 2018) are for asbestos and environmental claims and related litigation.  Asbestos and environmental reserves are included in the General liability, Commercial multi-peril and International and other lines in the summary table below.  While the ongoing review of asbestos and environmental claims and associated liabilities considers the inconsistencies of court decisions as to coverage, plaintiffs’ expanded theories of liability and the risks inherent in complex litigation and other uncertainties, in the opinion of the Company’s management, it is possible that the outcome of the continued uncertainties regarding these claims could result in liability in future periods that differs from current reserves by an amount that could be material to the Company’s future operating results. Asbestos and environmental reserves are discussed separately; see “Asbestos Claims and Litigation”, “Environmental Claims and Litigation” and “Uncertainty Regarding Adequacy of Asbestos and Environmental Reserves” in this report.
 

73

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Gross claims and claim adjustment expense reserves by product line were as follows:
 
 
September 30, 2018
 
December 31, 2017
(in millions)
 
Case
 
IBNR
 
Total
 
Case
 
IBNR
 
Total
General liability
 
$
4,805

 
$
7,147

 
$
11,952

 
$
4,878

 
$
6,823

 
$
11,701

Commercial property
 
952

 
376

 
1,328

 
1,039

 
401

 
1,440

Commercial multi-peril
 
1,998

 
1,934

 
3,932

 
1,954

 
1,916

 
3,870

Commercial automobile
 
2,313

 
1,434

 
3,747

 
2,237

 
1,271

 
3,508

Workers’ compensation
 
10,378

 
9,264

 
19,642

 
10,379

 
9,092

 
19,471

Fidelity and surety
 
210

 
370

 
580

 
274

 
300

 
574

Personal automobile
 
2,030

 
1,345

 
3,375

 
1,946

 
1,329

 
3,275

Homeowners and personal—other
 
819

 
911

 
1,730

 
795

 
710

 
1,505

International and other
 
2,626

 
1,503

 
4,129

 
2,728

 
1,561

 
4,289

Property-casualty
 
26,131

 
24,284

 
50,415

 
26,230

 
23,403

 
49,633

Accident and health
 
15

 

 
15

 
17

 

 
17

Claims and claim adjustment expense reserves
 
$
26,146

 
$
24,284

 
$
50,430

 
$
26,247

 
$
23,403

 
$
49,650

 
The $780 million increase in gross claims and claim adjustment expense reserves since December 31, 2017 primarily reflected the impacts of (i) higher volumes of insured exposures and loss cost trends for the current accident year and (ii) catastrophe losses in the first nine months of 2018, partially offset by the impacts of (iii)  payments related to catastrophe losses incurred in 2017, (iv) net favorable prior year reserve development and (v) payments related to operations in runoff.


FUTURE APPLICATION OF ACCOUNTING STANDARDS
 
See note 1 of notes to the unaudited consolidated financial statements contained in this quarterly report and in the Company’s 2017 Annual Report for a discussion of recently issued accounting pronouncements.

FORWARD-LOOKING STATEMENTS
 
This report contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, may be forward-looking statements.  Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates” and similar expressions are used to identify these forward-looking statements.  These statements include, among other things, the Company’s statements about:
 
the Company’s outlook and its future results of operations and financial condition (including, among other things, anticipated premium volume, premium rates, margins, net and core income, investment income and performance, loss costs, return on equity, core return on equity and expected current returns and combined ratios);
share repurchase plans;
future pension plan contributions;
the sufficiency of the Company’s asbestos and other reserves;
the impact of emerging claims issues as well as other insurance and non-insurance litigation;
the cost and availability of reinsurance coverage;
catastrophe losses;
the impact of investment (including changes in interest rates), economic (including inflation, recent changes in tax law, rapid changes in commodity prices and fluctuations in foreign currency exchange rates) and underwriting market conditions;
strategic and operational initiatives to improve profitability and competitiveness;
the Company's competitive advantages;
new product offerings; and

74

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS, Continued

the impact of new or potential regulations imposed or to be imposed by the United States or other nations, including tariffs or other barriers to international trade.
 
The Company cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the Company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.
 
Some of the factors that could cause actual results to differ include, but are not limited to, the following:
 
catastrophe losses could materially and adversely affect the Company’s results of operations, its financial position and/or liquidity, and could adversely impact the Company’s ratings, the Company’s ability to raise capital and the availability and cost of reinsurance;
if actual claims exceed the Company’s claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal, regulatory and economic environments in which the Company operates, the Company’s financial results could be materially and adversely affected;
during or following a period of financial market disruption or an economic downturn, the Company’s business could be materially and adversely affected;
the Company’s investment portfolio is subject to credit risk and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses;
the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
the intense competition that the Company faces, and the impact of innovation, technological change and changing customer preferences on the insurance industry and the markets in which the Company operates, could harm its ability to maintain or increase its business volumes and its profitability;
disruptions to the Company’s relationships with its independent agents and brokers or the Company’s inability to manage effectively a changing distribution landscape could adversely affect the Company;
the Company is exposed to, and may face adverse developments involving, mass tort claims such as those relating to exposure to potentially harmful products or substances;
the effects of emerging claim and coverage issues on the Company’s business are uncertain;
the Company may not be able to collect all amounts due to it from reinsurers, reinsurance coverage may not be available to the Company in the future at commercially reasonable rates or at all and the Company is exposed to credit risk related to its structured settlements;
the Company is also exposed to credit risk in certain of its insurance operations and with respect to certain guarantee or indemnification arrangements that it has with third parties;
within the United States, the Company’s businesses are heavily regulated by the states in which it conducts business, including licensing, market conduct and financial supervision, and changes in regulation may reduce the Company’s profitability and limit its growth;
a downgrade in the Company’s claims-paying and financial strength ratings could adversely impact the Company’s business volumes, adversely impact the Company’s ability to access the capital markets and increase the Company’s borrowing costs;
the inability of the Company’s insurance subsidiaries to pay dividends to the Company’s holding company in sufficient amounts would harm the Company’s ability to meet its obligations, pay future shareholder dividends and/or make future share repurchases;
the Company’s efforts to develop new products, expand in targeted markets or improve business processes and workflows may not be successful and may create enhanced risks;
the Company may be adversely affected if its pricing and capital models provide materially different indications than actual results;
the Company’s business success and profitability depend, in part, on effective information technology systems and on continuing to develop and implement improvements in technology, particularly as its business processes become more digital;
if the Company experiences difficulties with technology, data and network security (including as a result of cyber attacks), outsourcing relationships, or cloud-based technology, the Company’s ability to conduct its business could be negatively impacted;
the Company is also subject to a number of additional risks associated with its business outside the United States, such as foreign currency exchange fluctuations (including with respect to the valuation of the Company's foreign investments

75

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS, Continued

and interests in joint ventures) and restrictive regulations as well as the risks and uncertainties associated with the United Kingdom's withdrawal from the European Union;
regulatory changes outside of the United States, including in Canada, the United Kingdom and the European Union, could adversely impact the Company’s results of operations and limit its growth;
loss of or significant restrictions on the use of particular types of underwriting criteria, such as credit scoring, or other data or methodologies, in the pricing and underwriting of the Company’s products could reduce the Company’s future profitability;
acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences;
the Company could be adversely affected if its controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective;
the Company’s businesses may be adversely affected if it is unable to hire and retain qualified employees;
intellectual property is important to the Company’s business, and the Company may be unable to protect and enforce its own intellectual property or the Company may be subject to claims for infringing the intellectual property of others;
changes in federal regulation could impose significant burdens on the Company and otherwise adversely impact the Company’s results;
changes in U.S. tax laws or in the tax laws of other jurisdictions where the Company operates could adversely impact the Company; and
the Company’s share repurchase plans depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.
 
The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and the Company undertakes no obligation to update forward-looking statements.  For a more detailed discussion of these factors, see the information under the captions “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report filed with the SEC and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the Company’s 2017 Annual Report as updated by the Company's periodic filings with the SEC.

WEBSITE AND SOCIAL MEDIA DISCLOSURE
 
The Company may use its website and/or social media outlets, such as Facebook and Twitter, as distribution channels of material company information.  Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at http://investor.travelers.com, its Facebook page at https://www.facebook.com/travelers and its Twitter account (@Travelers) at https://twitter.com/Travelers.  In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Notifications” section under the "For Investors" heading at http://investor.travelers.com.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
For the Company’s disclosures about market risk, please see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 2017 Annual Report filed with the SEC.  There have been no material changes to the Company’s disclosures about market risk in Part II—Item 7A of the Company’s 2017 Annual Report.

Item 4. CONTROLS AND PROCEDURES
 
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2018.  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2018, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

76

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

Item 4. CONTROLS AND PROCEDURES, Continued

 
In addition, there was no change in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company regularly seeks to identify, develop and implement improvements to its technology systems and business processes, some of which may affect its internal control over financial reporting. These changes may include such activities as implementing new, more efficient systems, updating existing systems or platforms, automating manual processes or utilizing technology developed by third parties.  These systems changes are often phased in over multiple periods in order to limit the implementation risk in any one period, and as each change is implemented the Company monitors its effectiveness as part of its internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.         LEGAL PROCEEDINGS
 
The information required with respect to this item can be found under “Contingencies” in note 14 of notes to the unaudited consolidated financial statements contained in this quarterly report and is incorporated by reference into this Item 1.

Item 1A.  RISK FACTORS
 
For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in the Company’s 2017 Annual Report filed with the SEC.  In addition, please see “Part I—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook” and “—Critical Accounting Estimates” herein and in the Company’s 2017 Annual Report.  There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 2017 Annual Report.

Item 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information regarding repurchases by the Company of its common stock during the periods indicated.

ISSUER PURCHASES OF EQUITY SECURITIES
 
Period Beginning
 
Period Ending
 
Total number of
shares
purchased
 
Average price paid
per share
 
Total number of
shares purchased
as part of
publicly announced
plans or programs
 
Approximate
dollar value of
shares that may
yet be purchased
under the
plans or programs
(in millions)
July 1, 2018
 
July 31, 2018
 
574,313

 
$
127.92

 
574,313

 
$
3,782

August 1, 2018
 
August 31, 2018
 
1,744,232

 
$
130.09

 
1,742,889

 
$
3,555

September 1, 2018
 
September 30, 2018
 
756,562

 
$
132.27

 
754,700

 
$
3,456

Total
 
 
 
3,075,107

 
$
130.22

 
3,071,902

 
$
3,456

 
The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise.  The authorizations do not have a stated expiration date.  The most recent authorization was approved by the Board of Directors in April 2017, adding an additional $5.0 billion of repurchase capacity to the $709 million capacity remaining at that date. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.
 
The Company acquired 3,205 shares for a total cost of $0.4 million during the three months ended September 30, 2018 that were not part of the publicly announced share repurchase authorization.  These shares consisted of shares retained to cover payroll

77

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the price of certain stock options that were exercised.

For additional information regarding the Company’s share repurchases, see “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Item 5.   OTHER INFORMATION
 
Executive Ownership and Sales. All of the Company’s executive officers are subject to the Company’s executive stock ownership policy. For a summary of this policy as currently in effect, see “Compensation Discussion and Analysis - Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions” in the Company’s proxy statement filed with the SEC on April 6, 2018. From time to time, some of the Company’s executives may determine that it is advisable to diversify their investments for personal financial planning reasons, or may seek liquidity for other reasons, and may, in compliance with the stock ownership policy, sell shares of common stock of the Company on the open market, in private transactions or to the Company. To effect such sales, from time to time, some of the Company’s executives may enter into trading plans designed to comply with the Company’s Securities Trading Policy and the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934. The trading plans will not reduce any of the executives’ ownership of the Company’s shares below the applicable executive stock ownership guidelines. The Company does not undertake any obligation to report Rule 10b5-1 plans that may be adopted by any employee or director of the Company in the future, or to report any modifications or termination of any publicly announced plan.

As of the date of this report, Alan D. Schnitzer, Chairman and Chief Executive Officer, was the only “named executive officer” (i.e. an executive officer named in the compensation disclosures in the Company’s most recent proxy statement filed) that has entered into a Rule 10b5-1 trading plan that remains in effect.  Under the Company’s stock ownership guidelines, Mr. Schnitzer has a target ownership level established as the lesser of 150,000 shares or the equivalent value of 500% of base salary (as such amount is calculated for purposes of the stock ownership guidelines). See “Compensation Discussion and Analysis - Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions” in the Company’s proxy statement filed with the SEC on April 6, 2018.


78

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

Item 6.   EXHIBITS
Exhibit Number
 
Description of Exhibit
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
12.1†
 
 
 
 
31.1†
 
 
 
 
31.2†
 
 
 
 
32.1†
 
 
 
 
32.2†
 
 
 
 
101.1†
 
The following financial information from The Travelers Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 formatted in XBRL: (i) Consolidated Statement of Income for the three months and nine months ended September 30, 2018 and 2017; (ii) Consolidated Statement of Comprehensive Income for the three months and nine months ended September 30, 2018 and 2017; (iii) Consolidated Balance Sheet at September 30, 2018 and December 31, 2017; (iv) Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2018 and 2017; (v) Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 and 2017; and (vi) Notes to Consolidated Financial Statements.
 _________________________________________________________
                          Filed herewith.
 
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries.  Therefore, the Company is not filing any instruments evidencing long-term debt.  However, the Company will furnish copies of any such instrument to the Securities and Exchange Commission upon request.
 
Copies of any of the exhibits referred to above will be furnished to security holders who make written request therefor to The Travelers Companies, Inc., 385 Washington Street, Saint Paul, MN 55102, Attention: Corporate Secretary.
 
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure except for the terms of the agreements or other documents themselves, and you should not rely on them for other than that purpose.  In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and do not apply in any other context or at any time other than the date they were made.

79

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, The Travelers Companies, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
THE TRAVELERS COMPANIES, INC.
 
 
(Registrant)
 
 
 
Date: October 18, 2018
By
/S/   CHRISTINE K. KALLA
 
 
Christine K. Kalla
Executive Vice President and General Counsel
(Authorized Signatory)
 
 
 
Date: October 18, 2018
By
/S/    DOUGLAS K. RUSSELL
 
 
Douglas K. Russell
Senior Vice President and Corporate Controller (Principal Accounting Officer)


80